Henderson and Commissioner of Taxation

[2005] AATA 606

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 606

ADMINISTRATIVE APPEALS TRIBUNAL               Nº VT2004/102—105

TAXATION       APPEALS       DIVISION

Re:                JOHN WILLIAM HENDERSON

(aka WILLIAM MARIJANCEVIC)

Applicant

And:                COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:       Mr B.H. Pascoe, Senior Member

Date:             27 June 2005

Place:            Melbourne

Decision:The Tribunal varies the decisions under review by allowing the objections lodged against income tax assessments for the years ended 30 June 1998, 30 June 2000, 30 June 2001 and 30 June 2002 to the following extent:

Year ended 30 June 1998 — taxable Income reduced to nil

Year ended 30 June 2000 — taxable Income reduced to $52,780

Year ended 30 June 2001 — taxable Income reduced to $34,731

Year ended 30 June 2002 — taxable Income reduced to $100,578

(sgd) B.H. Pascoe

Senior Member

INCOME TAX – default assessments – cash seized by police on arrest – inclusion of deposits to bank accounts in assessable income – source of funds – onus of proof

Income Tax Assessment Act 1936

Ma v Federal Commissioner of Taxation (1992) 27 ALD 601

REASONS FOR DECISION

27 June 2005  Mr B.H. Pascoe, Senior Member

1. These are applications for review of decisions of the respondent to disallow objections to assessments of income tax for the years ended 30 June 1998, 30 June 2000, 30 June 2001 and 30 June 2002. The applicant had not lodged income tax returns for these years and the assessments were issued pursuant to s 167 of the Income Tax Assessment Act 1936.

2. At the hearing the applicant, John William Henderson aka William Marijancevic, was represented by Mr M. Flynn of counsel and the respondent was represented by Mr M. Moshinsky of counsel.  The assessments were issued in the name of William Marijancevic and the objections and applications to this Tribunal were lodged by his legal representatives in that name.  However, it  is  clear that Mr Marijancevic changed  his name by deed poll in 1979 to John William Henderson.  Accordingly, it is appropriate to use that name in relation to these applications.

3. The origin of this matter were the events of 20 April 2002.  On that day Queensland police officers attended a room at a motel in Cairns in relation to an enquiry unrelated to Mr Henderson.  After interviewing a lady present in that room and finding evidence of drugs, the police then interviewed and searched three men who arrived by car and came to the room.  One of these was Mr Henderson.  A search of Mr Henderson and a bag belonging to him located in his car, produced drugs, cash totalling $5725 on his person and cash totalling $592,600 in the bag.  Mr Henderson was subsequently charged with possession of drugs and tainted property, namely the cash.  In the police interview Mr Henderson refused to divulge the source of the cash.  In subsequent court proceedings it was found that it was reasonable that $597,950 may be suspected of being tainted property pursuant to the Crimes (Confiscation) Act 1989 and Mr Henderson was guilty of the offence charged.  As a consequence of the arrest in Queensland, police in Victoria searched various premises said to be occupied or used by Mr Henderson. He was charged in March 2004 with a variety of offences, including possession of stolen goods, possession of firearms and possession of illegal drugs.  At the date of the hearing, Mr Henderson was held on remand awaiting trial.  He gave evidence at the hearing by way of video conference from Port Philip Prison.

4. As a result of the information obtained from the Queensland Police, the respondent commenced an investigation of Mr Henderson's affairs which resulted in the disputed assessments.  These assessments were based on the cash found in his possession in Cairns and various deposits to his bank accounts.  As a result of information provided in relation to certain deposits, the respondent allowed the objection in part and issued amended assessments.  A summary of the amounts involved is:

   Year            Original assessments        Reduction on         Amended taxable

   taxable income                   objection                income

   1998                  $229,781  $227,281  $    2,500

   2000  170,989  87,589  83,400

   2001  365,571  226,465  139,106

   2002  995,777  303,170  692,607

Prior to and during the hearing, the respondent conceded that certain deposits to bank accounts should not have been included as assessable income so that the final amounts in dispute were:

1998  Nil

2000  77,870

2001  97,563

2002  692,578

1. In summary, Mr Henderson's explanation of these amounts were:

   Year ended 30 June 2000

   Interest on funds belonging to his then wife                  $   1,678

   Loans from his mother and former wife for purchase                  

   of residence  66,100        77,778

   Year ended 30 June 2001

   Interest on former wife's funds  $   6,885

   Proceeds of Powerball win transferred from cash

   Management account  72,777

   Re‑banking of previous withdrawals  13,900        93,562

   Year ended 30 June 2002

   Proceeds of withdrawals from other accounts

   and from personal safe  $ 32,287

   Re‑banking of previous withdrawals  61,765

   Proceeds of sale of antique clock  8,500

   Interest  26

   Cash seized in Queensland being proceeds of sale

   of jewellery  592,000       694,578

2. In his evidence, Mr Henderson said that, some time between 1995 and 1997, his father handed him four items of jewellery consisting of a pair of earrings, a gold and diamond pendant, a diamond encrusted brooch and a gold and diamond bracelet.  He said that he was told by his father that the jewellery had been passed down through the family having been a gift from a member of the Russian nobility to a great grandfather.  He understood from his father that he was to hold the jewellery for the benefit of himself, two brothers and a sister.  He said that, while he understood that the jewellery was valuable, he had assumed a value of between $10,000 and $20,000.  Mr Henderson said that, after his father died in 2000, he met with his siblings and it was agreed that the jewellery should be sold and the proceeds invested.  He said that the jewellery had been kept in a bank safety deposit box of his former wife.  Mr Henderson said that he took the jewellery to a Mr T. Komianos in December 2001 who estimated the four pieces to be worth between $600,000 and $700,000 wholesale and in excess of $1 million retail.

3. Mr Henderson said that he investigated the purchase of property in Kuranda, Queensland in or about January 2002.  In February 2002 he and his then wife flew to Cairns and discussed the investment.  Mr Henderson said that, in or about late 2001, a man who he did not know telephoned him to say that he might be interested in purchasing the jewellery.  He recalled that the man's first name was Daniel, but apart from a general description, could not recall his other name or how he had heard of the jewellery.  Mr Henderson said that the man called at his house soon after and, after some bargaining, agreed to pay $620,000 for the jewellery.  Mr Henderson demanded cash and the man returned the next evening, 12 March 2002, with a fruit box filled with cash.  Mr Henderson said that he and his wife counted the cash and he gave the man a receipt.  He said that he wrote the man's name and telephone number on one of the $100 bills.  However, this bank note was lost when the money was confiscated by the police and banked.

4. Mr Henderson said that he flew to Cairns with the $620,000 in cash with the intention of showing it to a prospective vendor of a property and then to place the funds in a solicitor's trust account to finance the purchase.  He said that he visited a friend of his children at a motel in Cairns on 20 April 2002.  With two other men, he drove to purchase supplies and, on return, found police at the motel who conducted the search and seized the cash.  Mr Henderson maintained that the full $620,000 had been with him and suspected that police had misappropriated the difference between the amount said to have been seized and the $620,000.

5. Mr Henderson said that he operated four bank accounts during the relevant period together with his then wife and the bulk of the funds in those accounts belonged to his wife.  He maintained that his sole income during the period was a social security pension.  He said that he enjoyed gambling on horses and at the Casino, but significant amounts were not involved.  He said that his other interest was in collecting antiques, bric‑a‑brac and varying collectables and frequently attended auctions, markets and second hand dealers.  For that purpose, he would withdraw cash, transfer cash in and out of his personal safe and, on occasions, re‑bank unused withdrawals.  The only item identified by Mr Henderson as having been sold from his collection was an antique clock in August 2001.

6. Mr Henderson said that his former wife entered into a contract to purchase a house in Footscray in February 2000 with settlement on 12 May 2000.  He said that, during this period, funds were accumulated from the sale of personal items such as gold and loans from his mother.  He acknowledged that his mother did not approve of his wife and he had asked personally for the loans.  He said that his mother and father had divorced in the mid‑1960s and his mother had remarried.  Amounts were said to have been loaned in several sums of less than $10,000 as his mother did not wish to disclose the loans to her current husband.  Mr Henderson said that it was intended to repay the loans from the sale of another property, but his mother died in 2002 and no repayments were made.

7. Mr Henderson said that three deposits in January, February and June 2001 were transfers from a cash management account into which he had deposited winnings in a Powerball lottery.  A cheque butt showing payment of a prize of $62,832.25 on 20 July 2000 was tendered.  However, no name is shown on the cheque butt and the difference of $9,945 between that amount and the total alleged transfer of $72,777 is unlikely to represent interest for the period.

8. Mr Henderson acknowledged that he had a record of convictions for petty crime dating back to 1963 and had spent a substantial time in prison.  He believed that he had 56 convictions, involving 25 appearances in court, but maintained that the highest amount of money involved in any conviction was less than $10,000.  Mr Henderson said that, as a result of his regular interviews by police over many years, he had adopted the practice of not answering questions and had consciously not explained the source of the cash seized in Cairns.

9. Evidence was given by Mr Henderson's two brothers, Joseph Marijancevic and Frank Marijancevic.  Whilst there were differences in their evidence to that of Mr Henderson relating to the number and timing of family meetings, they both confirmed the existence and source of the jewellery, the decision that it should be sold and the intention to invest the proceeds for the joint benefit of the four siblings.  They accepted that the wording in their previously filed witness statements included words such as "trust" and "beneficiaries" which were not words that they would have used themselves normally.  They accepted that the witness statements of themselves and their sister, Ms Diane Murphy, were couched in very similar terms.  However, they maintained that the statements were prepared and settled by the solicitor based on their oral advice to the solicitor and contained the true essence of their evidence.  Joseph said that there was animosity between his sister and Mr Henderson and, although she had previously agreed to appear at the hearing to give evidence, she had not appeared at the Tribunal and could not be contacted.

10. Ms Penny Warwick, the former wife of Mr Henderson, gave evidence.  She said that they had separated in 2000 and divorced "a couple of years ago".  She continued to see Mr Henderson for a period, but deep animosity has developed in recent times as a result of difficulties she believed he had caused. Ms Warwick maintained that she had agreed to give evidence solely at the request of her daughter and would not have appeared for the benefit of Mr Henderson.  Ms Warwick confirmed the existence and source of the jewellery, the sale to a man who came to the house and her participation in counting $620,000 in cash.  She said that she accompanied Mr Henderson together with a daughter and granddaughter on a trip to Cairns in April 2002 and he had discussed the purchase of a business with a potential vendor in Kuranda.  She said that the mother of Mr Henderson had provided loans to purchase a residence in Footscray in 2000.  She believed that the loans totalled $70,000 to $80,000 and recalled one specific amount of $25,000.  Ms Warwick said that Mr Henderson was a regular attendee at auctions, purchased and sold items for cash and regularly retained sums of cash in a safe at his home.  She said that she recalled him winning some $60,000 to $70,000 in a Tattslotto draw.

11. Mr T. Komianos, a jeweller, gave evidence that a man, who he identified as Mr Henderson from a photograph produced to him, came to his premises in or about December 2001.  He said that the man produced four items of jewellery being a pair of large diamond earrings, a large diamond pendant, a brooch circled with a large number of diamonds and a bracelet full of diamonds in a circle.  Mr Komianos said that he cleaned the jewellery and, at the request of the man, valued it at approximately $60,000 at a wholesale price and over $1 million at a retail price.  He said that he had not met the man before or since that day.  Mr Komianos said that he recalled the incident because it was rare to see items of such quality.  He was of the opinion that the jewellery was of central European origin.

12. Mr M. Adams, a jeweller, gave evidence that he was working at the premises of Mr Komianos in or about December 2001.  He noticed Mr Komianos serving a man he had not seen before and examining some pieces of diamond jewellery.  In particular he noticed a diamond pendant and said that he recalled the incident because it was unusual to come across such a sizeable and valuable diamond pendant.  He recalled Mr Komianos telling the man that the jewellery was worth approximately $60,000 wholesale and over $1 million retail.

13. It is appropriate to deal with the largest item of alleged income first.  That is the amount of $592,000.  While the total amount of cash found in Mr Henderson's possession when arrested in Cairns was $598,325 and the Court found that it was reasonable to suspect that $597,950 was tainted property, it was $592,000 which was included as income by the respondent.  It should be noted that the finding of the Court was not that the money could be reasonably considered as proceeds of crime.  The finding was that it was reasonable to suspect that money was tainted properly which, under the Act, includes property "used or intended to be used by a person in or in connection with the commission of a serious offence".  A study of the judgment of White J in the District court of Queensland demonstrates that the allegation was that Mr Henderson likely intended to use the money in the purchase of illegal drugs.

14. There is a reasonable degree of implausibility in the stated circumstances of the alleged sale of the jewellery.  The suggestion of being approached by a complete stranger who was somehow aware of the jewellery for sale, who produced $620,000 in cash and whose identity remains unknown is difficult to accept.  A degree of conflict in the evidence of Mr Henderson's and his siblings' evidence as to when meetings were held and how many meetings were held may or may not be explicable by the passage of time.  Nevertheless, there is consistency in the evidence of the existence and source of the jewellery and strong supporting evidence from unrelated jewellers as to the existence and value of the jewellery.  Mr Henderson's brother Frank was very strong in stating that he was the only family member who disapproved the sale of the jewellery on the grounds that it was an important and priceless family heirloom.  His former wife, Ms Warwick, who clearly retains considerable animosity to Mr Henderson, was firm in her evidence as to the existence and sale of the jewellery for $620,000.  It would appear that her knowledge of the source of the jewellery was, primarily, from her former husband.

15. It is clear that the taxpayer has the onus in these proceedings of proving, on the balance of probabilities, that an assessment is excessive.  There is no requirement on the respondent to demonstrate an income source of funds possessed by a taxpayer.  Nevertheless, as said by Burchett J in Ma v Federal Commissioner of Taxation (1992) 27 ALD 601 (at 605):

    …if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reasons is shown why he is to be disbelieved.  Any other view would introduce a degree of arbitrariness into liability for tax.  

In this case, I am prepared to accept that Mr Henderson was in possession of valuable jewellery which he disposed of for $620,000 and it was this cash or part of it which he was carrying when arrested in April 2002.  It may be said to have been possible that the jewellery was not handed down through his family, but was stolen property, given Mr Henderson's accepted long history of larceny, and the evidence of his family members should be treated with caution.  However, having heard the direct testimony of those family members, I am, on balance, prepared to believe the evidence of the existence, source and sale of the jewellery.  It was put by Mr Flynn that, even if the cash seized represented proceeds of crime committed, those proceeds are not income.  Given my acceptance of the evidence, it is unnecessary to make a finding either way in relation to that argument.  Consequently, I find that the amount of $592,000 was not assessable income of the year ended 30 June 2002.

1. In relation to the remaining issues, I am satisfied that Mr Henderson has not discharged the onus of proof in relation to the deposits to his bank accounts included as assessable income other than two matters which I will address later.  I have little doubt that Mr Henderson had funds available for his use in excess of the social security pension which he received.  Whether such funds arose from a business of theft and receipt of stolen goods and/or the trading in antiques and collectables is not relevant to find given the onus provisions of the Taxation Administration Act 1953.  There is no corroborating evidence to support the allegations by Mr Henderson of funds deposited, being re‑banking of previous withdrawals or withdrawals from other accounts.  It has been said in other cases that a taxpayer cannot avoid inclusion of amounts as assessable income by the simple failure to keep records.  Something more than a statement that deposits were likely to have been the re‑banking of earlier withdrawals is needed.

2. The two matters referred to in the previous paragraph are those where there is some corroborative evidence.  The first is the alleged loans from Mr Henderson's mother in the year ended 30 June 2000.  One such alleged loan of $25,000 on 18 April 2000 is supported by a record of a Bank of Melbourne bank cheque, purchased by Mr D. Mojcee (his mother's name), payable to Bendigo Bank and a deposit on the same day of a Bank of Melbourne cheque for the same amount to a Bendigo Bank account of Mr Henderson.  I am prepared to accept that this amount did come from the source alleged and should not have been included as assessable income.  The balance of alleged loans from the applicant's mother and his former wife of $41,100 are not supported by any evidence other than Ms Warwick's vague recollection of $70,000 to $80,000 from Mr Henderson's mother compared with his calculation of $59,650 from his mother.  Consequently, I am not prepared to accept that the onus of proof has been adequately discharged in relation to the balance of alleged loans.  It is acknowledged that Mr Henderson's mother is deceased and he faces a difficult task to provide evidence.  However, there was no apparent attempt at repayment of such alleged loans nor any documentation which might be expected to exist.

1. The other matter is the alleged source of funds being $62,832.25 from a win in Powerball lottery.  While the supporting evidence does not specify Mr Henderson as the winner of this amount, his version is supported by his former wife and I am prepared to accept that such amount was not assessable income.  The difference between that amount and the amounts deposited in his bank account of $9945 would, in part, represent assessable interest with the balance unexplained.

2. The result of the foregoing is that the objection decisions under should be varied to the following extent:

   Year ended 30 June 1998

   Taxable income per decision and amended assessment     $  2,500

   less amount conceded by the respondent to be excluded      2,500
     ____

   nil

   Year ended 30 June 2000

   Taxable income per decision and amended assessment $  83,400

   less amount conceded by the respondent to be excluded       5,620
     ______

   77,780

   less loan from mother excluded from assessable income     25,000
     ______

   Taxable Income  $52,780

   ______

   Year ended 30 June 2001

   Taxable income per decision and amended assessment $139,106

   less amount conceded by the respondent to be excluded     41,543
     ______

   97,563

   less winnings from Powerball lottery  62,832
     _______

   Taxable Income  $34,731

   ______

   Year ended 30 June 2002

   Taxable income per decision and amended assessment $692,607

   less amount conceded by the respondent to be excluded            29
     _______

   692,578

   less cash seized by police in Cairns  592,000
     _______

   Taxable Income  $100,578

   _______

The relevant assessments included penalties for late lodgement for the year ended 30 June 2000.  No submissions were made in relation to such penalties.  At the taxable income for the year is reduced by this decision, the relevant penalty should be reduced accordingly.

I certify that the twenty‑three [23] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr B.H. Pascoe, Senior Member

signed:     Olympia Sarrinikolaou

Clerk

Dates of Hearing:  12‑13 April 2005

15 April 2005

Date of Decision:  27 June 2005
Counsel for the applicant:            Mr M. Flynn
Solicitor for the applicant:            Ferraro Pruscino & Co

Counsel for the respondent:         Mr M. Moshinsky

Solicitor for the respondent:        Australian Government Solicitor