Hraichie and Commissioner of Taxation (Taxation)
[2021] AATA 2773
•10 August 2021
Hraichie and Commissioner of Taxation (Taxation) [2021] AATA 2773 (10 August 2021)
Division: SMALL BUSINESS TAXATION DIVISION
File Number(s): 2020/4536
2020/6656Re:Ahmad Hraichie
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President I R Molloy
Member P RansonDate:10 August 2021
Place:Brisbane
The objection decision made on 28 May 2020 in relation to the Applicant’s assessable income for the year ended 30 June 2017 is affirmed. The objection decision made on 21 September 2020 in relation to penalties is affirmed save that so far as necessary it should be recalculated by reference to the Applicant’s assessable income according to the objection decision made on 28 May 2020.
...............................[SGD].........................................
Deputy President I R Molloy
Catchwords
TAXATION – income tax – objection to tax assessment – administrative penalties – shortfall interest charge – onus of proof on taxpayer – special circumstances – whether payments are loan or income – decisions affirmed
Legislation
Income Tax Assessment Act 1936 (Cth)
Taxation Administration Act 1953 (Cth)
Cases
Bosanac v Commissioner of Taxation [2018] FCA 946
Bosanac v Commissioner of Taxation [2019] HCA 41
Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212
Federal Commissioner of Taxation V Rigoli [2013] FCA 784
Henry Frederick Heaton Walsh Ex Parte: Deputy Commissioner of Taxation [1982] FCA 88; (1982) 60 FLR 355
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148
Otway Pastoral Pty Ltd v Federal Commissioner of Taxation [2005] AATA 649
Contents
Decision
REASONS FOR DECISION
BACKGROUND
ISSUES FOR DETERMINATION
Income tax
Administrative penalties
Interest
PRELIMINARY MATTERS
Procedural history
Evidence
Onus of proof
Facts based on oral evidence
LEGAL FRAMEWORK
Sections 166 & 167
Penalties & interest
EVIDENCE
Witness statements of Ahmad
Sale of the Roselands Premises
The concrete pump loan
CJS Auto Group loans
Expense reimbursements
Inter-bank transfers
Conclusion as to the 2017 amended notice of assessment
Penalties and remission
DECISION
REASONS FOR DECISION
Deputy President I R Molloy
Member P Ranson10 August 2021
BACKGROUND
Mr Ahmad Hraichie (Ahmad) is an Australian resident. Ahmad and his family live in regional New South Wales having moved there in 2018. The family had previously lived at Greenacre, Sydney. He has four children one of whom has serious medical issues, and another encountered serious legal problems, which cost Ahmad a lot of money. In 2020, Ahmad was diagnosed with kidney failure requiring regular dialysis until a transplant can be arranged.
Ahmad owned and operated a personal training business in Roselands, Sydney, not far from his home in Greenacre, where he traded as ‘Healthy Life Healthy Choice’. He owned the property and sold supplements, provided personal training and healthy living instruction. In 2016, Ahmad decided for personal reasons to sell his business to a former client and in October 2016 he sold the Roselands property after it was rented for a short period.
In 2015, Ahmad advanced funds to a friend, Mr Anwar Elahmad (Anwar), to assist with the purchase of a concrete pump. Further funds were advanced over time and payments were received in return.
Another friend of Ahmad, Mr Simon Wakim (Simon), approached him in 2016 to assist with the purchase of luxury vehicles. Simon was in the luxury vehicle business operating through a company trading as ‘CJS Autogroup’. The arrangement involved Ahmad advancing sums of money to Simon who would purchase a luxury vehicle and then sell it. Under the arrangement, Simon would either repay the lump sum plus a share of the profit on the sale of the vehicle less his selling expenses, or the lump sum would be retained to assist with the purchase of another vehicle in which case the profit element of the previous transaction would be paid to Ahmad. Over time, Ahmad advanced approximately $2,000,000 to Simon under the vehicle financing arrangement. CJS Autogroup later went into liquidation.
Ahmad was also in the habit of incurring expenses, for example, airline tickets and charitable donations, for others who later repaid him. He was also in the habit of transferring funds between bank accounts in his name or in the name of his business.
The Australian Taxation Office (ATO) conducted an audit of Ahmad’s taxation affairs for the 2017 financial year and concluded Ahmad had substantial unexplained income and issued a default assessment including substantial penalties. Ahmad had not lodged a personal tax return for 2017, he says on the advice of his then accountant, because his taxable income was below the tax-free threshold.
In accordance with relevant taxation laws, substantial penalties and interest charges were applied to the income tax payable for 2017 as identified by the Commissioner of Taxation (the Commissioner). Ahmad appointed new accountants who in 2019 objected to the default assessment and the resultant penalties.
This is an application for review under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) of the objection decisions made by the Commissioner:
(a)on 28 May 2020 which allowed in part Ahmad’s objection of 20 November 2019 to the default assessment dated 1 November 2019 (default assessment) for the period 1 July 2016 to 30 June 2017; and
(b)on 21 September 2020 which disallowed Ahmad’s objection of 11 August 2020 to the assessment of penalty for failing to provide a document, dated 1 November 2019 (penalty assessment).
Taxation laws in Australia operate to place the onus on the taxpayer (in this case Ahmad) to prove an assessment is excessive. The onus is on Ahmad to establish what his true taxable income was. This is not a case in which, for instance, an amount is in dispute such that an assessment of whether it is assessable, or deductible, would determine the matter. As the Commissioner submits, the onus is not discharged by “chiselling away” at the amount assessed, without Ahmad proving what his taxable income was for the 2017 tax year.
For the reasons set out below the taxpayer, Ahmad, has not discharged the onus of proving the assessment was excessive, in that he has fallen well-short of establishing the correct amount of taxable income for the 2017 year. He has also not established that the penalty was incorrectly imposed or any special circumstances for remitting the penalty.
ISSUES FOR DETERMINATION
Income tax
Ahmad failed to lodge his personal income tax return for the year ended 30 June 2017. As a result, in 2019 the Commissioner conducted an audit of his taxation affairs by analysing his bank statements and discovered a series of unexplained deposits into his bank accounts. The Commissioner then sent an audit report, and issued a default assessment and penalty notice, on 1 November 2019.
The Statement of Issues, Facts and Contentions provided by the Commissioner dated 9 April 2021 (Respondent’s SIFC)[1] sets out the details of those default assessments:
[1] Exhibit 1, T Documents & Supplementary T Documents, Tab 2.
Year ended 30 June
Reported taxable income
Adjustment on audit
Tax shortfall amount[2]
Penalties[3]
Total amount payable
$
$
$
$
$
2017
Nil[4]
6,521,263
3,165,050.85
2,373,788.15
5,538,839.02
[2] Includes Medicare levy and temporary budget repair levy of $257,250.52.
[3] T Documents, T15, Respondent’s Audit Reasons for Decision, page 300 table 1 at [5].
[4] Ahmad lodged his personal income tax return for 2017.
On 20 November 2019, Mr Hafez Alameddine of Macquarie Accountants Pty Ltd (Mr Alameddine) lodged an objection to the default assessments but not the penalties. He also provided the Commissioner with substantial further information on behalf of Ahmad.
After considering the objection and the further information the Commissioner agreed to remove some of the unexplained deposits from the default assessment. On 5 June 2020 the Commissioner issued an amended assessment for the 2017 financial year. On 11 August 2020, Ahmad’s lawyers, Madison Marcus, lodged an objection to the penalties, which the Commissioner disallowed by decision dated 21 September 2020.
The taxable shortfall amount and penalties in dispute are also shown in the Respondent’s SIFC, and as modified by paragraph 44 of the Objection Decision[5], are as follows:
[5] Exhibit 1, Tab 2, page 820.
Year ended 30 June
Reported taxable income
Adjusted taxable income
Tax shortfall amount[6]
Penalties
Total amount payable
$
$
$
$
$
2017[7]
Nil
2,413,075
1,152,038.75
864,029.05
2,016,067.80
[6] Includes Medicare levy and temporary budget repair levy of $92,923.00.
[7] T Documents, T39, Applicant’s Notice of Amended Assessment for year ended 30 June 2017, page 457
Applications for review of reviewable objection decisions were lodged by Madison Marcus on behalf of Ahmad on 23 July 2020 in respect of the 2017 amended assessment and on 27 October 2020 in respect of the 2017 penalty assessment.
The default assessment was made under s 167 of the Income Tax Assessment Act 1936 (ITAA 1936). That places the onus on the taxpayer, viz, Ahmad, in a case such as this, to positively prove his actual taxable income and consequently what the assessment should have been. [8] This is issue number one.
[8] S 14ZZK(b)(i) of the TAA
Administrative penalties
Ahmad failed to lodge his personal income tax return for the 2017 financial year. He claims his then accountant, Mr Lloyd Fadi Agha (Mr Agha): ‘advised I did not need to lodge a return, as I was lending money and only receiving some of it back in repayments’[9]. In any event, the return was not lodged, and the Tribunal has no evidence before it to indicate it has been lodged even now. As a result, the Commissioner was required to determine his taxable income in the absence of that return and did so by analysing the flow of funds through his various bank accounts.
[9] Witness statement of Ahmad dated 15 March 2021 at [69].
Where the Commissioner determines a taxpayer’s taxable income without the assistance of a lodged tax return, the TAA provides for an administrative penalty of 75% to be applied to the tax shortfall.[10] Remission of administrative penalties can occur if there are special circumstances, which is discussed later in this decision.
[10] Section 284-75(3) of Schedule 1 to the TAA.
Issue number two is whether Ahmad should be liable for administrative penalties of 75% of the tax-related liability arising from the Commissioner’s original determination of his income for the 2017 year and whether any penalty should be remitted in whole or in part.
Interest
Shortfall interest charge (SIC)[11] is applied to income tax shortfalls for the period before assessments are amended and generally from the due date for payment of the earlier, understated assessment until the day before the notice of amended assessment is issued. SIC is calculated on a daily compounding basis using a base interest rate and an uplift factor.[12]
[11] Section 280-100 of Schedule 1 to the TAA
[12] Section 280-105 of Schedule 1 to the TAA
The Tribunal is unaware if SIC has been levied on the amended assessment for 2017 as no information was included in the evidence.
PRELIMINARY MATTERS
Procedural history
An oral hearing of the applications for review, including final submissions, was conducted over two days from 18 to 19 May 2021. The hearing time was largely taken up with oral evidence by Ahmad, who provided two witness statements. Simon and Mr Kadirhan Ilgun (Mr Ilgun) each provided witness statements and were also called to give oral evidence.
Counsel representing Ahmad was Mr Alastair Vincent (Mr Vincent). Counsel representing the Commissioner was Ms Elizabeth Bishop (Ms Bishop).
Evidence
The Joint Tribunal Hearing Book was admitted into evidence as Exhibit 1.
Onus of proof
In Bosanac v Commissioner of Taxation (“Bosanac”) Stewart J said:
‘The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. Where a taxpayer fails to retain records, which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness. This was the very problem which the applicant faced here.’[13]
[13] Bosanac v Commissioner of Taxation [2018] FCA 946 at [9]
In an application to the High Court for a writ of certiorari to quash a decision of the Full Court of the Federal Court (which dismissed an appeal from Stewart J’s decision in Bosanac), Nettle J said:
‘But where, as here, an appeal proceeds on the basis that not all of the material facts are known, either because the taxpayer has been less than forthcoming in making disclosures to the Commissioner or for some other reason, the taxpayer cannot succeed by showing only that the basis of the Commissioner’s assessment was in some respect erroneous; since for all that can be told, unless and until the taxpayer proves to the contrary, there may be other income of which the Commissioner was not aware and which the Commissioner has not taken into account. In order to succeed in such a case, the taxpayer must discharge the burden of demonstrating on the balance of probabilities the true amount of the taxpayer’s taxable income and thus that the amount determined by the objection decision is excessive. Here, that required the kind of wide survey and exact scrutiny of the plaintiff’s business activities to which the primary judge referred and which was conspicuously absent from the plaintiff’s presentation.’[14]
[14] Bosanac v Commissioner of Taxation [2019] HCA 41 at [30]
Substituting the word ‘Ahmad’ for the word ‘plaintiff’ in the quote above, this is the very problem which Ahmad faces in this review.
Facts based on oral evidence
The Tribunal’s approach to evaluating the evidence contained in the documentary and the oral evidence given at the hearing is based on the following principles:
(a)Facts may be found based on oral evidence alone. There is no barrier to a fact being found on the uncorroborated evidence of an applicant. There is no requirement that direct evidence by oral testimony or affidavit may only be accepted if corroborated.
(b)Self-serving statements should be closely scrutinised, that is, tested thoroughly and received with great caution.
(c)In respect of income tax, where a taxpayer has received funds that are not explained in contemporaneous records, the taxpayer may face a challenge in satisfying the burden of proof without corroborating evidence.
(d)Evidence of a taxpayer is not to be regarded as prime facie unacceptable. While it is often prudent to put forward corroborating evidence, taxpayers are not obliged to call all material witnesses or produce all material documents.[15]
LEGAL FRAMEWORK
[15] For this and the preceding propositions, see Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 148, 155; and FCT v Cassaniti [2018] FCAFC 212.
Sections 166 & 167
Section 166 of the ITAA provides as follows:
166 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 the ITAA provides as follows:
167 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.
In FCT v Rigoli[16], the court held: ‘Section 167 does not in terms require the Commissioner to make an assessment of a taxpayer’s 'taxable income' but, in contrast to s 166, has the effect of deeming as the taxpayer’s 'taxable income' the amount which upon his judgment income tax ought to be levied...’. That is, s 166 requires the Commissioner to assess a taxpayer’s taxable income and the tax payable thereon whereas s 167 only requires the Commissioner to assess the amount upon which income tax ought to be levied. The amount so determined effectively becomes the taxable income.
[16] FCT V Rigoli [2013] FCA 784 (7 August 2013) at [11].
Penalties & interest
The Commissioner can impose administrative penalties in certain circumstances under s 284-75 of the TAA. Because Ahmad had not lodged his 2017 tax return, the operative provision for this case is s 284-75(3) which states:
(3) You are liable to an administrative penalty if:
(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b)that document is necessary for the Commissioner to determine a tax‑related liability (other than one arising under the Excise Acts) of yours accurately; and
(c)the Commissioner determines the tax‑related liability without the assistance of that document.
Section 284-90 of the TAA then provides details of the base amount of the penalty from a table. Item 7 of the table applies in this case as it relates back to the penalty imposed under s 284-75. Item 7 says:
“You are liable to an administrative penalty under subsection 284 75(3): 75% of the tax related liability concerned.”
EVIDENCE
Witness statements of Ahmad
Ahmad provided a witness statement dated 15 March 2021 (Ahmad’s First Witness Statement)[17] and a supplementary witness statement dated 11 May 2021 (Ahmad’s Supplementary Witness Statement)[18].
[17] Exhibit 1, Tabs 3 – 19.
[18] Ibid Tab 21.
Ahmad’s First Witness Statement begins by discussing his former personal training business, known as ‘Healthy Life Healthy Choice’ (the Business) operated through a company called H.L.H.C. Pty Ltd ACN 169 756 852 (HLHC)[19]. At paragraph 6 he states the Business was conducted at premises at 894 Canterbury Road, Roselands NSW 2196 (the Roselands Premises) and at paragraph 8 he says the property was rented out for a period after the business closed and before it was sold.
[19] HLHC holds Australian Business Number (ABN) 98 169 756 852.
Ahmad says he sold the Business ‘sometime in 2016’ to a former personal training client, Mr Rhys Evans (Rhys) who he is no longer in contact with. The sale included personal training equipment and stock of supplements.
Tab 56 of Exhibit 1 is an extract from the ABN Lookup showing ABN 39 230 778 455 registered to Ahmad, which was active from 1 November 1999 to 31 March 2006 then cancelled, then active again from 8 November 2008 to 1 July 2015. The GST registration was active from 30 September 2000 to 30 March 2006, then cancelled, then active again from 4 November 2008 to 31 March 2017. Given the ABN was last cancelled on 1 July 2015, the Tribunal fails to understand how a valid GST registration could continue to 31 March 2017 when the ABN it is attached to has been cancelled. The ABN record also shows Ahmad used the trading name ‘Healthy Life Healthy Choice’ albeit not registered as a business name.
On the basis the Business was conducted by HLHC, the Tribunal assumes the sale of it to Rhys including gym equipment and stock of supplements were transactions between Rhys and HLHC, although that was not established at the hearing or in the evidence. The Tribunal notes the ABN registration for HLHC has been current since 26 May 2014. HLHC was first registered for GST on 26 May 2014, which was cancelled on 31 December 2016 and reinstated on 1 July 2020. The company has held the registered business name ‘Big H Eats’ since 22 May 2020.
Sale of the Roselands Premises
Ahmad says he sold the Roselands Premises for approximately $3.5 million and settlement occurred on 18 October 2016. The sale proceeds were paid into his Commonwealth Bank of Australia (CBA) account number ending #3571 (CBA 3571), which had an opening balance of Nil on 19 October 2016 and the first entry is a deposit of $2,638,355.48 narrated on the statement as ‘Chq Dep Branch Lakemba’ with handwritten notation of ‘Sale of Canterbury Rd’. He says about $1 million was used to pay out the loan with the National Australia Bank (NAB) for the Roseland Premises.
At paragraph 18 of the ATO reasons for objection decision[20], the ATO accepts the sale proceeds are not assessable income to Ahmad. The explanation given is ‘Sale of 894 Canterbury Road Roselands - Sold under SMSF see contract & Tax Return’. The Commissioner did not seek to depart from this position before the Tribunal.
[20] Exhibit 1, Tab 29.
At paragraph 12 of his First Witness Statement, Ahmad states he sold gym equipment and supplements after the business closed and there are deposits into CBA account ending #3563 (CBA 3563) ‘which have a connection with the business formerly carried on by HLHC.’ At paragraphs 13 and 14 he identifies deposits into CBA 3571 and CBA account ending #8685 (CBA 8685) as being variously rent, sale of supplements, sale of gym equipment, personal training fees, and others which are personal or for which he cannot recall the circumstances. At paragraph 15 he identifies an amount of $12,937.91 as ‘likely to have been interest’.
The concrete pump loan
Paragraphs 16 to 27 of his First Witness Statement describe Ahmad’s dealings with Anwar. He states he has known Anwar since childhood and Anwar confirmed this in his oral evidence and in his witness statement. The dealings with Anwar include an alleged loan for $250,000 on 25 November 2015[21] from Ahmad to Anwar for the purchase of a 40-50 metre concrete pump.
[21] Exhibit 1, Tab 8: Statement for ANZ account number ending 4511 shows a withdrawal of $250,028 on 25 November 2015. This amount includes a fee of $28 for the bank cheque.
Anwar is associated with a company called Power Concrete Pty Ltd ABN 80 144 984 903, at least that is the ABN shown on tax invoice number ISU.001 dated 15 January 2016 to HLHC for $250,000 including GST for one Isuzu 2005 model truck.[22] Ahmad’s evidence at the hearing about the tax invoice was: ‘it’s just proving that I had a share in that truck and that’s what he was owing me.’[23]
[22] Ibid Tab 9 : (AH-6 to Ahmad’s First Witness Statement) includes a copy of the tax invoice which specifies the VIN and registration number of the vehicle.
[23] Transcript, page 25, paragraph 5.
The loan was said to be for 12 months at an interest rate equivalent to the rate Ahmad was paying on his then home loan, 4-5% as stated in paragraph 20 of Ahmad’s First Witness Statement. The interest was set at that rate because Ahmad says he obtained the funds by drawing on his home loan. Having said in his oral evidence the tax invoice referred to at [4344] was to evidence the existence of the loan, in Ahmad’s First Witness Statement he says the tax invoice was to ‘provide some sort of security to me’. Ahmad continues: ‘The loan came to be documented by Anwar, sometime after it was entered into. At the time of the advance of the funds there was no written agreement.’ The purported loan agreement is attachment AH-7 to Ahmad’s First Witness Statement.[24]
[24] Exhibit 1, Tab 10.
The loan agreement is back-dated 25 November 2015 between Ahmad as ‘Lender’ and Anwar as ‘Borrower’ (the Anwar Loan Agreement). It has been signed by Anwar but not by Ahmad. Ahmad confirmed he did not sign the Anwar Loan Agreement.[25]
[25] Transcript, page 26, paragraph 5.
No explanation was provided in evidence as to why Anwar was the borrower and not Power Concrete Pty Ltd, and whether Anwar on-lent the funds to Power Concrete Pty Ltd to purchase the concrete pump. The End Date of the loan is specified as 28 February 2016 and, despite Ahmad’s comments at [45], the ‘Prescribed Rate [of interest] means 0% per annum’. Part 5 of the Anwar Loan Agreement specifies ‘The Borrower must pay to the Lender interest at the Prescribed Rate on the Principal’. Also, a loan made on 25 November 2015 with an End Date of 28 February 2016 is not for a period of one year as Ahmad states, rather a period of just over three months.
Curiously, the Anwar Loan Agreement sets out in clause 15 terms relating to the application of GST. It states:
‘15.1 Any moneys payable under this agreement have been calculated without regard to GST.’
‘15.2… if GST is payable on a supply made by a party to this agreement (Supplier) under or in connection with this agreement, the party providing consideration for that supply (Recipient) must pay to the Supplier at the same time as the consideration is due to be provided under this agreement, an additional amount equal to the applicable rate of GST multiplied by the amount of consideration provided for that supply.’
GST does not apply to interest as such payments are referred to as input-taxed sales. Why the Anwar Loan Agreement has a section dealing with GST is not explained. It would be more easily understood if the transaction was not a loan but rather the sale of a truck to HLHC, see [43-44].
In his oral evidence, Ahmad commented on the reason the Anwar Loan Agreement was created. He said: ‘I asked him to create some formal thing, in case I passed away, in case something happened to me, to prove to my family that I have something owing and he said yes, I will get it done. And I left it at that.’ If so, why was it necessary for Power Concrete Pty Ltd to issue a tax invoice to HLHC to prove Ahmad had a share in the truck, which was not defined, and the amount owing to him.
In Ahmad’s First Witness Statement he says Power Concrete Pty Ltd issued the tax invoice to HLHC to provide some sort of security for the loan, see [45]. The Anwar Loan Agreement is silent as to security for the loan, is not signed by Ahmad and was created on a date Ahmad did not know after the loan was made. Security for the loan was understandably of importance to Ahmad yet the loan was made without the assistance of a finalised agreement.
The complexity or confusion increases with the issuing of a tax invoice on 15 January 2016 by HLHC to Power Concrete Pty Ltd for $220,000 without GST for the same Isuzu truck[26] apparently sold by Power Concrete Pty Ltd to HLHC for $250,000 including GST, the same day.[27] The exclusion of GST on this tax invoice is said to arise as the truck was sold ‘as a going concern’, which clearly implies the truck was owned and being used by HLHC in a business (otherwise the GST exemption for a going concern would not apply) yet Ahmad says in his evidence at the hearing: ‘It wasn’t my truck. I had loaned him the money for the truck, for his business (emphasis added by the Tribunal). But I wanted something as collateral to prove that I’ve got my money in something.’[28]
26 The vehicle identification number (VIN) and NSW registration number are the same on both tax invoices.
[27] Exhibit 1, Tab 59.
[28] Transcript, page 24, paragraph 45.
Ahmad’s evidence continues: ‘He purchased my share out of the truck again, which was the money I loaned him for the truck.’ Ahmad says he never operated the truck, yet the tax invoice he prepared and signed shows HLHC sold it back to Power Concrete Pty Ltd based on a going concern.
Ahmad confirmed in his evidence at the hearing he ‘took a loss’ by selling the truck back to Power Concrete Pty Ltd for $220,000 having paid $227,272.73, being the GST exclusive amount shown on tax invoice ISU.001, see [44], yet he provided no explanation for taking the loss or why the truck was bought and sold between Power Concrete Pty Ltd and HLHC on the same day for different amounts.
At some point, Ahmad appointed Macquarie Accountants Pty Ltd to assist with his objection to the original notice of assessment for 2017. They prepared a letter dated 20 November 2019 with supporting schedules to accompany the objection lodged with the ATO that day.[29] Schedule A to that letter sets out their summation of the transactions involving the concrete pump during the year ended 30 June 2017[30], which shows the amount of the original loan of $250,000 in 2015 (25 November 2015) less various payments totalling $182,700 leaving a balance owing as at 30 June 2017 of $67,300.
[29] Exhibit 1, Tab 43.
[30] Ibid Tab 44.
The Anwar Loan Agreement specifies an End Date of 28 February 2016. Schedule A to the Macquarie Accountant’s letter of 20 November 2019 shows no payments made until 25 July 2016 and a balance still outstanding as at 30 June 2017. Schedule A attaches a reference numbered 1 to 6 noted as ‘Labelled on Statement’. The evidence before the Tribunal did not include the statements with that labelling. Anwar sent an e-mail which states: ‘I Anwar Elahmad do acknowledge that I repaid $100,000.00 loan to you 25/7/2016.’[31] The Tribunal places little weight on this e-mail because post-it notes on the scanned image obscure the date the e-mail was sent and the name of the recipient.
[31] Ibid Tab 58.
No explanation was given as to why Anwar did not make any repayments on the loan prior to the End Date or otherwise comply with the repayment terms of the loan agreement set out in section 4 of that document.
The Tribunal considers none of the elements of the concrete pump loan, if in fact it was a loan, amounts to a commercially based transaction. There was no witness statement from Anwar which might have clarified this or any other aspect of these transactions. Nor was there any explanation for the absence of any evidence from him.
On behalf of Ahmad it was submitted an amount of $186,265.00 received in connection with what has been described as the concrete pump loan was incorrectly regarded as assessable income. It was contended on his behalf that under cross-examination he “appropriately and adequately explained all details of the loan.” The Tribunal does not accept that contention. Moreover, in all the circumstances the Tribunal is not satisfied the amounts received by Ahmad in the 2017 tax year totalling the said $186,265 did not form part of his assessable income.
CJS Auto Group loans
Simon is associated with a company called CJS Group Sydney Pty Ltd ACN 607 133 399 (CJS) including as a director at times. Ahmad says he and Simon went to primary school together and lost contact in their 20s until in 2016 when Ahmad was selling his business and their paths crossed again. Ahmad says he was looking for income as he was living off his savings and needed to pay legal costs for his son who was ‘in serious trouble’.
Simon provided a witness statement dated 15 March 2021 (Mr Wakim’s Witness Statement).[32]
[32] Exhibit 1, Tab 25.
Ahmad says Simon suggested an arrangement whereby he [Ahmad] could ‘put money into the car business known as "CJS Autogroup" and obtain a return.’ Ahmad says he was told by Simon: ‘If you lend money for cars, and I sell them at a profit, I'll give you some of it. No amounts were specified, but I was told: You can make some profit.’[33] And ‘Simon proposed that I lend CJS money on the basis it would give me a return of $2,500.00 to $10,000.00 per month, being the time he needed to sell his cars.’[34] Simon said he had a number of such arrangements with other lenders (or “funders”).
[33] Ibid Tab 3 at [30].
[34] Ibid [31].
Ahmad says Simon offered to document the agreement however Ahmad declined the offer saying it was not necessary as he trusted Simon as a friend. The parties did agree the loans would be to CJS and Ahmad could hold a car as security. Simon apparently confirmed the arrangements by saying: ‘If it was sold, you could make a $5,000.00 to $10,000.00 profit, quickly.’
A search of the records of the Australian Securities & Investments Commission (ASIC) reveals the court appointed a liquidator to CJS on 23 October 2019.[35]
[35] Exhibit 1, Tab 22.
The loans began with $100,000 paid by cheque drawn on 9 September 2016 to Avant Automotive, at the request of Simon, and presented on 12 September 2016. This amount was to assist with the purchase of a Rolls Royce Ghost and Ahmad held the car as security. The loans continued until at least 23 December 2017 according to Schedule B to the letter of Macquarie Accountants dated 20 November 2019, see [55]. Schedule B is entitled ‘Car Loan to CJS Group Sydney Pty Ltd (Simon Wakim)’ and sets out a series of transactions from 12 September 2016 to 23 December 2017, which it says records the loans made to CJS and funds returned to Ahmad during that period as follows:
Period
Loans made
Amounts repaid
Surplus/(Shortfall)
09/09/2016 to 30/06/2017
1,405,000
1,790,650
385,650
09/09/2016 to 31/12/2017
1,805,000
1,790,650
(14,350)
In his evidence at the hearing, Simon said at first:
‘I can’t recall what the negotiation was at the time, it was either a 50/50 split or something along those lines, minus company expenses, I am not 100 per cent and I am trying to get my mind around what the exact agreement was. But nevertheless, it was beneficial for both parties.’[36]
[36] Transcript, page 42, paragraph 20.
Later he expanded on the arrangement by saying:
‘There would be a payment going back, inclusive of the profit, I am assuming that’s how it would’ve been done. Say for example, if he funded $100,000 car and we sold that, for example, for $110,000, then we would transfer back to him $105,000, which is the amount of the principal plus the profit.’[37]
[37] Transcript, page 43, paragraph 5.
At paragraph 10 of Mr Wakim’s Witness Statement he lists several amounts he says are ‘loan repayments’ to Ahmad. When asked during cross-examination why he described them as such, he said:
‘Because he [Ahmad] loaned the company the money for the car, then we [CJS] paid him back the loan plus the profit, I am assuming, that’s how I would’ve done it.’
Whilst Simon does not say every amount paid to Ahmad would include the return of his loan plus profit share, he clearly says some of the amounts did include profit. He gives an example:
‘… where we got $100,000 on 3 November, then if you look down below, it says $103,500 paid back on 14 November, I am assuming that correlates with the $100,000 credited on 3 November …’[38]
[38] Transcript, page 43, paragraph 40.
Not all amounts paid by CJS to Ahmad were either return of a loan with or without a profit element. Sometimes Ahmad opted, or Simon asked him, to leave his funds with CJS to apply to another car deal, which is an arrangement Simon called ‘a contra deal’. In this scenario, amounts paid by CJS to Ahmad would be the profit element from a previous deal such as $10,000 on 4 November 2016. Ms Bishop attempted to sum up the arrangements by the following exchange on day 1 of the hearing:
Question by Ms Bishop
Response by Simon
Page 44, paragraph 30:
So, when there’s a lump sum of say $100,000, that’s more than likely the repayment plus the profit, is that right?
Correct, correct.
Page 44, paragraph 35:
But when it’s just an amount that’s characterised in your bank statement solely as profit?
Then that’ll be the profit itself, correct.
It seems the profit-sharing arrangement between Ahmad and CJS extended to the payment of commission. Simon’s evidence in relation to the arrangements with all funders was:
‘Yes, so we pay commissions, we pay profits, we pay jeez, we pay interest, we pay – so there are a number of things that we do pay, yes.’[39]
[39] Transcript, page 45, paragraph 25.
In relation to Ahmad the following exchange took place on day 1 of the hearing:
Question by Ms Bishop
Response by Simon
Page 45, paragraph 35:
So, there’s a transfer there to Mr Hraichie on 2 June and the reference is Comm, so is that commission?
2 June, 2 June, it says comms of $6,000, yes, that’s – is that the one?
Page 45, paragraph 40:
And so, over the following page on 19 June, again, that would be commission?
If it says – what amount was it, the – oh yes, 19 June, yes, 19 June, it’s got comms, yes, that’s right, commission.
Page 45, paragraph 45:
And then again on 24 June, $2,000 commission?
That’s correct.
The point of Ms Bishop’s line of questions was to show Simon’s statement that all monies paid to Ahmad were loan repayments was ‘loose language’ as it had become clear from his evidence some amounts were wholly income, viz, profit share or commission, and some, but not necessarily all, were loan repayments which included profit share. Simon said it would be a difficult exercise to determine now the composition of each payment made to Ahmad, not the least of which because the records of CJS had been taken by the court appointed liquidator in 2019.
As with the concrete pump loan, the complexity of the CJS loan arrangement increased over time. Ms Bishop drew Simon’s attention to the funding for a Bentley Mulsanne. CJS issued a ‘Contract for the Purchase of a Used car’ on 9 May 2017. The customer is listed as Ahmad for a ‘Bentley Mulsanne 3Y 2015’ for $495,000, being $450,000 plus GST.[40] Then on the same day, CJS issued a ‘Tax Invoice for the Purchase of a Used Car’ for the same Bentley Mulsanne (the Tribunal checked and the VIN was the same on both documents). This time the customer was Knockout Motors Pty Ltd. Curiously, the ‘Special Conditions’ section of this tax invoice records ‘Paid by Ahmad Hraichie [Greenacre NSW 2199] [DL: XXXXX 677] [DOB: XX/XX1976]’.
[40] Exhibit 1, Tab 60.
Simon explained the transaction and its funding in the following exchange on day 1 of the hearing:
Question by Ms Bishop
Response by Simon
Page 48, paragraph 35:
So why is the contract price here 495 [$495,000] for the same day?
So, Ahmad would’ve – we get him to fund it for 495 [$495,000], and then we sell it for 600 [$600,000], so then we make $105,000 profit.
Page 48, paragraph 40:
And this purchase wouldn’t be registered with New South Wales service, would it, so it would be a – it wouldn’t be registered in his name first before it’s then - - -?
No, so we might have just given it to him. Some funders prefer a contract of sale for their peace of mind.
The Tribunal concludes from the discussion above CJS would, if requested, prepare a tax invoice to a funder for the vehicle allocated as security for a loan, usually the vehicle purchased with the loan funds. The vehicle registration transfer associated with the ‘sale’ was not registered with the transport authorities in NSW and presumably the tax invoice was voided once the loan was repaid, although that was not dealt with in the evidence.
Three different schedules have been prepared setting out the movements in the CJS loans during the year ended 30 June 2017. They are:
(a)Schedule B prepared by Macquarie Accountants[41]
(b)Attachment C[42]
(c)Schedule of Loan Transfers between Ahmad Hraichie and CJS Group Sydney Pty Ltd submitted as part of closing submissions by Mr Vincent.[43]
[41] Exhibit 1, Tab 45.
[42] Ibid Tab 95.
[43] Applicant’s First Witness Statement dated 3 February 2021, attachment ‘AH-7’
All three schedules above arrive at different positions as to the balance of the CJS loans as at 30 June 2017 and the composition of the funds paid to Ahmad as follows:
Source
Loans made
Loans repaid
Income
Schedule B
1,405,000
1,790,650
0
Attachment C
2,155,000
2,000,650
0
Schedule of Loan Transfers
2,155,000
2,030,650
363,000
It is clear to the Tribunal no one has done what is required here, which could involve obtaining the necessary records of both Ahmad and CJS (from the liquidator if necessary), and positively determining what each amount represented and from that determine the outstanding balance of the alleged loans as at 30 June 2017 and, more importantly, the income paid by CJS to Ahmad during that year.
Mr Vincent refers to Re Walsh; Ex parte Deputy Commissioner of Taxation[44] concerning the appropriation of payments made by a debtor to a creditor, where the debtor owes a creditor more than one debt. He submitted:
‘The principle is where the debtor gets to choose. And if the debtor specifically appropriates a payment to a specific debt, then that is taken to be the debt which is paid down, but if no specific appropriation is made by the debtor, then the creditor gets to determine how the funds are treated and appropriated by him towards the multiple liabilities or debts.’
[44] Re Henry Frederick Heaton Walsh Ex Parte: Deputy Commissioner of Taxation [1982] FCA 88; (1982) 60 FLR 355
A difficulty for Ahmad is Simon, or someone under his direction, specifically annotated some of the payments made to Ahmad as either ‘profit’ or ‘commission’. That being the case, the debtor, CJS, has appropriated those payments, that is, as income generated under the funding arrangement, and not to repayment of any specific debt. Therefore, it is not Ahmad’s choice to apply those payments so annotated to repayment of capital. They must be characterised as income.
Moreover, although Ahmad says all the transfers to CJS or Simon were “loans”, and there are several occasions where he has recorded “loan” or “Simon loan”, there are also numerous transfers in his bank statements simply described by identification of a make or model of vehicle, for example, “Bentley”, “MacLaren (sic)”, “GLS350”. Ahmad denied that he had invested in CJS, and asserted that all monies transferred to Simon were loans.[45] Later he did concede he received profits from the sales of vehicles despite only remembering a couple.[46] In the end, notwithstanding doubt as to the true nature of the “loans”, and despite the schedule which accompanied Ahmad’s closing submissions, the Tribunal is left in the position of not knowing how much was received in repayment of the original amounts advanced by Ahmad and how much was income.
[45] Transcript, page 18, lines 9-14.
[46] Transcript, page 18, lines 24-25.
Ahmad’s Supplementary Witness Statement is mostly devoted to explaining Ahmad’s attempts to gain the return of the funds he advanced to CJS. Copies of Optus mobile phone bills for the period April to June 2018 are provided[47] and discussed at paragraph 8, At paragraph 9 he states he has tried without success to obtain from Optus a copy of all tax invoices for the period July 2016 to March 2018. The Optus mobile phone bills identify numerous calls made to a number ending with #1116, which Ahmad says is the number for Simon. Given this case is about Ahmad’s income for the year ended 30 June 2017, the Tribunal fails to see the relevance of the Optus phone bills as they only show activity from April to June 2018.
[47] Exhibit 1, Tab 23.
Expense reimbursements
Ahmad was in the habit of purchasing items for others using his credit card so he could collect frequent flyer points on the transaction. The party for whom the transaction was made would then reimburse him by transferring funds to his bank account. Once such transaction involved Mr Kadirhan Ilgun (Mr Ilgun) who provided a witness statement dated 13 December 2020 (Mr Ilgun’s Witness Statement). The transaction involved Ahmad paying for travel arrangements for Mr Ilgun on 11 October 2016 at a cost of $15,350, which Mr Ilgun reimbursed on 11 October 2016 from his ANZ account ending #976.[48] A similar transaction involved Mr Ahmed Houcher (Mr Houcher) who, Ahmad says, reimbursed him on 10 October 2016.
[48] Annexure A to the witness statement of Mr Ilgun, Tab 20 of Exhibit 1.
In his evidence at the hearing, Ahmad explains on 26 September 2016 he incurred a charge of $15,396 paid to ‘Alpha Flight Guru’, which included a card fee, and various other amounts as shown on statements for his Westpac credit card number ending #5884[49], as follows:
[49] Exhibit 1, Tab 19.
Date
Paid to
$Amount
05/09/2016
Emirates Airlines
571
05/09/2016
Singapore Airlines
485
09/09/2016
Alpha Flight guru
6,231
25/09/2016
Qatar Air
1,937
25/09/2016
Qatar Air
1,937
25/09/2016
Qatar Air
2,438
25/09/2016
Travel Reservation
6,467
Total
$20,066
The Tribunal understands the principle of paying expenses for others to obtain frequent flyer points and later being reimbursed, perhaps omitting to claim reimbursement of the card fee, as in one of the examples. However, using the amounts identified by Ahmad in his evidence[50], the amount incurred was $20,066 and the amount reimbursed was $15,350, a difference of $4,716, which is not explained by his evidence. Either the amount Ahmad sought reimbursement for was poorly calculated or the amount of the so-called reimbursement was not connected with the expenses incurred, neither of which is explained by the evidence.
[50] Transcript, page 29, paragraph 20.
Various other amounts are listed at paragraph 62 of Ahmad’s First Witness Statement. Some he states are transfers between his various bank accounts whilst others are income from the sale of supplements or possibly rent. Apart from the amount of $15,396 discussed above, all are small amounts of less than $2,000, excluding inter-bank transfers. There is an amount of $20,000 on 14 June 2017 described as ‘… an advance payment for what ended up being a $25,000 donation to UMA Social services Ltd (UMA), made on 14 August 2017’.
The evidence includes a copy of a credit card statement for Ahmad’s account number ending #0067 showing the charge on 14 August 2017 of $25,000 to UMA Social Services[51] and a copy of a ‘Tax Receipt’ from UMA dated 15 August 2017 for $25,000 being a donation from Ahmad[52]. The Tribunal is satisfied Ahmad made a donation to UMA on 15 August 2017, however Ahmad’s First Witness Statement does not explain the link between $20,000 credited to his account on 14 June 2017 and the donation made on 15 August 2017, other than to assert without contemporary evidence the amount was an advance payment for the donation. In the circumstances the Tribunal is not satisfied with this explanation.
[51] Exhibit 1, Tab 14.
[52] Ibid Tab 15.
Inter-bank transfers
The Tribunal accepts transfers between bank accounts held by Ahmad, including those held jointly with his wife, are not income.
Conclusion as to the 2017 amended notice of assessment
Ahmad’s task in this review was to demonstrate the true amount of his taxable income and thus the amount determined by the objection decision was excessive. Said another way, to prove the Commissioner’s amended assessment was excessive, Ahmad had to positively prove his taxable income for 2017. He failed to do that. His approach was to discredit the findings of the Commissioner to prove the amended assessment was excessive, for example by claiming, as Mr Vincent did in his opening remarks it is ‘plain as a pike staff’, a loan arrangement existed between Ahmad and CJS and therefore not all of the amounts included by the Commissioner could possibly be income. That is not the test.
The Tribunal finds Ahmad has not discharged the onus to prove the extent to which the default assessment for 2017 is excessive and what that assessment should have been.
Penalties and remission
Section 284-75 of the TAA is set out above, see [33] and [34]. The Tribunal accepts the Commissioner’s submissions the imposition of penalties at 75% for failing to provide a return are appropriate.
Ahmad says his accountant, Mr Agha, advised him he did not have to prepare an income tax return for 2017 as his taxable income, if any, was below the tax-free threshold because he was only making loans. No evidence was called from Mr Agha. It is not known what information Ahmad provided to Mr Agha about his business and taxation affairs for the 2017 year. It is not known the extent to which Mr Agha made the necessary enquiries of Ahmad to ascertain his income from all sources during the 2017 financial year and applied appropriate rigour to the information he was presented with. Ahmad has conceded he had undeclared income.
Once a penalty has been applied by the Commissioner, it is open to him under s 298-20 to remit some or all of the penalty by written notice with reasons to the taxpayer. In Re: Otway Pastoral Pty Ltd[53] Senior Member Pascoe of this Tribunal noted at [10]:
‘Section 298-20 of Schedule 1 to the Act provides discretion to remit all or part of a penalty under section 286-75. Whilst the section does not contain any guidelines as to appropriate circumstances in which the discretion should be exercised it is clear that remission should be granted only where special circumstances existed, failure to lodge was due to factors outside the control of the taxpayer and all reasonable mitigating steps were taken by the taxpayer.’
[53] Otway Pastoral Pty Ltd v Federal Commissioner of Taxation [2005] AATA 649
Ahmad seeks remission of the administrative penalty because of his special circumstances. He asserts he was unable to focus on his personal finances because of severe family issues, including his own major health issues, and he did not engage in any reckless behaviour. The Tribunal notes from Ahmad’s evidence at the hearing he was not in financial difficulties in the 2017 financial year nor did he have serious health issues at that time.
There is no evidence before the Tribunal to indicate Ahmad was incapacitated to prevent him from attending to his taxation affairs for 2017. The opposite is the case as Ahmad said in his evidence his kidney issues did not occur until 2018, that is, after the sale of the Business and the CJS loan arrangement ceased.
The Tribunal finds there are no special circumstances which warrant the remission of the administrative penalties imposed by the Commissioner, which should be calculated based on Ahmad’s taxable income according to the objection decision made on 28 May 2020.
DECISION
The Tribunal affirms the objection decision made by the Commissioner on 28 May 2020 in relation to the amended taxable income for the year ended 30 June 2017 and also affirms the objection decision on penalties save that so far as necessary it should be recalculated based on the taxable income according to the said objection decision.
I certify that the preceding 98 (ninety-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy and Member P Ranson
……………………[SGD]……………………..
Associate
Dated: 10 August 2021
Date of Hearing: 18 and 19 May 2021 Solicitor for the Applicant: Mr John De La Hoyde Counsel for the Applicant: Mr Alastair Vincent Solicitor for the Respondent: Australian Government Solicitor Counsel for the Respondent: Ms Elizabeth Bishop
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