HNQH and Commissioner of Taxation (Taxation)
[2023] AATA 980
•28 April 2023
HNQH and Commissioner of Taxation (Taxation) [2023] AATA 980 (28 April 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2017/0757
2017/0758
2017/0759
2017/0760
Re:HNQH
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Boyle
Date:28 April 2023
Place:Perth
Application 2017/0757
The objection decision in relation to the year ended 30 June 2011 is varied to allow the objection to the default assessment in the amount of $200 and to adjust the penalty and penalty interest accordingly.
Application 2017/0758
The objection decision in relation to the year ended 30 June 2012 is varied to allow the objection to the default assessment in the amount of $177 and to adjust the penalty and penalty interest accordingly.
Application 2017/0759
The objection decision is affirmed.
Application 2017/0760
The objection decision is affirmed.
...[Sgd]..................................................................
Deputy President Boyle
CATCHWORDS
TAXATION – applications for review of objection decisions – whether income tax assessments issued under s 167 of ITAA 1936 were excessive or otherwise incorrect – applicant failed to discharge onus of proof pursuant to s 14ZZK of TAA 1953 – applicant failure to keep adequate records s 262A of ITAA 1936 –– objection to penalty assessments – whether penalty assessments issued pursuant to ss 284-75 of TAA 1936 were incorrect or excessive – whether any basis for penalties to be remitted pursuant to ss 298-20 of TAA 1936 – Applicant’s circumstances not appropriate to remit any part of penalties - concession by Respondent 2011 and 2012 reviewable decisions varied – 2013 and 2014 decisions affirmed
LEGISLATION
TAXATION ADMINISTRATION ACT 1953 (CTH) – SS 14ZZ(1)(A)(I), 14ZZE, 14ZZJ(2D), 14ZZK, 14ZZK(A), 14ZZK(B)(I), 275-80, 284-090(1), 284-220, 284-220(1)(A), 298-20
Income Tax Assessment Act 1936 (Cth) – ss 6-5(1)166, 167, 170, 262A
CASES
BOSANAC V COMMISSIONER OF TAXATION [2018] FCA 946
BOSANAC AND FEDERAL COMMISSIONER OF TAXATION [2019] AATA 2140
BOSANAC V COMMISSIONER OF TAXATION [2019] FCAFC 116
BYRNE V AUSTRALIAN AIRLINES LTD (1995) 185 CLR 410
COMMISSIONER OF TAXATION V ROSS [2021] FCA 766
COMMISSIONER OF TAXATION V STONE (2005) 222 CLR 289
COMMISSIONER OF TAXATION V TRAUTWEIN (1936) 56 CLR 63
DRANICHNIKOV AND MINISTER FOR IMMIGRATION AND MULTICULTURAL AND INDIGENOUS AFFAIRS [2003] HCA 26; 197 ALR 89
FEDERAL COMMISSIONER OF TAXATION V DALCO (1990) 168 CLR 614; 90 ALR 341
FEDERAL COMMISSIONER OF TAXATION V MONTGOMERY (1999) 198 CLR 639
GASHI V COMMISSIONER OF TAXATION (2013) 209 FCR 301; 296 ALR 497; [2013] FCAFC 30
GAUCI & ORS V FCT (1975) 135 CLR 81
GEORGE V FEDERAL COMMISSIONER OF TAXATION (1952) 86 CLR 183 AT 204; [1952] ALR 961
GRAHAM DOCKER & ASSOCIATES PTY LTD V FEDERAL COMMISSIONER OF TAXATION (2005) 61 ATR 1077; [2005] AATA 1180
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148; [1991] FCA 276
MCCORMACK V FEDERAL COMMISSIONER OF TAXATION [1979] HCA 18; (1978-9) 143 CLR 284
NGZF V COMMISSIONER OF TAXATION [2019] AATA 5410
PASCOE V FEDERAL COMMISSIONER OF TAXATION (1956) 11 ATD 108
RIGOLI V COMMISSIONER OF TAXATION (2014) 141 ALD 529; [2014] FCAFC 29
RE MINISTER FOR IMMIGRATION AND MULTICULTURAL AND INDIGENOUS AFFAIRS; EX PARTE LAM (2013) 214 CLR 1
SPASSKED PTY LTD V FEDERAL COMMISSIONER OF TAXATION (NO 5) (2003) 52 ATR 337; [2003] FCA 84
SANCTUARY LAKES PTY LTD V COMMISSIONER OF TAXATION (2013) 212 FCR 483; [2013] FCAFC 50)
TRAUTWEIN V FEDERAL COMMISSIONER OF TAXATION [1936] HCA 77; (1936) 56 CLR 63; [1936] HCA 77; [1936] ALR 425
SECONDARY MATERIALS
COMMISSIONER OF TAXATION, LAW ADMINISTRATION PRACTICE STATEMENT PS LA 2006/8
(1 AUGUST 2006)COMMISSIONER OF TAXATION, MISCELLANEOUS TAXATION RULING 2008/1 PENALTY RELATING TO STATEMENTS: MEANING OF REASONABLE CARE, RECKLESSNESS, AND INTENTIONAL DISREGARD
(12 NOVEMBER 2008)Robin Woellner and Julie Zetler , “Satisfying The Taxpayer’s Burden Of Proof In Challenging A Default Assessment – The Modern Labours Of Sisyphus?” [2014] Journal of The Australasian Law Teachers Association 11
REASONS FOR DECISION
Deputy President Boyle
28 April 2023
THE APPLICATIONS
The Applicant has made four applications by which he seeks the review of objection decisions made by the Respondent.[1] The hearing of these applications was, at the request of the Applicant under s 14ZZE of the Taxation Administration Act 1953 (Cth) (TAA), held in private. Pursuant to s 14ZZJ(2D) of the TAA, the Tribunal is required to ensure that, as far as practicable, the reasons for decision are framed so as not to be likely to enable the identification of the Applicant. I have, accordingly, given the Applicant a pseudonym and, as far as is practicable, avoided the inclusion of information which would readily identify the Applicant. For this reason, some of the company and trust names cited in this decision are also anonymised.
[1]Application 2017/0757 – objection decision relating to year ended 30 June 2011; Application 2017/0758 - objection decision relating to year ended 30 June 2012; Application 2017/0759 – objection decision relating to year ended 30 June 2013 and Application 2017/0760 – objection decision relating to year ended 30 June 2014.
The applications are for reviews under Part IVC of TAA of the following:
(a)amended assessments of income tax issued to the Applicant for each of the years ended 30 June 2011, 30 June 2012, 30 June 2013; and
(b)an assessment of income tax issued to the applicant for the year ended 30 June 2014.
BACKGROUND
The following facts are taken from paras 3-27 of the Respondent’s outline of submissions dated 4 November 2021. In opening the Applicant’s case on 9 November 2021, the Applicant’s counsel, Ms Lyford, advised that the Applicant agreed the factual matrix set out in those paragraphs.[2]
[2]Transcript of 09/11/21 at p 2.
The Applicant is an Australian resident who, from about 2009, was the operations manager of T Nominees Pty Ltd, which operated a business producing tomatoes for wholesale to retail businesses, including large supermarkets.
T Nominees was a company started by the Applicant’s father.
At all material times, the Applicant was:
(a)a shareholder of T Nominees, and a director of that company from 2 July 2002 until 26 September 2014;
(b)a shareholder of W Pty Ltd, and the sole director of that company from 14 January 2011;
(c)a shareholder of M Pty Ltd, and the sole director of that company from 17 June 2011;
(d)a shareholder of CL Pty Ltd, and the sole director of that company from 23 June 2003; and
(e)the trustee of the Family Trust, and a beneficiary of that trust.
Income tax returns and audit
On 19 August 2011, the Applicant lodged an income tax return for the year ended 30 June 2011 disclosing a taxable income of $16,630.[3]
[3]Respondent’s T Documents filed 8 May 2017 (R2); R2/49
On 1 September 2011, the Respondent issued a notice of income tax assessment to the Applicant for the year ended 30 June 2011, in accordance with the income tax return lodged by the Applicant.[4]
[4]R2/52-3.
On 21 December 2012, the Applicant lodged an amended income tax return for the year ended 30 June 2011 in which he claimed a deduction for a loss of $21,143 relating to a rental property in Newcastle Street, Perth.[5]
[5]R2/56.
On 6 May 2015, the Applicant was notified that the Respondent intended to undertake an audit of his tax affairs for the period 1 July 2010 to 30 June 2014.[6]
[6]R2/134.
On 17 November 2015, an income tax return and accompanying rental property schedule were lodged on behalf of the Family Trust for the year ended 30 June 2011. The rental property schedule included a claim for a rental loss of $16,595 relating to a property in Newcastle Street, Perth.
On 2 March 2016, the Applicant lodged an income tax return for the year ended 30 June 2012 that claimed a loss of $37,341.[7]
[7]R2/64.
On 4 March 2016, the Applicant lodged income tax returns for the years ended 30 June 2013[8] and 30 June 2014[9] that disclosed taxable income of $38,142 and $18,925 respectively.
[8]R2/74.
[9]R2/82.
On 20 April 2016, the Respondent advised the Applicant that he had completed his audit of the Applicant’s affairs[10] and issued the Applicant with Reasons for Decision.[11]
[10]R2/123-4.
[11]R2/125-282.
On 18 May 2016, the Respondent issued the Applicant with an amended assessment of income tax for the year ended 30 June 2011, in which the Respondent amended the Applicant’s income to $276,748, assessed the Applicant to income tax in the amount of $98,086.60 and imposed a shortfall interest charge of $27,539.13.[12]
[12]R2/283.
On 18 May 2016, the Respondent issued the Applicant with a notice of assessment of penalty for the year ended 30 June 2011, in the amount of $76,607.45.[13]
[13]R2/287.
On 1 June 2016, the Respondent issued the Applicant with an amended assessment of income tax for the year ended 30 June 2012, in which he amended the Applicant’s income to $354,947, assessed the Applicant to income tax in the amount of $133,276.15 and imposed a shortfall interest charge of $29,919.92.[14]
[14]R2/293.
On 1 June 2016, the Respondent issued the Applicant with a notice of assessment of penalty for the year ended 30 June 2012, in the amount of $127,259.40.[15]
[15]R2/297.
On 1 June 2016, the Respondent issued the Applicant with an amended assessment of income tax for the year ended 30 June 2013, in which he amended the Applicant’s income to $536,568, assessed the Applicant to income tax in the amount of $215,002.60 and imposed a shortfall interest charge of $30,960.80.[16]
[16]R2/301.
On 1 June 2016, the Respondent issued the Applicant with a notice of assessment of penalty for the year ended 30 June 2013, in the amount of $197,067.30.[17]
[17]R2/305.
On 1 June 2016, the Respondent issued the Applicant with an amended assessment of income tax for the year ended 30 June 2014, in which he amended the Applicant’s income to $363,453, assessed the Applicant to income tax in the amount of $137,100.85 and imposed a shortfall interest charge of $11,242.13.[18]
[18]R2/309.
On 1 June 2016, the Respondent issued the Applicant with a notice of assessment of penalty for the year ended 30 June 2014, in the amount of $128,297.35.[19]
[19]R2/313.
Objections
On 8 August 2016, the Applicant lodged objections to each of the income tax assessments and the penalty assessments for the years ended 30 June 2011 to 2014.[20]
[20]R2/315-30.
On 19 December 2016, the Respondent notified the Applicant that he had disallowed the objections in full (the objection decisions)[21] and provided reasons for the objection decisions.[22]
[21]R2/T39.
[22]R2/9-37.
On 10 February 2017, the Applicant lodged applications for review of the objection decisions in the Tribunal.[23]
[23]R2/1-2.
By his Further amended Statement of Facts, Issues and Contentions (Respondent’s SFIC),[24] the Respondent made concessions in respect to the years ended 30 June 2011 and 30 June 2012. The Respondent conceded that the Applicant’s taxable income should be reduced from that which was assessed in the amended assessment for the year ended 30 June 2011 by $200 and for the year ended 30 June 2012 by $177.[25]
[24]R1.
[25]R1 paras 24 and 24A.
THE ISSUES FOR DETERMINATION
Paragraphs 1 to 5 of the Applicant’s Statement of Facts, Issues and Contentions (Applicant’s SFIC) dated 6 October 2017 identified what the Applicant, at that time, considered to be the issues for determination in these applications. The Applicant’s SFIC identified a number of issues relating to the manner in which the Respondent had undertaken the audit of the Applicant’s taxation affairs and the information on which the Respondent had relied in issuing the assessments. Those are not matters to be reviewed by the Tribunal. At [96] of his outline of submissions dated 22 October 2021, the Applicant conceded that the Respondent’s conduct was not relevant to the applications for review.
The jurisdiction of the Tribunal is to review the objection decisions.[26] The objection decisions disallowed in total the objections lodged in respect of the assessments and the penalty assessments issued by the Respondent for the each of the years ended 30 June 2011 to 30 June 2014. The role of the Tribunal is to review the objections made by the Applicant to the assessments issued by the Respondent and, on the basis of the evidence before the Tribunal, reach what it considers to be the correct or preferable decisions on those objections.[27]
[26]s 14ZZ(1)(a)(i)) of the TAA.
[27]s 14ZZK(a) of TAA.
The Respondent’s SFIC identified the issues for determination as being whether the amended assessments issued to the Applicant for the years ended 30 June 2011, 30 June 2012 and 30 June 2013, and the assessment issued for the year ended 30 June 2014, were excessive and whether the assessments of shortfall penalty made on 1 June 2016 in relation to the above income tax assessments are excessive or should be remitted in whole or in part.
The ultimate issues for determination by the Tribunal are dictated by s 14ZZK of the TAA, in particular subsection (b)(i) which provides that the Applicant has the burden of proving that:
If the taxation decision concerned is an assessment – that the assessment is excessive or otherwise incorrect and what that assessment should have been.
By the time that the Applicant lodged his outline of submissions dated 22 October 2021 (A2), the Applicant had changed his description of the matters to be determined in these applications to align with the Respondent’s description of the issues for final determination as set out in [29] above. I find that the issues for determination in these proceedings are:
(a)Whether the Applicant has proved that the assessments issued by the Respondent pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA36) for each of the years ended 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014 were excessive or otherwise incorrect, and whether the Applicant has proved what his taxable income in each of those years was;
(b)Whether the penalty assessments issued by the Respondent in respect of each of those above years were excessive, which requires determination of:
(i)the basis for the application of the penalty and whether the penalty assessment is excessive; and
(ii)what the penalty assessment should have been in respect of each year; and
(c)Whether any of the penalties should be remitted.
RELEVANT LEGISLATION
Section 166 of ITAA36 is as follows:
Assessment
From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:
(a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and
(b) the amount of the tax payable thereon (or that no tax is payable); and
(c) the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).
Section 167 of ITAA36 is as follows:
Default assessment
If:
(a) any person makes default in furnishing a return; or
(b) the Commissioner is not satisfied with the return furnished by any person; or
(c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
Section 170 of the ITAA36 empowers the Respondent to amend an assessment and prescribes the time in which an assessment can be amended. Relevantly, item 1 of s 170 of the ITAA36 allows the Respondent to amend an assessment of an individual within two years after the day on which the Respondent gives notice of the assessment to the individual and item 5 allows the Respondent to amend an assessment at any time if the Respondent is of the opinion there has been fraud or evasion.
Section 6-5(1) of the Income Tax assessment Act 1997 (Cth) (ITAA97) is as follows:
Income according to ordinary concepts (ordinary income)
(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.
(Original emphasis.)
Section 14ZZK of the TAA is as follows:
Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii) in any other case—that the taxation decision concerned should not have been made or should have been made differently.
Section 284-75 of Schedule 1 to the TAA relevantly provides as follows:
Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
...
(5) You are not liable to an administrative penalty under subsection (1) ... for a statement that is false or misleading in a material particular if you, ... took reasonable care in connection with the making of the statement.
(Original emphasis.)
Section 284-90 of Schedule 1 to the TAA relevantly provides:
Base penalty amount
(1) The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:
Base penalty amount
Item
In this situation:
The base penalty amount is:
1
You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a *taxation law (other than the *Excise Acts) by you or your agent
75% of your *shortfall amount or part
2
You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts)
50% of your *shortfall amount or part
3
You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts)
25% of your *shortfall amount or part
Section 284-220 of sch 1 to the TAA provides for the base penalty to be increased by 20 per cent in certain circumstances. Section 284-220(1)(a) identifies one of those circumstances (in which the base penalty can be increased by 20 per cent) as the taxpayer taking steps to prevent or obstruct the Respondent from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the shortfall amount was calculated.
THE HEARING AND THE EVIDENCE
The four applications were dealt with and heard together. The applications were heard on 9 November 2021. Ms C Lyford appeared for the Applicant and Ms C Thompson appeared for the Respondent. The Applicant was the only witness who gave evidence at the hearing. The following documents were admitted into evidence:
(a)Applicant's Statement of Facts, Issues and Contentions dated 6 October 2017, attaching Applicant's financial analysis (A1);
(b)Applicant's Outline of Submissions dated 22 October 2021 (A2);
(c)Supplementary witness statement of the Applicant signed 11 June 2021 with Annexures F-A; F 6-1 to F 11-5 (A3);
(d)Witness Statement of the Applicant dated 10 May 2021 (A4);
(e)lease documents relating to Anketell Road (A5);
(f)Respondent's further amended Statement of Facts, Issues and Contentions dated 2 July 2021 (R1);
(g)Section 37 T-Documents consisting of three volumes, comprising T1-T122 (R2);
(h)Respondent's Outline of Submissions dated 5 November 2021 (R3); and
(i)Letter from Respondent to the Applicant's Solicitor dated 11 February 2021 (R4).
Applicant’s application for exclusion of evidence/re-hearing
At the conclusion of the hearing on 9 November 2021, I made directions for the parties to file written closing submissions. However, prior to the provision of the closing submissions, by letter dated 11 November 2021 from the Applicant’s solicitors, the Applicant made what was described in that letter as “a request for a re-hearing of the matter”. An affidavit sworn by the Applicant on 11 November 2021 was lodged with the letter.
The Applicant’s affidavit of 11 November 2021 was to the effect that during the luncheon adjournment on the day of the hearing, while the Applicant was still under cross-examination, Ms Thompson had said to the Applicant that her husband “knows” the Applicant’s father. The Applicant said that he asked Ms Thompson who her husband was and was advised by Ms Thompson that he was a doctor who had treated the Applicant’s father. The Applicant said that he knew Ms Thompson’s husband who had treated the Applicant’s father in the months leading up to his father’s death. Ms Thompson’s husband had travelled to Vietnam with the Applicant’s father to confer with the Applicant’s father’s treating physician in Vietnam.
On the resumption of the hearing after the luncheon adjournment, Ms Thompson continued with her cross-examination of the Applicant. The Applicant claimed in his affidavit that following his interaction with Ms Thompson during the luncheon adjournment he had “become fixated with this father’s death”, particularly given that the subject of the cross-examination was the business that his father had established. He said that during the afternoon cross-examination he was “very distracted and emotional”, could not concentrate on the questions being put to him and that he “felt anxiety and distrust following the said interaction with Ms Thompson”. He said that he “had to ask for a break to attempt to re-collect [his] thoughts and recompose [him]self”. He also said that another reason for seeking the break was that he was uncomfortable sitting for an extended period because of a car accident that he had had in 2017.
The Applicant further claimed that because of Ms Thompson’s potentially intimate knowledge of his family’s affairs, he had feelings of distrust and that he was not getting a fair trial. The Applicant said that he sought “the ability to have the same questions put to [him] again so that [he] could answer them in a non-emotional state”.[28] If that request were to be denied, the Applicant wished the Tribunal to consider the matters raised in his affidavit when considering the answers that he gave in cross-examination after lunch.[29]
[28]Applicant’s affidavit of 11 November 2021, para 25.
[29]Applicant’s affidavit of 11 November 2021, para 26.
Ms Thompson provided an affidavit in response to the Applicant’s affidavit on 18 November 2021. Ms Thompson’s account of her conversation with the Applicant was materially the same as that of the Applicant as set out in [42] above. Ms Thompson, however, said that at the conclusion of the conversation, which she said took less than a minute,:
[The Applicant] then stood up put out his hand and said “Let me shake your hand personally”. I recall his exact words. He shook my hand firmly and in a friendly fashion. He had a big smile on his face.
On 5 January 2022, the Applicant filed written submissions headed “Applicant’s Submissions in Support of Application to Exclude Evidence and for Re-hearing”.
The Applicant identified the orders that he sought as being:
(1)That the oral evidence of the Applicant at the hearing on 9 November 2021 be disregarded in full;
(2)In the alternative, that the portion of the Applicant’s oral evidence after the luncheon adjournment be disregarded; and
(3)The matter be listed for the purpose of cross-examination of the Applicant.
The Applicant’s submissions identified the issues to be:[30]
(i)whether, by reason of the interaction between the Applicant and Ms Thompson, the Applicant’s right to a fair hearing had been infringed; and
(ii)whether the infringement of the Applicant’s right to a fair trial ought to be remedied by a full or partial re-hearing of the application.
[30]Applicant’s affidavit of 11 November 2021, para 16.
On 19 January 2022, the Respondent filed submissions opposing the Applicant’s request for a rehearing. A significant portion of the Respondent’s submissions purported to address whether I should disqualify myself.[31] Paragraph 1 of the Respondent’s submissions described the Applicant’s application as “…requesting that Deputy President Boyle disqualify himself from determining or further presiding over the applicant’s substantive review application”. That is not the case. The Applicant at no time sought my disqualification from determining the substantive application or from further involvement in the matter.
On the contrary, the directions sought by the Applicant (see [46] above) and the submissions made by the Applicant were on the basis that I would continue to be constituted to and would determine the matters. The application was, as described by the heading to the submissions filed by the Applicant on 5 January 2022, an application “…to Exclude Evidence and for Re-hearing” (see [46] above).
[31]Respondent’s Submission of 19 January 2022 in reply to Applicant’s Affidavit, paras 1, 20-23, 26 and 29.
Insofar as the Respondent’s submissions of 19 January 2022 addressed the Applicant’s application as made, the Respondent submissions were to the following effect:
(a)The Applicant only stated in the broadest terms that he felt disadvantaged.
(b)The questions put to the Applicant in cross-examination after lunch were limited to issues in the substantive application and the line of questioning was the same as the cross-examination before the interaction with Ms Thompson during the luncheon break.
(c)The Applicant’s counsel did not re-examine the Applicant.
The Applicant’s application for exclusion of evidence or a re-hearing was heard on 1 March 2022. Mr S Shepherd of counsel appeared for the Applicant and Ms E Luck of counsel appeared for the Respondent.
After some discussion with Mr Shepherd about the nature of and basis for the Applicant’s request, the following exchange occurred:[32]
TRIBUNAL: … in relation to the concern [of being] distracted, I understood the applicant's case to be that he didn't answer questions as he would otherwise have answered them but for the conversation with Ms Thompson. That's as I understood the application that is currently before this tribunal.
MR SHEPHERD: Yes.
TRIBUNAL: Okay. Well, one of the problems I have, and I thought I made this reasonably clear in the directions hearing, there is absolutely no evidence before the tribunal as to how HNQH would have answered any of the questions any differently. He doesn't go on oath, doesn't even refer to in any of the submissions well, here is an answer that I would have given differently. Now, I assume that you have read the transcript of the hearing.
Can you point to any question that was asked by Ms Thompson after lunch in relation to [which] HNQH says he would have given a different answer, perhaps a more fulsome answer or a more adequate answer?
[32]Transcript 01/03/2021 at p 6.
Mr Shepherd’s response was that he could not point to any question asked by Ms Thompson that the Applicant would have answered any differently. The Applicant’s affidavit of 11 November 2021 did not identify any answer given in the cross-examination after lunch which the Applicant would answer any differently. As I advised Mr Shepherd, I had reviewed the transcript of the hearing and there is no discernible difference in the answers provided by the Applicant after the luncheon adjournment to those provided to the same form of questions before the luncheon adjournment.
In considering whether the Applicant’s evidence should be disregarded, or the Applicant should be given the opportunity to answer the questions again, it is relevant to consider the nature of the questions put to the Applicant after the luncheon adjournment and his answers (see [77]-[78] below). I summarised the nature of the questions at the hearing on 1 March 2022 as follows:[33]
TRIBUNAL: … This is an application which says that basically somehow the cross-examination in the afternoon should either be ignored or somehow occur in some vacuum and HNQH be able to answer differently. The cross-examination in the afternoon starts at page 62 of the transcript. There are simply questions, the answer to which 90 per cent of the questions, because of the nature of the questions, were simply HNQH saying yes. Things like; were there loan agreements in place in respect of the moneys that HNQH says were advanced which were not income but were by way of loans, and this exactly the same format that was followed in the morning, and the answers were exactly the same with HNQH confirming, which is the case, that there was no loan agreement in respect of that money.
That goes on through page 60s [sic], and then there are references to the claim for costs of servicing a couple of vehicles, and these followed exactly the same format where it was pointed out that notwithstanding specific mileage was claimed, there were no logbooks. Now, HNQH had agreed in the morning that there were no logbooks and Ms Thompson had actually confirmed that amongst the documents seized by the AFP could have been logbooks, but it was agreed by HNQH, as it was in the morning, that in respect of these - because these were just for different financial years. It was the same questions basically in relation to each of the financial years. HNQH agreed that although there was a kilometre basis of claim made by his accountant on his behalf in those tax returns, there was no logbook, either for the Mercedes or the BMW. Ms Thompson then just reaffirms, as she said this morning, in fairness the logbooks were seized by the police so there is no way of checking that but HNQH agreed with that.
He was then taken to the tax return for the relevant year, asked whether or not there were any changes to the tax return as lodged and HNQH confirmed - it was really just taking him through the evidence which speaks for itself. Presumably because at some point the respondent is going to make submissions, and going to make submissions basically in relation to holes in the documentary evidence and also holes in the evidence of HNQH's affidavits. I still cannot find any answer to any of these questions that - and I'm up to about page 75 now - that would have been any different.
Page 70 is "I just want to ask you about one thing". So, if we turn over to page 454, there is reference to HNQH nominees or [T] Nominees identified as loans. He was just taken through the MYOB accounts and line items pointed out and he was saying yes, yes, it does say that. Yes, it does say that. So, how would his answers have been any different?
[33]Transcript 01/03/2022 at 7-8.
I have again gone over the transcript of the Applicant’s evidence before and after lunch and am satisfied that my above summary is correct.
I then discussed with Mr Shepherd the circumstances of the Applicant requesting a short break in the hearing after lunch, which the Applicant claimed was so that he could “re-collect [his] thoughts and recompose [him]self” (see [43] above). At the hearing on 1 March 2022, I summarised my recollection of the Applicant’s request and what the transcript disclosed as follows:[34]
TRIBUNAL: …So the cross-examination resumed at 2.16 after lunch and went till 3.24, at which time there was, at HNQH's request, …- and the transcript bears this out, HNQH did not mention when he sought the five minute adjournment, he did not mention that he was suffering any psychological angst, and I can take you to - again I assume that you haven't read the exchange that took place, which is not quoted the same as HNQH recounts in his affidavit, but at one point when being asked a question HNQH said, "I'd like to make - can I ask a question?" And I said, "Well, your counsel will be able to re-examine". HNQH said, "No, no, this is about personal - I was involved in a car crash collision in 2017". I said, "Yes". He said, HNQH, "I am still funded by ICWA Insurance Commission of WA. I still have a chiro two days a week. I can't sit down this long. I've got to get up and have a break". And I said, "Yes, that's fine". He then said, "I can bring evidence of the doctor's report and all that stuff, yes". And I said, "No, no need", and I said, "I too have a back problem. I'm happy to have a break for 10 minutes", and I said, "We'll have a break for 10 minutes. Will that be long enough for you?", and HNQH responded, "Five minutes is enough, yes, just walk around"
[34]Transcript 01/03/2022 at 9.
Cross-examination of the Applicant continued after the short break for approximately one minute.[35] The only question asked of the Applicant in that one minute was whether he recalled receiving a letter dated 11 February 2021 from the Respondent’s solicitors.
The Applicant stated he recalled receiving the letter which was then tendered and admitted into evidence as exhibit R4.[36]
[35]Transcript 01/03/2022 shows cross-examination resumed at 3.35 pm and witness withdrew at 3.36 pm.
[36]Transcript 09/11/2021 at 81.
The Applicant’s application was expressed to be based on principles of procedural fairness.[37] The Applicant’s submissions referred to amongst other cases, Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam.[38] Citing Lam at [36], the Applicant submitted at para 22 of his submissions that:
To demonstrate procedural unfairness, it is usually necessary to show that a claimant “lost an opportunity to put any information or argument to the decision-maker, or otherwise suffered any detriment”.
[37]Applicant’s submissions in support of application to exclude evidence and for re-hearing, filed 5 January 2021, paras 17-22.
[38] (2013) 214 CLR 1.
The full text of [36] of Lam is as follows:
The more fundamental problem facing the applicant, however, relates to the matter of unfairness. A statement of intention, made in the course of decision-making, as to a procedural step to be taken, is said to give rise to an expectation of such a kind that the decision-maker, in fairness, must either take that step or give notice of a change in intention. Yet no attempt is made to show that the applicant held any subjective expectation in consequence of which he did, or omitted to do, anything. Nor is it shown that he lost an opportunity to put any information or argument to the decision-maker, or otherwise suffered any detriment.
In the present case, as I pointed out to the Applicant’s counsel at the hearing of the application on 1 March 2022 (see [51] above), the Applicant was unable to point to anything that he would have done differently or to any question asked of him after the luncheon adjournment that he would have answered any differently. There is simply no evidence that the Applicant, as Gleeson CJ put it in Lam, “lost an opportunity to put any information or argument to the decision-maker, or otherwise suffered any detriment”.
This case, as is the case in a lot of taxation matters, falls to be decided on the documentary evidence, the witness statements filed by the parties and the parties’ submissions on the law. The matters that are to be determined in the substantive applications for review are not affected by any of the answers given by the Applicant after the luncheon adjournment on the day of the hearing.
It is for these reasons that on 1 March 2022 I dismissed the Applicant’s application for the directions set out in [46] above.
As neither of the parties had filed the written submissions as directed at the conclusion of the substantive hearing on 9 November 2021, on 1 March 2022, I made directions for the parties to file their closing submissions. Those closing submissions were filed as follows:
(a)Applicant’s closing submissions on 22 April 2022;
(b)Respondent’s closing submissions on 12 May 2022: and
(c)Applicant’s submissions in reply on 12 July 2022.
The substantive applications for review
The Applicant’s evidence
The Applicant’s evidence was set out in two witness statements, the first dated 10 May 2021 (A4) and the second, described as a supplementary witness statement, was dated 14 June 2021 (A3).
The Applicant’s first witness statement (A4) was to the following effect:
(a)The Applicant’s father bought a farm and established the horticultural business in the 1990s. The business was operated by the Applicant’s father through T Nominees.
(b)The Applicant and his siblings worked on the farm.
(c)The Applicant’s father died in 2007 and the Applicant stepped away from the business.
(d)In 2009 the Applicant moved back onto the farm property to help the family run the business. He was operations manager and was paid a salary of $56,000 a year.
(e)During his time as operations manager, the business was run through T Nominees and generated annual turnover of between $13 and $15 million.
(f)The business employed an external accountant and an internal accountant who was a CPA.
(g)The Applicant, as well as being a director of T Nominees, was also a director of M Pty Ltd, W Pty Ltd and CL Pty Ltd.
(h)The T Nominees expenditure was undertaken through credit cards issued to the Applicant and two of his brothers. On occasions, T Nominees would reimburse expenditure directly to the credit card and on occasions by depositing money directly into the Applicant’s bank account.
(i)The Applicant outlined what some of the most common recurring expenses were.
(j)In 2012 the Applicant’s family became the subject of a joint agency investigation involving the WA Police, the Australian Federal Police (AFP) the Department of Immigration and Border Protection, the Department of Customs, the Australian Crime Commission, Austrac and the Australian Taxation Office (ATO).
(k)In May 2013 the AFP raided the farm.
(l)The Applicant was charged with several offences under Commonwealth law.
(m)The raid by the AFP and the charges caused the Applicant’s family to be the subject of media attention.
(n)As a result of the raid T Nominees’ accounts were frozen. Weekly earnings of the business dropped from $180,000 - $200,000 to near nothing.
(o)The Commonwealth charges were dropped in 2019. When the Applicant received the financial records of the business back from the authorities the records were corrupted.
(p)In May 2015 the Applicant was advised by the ATO that they would be undertaking an audit for the financial years 2010 – 2014.
(q)In April 2016 the Applicant was issued the notices of amended assessment which adjusted the Applicant’s taxable income for those years from $73,697 to $1,531,716 and imposed a penalty at the rate of 75% on the shortfall amounts.
(r)Paragraphs 42 – 687 of the Applicant’s first statement set out the expenditure made through the Amex card for each relevant tax year. The Applicant exhibited to his statement various invoices and receipts for certain of the payments.
The Applicant’s supplementary witness statement (A3) was to the following effect:
(a)The Applicant’s first witness statement dealt with expenditure incurred on the Applicant’s Amex card. The supplementary witness statement dealt with:
(i)Expenditure through the Applicant’s NAB personal account;
(ii)Expenditure through the Applicant’s ANZ corporate credit account;
(iii)Expenditure on vehicle expenses; and
(iv)Property funding shortfall.
(b)During the relevant period the Applicant utilised funds from the NAB account to lend to and borrow from:
(i)T Nominees;
(ii)CL Pty Ltd;
(iii)W Pty Ltd;
(iv)M Pty Ltd
(Related Entities)
(c)The Applicant used funds from the NAB account to pay business expenses associated with the Related Entities. He would cause the Related Entities to credit the NAB account to reimburse such expenses.
(d)Certain business records when returned by the AFP were corrupted. Where the Applicant cannot find relevant records, he deposes to his belief.
(e)Paras 13-117 set out, on a month-by-month basis, debit transactions and the credit transactions which the Applicant said occurred in the NAB account.
(f)The ANZ corporate credit card was issued to the Applicant’s brother, C. While the Applicant was one of the “sub-holders” of the ANZ credit card, he did not use it and it was left with his “internal accountant” who would use it at the Applicant’s direction to pay business expenses of T Nominees.
(g)Insofar as the Respondent assessed the regular payments into the Applicant’s NAB account as being salary and wages, the deposits were “part of a running loan account”[39] that the Applicant had with T Nominees.
[39]A4 para 128.
(h)Money transferred between accounts of Related Entities was usually “on the basis of ‘loan’ and ‘reimbursement’”.[40]
(i)Although funds were transferred to the NAB account on a periodic basis, they do not represent salary or income, they are sums lent on a regular basis representing expenditure incurred for one of the Related Entities.[41]
(j)The Applicant’s “Related Entities regularly make loans out to [him] for the purpose of resolving cash flow issues with [his] other Related Entities”.[42]
(k)The amounts that he paid to Mercedes Benz Finance were for vehicles owned by Related Entities.
(l)Parking fees paid in the relevant period were business expenses as they related to travel for the purpose of generating income for “one of [the Applicant’s] business entities”.[43]
(m)The Applicant personally owned two vehicles, a Mercedes and a BMW. As he lived on the farm and worked seven days a week. “it is not unusual that [he has] claimed 80% of the use of the vehicles was for work purposes and that “any time [he] would leave the property was to see a supplier or to travel to the markets” (para 138)
(n)In relation to the Applicant’s claim for a $21,143 tax deduction for rental losses, assessed by the Respondent as not claimable because the Trust owned the property, the Applicant cannot determine why he claimed the rental loss other than to believe that he was advised to do so by his accountant.[44]
(o)In relation to the funding shortfalls for the purchase of three properties assessed as income by the Respondent, the funds to cover the shortfalls were borrowed by the Trust from one of the Related Entities and recorded in the Trust’s books as loans owed to the Related Entities. As the properties are owned by the Trust, the shortfalls should not be assessed as the Applicant’s income.
(p)In relation to the property that was owned one third by the Applicant, with his brothers having two thirds, the funds were borrowed from W Pty Ltd and T Nominees and were funded by offsets in the ongoing loan accounts between those companies and the Applicant.[45]
The Parties’ submissions
[40]A4 para 130.
[41]A4 para 131.
[42]A4 para 132.
[43]A4 para 136.
[44]A4 para 145.
[45]A4 para 148.
The Applicant
As noted at [27] above, the Applicant’s SFIC[46] contained background, submissions and contentions which are not relevant to the matters that I have to determine. In addition to the irrelevant matters identified in [27] above, the Applicant’s SFIC also contained extensive narrative and complaints about the joint agency investigation, the criminal charges that arose from that investigation, the publicity that surrounded the raid undertaken by the joint agency and the “mindset” of the police involved in the investigation.[47] Except in relation to the Applicant’s claim that records seized in the raid were corrupted when returned to the Applicant and, potentially, that the Applicant’s failure to fully disclose income was caused by him not having the records, these matters are not relevant to the matters that I have to determine.
[46]A1.
[47]A1 paras 14-25.
In relation to the Amex and ANZ credit cards and the NAB account, the Applicant’s SFIC contended that the expenditures made through the cards and the account were for the business purposes of Related Entities.
In relation to the shortfall in funding for the purchase of the three properties, the Applicant in each case purchased the property as trustee of the Trust. In relation to the payments made in respect of the motor vehicles, the vehicles in question were owned or leased by Related Entities.
In relation to the profits from the sales of two properties owned by the Applicant (a town house in Joondalup bought in 2003 and sold 18 months later and an apartment in Rivervale bought in 2006 and sold 18 months later), while the properties were sold at a profit in both cases, they were the Applicant’s primary residence and the sale was not subject to capital gains tax.
The Applicant’s outline of submissions filed before the hearing largely repeated the submissions and the contentions set out in the Applicant’s SFIC.[48]
[48]Applicant's Outline of Submissions dated 22 October 2021 (A2).
The Respondent
The Respondent’s SFIC made the following contentions:
(a)The Applicant’s income tax returns for each of the relevant years, as lodged, contained the following details:
Table A
Year ended 30 June 2011 2012 2013 2014 Salary and wages $20,679 $700 $68,000 $42,000 Other income $284 $11 $6 Gross Income (excluding rent) $20,769 $984 $68,011 $42,006 Less: deductions clamed Work related car expenses $3,589 $36,712 $27,548 $20,387 Work related clothing expenses $140 $150 $150 $650 Other work-related expenses $290 $1,463 $2,171 $2,044 Cost of managing tax affairs $120 Rental loss Newcastle Street property claimed $21,143 Total deductions and rental loss $25,282 $38,325 $29,869 $23,081 (b)As a result of the audit undertaken by the Respondent, the Respondent concluded that the Applicant had understated his taxable income in the relevant income years 2011 – 2014 as follows:
Table B
2011 2012 2013 2014 Taxable income/loss returned -$4,513 -$37,341 $38,142 $18,925 Add: undeclared income per audit $256,529 $355,576 $470,878 $318,523 $252,016 $318,235 $509,020 $337,448 Add: income tax deductions claimed in the IT returns disallowed $24,732 $36,712 $27,548 $26,005 Amended Taxable income $276,748 $354,947 $536,568 $363,453 (c)The Respondent calculated the undeclared income required to fund the Applicant’s identified expenditure referred to in Table B as follows:
Table C
2011 2012 2013 2014 Identified expenditure – per Table D below $277,298 $356,560 $538,889 $360,529 Less: Gross income declared in income tax return $20,769 $984 $68,011 $42,006 Additional Gross income per Table B above $256,529 $355,576 $470,878 $318,523 (d)The personal expenditure identified by the Respondent in Table C consisted of the following items:
Table D
2011 2012 2013 2014 AMEX Expenses – Transfers from applicant’s personal NAB a/c no. [number] to his personal and his wife’s AMEX card accounts less transfers to the NAB a/c as reimbursements $75,274 $106,442 $48,335 $88,765 Applicant’s personal expenditure on ANZ credit card a/c no. [number] in name of [T Nominees] $57,002 $23,301 $64,652 $0 Property Funding Shortfall $64,067 $25,022 $109,441 $0 Other expenses paid from applicant’s personal NAB a/c [number] $95,335 $115,466 $177,220 $259,449 Net Transfers out of applicant’s NAB a/c [number] -$17,380 $51,329 $94,241 $12,315 Cashed cheques $3,000 $35,000 $45,000 $0 Total identified personal expenditure $277,298 $356,560 $538,889 $360,529 (References omitted)
(e)The Respondent provided a breakdown of the amounts comprising the Amex expenses, the Property Funding Shortfalls, the other expenses paid from the Applicant’s personal NAB account, the Applicant’s personal expenditure on credit card a/c no. ….5766 in name of T Nominees and the cashed cheques as identified in Table D above.
(f)The Respondent identified discrepancies in the calculation of one element of the Respondent’s calculation of the Applicant’s income for the financial years 2012 in the amount of $200 and 2013 in the amount of $177. The Respondent conceded[49] that the Applicant’s taxable incomes for those years, as assessed pursuant to the amended assessments that issued on 1 June 2016, should be reduced, in each case, by the amount of the relevant discrepancy and that the amounts of the penalties should be reduced accordingly.
[49]R1 paras 24 and 24A.
(g)The Applicant’s claimed rental loss of $21,143 relating to the year ended 30 June 2011 was disallowed because it related to the Newcastle Street unit, and a rental loss had been claimed in relation to the same property in relation to that year by the Applicant’s family trust.
(h)The Applicant’s claimed motor vehicle and work-related expense were disallowed on the grounds that they were not substantiated and the Applicant did not demonstrate any connection between their incurrence and the earning of assessable income.
(i)The amended income tax assessments and administrative penalty assessments were based on a conclusion reached by the Respondent that the tax shortfalls assessed in the above amended assessments were the result of false or misleading statements made in the Applicant’s relevant income tax returns, that resulted from intentional disregard of a taxation law by the Applicant in accordance with item 1 in the table in subsection 284-90(1) of Schedule 1 to the TAA.
(j)Pursuant to s.14ZZK(b) of the TAA, on an application for review of a reviewable objection decision, the taxpayer has the burden of proving that the relevant assessments are excessive or otherwise incorrect and what the assessments should have been.[50]
[50]Bosanac v Commissioner of Taxation [2019] FCAFC 116.
(k)While the Respondent agreed that on some occasions during the relevant periods the Applicant used his Amex card to make payments for business expenses, the Respondent says that the reconciliation of that account filed by the Applicant does not allow the Respondent to be more specific as it does not:
(i)identify all individual debit transaction made to the Applicant’s relevant Amex card account that are alleged to have been made to pay business expenses;
(ii)identify the entities on whose behalf the relevant payments are alleged to have been made; or
(iii)explain how the payments related to any business carried on by the Applicant or of the relevant entities.
(l)The Respondent refers to s 14ZZK(b) of the TAA and puts the Applicant to proof as to his characterisation of:
(i)deposits made to the Applicant’s personal NAB account as reimbursements of expenses incurred on behalf of other entities, loans made to the Applicant by other entities or repayments of loans by the Applicant to other entities; and
(ii)outgoings incurred using the Amex card as business deductible expenses or reimbursable expenses incurred on behalf of other entities.
(m)The Respondent’s SFIC sets out the Respondent’s calculation of the amounts of the amended assessments and the Applicant bears the onus of proving that the assessments are excessive and what they should have been.[51]
(n)Insofar as the Applicant asserts that certain payment assessed as income by the Respondent were repayment of loans, such amounts are “loans” treated as dividends derived by the Applicant for the purposes of section 109D of the ITAA36.
(o)In relation to the property funding shortfall, insofar as money was paid by W Pty Ltd, T Nominees and M Pty Ltd to cover such shortfalls, the Applicant was a shareholder of those companies which means that the moneys paid by those companies can be treated as dividends derived by the Applicant for the purposes of section 109C of the ITAA36 or “loans” treated as dividends derived by the Applicant for the purposes of section 109D of the ITAA36.
(p)Insofar as cheques cashed are not straight income, including for services rendered by the Applicant to T Nominees, the payments are, in the alternative, “payments” for the purposes of section 109C of the ITAA36 or “loans” for the purposes of section 109D of the ITAA36 that are properly treated as dividends derived by the Applicant in the years in which they were cashed.
(q)The penalties have been correctly assessed and calculated.
(r)The relevant shortfalls are the result of intentional disregard of a taxation law by the applicant. There is no basis for any of the penalties to be remitted under s 298-20 of Schedule 1 to the TAA.
[51]Citing Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 64 ALJR 166; 90 ATC 4088; 20 ATR 1370
The Applicant’s evidence at the hearing
The Applicant was the only witness to give evidence at the hearing. His evidence-in-chief consisted of him confirming the correctness of his statements A3 and A4.[52]
[52]Transcript at 13.
The Applicant’s evidence in cross-examination was to the following effect:
(a)The tax returns for the relevant years were prepared on the Applicant’s instructions by his accountants.[53]
[53]Transcript at 16-18.
(b)Ms Velevski, tax lawyer and chartered accountant, prepared the objections (see [23] above) and met with the ATO.[54]
[54]Transcript at 19.
(c)In the meetings with Ms Velevski, the ATO raised queries in relation to the amounts disclosed as income in the draft tax returns lodged with the ATO on behalf of the Applicant.[55]
[55]Transcript at 22 and R2/1396.
(d)The records of the discussions between Ms Velevski and the ATO to which the Applicant was taken also evidence the ATO raising potential issues under Division 7A of the ITAA36 (Div 7A) and fringe benefit tax (FBT) issues in respect of the claimed repayments of loans. The Applicant could not remember Ms Velevski raising these issues with him.
(e)The Applicant confirmed that the correspondence sent by his accountants to the ATO from March 2019 including answers to questions posed by the ATO were sent on his instructions.[56]
[56]Transcript at 24-30.
(f)The Applicant owned two cars, a Mercedes and a BMW. In about 2015 he gave the Mercedes to his lawyer Mr O’Haire to drive. Mr O’Haire drove the car for around six years. The Applicant only recently received the car back. Asked whether he wanted to explain why he gave Mr O’Haire a car to drive for six years, the Applicant responded “no”.[57]
[57]Transcript at 32.
(g)His evidence was that he sold the BMW in about 2015.
(h)The logbooks for both cars were seized in the AFP raid.[58]
[58]Transcript at 32-3.
(i)The Applicant was taken to para 112 of his first statement which referred to a payment to Westpoint Star which the Applicant said at para 112, was “a business expense incurred by” T Nominees “for the purposes of servicing a company registered vehicle”. Asked to which Mercedes that invoice related, the Applicant said that “My mother had a Mercedes, my father had a Mercedes. There was about six, seven Mercedes in the fleet, it could be any car. Unless I see the transaction or the invoice that it refers to, then I can [sic] answer that question”.
(j)Under further cross-examination the Applicant’s evidence was that all of the cars, including the Mercedes which he described as being for his use, were all used for business purposes so it did not matter which one it was.
(k)The Applicant was also asked about the $21,143 deduction claimed in the 2012 return for the rental loss on the Newcastle Street property. It was pointed out to the Applicant that the property was owned by the family trust. The Applicant conceded that that was the case.[59] He also conceded that the claim for the deduction against his assessable income was incorrect and that he had not filed an amended return. The Applicant claimed that the internal accountant, Mr Vlahov, advised the Applicant that he could claim the deduction notwithstanding that the property was held in trust.
[59]Transcript at 44.
(l)The Applicant was taken to questions posed in the ATO’s letter dated 11 March 2019 relating to the Applicant’s 2011 tax return.[60] That letter noted that payments made to the Applicant by T Nominees from July 2010 to May 2011 totalling $45,173 “appear to be weekly wages”. All of these payments, bar one, were in the amount of $1,003.85.
[60]R2/43.
(m)
The Applicant was taken to the response[61] to the assertion by the ATO that those payments were wages paid to him. That response asserted that the schedule prepared by the Applicant which categorised these payments as “Personal Income, Salary & Bank Interest” was wrong and that the Applicant had received weekly payments of $1,003.85 as salary from T Nominees up to 3 November 2010, but that from 10 November 2010 to 18 May 2011 the weekly payment of $1,003.85 “were loan (sic) from T Nominees” to the Applicant. The response attached a document purporting to be a T Nominees General Leger (Detail) showing the weekly payments from 10 November 2010 as being a debit in a loan account with the Applicant.[62]
[61]R2/447.
[62]R2/449.
Ms Thompson put to the Applicant that that document “was a fabrication”.[63]
[63]Transcript at 50.
The Applicant’s evidence was that this document was based on data that might be corrupted. After further questions from Ms Thompson, I then had the following exchange with the Applicant:[64]
[64]Transcript at 54-5.
TRIBUNAL: HNQH, you've put forward the document that appears at T448?[65]
[65]R2/448.
APPLICANT: Yes
TRIBUNAL: You're now saying that is inaccurate. It was based on that document that whoever prepared the answers was relying on the accuracy of that document to explain that you only received salary of whatever that amount is?
APPLICANT: To that date.…Yes, so my bank transactions shows [sic] the details of every transaction.
TRIBUNAL: Well, your bank transfers show that you received $1003?
APPLICANT: Correct. And it would salary.
…
TRIBUNAL: Your answer to that is, no, mysteriously it changed at some point from $1003 salary to a loan each week of $1003?
APPLICANT: Yes.
TRIBUNAL: And you put forward this document that appears at 448 to support that argument?
…You're now saying that document is corrupted, aren't you?
APPLICANT: I can't - I can't pinpoint on which document is correct and which document is not. (Indistinct) - - -
TRIBUNAL: Well, HNQH, look at the document?
APPLICANT: Yes.
TRIBUNAL: You're putting this forward in this answer as substantiating the fact that you only received $20,769.30. And you're saying, yes, well have a look at the attached document - that shows an income - base salary of $20,769, which less PAYG equates to the amounts that you received. So, you're the one putting forward that document as justifying the answer in question 8, aren't you?
APPLICANT: Yes
TRIBUNAL: But you're now saying that's corrupted. So, your answer in 8 is wrong, is it?
APPLICANT: I can only reflect back what I can remember on this matter. And what I can remember is my bank statement would clearly state if it's a loan or a salary. Because when the people make the transfer to my account it would state on the bank statement if it's a salary or a payment or, loan. And where, 'salary,' is written on the bank statement it would clearly state, 'salary,' or - every document I've (indistinct) my staff and myself (indistinct) presented in this MYOB document. The ATO has - - -
TRIBUNAL: But your bank statement just shows that every week you were receiving $1003, weren't you?
APPLICANT: It should have a description there as well, sir.
The Applicant was then taken to further documents produced by him, including a schedule of the payments into the relevant bank account,[66] none of which identified that the weekly payments of $1,003.85 from 10 November 2010 onwards were loans from T Nominees and not payment of wages by T Nominees. The Applicant’s claim that the bank statements would show them as being loans is untestable as the Applicant did not produce the bank statements. The following exchange then occurred:[67]
[66]R2/439.
[67]Transcript at 55-6.
TRIBUNAL: And you then say from November 2010 it converted to a loan account?
APPLICANT: Loan - yes.
…
TRIBUNAL: All right. Do you know anything about why did it convert to a loan account for exactly the same amount?
APPLICANT: I can't recall. It must have been something that the accountant suggested to do.
TRIBUNAL: Well, it was income, wasn't it?
APPLICANT: Yes. Because there's another two adjustments then of $4000 as well - - -
TRIBUNAL: You were receiving $1003 a week as income, weren't you?
APPLICANT: At the point, yes.
TRIBUNAL: Have you ever repaid the loan? What were the terms of the loan agreement?
APPLICANT: There was no internal contract, sir.
TRIBUNAL: So it wasn't a loan?
APPLICANT: It would (indistinct) - - -
TRIBUNAL: Well was it a loan or it wasn't?
APPLICANT: It was a loan, yes.
…
TRIBUNAL: Okay. You're the director of the company that was paying you, weren't you?
APPLICANT: Correct.
TRIBUNAL: So did you enter into an agreement with yourself to convert your salary to a loan?
APPLICANT: (Indistinct) record it as a loan.
TRIBUNAL: You recorded it as a loan. You're the one saying it was a loan, not income?
APPLICANT: Yes.
TRIBUNAL: Well, tell me what the circumstances were of the loan agreement - what the terms of repayment were, were you paying interest on it?
APPLICANT: The loan would have been (indistinct) with Amex card.
TRIBUNAL: No. This has got nothing to do with your Amex card. This is the $1003 you receive each week?
APPLICANT: Yes.
TRIBUNAL: You can't point to any agreement by which mysteriously you stop being paid a salary in November and then received each week an amount exactly the same, and you say that was a loan but you can't recall what the terms of the loan agreement were?
APPLICANT: No, sir.
…
MS THOMPSON: There wasn't actually a loan agreement in place, was there?
APPLICANT: There was no loan agreement in place.
MS THOMPSON: Okay. And there was no interest payment paid, was there?
APPLICANT: No.
MS THOMPSON: And you now say that the change from earning your salary to taking a loan from the company of the same amount every week was suggested to you by the accountant?
APPLICANT: Correct.
Ms Thompson then took the Applicant to an answer[68] to one of the questions asked by the ATO in their questionnaire sent to the Applicant’s lawyer on 9 October 2019 (T2/514-21). The following exchange then took place:[69]
[68]R2/602-7.
[69]Transcript at 58-60.
MS THOMPSON: And it asks questions about the ANZ Revolving Line of Credit in the name of [T] Nominees?
APPLICANT: M'mm.
MS THOMPSON: And for 30 December 2011 it asks about a $35,000 cash cheque of number 1286. Do you see that?
APPLICANT: Yes.
MS THOMPSON: Okay. And at the top of page 521 there are three questions posed. Just thinking about the first of those cash cheques - the $35,000 one - the question is how each of these amounts were applied, or what they were expended - or on what they were expended - by whom, and why they are not considered to be assessable income of HNQH. Okay, you see that?
APPLICANT: Yes.
MS THOMPSON: And then we turn over to page 602, which is T74.
…
MS THOMPSON: Okay. So, essentially your answer in respect of this is - this cash cheque of $35,000 - is you don't know because the documents are corrupted. That's what you're saying, isn't it?
APPLICANT: Yes
MS THOMPSON: But you're guessing that it could have been used for this, or it could have been used for that?
APPLICANT: It was most likely.
MS THOMPSON: Well, it's a guess isn't it, HNQH?
APPLICANT: No, it was most likely, because (indistinct).
MS THOMPSON: It's a guess?
APPLICANT: Most likely.
MS THOMPSON: You have no documents to substantiate that, do you?
APPLICANT: It was most likely.
MS THOMPSON: So, what is the basis of your proof of that?
APPLICANT: It says here - it was used to pay cash from (indistinct).
MS THOMPSON: No, what is your proof. I know what the words say - - -?
APPLICANT: Because it came from a company account.
MS THOMPSON: As did all sorts of payments into your bank accounts?
APPLICANT: Yes. So it would been - - -
MS THOMPSON: It's a cash cheque?
APPLICANT: So it would have been a company expense - it's come from a company expenditure.
…
MS THOMPSON: Well, you were asked why it shouldn't be considered assessable income of HNQH. The answer is you have no idea what this cheque was about, do you?
APPLICANT: It would have been for something - - -
MS THOMPSON: No, you're guessing, HNQH?
APPLICANT: You ask me a question, I'll answer the question. It would have been company related because it'd come from a company cheque. That's my reply.
MS THOMPSON: It was a cash cheque. Who was it paid to?
APPLICANT: Whoever the cash cheque was banked into. It was banked into my account, it would have been - -
The Applicant was then asked whether he made any enquiry at the time that he received he questionnaire in October 2019. His answers were:[70]
[70]Transcript at 60
MS THOMPSON: Did you undertake that enquiry at the time the question was asked of you in October last year?
APPLICANT: Don't recall.
MS THOMPSON: You don't know, do you?
APPLICANT: Of course - there's too many transactions for me to remember everything.
MS THOMPSON: And you didn't check in October last year, did you?
APPLICANT: I can't recall.
MS THOMPSON: Well this is your response that you drafted with your accountant in house?
APPLICANT: So whatever we have checked - I have checked there - is - -
MS THOMPSON: What did you check - - -?
APPLICANT: What I replied there - with the information that we've got there - - -
MS THOMPSON: Which is no information?
APPLICANT: The information is it came from a company cheque. So it would have been a company expense.
The Applicant was cross-examined after the luncheon adjournment about the shortfall in funding for the purchase of certain properties. The first part of the cross-examination consisted of Ms Thompson taking the Applicant to his SFIC. The Applicant confirmed that the matters set out in the Applicant’s SFIC were correct. He confirmed that:
(a)The Thornlie property was “purchased by the Applicant as trustee of the trust on 20 December 2011 for 315,000 in equal shares as tenants in common with his two brothers [D] and [C]”.[71]
[71]Transcript at 63.
(b)The difference between the bank loan and the purchase price was funded by loans advanced by W Pty Ltd ($50,000) and T Nominees ($29,000).
(c)The monies were advanced as loans from the companies to the Trust of which the Applicant was the trustee and which held the Applicant’s interest as a tenant in common with his brothers. There were no loan agreements in respect of these loans.[72]
[72]Transcript at 63.
(d)The Applicant’s evidence was that, as set out in the SFIC, similar loans were made by T Nominees and CL Pty Ltd in relation to the purchase of the Newcastle Street property. Again, there were no loan agreements put in place.[73]
[73]Transcript at 64.
(e)Similar arrangements were supposedly used for the purchase of a further property in Newcastle Street with the shortfall funding being provided to the Applicant’s trust by T Nominees and M Pty Ltd. Some funds for the purchase of that property were also provided by the Applicant. Again, there were no loan agreements put in place.
(f)The Applicant was taken to the tax return for 2012[74] which showed that he received a gross payment of $700. The Applicant’s evidence was that this was a payment from the Department of Primary Industries (as it then was) for sitting on the board of Vegetables WA.[75] The Applicant was taken to a number of the amounts set out in the return but was simply asked to confirm that the return contained certain numbers. In each case he confirmed that the return contained the relevant entry.
[74]R2/62-7.
[75]Transcript at 65. The department has since been renamed Department of Primary Industries and Regional Development.
(g)
The Applicant was taken to the claim for a $36,712 deduction for car expenses and was asked whether he had used the logbook method to make that claim, which was the method nominated in the tax return.[76] He confirmed that that was the case.
[76]R2/64.
It was then pointed out that at the time that the return was prepared the Applicant, according to the Applicant’s earlier evidence, he did not have logbooks as they had been seized by the AFP. The Applicant agreed that that was the case.[77]
[77]Transcript at 66.
(h)The Applicant conceded that his declared total income for that year of $984[78] was “a bit small”.[79] He agreed that he now could see that he should have included interest paid as income and conceded that the schedule that the Applicant filed with his SFIC which purported to set out all of his income was incorrect.
[78]R2/64.
[79]Transcript at 68.
(i)
In relation to the weekly payments of $1,003.85 and the monthly payments of $4,000, the Applicant confirmed his earlier evidence that, while there were no loan agreements evidencing or governing these loans, he had relied on the advice from his accountant that they were to be treated as loans, not payment of wages.
The Applicant said that on his accountant’s advice, all of the directors were paid that way.[80]
(j)
The rest of the Applicant’s cross-examination in effect comprised the Applicant having answers that he had given to questions put to him before the lunch adjournment and him confirming the correctness of those answers. The contents of those answers were reflected in the relevant tax returns lodged by the Applicant.
Ms Thompson took the Applicant to the relevant entries in the tax returns.
[80]Transcript at 70 and 73.
The Applicant was asked from what funds he repaid the loans that he claimed were made to him by the various Related Entities:
MS THOMPSON: Insofar as you supposedly repaying money, what was your source of income? As far as I can see, you didn't receive any income, you just kept on getting loans?
APPLICANT: Not all the time.
MS THOMPSON: What was the source of - - -?
APPLICANT: It wasn't a regular loan all the time.
MS THOMPSON: What was the source of money that you used to repay the company's loans?
APPLICANT: My personal income.
...
TRIBUNAL: Which was what?
…
APPLICANT: It was in my salary.
TRIBUNAL: In the years that we're talking about, you claim not to have received a salary, they were loans?
APPLICANT: Well, I did declare some of it as income, yes.
TRIBUNAL: How much did you repay?
APPLICANT: I can't answer that question without seeing the transactions.
MS THOMPSON: HNQH, the truth is you have no idea of what your actual income is for any of the four years that the tribunal is looking at, isn't it?
APPLICANT: No, they're wrong.
MS THOMPSON: You have no ability to point to a number and say this is my income for 2011?
APPLICANT: The way I put it is the way - maybe it's not appropriate the way I put it, I admit that, it's not appropriate. My bank transactions for all my personal bank account, which you have the NAB account, I identify line by line what is income and what is expenses.
There was no re-examination of the Applicant.
The parties’ closing submissions
The Applicant’s closing submissions were to the following effect:
(a)The Applicant cited Commissioner of Taxation v Ross [2021] FCA 766.
(b)A taxpayer discharges their onus by convincing the Tribunal that the assessment is flawed by establishing on the balance of probabilities the correct, or “more nearly correct”[81] amount of taxable income earned in the relevant period.[82] In doing so, the taxpayer must identify cogent evidence which persuades the Tribunal to make findings of fact that support their explanation.[83] What evidence is required to persuade the Tribunal will depend on the circumstances of the case.
[81]NGZF v Commissioner of Taxation [2019] AATA 5410 [41].
[82]Commissioner of Taxation v Trautwein (1936) 56 CLR 63 per Latham CJ.
[83]NGZF [41].
(c)The Tribunal might be persuaded by some of the taxpayer’s evidence and make adjustments to the amended assessment while remaining unpersuaded by other aspects of the case.[84]
[84]NGZF [44].
(d)There is no statutory onus on the Respondent to show that the assessments were reasonable or supported by evidence.[85] The Respondent does not need to have any basis, reasonable or otherwise, for adopting the position he took in arriving at the amounts contained in the assessments.
[85]Gauci & Ors v FCT (1975) 135 CLR 81 at [89] per Mason J.
(e)In the present case, however, the Respondent did undertake an analysis of the Applicant’s income by reference to the Related Entities’ income and the flow of monies through the Applicant’s personal bank account when issuing the assessments. The Respondent undertook an audit of the Applicant’s taxation affairs in or around 2015/2016 before reaching his decision and issuing the assessments.
(f)The assessments were supported by the Reasons for Decision. The Respondent also provided reasons for the objection decisions (see [24] above). The core contentions in these reasons were:
(i)the Applicant used company monies for items of personal expenditure without declaring such income as personal income;
(ii)the Applicant received income from the Related Entities that was not declared as personal income; and
(iii)the Applicant could not explain where he received monies necessary to purchase certain properties for which the Applicant has/had an interest in, and these amounts should be declared as personal income.
(g)The Applicant acknowledges that the Respondent would have faced difficulty when assessing the nature of the transactions during the relevant financial years given the Applicant was not in possession of contemporaneous financial records at the time of the audit, nor did he participate in the audit due to receiving legal advice that this may prejudice his right to a fair trial in the criminal prosecutions he was facing at the time.
(h)The Applicant, having received the financial records seized by the police, has now undertaken an analysis of the income and expenditure. This analysis is set out in the Applicant’s witness statements.
(i)The Applicant used his accounts for the business of the Related Entities. Due to the constant payments and reimbursements, the Applicant essentially had a running ledger between him and the Related Entities. The Applicant did not produce ledgers and did not give evidence of how these ledgers were kept and maintained, however, through the Applicant’s Financial Analysis, he has analysed the flow of funds and the items of expenditure to achieve the same result.
(j)The Applicant has no specialist training in business operations or financial management. He has learnt “on the job” while assisting his father to operate the family business. During the relevant financial years, the Applicant recognised his lack of financial acumen and engaged both an internal and external accountant to manage the tax affairs of the Related Entities and his personal tax affairs.
(k)The Applicant’s evidence was that he paid for business expenses using his Amex card in the name of CL Pty Ltd. He then used his NAB Savings Account as a “clearing account” to have the Related Entities reimburse him for business expenses paid on the Amex card. This resulted in a running ledger between the Applicant and his Related Entities being in constant flux.
(l)In the Applicant’s financial analysis, the Applicant has itemised every item of expenditure on the Amex credit card, NAB savings accounts and ANZ corporate card for the relevant financial years. He has in most cases been able to produce receipts relating to business expenses.
(m)The Respondent did not identify which individual transactions were deemed to have been personal expenditure rather than business expenditure. The Respondent’s methodology is somewhat arbitrary. It completely shuts off the possibility that, for example, the Applicant offset loans to his personal NAB Account from the Related Entities by paying such funds to the Amex card to pay off a large Synergy bill.
(n)The evidence produced by the Applicant in relation to which transactions were personal in nature, and those which were for business expenses, is rational and supported by contemporaneous documentation. At para 26 of the Applicant’s first witness statement, the Applicant deposes to the types of recurring business expenses on the Amex card.
(o)
Although in conducting issuing the assessments and providing reasons, the Respondent did not seek to determine personal versus business expenditure on the Amex card, the Respondent has in his SFIC listed items of expenditure said to be of a personal nature without providing any basis for such allegations.
This demonstrates the Respondent’s error in not conducting an analysis of the types of expenditure incurred on the Amex card.
(p)The Applicant concedes that he cannot (because of evidence being corrupted or lost due to the AFP investigation) produce evidence to prove that the expenditure on the Citibank credit card was not of a personal nature. He has therefore conceded that all payments made from his personal NAB Account to pay off the Citibank credit card should be deemed to be personal income properly included in his assessable income.
(q)As he has done with the Amex card, the Applicant has analysed each transaction in the NAB savings account to determine the amount of income and the business/personal expenditure from the account.
(r)The vast majority of the income into the NAB savings account is by way of reimbursement for company expenses. This was in accordance with the running ledger arrangement the Applicant had with the Related Entities during the relevant financial years. This should not be declared personal income.
(s)The Applicant has produced evidence in relation to the company payments. A lot of these are payments to the Amex card for business expenses which have been identified in the Amex card analysis.
(t)In respect of the surplus amount, being where there have been more company deposits than company payments in any financial year, the Applicant concedes that for the purpose of this review, the surplus should be deemed to be personal income. While the difference may be explained by the “running ledger” having started in 2011 with monies owing to the Applicant, the Applicant cannot produce evidence to support this contention.
(u)At paragraphs 118 to 126 of the supplementary witness statement, the Applicant has deposed to the fact that the ANZ corporate card was issued in the name of T Nominees and used only for personal expenditure.[86]
[86]I assume that this was an error and the Applicant meant to say that it was used only for business expenditure. I note that at para 122 of the supplementary witness statement, the Applicant advised that the card was issued to his brother C who was the “master card holder” and the Applicant was only a “sub-card holder”.
(v)The Respondent’s designation of “personal expenditure” on the ANZ corporate card is completely arbitrary and not supported by any argument.
(w)Without descending to the particulars of each transaction, the following is apparent:
(i)the frequency of the fuel purchases alone demonstrate that all fuel consumption could not have been for personal use;
(ii)the amount of the Synergy bills ($10,000 for example) rules out personal use;
(iii)the frequency and amount of the Telstra bills (see for example 3 transactions on 6 June 2013 totalling approximately $1,500) support an inference that the expenditure is of a personal nature;
(iv)the IKEA transactions (for bunk beds) accords with the housing requirements of farm workers; and
(v)the monthly recurring nature of the “DB Infotech” accords with the explanation that it is for ongoing computer fees for the business.
(x)In relation to the various cheques cashed by the Applicant which were treated as the Applicant’s income by the Respondent:
(i)The $3,000 transfer to the Applicant’s family trust was notated as “Rpay S/H a/c CLE” and, given that there is no evidence to the contrary, and notably, the payment was made to a separate legal entity, the Respondent has erred in applying this $3,000 amount to the Applicant’s income.
(ii)In relation to the $35,000 cheque on 30 December 2011 and the $25,000 cheque drawn on 12 September 2012, both from the T Nominees account, the Applicant can only speculate about the purpose of these cheque withdrawals, however, said that he does not believe that the cash was used by him and there is no evidence that the Applicant used the money for personal use.
(iii)In relation to the 9 January 2013 withdrawal of $20,000, Applicant gave evidence that this was used to pay the deposit for the Applicant’s Family Trust’s purchase of the property located in Newcastle Street. This property is owned by the family trust and therefore it is an amount of money owing by the trustee of the family trust back to T Nominees. The Applicant has admitted this income was applied to his family trust. The Applicant’s evidence ought to be accepted and this amount should not form part of the Applicant’s assessable income.
(y)In relation to the monies used by the Applicant to fund the purchase of the two Newcastle Street and the Thornlie properties owned by the Applicant (the Applicant says in trust for his family trust), there is no appropriate basis to include these amounts as income received by the Applicant.
(z)In relation to the regular payments made by T Nominees into the Applicant’s NAB account, the Applicant’s evidence was that these payments were loans, not salary.
(aa)The Applicant concedes that he cannot (because of evidence being corrupted or lost due to the AFP investigation) produce evidence to support the deductions claimed and his assessable income should therefore not be subject to deductions. He does not, however, concede that the inclusion of these deductions in the tax returns was false or misleading.
(bb)The Applicant has explained all of the transactions in his accounts. He was not challenged under cross-examination on the types of expenditure that he claimed through these accounts.
(cc)The Applicant conceded matters where he cannot produce evidence to discharge his onus. Schedule A to the Applicant’s closing submissions identifies what the Applicant says his assessable income was for each of the years as being:
(i)2011 - $135,726.08
(ii)2012 - $51,581.41
(iii)2013 - $115,486.79
(iv)2014 - $56,498.68.
(dd)In relation to the administrative penalties, the Applicant referred to Miscellaneous Taxation Ruling 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness, and intentional disregard (MT 2008/1).
(ee)In relation to the Applicant’s personal circumstances, the Applicant had no formal training in business and had limited knowledge of the tax laws.
(ff)The Applicant did keep records of his finances. However, the Tribunal can have regard to the indisputable fact that his records were seized by the authorities and not returned to him for many years, and in many cases, his electronic records were corrupted. It is for this reason that he cannot, in all cases, produce cogent evidence to discharge his burden of proof.
(gg)There is no evidence to enable the Tribunal to find that the Applicant had actual knowledge that the statements made in his tax returns were false (see paragraph 112 of MT2008/1).
(hh)Insofar as there is a basis to find that the Applicant either failed to take reasonable care or demonstrated recklessness when making statements in his tax returns (for example, it was an error to claim as a deduction in his personal income rental losses that were for a property owned by the Applicant’s Family Trust), it is submitted that the Applicant relied on his accountants to provide him with proper advice. It should be found that the Applicant’s conduct fell short of recklessness.
(ii)
In relation to the shortfall interest charged, the facts of this case are unique.
The audit was conducted over five years ago and the Applicant could not participate in the audit due to receiving legal advice that it would prejudice his right to silence in his criminal prosecution. Delay was through no fault of the Applicant; the delay was the fault of the prosecution.
(jj)PS/LA 2006/8 provides that a delay in commencing the audit provides a basis for remission of the shortfall interest charge. The audit was commenced well after halfway through the review period for each financial year, in some cases, it was years later. On this basis, the Applicant seeks a remission of the shortfall interest to the base rate as per the practice note.
(kk)In relation to the general interest charge, the Applicant’s circumstances were unique and extenuating. At least four years of the delay cannot be attributable to the Applicant and arose solely due to the failed Commonwealth prosecutions against him.
The paragraph of Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 cited by the Full Court in Gashi at [61][89] was (per Mason J):
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.
[89]See para [86] above.
In Federal Commissioner of Taxation v Rigoli (2013) 95 ATR 94; [2013] FCA 784 at [8], in a discussion regarding Gashi, Pagone J said:
The need, therefore, for a taxpayer to prove the “actual taxable income” in order to establish the excessiveness of an assessment made under s 167 was not so much that the assessment in Gashi was based upon the asset betterment basis of calculation as that it was made under s 167 where the “process of calculating taxable income as assessable income minus deductions is not possible (in whole or in part)”. The figure arrived at by the Commissioner under s 167 may in any given case be based upon calculations similar to those where the taxpayer has furnished a return under s 166, but an assessment under s 167 is fundamentally different from one under s 166. A taxpayer seeking to establish that an assessment under s 167 is excessive needs to establish not that some element in the assessment is wrong but that “the amount upon which in [the Commissioner’s judgment] income tax ought to be levied” was the taxpayer’s actual taxable income. The primary obligation of a taxpayer is to furnish a return of income under s 166 and an assessment under s 167 does not provide a means by which taxpayers may be relieved of their obligation to establish their actual taxable income. It is, rather, a means by which the Commissioner may impose a liability where the taxpayer has failed to furnish a return.
The Respondent in his submissions prior to the hearing referred to the following statement by the Full Court on the appeal from the decision of Pagone J:[90]
The taxpayer’s choice is to pay tax according to the Commissioner’s assessment under s 167 or to establish, as a matter of evidence, what was “the amount upon which … income tax ought to be levied”. An intermediate course, which involves elements of the Commissioner’s calculations and facts which the taxpayer chooses to lead in evidence, is not an available option.
[90]Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19; [2014] FCAFC 29 at [25]
The above statement by the Full Court, however, has to be read in the context of that which immediately preceded that passage, which was:
The task Mr Rigoli sought to carry out was to simply identify some errors in the Commissioner’s approach so that the matter might be remitted on the basis of those errors for reconsideration by the Commissioner. This is the very picking and choosing which the authorities make clear is impermissible.
The Respondent’s submissions also cited [19] of the High Court’s decision in Commissioner of Taxation v Stone (2005) 222 CLR 289 wherein Gleeson CJ, Gummow, Hayne and Heydon JJ said:
To decide whether receipts of a taxpayer form part of that taxpayer’s assessable income there must be undertaken “a wide survey and an exact scrutiny of the taxpayer’s activities”. [91]
[91]Citing Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at 663
The Respondent’s submissions also cited Bosanac v Commissioner of Taxation [2018] FCA 946 at [73] in which Steward J said:[92]
I am prepared to accept the explanation for the payment made for the sale of a car. Has the applicant thereby discharged his onus of proof to that extent for the year of income ending 30 June 2007? For the reasons which follow, he has not. Instead, I have concluded that the applicant has failed in relation to each year of income in dispute to demonstrate that any of the amended assessments issued to him were excessive. That is because, in addition to rejecting his evidence concerning the nature of the deposits (other than in relation to the car), the applicant failed to positively adduce evidence as to the quantum and nature of his foreign and domestic earnings in each year in dispute. In my view, the applicant needed to go further than his attack on the basis upon which the Commissioner had issued the amended assessments to him, and positively prove what his taxable income was in each year. He needed to lead evidence constituting a wide survey and exact scrutiny of his business activities. This he never did.
[92]Above n 48.
The Respondent also referred to the Full Court judgment in Bosanac v Commissioner of Taxation [2019] FCAFC 116. At [64] the Full Court said:
In submissions before the primary judge, counsel for the Commissioner accepted that two amounts totalling $600,000 did not form part of the Mr Bosanac 's income for the 2009 year. It was a concession that might have been deployed together with other evidence to demonstrate that the Amended Assessments were excessive. However, the burden remained upon Mr Bosanac to demonstrate that the amounts in which each of the Amended Assessments had been issued was excessive. As we have said, in the circumstances of the case, he had to demonstrate the nature and extent of his income. The trial judge found that he failed to do so. In that context, the concession made by the Commissioner went nowhere in the appeal to the primary judge.
The assessments issued by the Respondent, as explained in the Reasons for Decision,[93] were not based on a so-called “betterment method”. However, as noted in [48(4)] of Derrington J’s judgement (see [84] above), the same burden applies “under s 14ZZK(b)(i) in relation to an assessment under s 167, whether based on the asset betterment method or otherwise.”
[93]R2/125-282.
The Applicant would argue that he has done more than simply identify elements of the default assessments issued under s 167 of the ITAA36 by the Respondent as being wrong because they mischaracterise payments or expenditure as being personal. The Applicant says that, in support of his objections and in these proceedings, he has prepared detailed and thorough analyses of the various bank accounts, credit card transactions and payments received into his accounts which, not only establish that the Respondent’s characterisations were wrong, but also establish what his actual income was in the relevant years.
The question is whether the Applicant has done what he claims to have done. In his closing submissions in reply, the Applicant referred to his “Financial Analysis” (para 2.3) which he identified as the Applicant’s Schedule of Income which was attached to his closing submissions, and the analysis of the Applicant’s bank accounts and credit card transactions contained in T49 of the T documents.[94]
[94]R2/415-437.
By the time of his closing submissions, the Applicant’s assessment of his taxable income for each of the relevant years had significantly increased from the amounts that he included in his returns lodged in 2011 (see [7] and [9] above) and 2016 (see [12] and [13] above):
Year Income in return lodged by Applicant Applicant’s Schedule of Income 2011 $16,630 $135,726.06 2012 ($37,341) $51,581.41 2013 $38,142 $115,486.79 2014 $18,925 $56,498.66
The question is whether the Applicant has done what he claims to have done, namely prove, on the balance of probabilities, that the assessments issued under s 167 of the ITAA36 were excessive or otherwise incorrect and what the assessments should have been.[95]
[95]Pursuant to s 14ZZK(b)(i) of the TAA.
For the reasons set out below, I am not satisfied that the Applicant has discharged the onus of proving that the Respondent’s assessments under s 167 of the ITAA36 were excessive or otherwise incorrect and what the assessments should have been.
I do not accept that T49 establishes that the expenses listed were either business or personal. The schedules in T49, in effect, do no more than list what I assume are line items in the Applicant’s bank and credit card statements and make an assertion that certain of the line items are personal expenditure and others related to “Company expenditures”. They do not identify the company on behalf of which the Applicant claims to have incurred the expenditure or for what the expenditure was incurred. It is, in effect, a series of unsubstantiated, unparticularised and unsupported assertions by the Applicant.
The same comment can be made about the other identified element of the Applicant’s Financial Analysis, the Applicant’s Schedule of Income which was, in large part, taken from the schedules in T49. The Applicant’s Schedule of Income was a document that was provided only after the hearing so there was: (a) no explanation provided by the Applicant as to how it was created or upon what primary source information it was based; and (b) no ability for it to be tested by the Respondent at the hearing. Whatever weight can be given to this document is significantly reduced by these two factors.
It is not the Tribunal’s job to make the Applicant’s case for him, nor is it the Tribunal’s job to try to decipher the Applicant’s evidence and submissions or to trawl through over 1400 pages of T documents and voluminous witness statements and their annexures to find evidence to support the claims made.[96] If, however, I look at the first line item in the Schedule of Income, which is an entry of $44,832.42 for 2011 under the heading “Amex”, that entry has a footnote 67 which reads “Applicant’s Financial Analysis AMEX 2011 – Personal Expenditure”. Although the footnote refers to “Applicant’s Financial Analysis”, which the Applicant defines as the Schedule of Income and T49 (see [96] above), I assume that the footnote is referring to T49. The summary at the top of the first page of schedule at T49[97] identifies $44,832.42 as being “Personal Expenditures”. For the reasons set out in [100] above, I do not accept that T49 establishes that the expenses listed were either business or personal expenses. The same comment applies to footnotes 68-78 in the Applicant’s Schedule of Income, which also refer to T49 as being the source of the numbers in the Applicant’s Schedule of Income.
[96]See Dranichnikov and Minister for Immigration and Multicultural and Indigenous Affairs [2003] HCA 26; 197 ALR 89 at [78].
[97]R2/415.
The two witness statements provided by the Applicant, even in combination with the Applicant’s Financial Analysis, are insufficient to discharge the Applicant’s onus under s 14ZZK of the TAA. Like T49 and the Schedule of Income, the two witness statements and the annexures to the statements, do little more than make generalised claims, unsupported by documentary evidence. While the Applicant’s first witness statement (A4) in some cases attached invoices relating to a purchase (a significant number of which were unreadable), the mere production of such a document does not establish whether a particular purchase was personal or related to the business activities of one of the Related Entities. There was also no evidence from any other witness to support the claims made by the Applicant in his statements.
In this regard s 262A of the ITAA36 imposes obligations on taxpayers to keep proper records. Section 262A relevantly provides:
(1)Subject to this section, a person carrying on a business must keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of this Act.
…
(1D) A taxpayer who is a full self-assessment taxpayer must:
(a) keep a record containing particulars of the basis of the calculation of the amounts that the taxpayer specified under section 161AA in a return for a year of income; and
(b) produce to the Commissioner, when and as required by the Commissioner under this Act, a document containing those particulars.
(2) The records to be kept under subsection (1) include:
(a) any documents that are relevant for the purpose of ascertaining the person's income and expenditure; and
(b) documents containing particulars of any election, choice, estimate, determination or calculation made by the person under this Act and, in the case of an estimate, determination or calculation, particulars showing the basis on which and method by which the estimate, determination or calculation was made.
The Applicant has clearly failed to comply with his obligations under s 262A. It is not open to a taxpayer to complain in circumstances where the quantification of an assessment is complicated by the failure on his part to keep accurate records of account.[98]
[98]Graham Docker & Associates Pty Ltd v Federal Commissioner of Taxation (2005) 61 ATR 1077; [2005] AATA 1180 at [35]; see also Lindgren J’s comments in Spassked Pty Ltd v Federal Commissioner of Taxation (No 5) (2003) 52 ATR 337; [2003] FCA 84 at [196]-[197].
The Respondent’s outline of submissions also referred to a case that I agree has application in the present case, in particular the observations of Hill J in Imperial Bottleshops Pty Ltd v Commissioner of Taxation:[99]
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.
[99](1991) 22 ATR 148; [1991] FCA 276 at [31]
The above passage from Hill J’s judgment describes the circumstances of the Applicant’s case.
The Applicant’s second witness statement (A3) attached some documents supposedly to support some of the transactions set out in the Applicant’s witness statement. In most cases, however, the documents claimed by the Applicant to support the transaction claimed in the witness statement did not do so. As an example, para 34 of the Applicant’s second witness statement covered transactions in the Applicant’s NAB account in April 2011. The Applicant said at para 34 that he “received the following business related credits” then lists the following:
34.1. $2,372.68 by LC Pty Ltd
34.2. $657.64 in cash/cheque deposit for business related expenses incurred on behalf of T Nominees
34.3. $4,939.93 by W Pty Ltd
The witness statement then stated that “Attached hereto and marked F 10-1 and F 10-2 is a true copy of this transaction”. What is attached and marked F 10-1,[100] is an account balance summary of a NAB account (number ending in 8944) in the name of the Applicant’s family trust for the period 1 February to 21 February 2011.
This shows two transactions, a credit of $3,000 described as “Internet Transfer” on 1 February 2011 and a debit of $2,156.27 on 21 February 2011 described as “Loan Repayment”. The document attached to the Applicant’s statement and marked F 10-2 (page 66 of the statement), is an account balance summary of an NAB account (number ending in 3568) in the name of CL Pty Ltd for the period 19 February 2011 to 3 March 2011 recording six debit transactions and six credit transactions with various descriptions, none for an amount identified in para 34 of the Applicant’s second witness statement.
These documents simply do not support the transaction claimed by the Applicant, or at the very least, do not support the transaction without further explanation.
[100]A3 page 65.
Similarly, the Applicant said at para 47 of his second witness statement that he “received the following business related credits”. The witness statement then lists a number of credits, including at para 47.5, a cash deposit of $12,575 on 14 September 2011. The Applicant then said that “[t]hese funds were in part from cheque withdrawals dated 14 September 2011 from [W Pty Ltd]”. That is followed by a statement that “Attached hereto and marked F 8-11 is a true copy of the transaction records”. The attachment marked F 8-11 appears at page 55 of the witness statement and is a single page (2 of 4) from an unidentified bank account for the period from 15 August 2011 to 15 September 2011. This page records six debits on 14 September 2011 for various amounts totalling $15,850 with no description.
The last page of a bank statement in the sequence leading up to the page marked F 8-11 which could identify the account or the customer to which the page marked F 8-11 relates, is at page 51 of the witness statement (marked F 8-7) which is an Amex statement of account in the name of LC Pty Ltd (or the Applicant personally, it is not clear which).
The last page from an NAB statement identifying the account or customer to which the page marked F 8-11 could relate, is at page 50 of the Applicant’s witness statement and is marked F 8-6. That is page 1 of an account in the Applicant’s personal name.
The end result of all of the above is that the documents which the Applicant claims support the transactions which he asserts in his witness statements do not support them.
In addition to the significant deficiencies in the Applicant’s witness statements, there are aspects of the Applicant’s evidence at the hearing which warrant comment.
The Applicant conceded that in answering certain of the questions posed by the Respondent in the questions sent to the Applicant in March 2019, he had not made enquiries to confirm his answers as being correct. When it was put to the Applicant that the answer to question 8 was a “fabrication”, [101] the Applicant’s answer was that the records that he relied on were “corrupted”.[102] That was an answer that was given by the Applicant on a number of occasions when it was pointed out to him that information provided was incorrect. Even in opening the Applicant’s counsel had claimed that documents that were returned to him after the police raid were corrupted.[103]
[101]R2/447-9.
[102]Transcript at 50.
[103]Transcript at 4 and 6.
I do not accept the Applicant’s assertion that incorrect information provided to the Respondent was the result of documents or data being returned by the police being corrupted. There was no independent evidence led by the Applicant to substantiate the assertion that documents or data returned by the police was corrupted. Further, the Applicant did not identify which documents or data was corrupted or how the supposed corruption affected the data or documents. The document in relation to which the Applicant made the claim in [113] above[104] was an answer to a question relating to the Applicant’s claim that from 10 November 2010 the weekly payments of $1,003.85 converted from payment of a salary to weekly loans from T Nominees in the same amount. It is hard to see how that claim or the supposed extract from the T Nominees payroll activity ledger and the T Nominees general ledger showing those payments could be the result of corrupted data or documents (see [73(m)] and [74] above). The claim that the payments converted from weekly payments of salary to weekly loans in the same amount was maintained by the Applicant in the hearing and in the submissions made after the hearing.
[104]R2/447.
It appears that the only times that the Applicant asserted that documents or data was corrupted was when information provided by him was shown to be incorrect. The Applicant, however, when it suited him appeared to rely on the same data or documents. In that regard, notwithstanding the Applicant’s evidence at the hearing that the weekly payments after 10 November 2010 were loans (never repaid) and not income, the Applicant’s closing submissions in reply assert that the $1,003.85 weekly payments and the $4000 monthly payments have been recorded as personal income in the Applicant’s Financial Analysis (see [82(e)] above). That is contrary to the returns lodged by the Applicant and his evidence at the hearing.
I also do not accept the Applicant’s evidence in relation to the logbooks for the cars in relation to which the Applicant claimed deductions. Contrary to his repeated assertions in cross-examination that logbooks were used to make the claims in the tax returns lodged by him, I find that that could not have been the case. At the time that the tax returns were prepared and lodged in 2016, according to the Applicant, the police had seized the logbooks and they were never returned.
There was no evidence provided by the Applicant, other than his unsubstantiated claims, that monies paid to him by Related Entities and payments made by him to Related Entities related to loans between him and the Related Entities. This is particularly the case in relation to the monies used for the purchases of the three properties. The Applicant agreed that there were no loan agreements with the Related Entities.[105] I do not accept that there were, as a matter of law, loans between the Applicant and the Related Entities in relation to these transactions. There was insufficient documentary evidence and proper records to substantiate and support the Applicant’s assertions (see [103]-[107] above)
[105]Transcript at 70.
For the reasons set out above, I am not satisfied that the Applicant has discharged the onus of proving that the assessments issued by the Respondent under s 167 of the ITAA36 for each of the years ended 30 June 2011, 30 June 2012, 30 June 2013 and 30 June 2014 were excessive or otherwise incorrect, and what the Applicant’s income in each of those years was. The only reduction in the Applicant’s assessable income which I accept is that conceded by the Respondent as identified in [26] above.
Penalties
The question of whether the penalties were correctly imposed and whether any should be remitted has to be determined in light of whether the assessments were found to be excessive. For the reasons set out above, I have found that the Applicant has not shown that that the assessments were excessive.
The Respondent contended that the relevant shortfalls are the result of intentional disregard of a taxation law by the Applicant and that there is no basis for any of the penalties to be remitted under s 298-20 of Schedule 1 to the TAA.
The Applicant asserted that he has no formal training in business and limited knowledge of tax laws. He further claims that it is “indisputable” that he kept records but that those records were seized by the police and returned to him corrupted. I do not accept that that was the case. As noted earlier, the Applicant led no independent expert or other evidence to substantiate his claims that the documents that were returned were corrupted, which documents were corrupted or how the claimed corruption affected the documents. Also as noted above, the Applicant seemed to claim corruption of documents when it was pointed out that answers provided by him were incorrect but otherwise (apparently) sought to rely on those documents. Further, the Applicant’s evidence, or more accurately the deficiencies in the Applicant’s evidence, indicate that there was a lack of proper records kept by the Applicant to establish his taxable income, contrary to the Applicant’s obligations under 262A of the ITAA36, (see [104]-[107] above).
The Applicant asserted that he had followed accounting advice in preparing his tax returns. As the Respondent pointed out, despite ample opportunity to do so, the Applicant did not put on any evidence to substantiate this claim. It was only under cross-examination that the Applicant claimed that his internal accountant, Mr Vlahov, had advised him to convert the weekly salary of $1,003.85 being paid by T Nominees, a company controlled by the Applicant, to loans in the same amount. There was no document recording this conversion and certainly no document recording such advice being given to the Applicant.
The failure on the part of the Applicant to include all of the sources of income and the making of a claim for deductions for losses suffered by another entity, were the result of the Applicant’s intentional disregard of a taxation law. I do not accept that the Applicant is as naïve as he claims in matters of business and taxation. He was and had been for some time in the years in question, in control of a very significant business operation which, on his evidence, was generating annual turnover of between $13 and $15 million.[106] The Applicant’s claim of a $21,143 tax deduction for rental losses on properties owned by his family Trust clearly shows a disregard for the tax laws. The fact that the income that he disclosed in each of the years in question was well below what he now concedes as his income (see [97] above) is further evidence of his disregard for the tax laws. The Applicant’s explanation that he cannot determine why he claimed the rental loss, other than to believe that he was advised to do so by his accountant, is inadequate. Irrespective of whether someone advised him to make the deduction claim, it would have been obvious to anyone acting honestly that the deduction was not claimable by the Applicant.
[106]A4 [15].
Accordingly, the base penalty amount calculated at 75 per cent of the shortfall under item 1 of the table in s 284-090(1) of the TAA is appropriate. The Applicant is a relatively experienced business operator. His failure to keep proper records to account for all of the transactions through his various bank accounts and credit cards contrary to his obligation under ITAA36, is indicative of someone who has little regard for the tax laws. It would have been a relatively straight-forward exercise for the Applicant, or those who worked for him, to have kept proper records of the transactions that occurred in those accounts, or to use purpose-specific accounts. The Applicant chose not to.
In relation to whether the penalties should be remitted, s 298-20 of sch 1 the TAA relevantly provides:
(1) The Commissioner may remit all or a part of the penalty.
(2) If the Commissioner decides:
(a) not to remit the penalty; or
(b) to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
At [192] of Sanctuary Lakes Pty Ltd v Commissioner of Taxation[107] Greenwood J described the discretion to remit penalty under s 298-20 of the TAA as follows:
Section 298-20 addresses the topic of “Remission of Penalty”. It applies to each penalty arising under each of the penalty regimes under Part 4-25. In order to provide the Commissioner with the flexibility necessary to determine the circumstances informing the exercise of the discretion to remit a penalty imposed under a Division of Part 4-25, s 298-20(1) simply provides that the Commissioner “may remit all or a part of the penalty”. Section 298-20 does not provide for any considerations that must be taken into account in the exercise of the discretion to remit all or a part of the penalty.
[107](2013) 212 FCR 483; [2013] FCAFC 50.
His Honour at [193] further described the discretion under s 298-20 of the TAA in the following terms:
The discretion conferred by s 298-20(1) is unconstrained, according to its terms. It must, however, be exercised for a proper purpose; in accordance with the objects of the Administration Act; and according to law.
At [206] to [209] of Sanctuary Lakes, Greenwood J described the basis for the exercise of the discretion to remit as follows:
206 Upon a proper exercise of the discretion, the Tribunal might or might not conclude that the penalty imposed by the Administration Act on the taxpayer in failing to take reasonable care is to be remitted to zero. That is entirely a matter of merits assessment in the exercise of the discretion for the Tribunal in determining where the balance of factors lies. However, the exercise of the discretion must take account of the statutory scheme, the foundation upon which the Administration Act imposes the penalty and the questions that need to be examined in exercising the discretionary power to remit the penalty.
207 The Tribunal must be taken to have asked itself the question, does the object of the penalty regime justify the exercise of the discretion conferred by s 298-20(1) of Sch 1 so as to remit the penalty imposed upon the taxpayer by operation of s 284-75(1), s 284-80, s 284-85 and s 284-90 of Sch 1, to nil because the statement made to the Commissioner in the absence of reasonable care nevertheless gave rise to a reasonably arguable claim for a deduction.
...
209 In exercising the discretion under s 298-20(1) to remit, the Tribunal was required to ask itself, having regard to the evidence, what were the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care in making the statement to the Commissioner that might explain the conduct the subject of the penalty and what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that notwithstanding the imposition of a penalty on the taxpayer by the Administration Act on the footing of a failure to take reasonable care in making the statement, the penalty ought nevertheless be reduced either in whole or in part, and as in this case, to nothing.
Justice Griffiths in Sanctuary Lakes, having reviewed the language of s 227(3) of the ITAA36 dealing with the discretion under that act to remit penalties (which refers remission where the outcome would otherwise be harsh), observed at [247]:
In my view, there is no warrant for reading into the broad discretion conferred by s 298-20 of the TAA 1953 (or, indeed, former s 227(3) of the ITAA 1936) a requirement that the decision-maker must be satisfied that the outcome is “harsh” for the particular taxpayer in his or her individual circumstances unless penalty is remitted. One rhetorically asks what is the basis for reading into s 298-20 a term which is simply not there?
And at [249]:
In my opinion, the correct question which arises under s 298-20 should not be expressed in terms of “harshness”. Rather, the question is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part. For example, a decision-maker might determine that it is appropriate to remit penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh (see the observations of McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 on the different meanings of the individual words “harsh”, “unjust” and “unreasonable” in a different context concerning unfair dismissal and the collocation of those words in both legislation and an industrial award).
In Bosanac and Federal Commissioner of Taxation[108] at [33], I described the exercise of the discretion under s 298-20 of the TAA as follows:
The Tribunal is bound and guided by the principles spelt out by the Court in Sanctuary Lakes. On that point the parties seem to be agreed. The correct question for the Tribunal as identified by the Court in Sanctuary Lakes is whether it is satisfied, having regard to the “taxpayer’s personal circumstances”, that it is “appropriate” to remit the penalty in whole or in part. The judgment in Sanctuary Lakes, as applied in subsequent cases, also makes it clear that the discretion in s 298-20 of Schedule 1 is broad.
[108] [2019] AATA 2140.
There was nothing in the evidence which would indicate that the Applicant’s personal circumstances, the circumstances that have given rise to the shortfalls and the imposition of penalties or any other consideration, make it appropriate to remit any part of the penalties.
I do not accept the Applicant’s claim that the shortfall interest charge should be remitted. Although the audit did not commence until after the period referred to in para 49 of PS/LA 2006/8, the period referred to in that paragraph is a guide only and each case must be decided on the particular circumstances. I do not accept that the commencement of the audit by the Respondent was unduly delayed. At the time of the Respondent notifying the Applicant that he was intending auditing the Applicant’s tax affairs (see [10] above), the Applicant had not lodged tax returns for the years ended 30 June 2012 to 30 June 2014.
Further, interest charged on the shortfall is recognition of the loss of use of money. It is compensatory, not punitive. In the present case it is not, in my view, fair or reasonable to remit any part of the shortfall interest.
DECISIONS
Application 2017/0757
It was conceded by the Respondent that there should be a reduction of the Applicant’s assessed income for the year ended 30 June 2011 of $200. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the year ended 30 June 2011 to allow the objection to the default assessment in the amount of $200 and to adjust the penalty and the shortfall interest charge accordingly.
Application 2017/0758
It was conceded by the Respondent that there should be a reduction of the Applicant’s assessed income for the year ended 30 June 2012 of $177. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the year ended 30 June 2012 to allow the objection to the default assessment in the amount of $177 and to adjust the penalty and the shortfall interest charge accordingly.
Application 2017/0759
The objection decision is affirmed.
Application 2017/0760
The objection decision is affirmed.
I certify that the preceding 136 (one hundred and thirty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
...[Sgd].....................................................................
Associate
Dated: 28 April 2023
Dates of hearing: 9 November 2021, 1 March 2022 Counsel for the Applicant: 9 November 2021: C Lyford
1 March 2022: S ShepherdSolicitors for the Applicant: Forbes Kirby Lawyers Counsel for the Respondent: 9 November 2021: C H Thompson SC
1 March 2022: E LuckSolicitors for the Respondent: Australian Taxation Office
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