HWFX and Commissioner of Taxation (Taxation) - [2025] ARTA 680

HWFX and Commissioner of Taxation (Taxation) [2025] ARTA 680 (2 June 2025)
Applicant/s:  HWFX
Respondent:  Commissioner of Taxation
Tribunal Number:                2022/8365
Tribunal:General Member M Abood
Place:Sydney
Date:2 June 2025
Decision:The Tribunal affirms the decisions under review.

…………SGD…………………..
General Member M Abood
Catchwords
TAXATION – income tax default assessments – administrative penalty assessments – whether the taxpayer could satisfy the onus of proof by establishing that the assessments were excessive and what they ought to have been – whether applicant intentionally disregarded a taxation law – whether remission of administrative penalty appropriate – objection decisions affirmed
Legislation
Income Tax Assessment Act 1936 (Cth) ss 6(1), 161, 166, 167, 170, 175A
Income Tax Assessment Act 1997 (Cth) ss 4-15, 6-5, 6-10,10-5
Taxation Administration Act 1953 (Cth) ss 14ZY, 14ZZ, 14ZZE, 14ZZJ, 14ZZK, Schedule 1, 280-100, 284-75, 284-80, 284-90, 284-220, 298-220
Cases
Binetter v Commissioner of Taxation [2016] FCAFC 163
Bosanac v Commissioner of Taxation [2018] FCA 946
Buzadzic v Commissioner of Taxation [2024] FCAFC 50
Commissioner of Taxation v Ross [2021] FCA 766
Denver Chemical Manufacturing Company v Commissioner of Taxation (1949) 79 CLR 296
Federal Commissioner of Taxation v Dalco (1936) 168 CLR 615
Gashi v Commissioner of Taxation [2013] FCAFC 30
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 22 ATR 148
McPartland v Commissioner of Taxation [2025] FCAFC 23
Price Street Professional Centre Pty Ltd v Commissioner of Taxation [2007] FCA 345
Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
Trautwein v Federal Commissioner of Taxation (1936) 168 CLR 614
Weyers v Commissioner of Taxation [2006] FCA 818
Secondary Materials
MT 2008/1 Miscellaneous Taxation Ruling - Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
PSLA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount
Statement of Reasons
INTRODUCTION

The Applicant in this matter seeks review of two objections decisions made by the Commissioner of Taxation (the Respondent) on 26 July 2022 and 10 October 2022 (the Objection Decisions). The Applicant had objected to:
(a)amended assessments of income tax (Amended Assessments) issued by the Respondent in respect of the income years ending 30 June 2016 to 30 June 2021 (inclusive) (the Relevant Years); and
(b)administrative penalty assessments (Penalty Assessments) issued by the Respondent for the Relevant Years.
The Amended Assessments and Penalty Assessments were raised by the Respondent at the conclusion of an audit conducted by officers of the Australian Taxation Office into the Applicant’s financial affairs. The audit, which was commenced without notice, found that during the Relevant Years:
·many deposits and fund transfers had flowed into a number of Australian bank accounts that the Applicant held, controlled and operated;
·the combined amounts of those deposits and transfers far exceeded what the Applicant had reported as her assessable income in her income tax return for each year of the Relevant Years;
·the deposits and transfers were from sources unexplained and appeared (absent any other explanations) to have the character of assessable income; and
·the Applicant had deliberately refrained from including such amounts in her income tax returns in order to reduce her taxation liability.
Combined, the Amended Assessments and the Penalty Assessments together with the applicable shortfall interest charge led to an increase of the Applicant’s taxation liability for the Relevant Years in excess of $700,000.
The Applicant lodged separate objections to the Amended Assessments and the Penalty Assessment, both of which the Respondent considered and determined so that the objection to:
i.the Amended Assessments was:
a.partially allowed in relation to the 30 June 2017 year with a moderate reduction to the consequent liability in that year; and
b.wholly disallowed in relation to the years 30 June 2016, 2018, 2019, 2020 and 2021; and
ii.the Penalty Assessment was wholly disallowed.
The Applicant now asks the Tribunal to review the Objection Decisions. To be successful in that review, broadly speaking, the Applicant will need to establish that, firstly, she did not engage in behaviour that amounted to ‘evasion’ in respect of the Income Years ending 30 June 2016 to 2019; and secondly, that not merely are the Amended Assessments and Penalty Assessments raised by Respondent excessive but what those assessments should have been.
Put another way, in relation to the Amended Assessments, it is inadequate for the Applicant to simply demonstrate to the Tribunal that the amounts the Respondent has arrived at are incorrect. The Applicant must go further and establish on the balance of probabilities the true extent of her full taxable income. In relation to the Penalty Assessments, she must demonstrate that either no false or misleading statements were made to the Commissioner that resulted in a shortfall of tax, or, if she accepts that such statements may have been made, that they were not made by the Applicant intending to disregard a taxation law.
The Applicant also seeks remission in relation to the Penalty Assessments on the basis that their impact would be, in some way, disproportionate to her conduct.
For the reasons that follow I have determined that the Applicant has been unable to establish those matters in relation to either the Amended Assessments or Penalty Assessments and there is no basis for any remission of the latter.
The Applicant has made a request, as is her right under section 14ZZE of the Taxation Administration Act 1953 (Cth) (TAA 1953), that the hearing of this application be conducted in private. The Tribunal has therefore taken steps to provide her with a pseudonym and I have anonymised these reasons pursuant to section 14ZZJ to ensure, as far as practicable, that they are not likely to identify her.
BACKGROUND
The Applicant is a 56-year-old female who migrated to Australia in around 2007 from China with her husband and son. The Applicant initially resided in Australia on a Partner (Provisional) visa and by February 2010, she had acquired permanent residence status on a Partner (Migrant) visa (Subclass 100).[1]
[1] Exhibit 1 – Hearing Book ST67-1086.
It appears that in those early years the Applicant would occasionally travel back to China and, according to her oral evidence given in the course of a 2-day hearing, maintained some level of employment in China working “on and off”[2].
[2] Hearing Transcript of 27 November 2024- page 38.
Between the period of November 2000 to approximately March 2010, the Applicant asserts that she acquired and sold 5 or 6 properties in China, as well as one additional property in China, an apartment in Zhumadian City, which she continues to hold.[3]
[3] Exhibit 1 – Hearing Book ST67-1147.
By 2011 the Applicant’s marriage had ended and the Applicant, who had previously worked as a cleaner, began working in the sex industry as an escort.[4] The Applicant would independently advertise her services and conduct her escort work in various hotels or properties in cities along Australia’s east coast and it appears that her clients would typically pay her either in cash or by transferring her fee directly into one of her Australian bank accounts.
[4] Hearing Transcript of 27 November 2024- page 55.
According to the Applicant she would also help some friends who were sex workers with their advertisements. Her evidence indicated that her involvement in their work went no further than aiding them place ads. However, the extent to which the Applicant engaged professionally in facilitating the work of other sex workers remains in contention before the Tribunal.[5] What is not in dispute is that the Applicant, at least, carried on her own escort work in the sex industry from 2011 and up to, at least, 2021;[6] a period that includes the entirety of the Relevant Years.
[5] Hearing Transcript of 27 November 2024- page 55-59.
[6] Hearing Transcript of 27 November 2024- page 55.
In August 2014, the tax year immediately prior to the Relevant Years, the Applicant entered into a contract for the purchase of a residential property in Western Sydney, which remains her principal residence, for $880,000. The settlement for this property occurred in September 2015 and was paid for using funds from a Westpac loan of $704,000.[7] When the Applicant applied for that loan she identified herself as being employed as a “General Manager-Private Industry” of a Chinese company based in Henan, China and disclosed that her annual gross income was $147,829.[8]
[7] Hearing Transcript of 27 November 2024- page 41.
[8] Exhibit 1 – Hearing Book ST72-1243-1256.
By 1 December 2015, little more than three months after the loan had been drawn down, the outstanding balance on the Westpac home loan had been reduced to some $70,000.[9]
[9] Exhibit 1 – Hearing Book ST73-1269.
A little over two years after the purchase of the Western Sydney property, the Applicant purchased an additional Australian property; an apartment in a suburb in Sydney’s Inner West, which she described as an ‘investment property’. The purchase of that property settled in June 2018, for the price of $798,000 which was paid for entirely in cash. According to the Applicant, that property was sold at some point later at a loss of $70,000.[10]
[10] Hearing Transcript of 27 November 2024- page 54.
There is no dispute between the parties that for the Relevant Years the Applicant was an Australian resident for tax purposes. During those years the Applicant lodged her income tax returns returning modest amounts of taxable income said to be derived from the provision of “personal services” ranging from $16,736 to $25,675 per year.[11] Consequently, she paid little or no tax during that period.
[11] Exhibit 1 – Hearing Book T3-13 to T8-201.
Audit
At some point before July 2021 the Respondent commenced an audit into the Applicant’s financial affairs and obtained bank details and statements pertaining to 11 Australian bank accounts which were held and operated by the Applicant[12]. An analysis of those statements revealed significant cash deposits had made their way into those accounts during the Relevant Years. The amounts appeared to have come from both Australian and Chinese sources and, without obvious alternate explanations, seemed to be in the nature of income receipts. These amounts far exceed the amounts declared in the Applicant’s income tax returns.[13] The Respondent was therefore not satisfied that the returns represented the true depiction of her taxable income.
[12] Exhibit 1 – Hearing Book T50-903.
[13] Exhibit 1 – Hearing Book T50-918-968.
The Respondent performed what it described as a “genuine attempt to ascertain [the Applicant’s] assessable income” for the Relevant Years.[14] A bank statement analysis was undertaken whereby transfers received from foreign sources and any other unexplained local deposits into the Applicant’s bank accounts were considered to be ordinary assessable income in the hands of the Applicant. The total for each relevant year was then reduced to account for the personal services income the Applicant had previously declared in her returns.
[14] Exhibit 1 – Hearing Book T50-905.
From this analysis, the Respondent formed the view that the Applicant had derived over the course of the Relevant Years, additional assessable income of $920,524. This led to a shortfall in the amount of tax the Applicant would otherwise have been liable for of $350,909 (see the table below):[15]
[15] Exhibit 1 – Hearing Book T50-902.

Year ending

30 June

Income Returned

($)

Additional Assessable Income ($)

Tax Shortfall Amounts

($)

2016

21,761

172,647

67,848

2017

22,023

289,575

122,358

2018

22,461

100,967

35,606

2019

23,145

157,153

57,908

2020

16,736

137,189

47,918

2021

25,675

62,993

19,267

Total

131,801

920,524

350,909

By the conclusion of the audit, the Respondent had formed the view that the Applicant either “knew or ought to have known” that these additional unexplained amounts had an income character and should have been included in her tax returns. The Respondent observed that the Applicant controlled these accounts, used the proceeds to fund her lifestyle and must have been aware that the amounts being received were significantly greater than what she had declared as income. The Respondent concluded that the Applicant “actively and knowingly omitted this income” from her returns in order to reduce her income tax liability.[16] They concluded that this was a “blameworthy act or omission” which constituted evasion.[17]
[16] Exhibit 1 – Hearing Book T50-910.
[17] Ibid.
On 22 February 2022, the Respondent, having not been satisfied with the returns lodged by the Applicant for each of the Relevant Years, did the following:
·made a formal ‘evasion’ finding, which covered the income years ending 30 June 2016 to 2019 (with the consequent effect that s 170(1) of the Income Tax Assessment Act 1936 (ITAA 1936) would no longer prevent amendments being made to assessments in those years);
·raised amended assessments pursuant to s 167 of ITAA 1936 for each of the Relevant Years, which reflected the shortfall and increased the Applicant’s taxation liability by $350,909;
·imposed an administrative penalty under s 284-75 of Schedule 1 of the TAA 1953, which covered the Relevant Years, at the base level of 75% of the tax shortfall, because the Applicant had intentionally disregarded a taxation law; and
·imposed an:
ouplift to the administrative penalties for the years ending 30 June 2017 to 2021 pursuant to s 284-220(1) of Schedule 1 of the TAA 1953, on the basis that the Applicant had an imposed penalty in a prior year (i.e. in the 2016 Year) increasing the liability for those penalties to $305,641; and,
oa further liability for Shortfall Interest Charge pursuant to s 280-100 of Schedule 1 of the TAA 1953, for the years ending 30 June 2016 to 2020, to account for the period from when the Applicant would have been liable if she had returned the additional amounts of income.
Objection overview
The Applicant lodged an objection to the Amended Assessments on 3 March 2022 using the services of the same registered tax agent who had helped lodge her past returns. In the objection, she admitted that she had “underreported partial income during the previous financial years” and was seeking “another chance to explain the credit received via bank account(s)”.[18] A lengthy objection statement soon followed, whereby the Applicant argued that much of the additional assessable income of $920,524 identified by the Respondent was comprised of:
i.(in the 2017 income year), a refund of a deposit of $61,000 that she had previously paid for an Australian real property purchase that did not proceed;
ii.a significant number of deposits made within Australia, which were either gifts from her relatives (whether living in or visiting Australia) or gifts from her boyfriend;
iii.account transfers from China which were variously loans from relatives, or funds to be invested on behalf of relatives; or simply her own funds which were capital sums held in Chinese accounts derived from the past property sales in China.
[18] Exhibit 1 – Hearing Book T59-993.
On 26 July 2022, the Respondent issued a notice of Objection Decision,[19] together with its reasons disallowing the objection for each of the Relevant Years, except for the 2017 year, where an allowance was made for the returned deposit described above. The Respondent rejected the Applicant’s explanations in relation to a significant number of other identified deposits, with their chief concern being that the Applicant’s evidence in respect of each was limited, for the most part, to supportive declarations or statements made by individuals who were connected or related to the Applicant. The absence of contemporaneous documents going to the alleged purpose of each transaction meant that, in the Respondent’s view, the evidence was not sufficiently persuasive to offset the Respondent’s initial conclusions made at audit.
[19] Exhibit 1 – Hearing Book T2-7-12.
Upon receipt of the objection reasons, the Applicant, again through her long-term tax agent, sought to have the penalty assessments reduced or remitted but, in reply, was told such a request could not be considered until she had lodged a formal objection against those penalties.
In the days that followed, the Applicant herself wrote to the Respondent seeking to object to the Penalty Assessment. The Applicant, again, was apologetic for not declaring the entirety of her income but explained that she had relied on the services of a Mandarin speaking tax agent who had simply asked her “how much tax do you want to declare” and who had told her that there would be no tax liability if she declared under $20,000. The Applicant expressed a grievance that she spoke little English and had very limited knowledge about the Australian tax system. She argued that at no time did the tax agent tell her to review her income and work out the correct amount to be returned.
On 10 October 2022, the Respondent disallowed the penalty objection. In the accompanying reasons, the Respondent highlighted that the Applicant’s agent had merely acted on her instructions when making false statements in her tax returns which resulted in the tax shortfalls. The Respondent continued by stating that the Applicant:
may not have known many details about the Australian tax system, however you should have known that individuals cannot nominate the amounts of taxable income upon which they would prefer to pay tax. In other words, it is evident that you had actual knowledge that the statements made by your tax agent in significantly under-declaring your income were false.
It appears that the Applicant first lodged an application for review with the Tribunal on 23 September 2022.[20] In her application, she alleged that the Respondent’s decision was incorrect because the Australian Taxation Office (ATO) should have accepted that:
·neither amounts received by the Applicant from overseas or amounts provided by close family members “he[l]ping, giving or [l]ending” were the Applicant’s taxable income;
·the Applicant had deductible work expenses; and
·“the penalties were too high”.
[20] Exhibit 1 – Hearing Book T1-1.
On 6 April 2023 further material seeking to review the Respondent’s later penalty decision, which the parties understand to have constituted a further application for review, was lodged.[21] This material appeared similar to that provided on objection, but was supplemented with additional documents and submissions going to why the Applicant should prevail on review.
ISSUES TO BE DECIDED IN THE REVIEW
[21] Exhibit 1 – Hearing Book ST67-1084.
Issues as put by parties
The Applicant who is not legally represented but is represented by her new accountant has, not unexpectedly, not filed any formal Statement of Facts Issues and Contentions. Her identification of what she believes are the issues before the Tribunal seem best captured through a combination of:
·a document lodged on 6 April 2023, which provides an overview of the Applicant’s case;
·the opening statement made at the hearing by her accountant representative;
·the oral evidence she gave at the hearing; and
·two closing written submissions made at the conclusion of the hearing, dated 9 & 20 December 2024 respectively.

Those documents suggest that, in the Applicant’s view, the case before the Tribunal will presumably succeed (and thus the onus of proof will be discharged) if the Applicant can establish satisfactory evidence of her “income position, exclusions, capital gains tax calculations, and business deductions as they pertain to the applicant's assessable income”.[22]
[22] Applicant’s written submission dated 9 December 2024.
In their Further Amended Statement of Facts, Issues and Contentions, dated 12 November 2024, the Respondent identifies the following issues:
Issue 1 – Whether the Applicant has satisfied her onus of proving that the amended assessments for the income years ending 30 June 2016 to 30 June 2021 are excessive and, if so, what the assessments should have instead been in each income year in question.
Issue 2 – Whether the Applicant has satisfied her onus of proving that:
a. the Commissioner’s opinion that there was evasion for the income years ended 30 June 2016 to 30 June 2019 should not have been formed; and
b. there was no evasion in those years.
Issue 3 - Whether the Respondent's decision to impose administrative penalties for the relevant years pursuant to subsection 284-75(1) of Schedule 1 to the TAA for making a statement that is false or misleading in a material particular was correct, in particular:
a. Whether the Respondent's decision to impose administrative penalties at the base rate of 75% of the tax shortfall amount pursuant to item 1 of subsection 284-90(1) of Schedule 1 to the TAA for intentional disregard of the taxation law was correct.
b. Whether the Respondent's decision to increase the base penalty amount by 20% pursuant to paragraph 284-220(1)(c) of Schedule 1 to the TAA for the years ended 30 June 2017 to 30 June 2021 was correct.
Issue 4 - Whether the Applicant has demonstrated any proper grounds for remission of administrative penalties in whole or in part pursuant to section 298-20 of Schedule 1 to the TAA.
Clearly, the Applicant’s formulation of the task upon which it must succeed is subsumed within the Respondent’s formulation of ‘Issue 1’. The other issues formulated by the Respondent are reflective of the matters that arise for determination and I will seek to address each in my following reasons.
ISSUE 1 – Amended Assessments and the statutory burden of proof
As will be explained further below the Applicant will succeed in this review in relation to each of the Relevant Years if she can successfully discharge her statutory burden to show that on the balance of probabilities the Amended Assessments raised by the Respondent were excessive and what they should have been.
The Applicant will also succeed in relation to the income years ending 30 June 2016 to 30 June 2019 merely by showing that she did not engage in ‘fraud or evasion’ in respect of those years such that the Respondent was not entitled to raise amended assessments due to time limitations imposed by s 170 of the ITAA 1936 (see Issue 2).
Before considering whether the Applicant has discharged her statutory burden to show the Amended Assessments raised by the Respondent were excessive (and what they should have been), it is important for me to consider the statutory and legal context in which that enquiry takes place.
It is uncontroversial to say that in each of the Relevant Years:
·the Applicant was an Australian resident for tax purposes who was required under s 161 of the ITAA 1936 to lodge an annual tax return in the prescribed form; and,
·the prescribed form of Tax Return(s) for Individuals in each year required, amongst other matters, that the Applicant disclose to the Commissioner of Taxation (the Commissioner) the entirety of her “Taxable Income”.
As provided by section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997), the Applicant’s Taxable Income is to be worked out by the identification of her Assessable Income, less any allowable deductions.
For each Relevant Year, the Applicant’s Assessable Income will include both her ‘ordinary income’ which is income according to ordinary concepts (per s 6-5 of the ITAA 1997) and some amounts which are not ‘ordinary income’ but are included as assessable income by a range of legislative provisions itemised at section 10-5 of the ITAA 1997; these amounts are known as ‘statutory income’ (s 6-10 of the ITAA 1997).
Under s 166 of the ITAA 1936, the Commissioner must then “from the returns and from any other information in the Commissioner’s possession… make an assessment” (as that term is defined in s 6(1) of the ITAA 1936) of the Applicant’s Taxable Income, the amount of tax payable upon that Taxable Income and the total of any tax offset refunds that she may otherwise be entitled to.
Under s 167 of the ITAA 1936, where a Taxpayer has not lodged a return, or the Commissioner is dissatisfied with the return as lodged, the Commissioner is entitled to use his judgment based on material in his possession to make an assessment for the purpose of s 166. Such an entitlement extends to allowing the Commissioner to amend previous assessments, so long as amendments are made within the time allowed under s 170(1), or at any time where an opinion is formed that the Taxpayer has engaged in ‘fraud or evasion’ to avoid a taxation liability (see s 170(1), Item 5).
Under s 175A of the ITAA 1936, a dissatisfied taxpayer can dispute an assessment made by the Commissioner by objecting to “it in the manner set out in Part IVC of the Taxation Administration Act 1953” whereby, under s 14ZY of the TAA 1953, the Commissioner must either allow the objection, in whole or part, or disallow the objection. In this regard, the Commissioner is tasked with simply arriving at the correct position in relation to what has been objected to, taking into account his satisfaction with any evidence provided by the taxpayer and any other information held in relation to the Taxpayer’s circumstances, all the while applying the relevant tax laws as the Commissioner understands them.
A taxpayer dissatisfied with an objection decision[23] may then, under section 14ZZ of the TAA 1953, either seek review of that decision in the Tribunal or appeal to the Federal Court of Australia.
[23] Except where that decision is an ineligible income tax remission decision as described under section 14ZS of the TAA 1953.
Where an application for review is made to the Tribunal, s 14ZZK(b) of the TAA 1953 imposes a statutory burden of proof that an applicant must discharge in order to succeed in their case. Section 14ZZK relevantly provides, as follows:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)….
(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.
As is clear from the text of s 14ZZK(b)(i), on review, the taxpayer is tasked with discharging the burden of proof. This task is twofold – firstly to show that those assessments are excessive and secondly, and somewhat crucially, to show what their actual liability to taxation ought to have been in each of those years in dispute.[24] These matters are to be established by the Taxpayer on the “civil standard of the balance of probabilities”.[25]
[24] The statutory burden that applies in tax appeals to the Federal Court is contained in s14ZZO of the TAA 1953 which is expressed in equivalent language to that contained in s14ZZK; see McPartland v Commissioner of Taxation [2025] FCAFC 23 at [12] and [13].
[25] See Buzadzic v Commissioner of Taxation [2024] FCAFC 50.
It is important to remember that where the Commissioner, as he has done in this case, exercises his power under s 167 of the ITAA 1936 to raise (or amend) assessments, the task of a taxpayer to discharge the burden contained in s 14ZZK(b)(i) of the TAA 1953 is “necessarily different” to the one required where assessments have been made pursuant to s 166.[26]In contrast, a review relating to an assessment raised under s 166 may often see the burden to be discharged relates to a single particular or element of a taxpayer’s affairs, following a much more “evidence-based calculation of a person’s taxable income, tax payable thereon, and tax offset refunds”,[27]an assessment made under s 167 requires a much more expansive endeavour.
[26] See Gashi v Commissioner of Taxation [2013] FCAFC 30 at [51]-[54] (‘Gashi’).
[27] See Commissioner of Taxation v Ross [2021] FCA 766 at [40] (‘Ross’).
As Derrington J explains in Ross, the task of the Commissioner within the s 167 context is less evidence-based than the process of assessing under s 166 and involves more the exercise of a judgment as to the amount of tax that ought be levied based on the Commissioner’s knowledge of the Taxpayer’s affairs. As one might expect, and as noted in Gashi at [55] (albeit speaking to asset betterment appraisals rather than an account analysis), this means that the amount assessed under s 167 “is necessarily a guess to some extent and almost certainly inaccurate in fact”.[28]
[28] Gashi at [55].
It thereby follows that, having regard to the nature of the assessments raised under s 167, there is no obligation imposed upon the Commissioner on review in the Tribunal to “show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence”.[29] The Commissioner is entitled to simply rely on deficiencies in an Applicant’s case in their attempt to prove what their actual liability to taxation ought to have been in each of the years in dispute (that is, absent any express concessions or agreements between the parties to limit or confine the scope of the review – see Gashi at [61]).
[29] See Federal Commissioner of Taxation v Dalco (1936) 168 CLR 615 at [624] (‘Dalco’); Citing with approval Mason J’s dissenting judgment in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 which is now the prevailing view.
While the statutory burden I have just described may seem to place a heavy onus upon a taxpayer, it is essential to remember that “the facts in relation to [their] income are facts peculiarly within the knowledge of the taxpayer”.[30]To put it plainly, no one can be expected to know the affairs of a taxpayer quite like the taxpayer themselves.
[30] See Trautwein v Federal Commissioner of Taxation (1936) 168 CLR 614 at [87].
Critically, in discharging the burden where an assessment has been raised under s 167 of the ITAA 1936, the following must be held in mind:
·What is required of an Applicant taxpayer will vary with the circumstances of their case.[31]
·It is insufficient to simply demonstrate that the Commissioner was wrong or has come to an incorrect amount.[32]
·In order to positively prove their actual taxable income for the purpose of s 14ZZK(b)(i), an applicant must “demonstrate that the amount of tax levied by the assessment exceeds their actual substantive liability…..by, in effect, furnishing a return of actual income which involves establishing both sides of the equation”.[33] (See Ross at [48] and the authorities cited therein by Derrington J).
[31] Dalco at [624].
[32] Dalco at [624]; Ross at [48].
[33] See Ross at [48] and the authorities cited therein by Derrington J.
As Derrington J further explained in Ross at [48](8) when properly applied, the principles pertaining to the statutory onus “can result in a situation where the default assessment can be assumed to be inaccurate in some respects but, in the absence of the taxpayer establishing what their actual taxable income was, it must nevertheless stand”.[34]
[34] At [48](8).
The Respondent has lodged several versions of a Statement of Facts, Issues and Contentions, together with two supplementing sets of written submissions. It is apparent from those documents, that the Commissioner makes no express concessions and puts the Applicant to proof on “all facts on which the Applicant seeks to rely to discharge [her] burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been”.[35]
[35] Exhibit 1 – Hearing Book T99-1704.
Observing the principles described above, the Applicant’s circumstances and the issues identified by the parties, it is clear that the Applicant would need to satisfactorily discharge the statutory burden in relation to her income producing activities (or absence thereof) both in Australia and in China, to succeed in this proceeding.
Contentions & Evidence
The Applicant broadly contends that the amended assessments should be set aside because, in her view, they represent significantly greater amounts than she earnt. She contends that she can now explain that the amounts the Respondent arrived at were based on deposits that simply weren’t her income and, through additional evidence, she can point to what her taxable “income position is” as well as “exclusions, capital gains tax calculations, and business deductions as they pertain to the applicant's assessable income”.
The Applicant’s position, as put across a range of written submissions and further explained by her and her accountant representative over the course of the hearing, was that she claims (or otherwise accepts and admits) that:
(a)She failed to appropriately declare the extent of her taxable income in each of the Relevant Years;
(b)The underreporting of her income was done unwittingly in circumstances where she had been misled by her former accountant about her obligations to pay tax on all of her income;
(c)Of the deposits identified in her accounts by the Commissioner as ‘unexplained’ and which formed the basis of the assessments:
(i)A number were attributable to gifts and financial assistance provided by various family members (including her son), often when those individuals were visiting from China;
(ii)A number were transfers from China and were either transferred gifts or capital sums which came from the sale of Chinese real property owned by the applicant prior to the relevant years; and
(iii)All other ‘unexplained’ deposits represented her full assessable income comprised of amounts paid to her as payment for services by her sex work clients either in cash (which she then deposited) or by bank transfers; and
(d)That she is also entitled to a significant number of deductible expenses for amounts incurred gaining and producing her assessable income, which includes amounts spent on hotels, flights, advertisements and phones in the course of her escort work.
To put it another way, for the purpose of “in effect, furnishing a return of actual income” (as the task was described by Derrington J in Ross) the Applicant says that her entire taxable income amounts to the uncontested deposits in her Australian bank accounts less any deductible expenses that she alleges entitlement to. Because of her practice of putting all money she earnt into her account she says that, by necessary implication, there is no alternative additional income derived by her. At the hearing her accountant representative put it as follows[36]:
Ms Applicant derived income from two sources…..basically escort service she performed along east coast of Australia, in a small little town like Townsville, Cairns. So the income she derived she directly deposit into the bank account with a branch.
…..
Secondly, Ms [Applicant] had both Australian property – one is investment property … One is principal place of residence in ... So both the property are still in possession. There are no CGT events from those Australian property.
[36] Hearing Transcript of 27 November 2024- page 26.
In support of the above claims, the Applicant lodged with the Tribunal a large number of documents which included some bank statements from her Chinese accounts and a number of written declarations from family members and associates supporting her claims that particular deposits were not to be characterised as income because they were gifts or other advances not in the nature of income.
As part of the Applicant’s case, her accountant lodged a range of worksheets which were intended to provide the Tribunal with something of a reconciliation of the Applicant’s financial affairs culminating in an amount of income that the Applicant says she has derived in each year of the Relevant Period.[37]
[37] See particularly documents lodged by the Applicant on 16 November 2023 together with an index numbered T101-1735 through T120-1977.
The Applicant’s oral evidence covered a range of topics which had been foreshadowed by her written submissions, dated 2 April 2024. These included her interactions with her previous accountant which she claimed to be the cause of her under-reporting of income, the circumstances that led to some of the unexplained deposits arriving in her account and the nature and extent of her work as an escort.
In relation to her tax affairs and income generally the Applicant told the Tribunal that she was reliant on Chinese speaking accountants as she didn’t “speak English and I don’t understand tax return law”. She explained that she wasn’t properly advised about her obligations to pay tax on her income and her accountant didn’t declare the income on her behalf. Each year she simply made her money “through hard work” and “deposit(ed) all my income in my account but I didn’t pay the tax”.[38]
[38] Hearing Transcript of 27 November 2024- page 32.
In addition to the Applicant’s own oral evidence, four other China based witnesses were called in support. Three were directly related to the Applicant, being the Applicant’s son’s mother-in-law, her sister and her nephew. Each had put on a very brief witness statement, which sought, in a rather superficial manner, to verify the source funding for various amounts in the Applicant’s Chinese bank accounts that subsequently ended in the Applicant’s Australian bank accounts.
The final Chinese based witness, who did not put on any witness statement prior to being called to give oral evidence towards the conclusion of the hearing, I also understood to be of some distant relation to the Applicant.[39] That witness sought to give evidence that she had purchased a property from the Applicant in the years prior to the Relevant Years and had ultimately paid the Applicant an amount of 500,000 Yuan (approximately $110,000 AUD) some period after the sale in 2018 by placing it in her Bank of China account. The witness told the Tribunal that there was no written contract for the sale, simply a lending notice or receipt.[40]
[39] Hearing Transcript of 4 December 2024- page 127.
[40] Hearing Transcript of 4 December 2024- page 152.
The Respondent broadly argued that the Applicant has not attempted to “conduct a wide survey and an exact scrutiny of her income producing activities”,[41] rather, she has attempted to lead evidence by way of statements which simply seek to assert that certain amounts should not form part of her income. This has been done, so the Respondent contends, by way of explanations which were mostly uncorroborated statements made by the Applicant, her family members and associates, which were, for a large part, unsupported by contemporaneous records. The Respondent’s closing written submission argued that the Applicant’s evidence should be approached with “caution & scrutiny” and that propositions made by her should only be accepted where they either “corroborated by contemporaneous records” or amounted to “admissions made against her interest”.
[41] Respondent’s written submissions dated 19 December 2024 at [19].
The Respondent has contended in its Further Amended Statement of Facts, Issues and Contentions and two sets of written submissions, that the Applicant had failed to discharge her onus, because she had:
·not been able to produce convincing corroborated evidence excluding all overseas income sources, including satisfactory evidence that fund transfers were limited to gifts or capital transfers from past property sales;
·only sought to challenge a sample of deposits the Respondent identified in his audit and seemingly fails to address the other 50 pages of deposits contained amongst the audit papers;
·simply not been able to establish what the true extent of any income was generated from the conduct of sex work given the often inconsistent and uncomprehensive nature of her evidence; and,
·not been able to produce any convincing corroborated evidence that the amounts she alleges where deductible expenses were incurred in deriving assessable income.

Much of the Respondent’s submissions about the Applicant’s testimonial evidence (and that of her relatives) echoed statements of principle found in Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation,[42] and other similar cases. In that case, his Honour Justice Hill considered the weight self-serving statements could be granted in the absence of records and concluded that whilst a self-serving statement was not necessarily to be disbelieved it must be “tested more closely and received with the greatest caution”. His Honour went on to state that “some other corroborative evidence would normally be required which makes it more probable than not” for such testimony to be believed. Justice Hill did however, acknowledge a cautionary point, being that such evidence was not to be considered as ‘prima facie’ unacceptable.
[42] (1991) 22 ATR 148 (‘Imperial Bottleshops’).
I have approached the evidence given by the Applicant (and to varying degrees her relatives and friends) with these guiding principles in mind.
The Applicant’s Australian based income
It is uncontentious that throughout the Relevant Years, the Applicant, who had previously worked as a cleaner, conducted work in the sex industry as an escort.
From the balance of the evidence, I am satisfied that the Applicant would make her availability for sex work known to potential clients by placing advertisements in various media outlets, online platforms and a website. These advertisements would include a range of different phone numbers, by which potential clients could respond and the Applicant would then arrange for the conduct of her escort work which she carried out in various hotels or properties in cities along Australia’s East Coast.
In the course of her work, the Applicant would personally attend to booking flights, arranging accommodation and coordinating jobs at a range of interstate locations. Sometimes accommodation would be booked for extended or seasonal periods whilst the Applicant worked an area presumably based on her calculation as to what was sufficiently profitable to justify the expenses she was incurring.
In relation to her fees, the Applicant explained during cross-examination (with the assistance of an interpreter) that her clients paid her by either paying her in cash which she then deposited into her Australian accounts or by transferring funds directly to those same accounts. This matter was then explored by counsel for the Respondent and the following exchange took place:
Counsel:And sometimes clients made deposits directly to your accounts for the work?
Applicant:           Yes, it happens.
Counsel:             And those are some of the accounts that the ATO found in its audit. Do you agree with that? I’m sorry, I should say those are some of the deposits that the ATO found.
Applicant:           What do you mean?
Counsel:             So the ATO found transactions and the ATO said that that was your taxable income?
Applicant:           So all the money in that deposit into my account is the income that I should pay tax.
Counsel:             Yes. So some were – I’m trying to ask – some was transfers and some was cash payments?
Applicant:Yes (indistinct words).
Counsel:             And you deposited some of your cash into your accounts as well?
Applicant:Yes, I deposited all of the cash.
Counsel:             Well, I suggest to you, you didn’t deposit all of the cash. Do you agree or disagree?
Applicant:Except the daily expenses, I deposit almost all of the money because I work in the hotel. So it’s not safe. That’s why I deposit all of the money into my account.
Counsel:Yes. So, you agree that you didn’t deposit all of the cash?
Applicant:You can see – except the money I spent on grocery, I deposited all the money.
Counsel:Okay. You have not produced any record of the cash you received from clients, for these proceedings?
Applicant:The record from the clients?
Counsel:So for these proceedings, you have produced lots of documents. Do you agree?
Applicant:Produce lots of documents. What documents?
Counsel:But you’ve never produced a document that shows all of the cash you received for your work?
Applicant:I deposited all of the money into my account because it’s not safe to put money in the hotel.
Counsel:No. It’s not the question I’m asking?‑‑‑You have not produced any document that shows all of the cash you received from your work?
Applicant:How do I show the cash I received?
Counsel:Well, for example, you have not shown any diary you kept that shows the work you performed.
Applicant:I don’t know what question you want to ask me.
Counsel:I’m asking you; you have not shown any record to the commissioner or the tribunal about the cash you received for your sex work. Do you agree or disagree?
Applicant:My bank statement is the best evidence I deposit all my money into my account.
Counsel:Thank you. And there is no way of the commissioner or the tribunal knowing if there was more cash you received, is there?
Applicant:I didn’t – I don’t have – if I didn’t deposit all the money where’s the money from? Where is the money – I mean the money you can see from the account, where are they from? I don’t know something what happened to it. I just put all my money into account. If I know something will happen to me, I would hide. Before this issue, I just deposit all of my money into an account.
In addition to her own sex work, on the Applicant’s evidence, she would also help some friends who were sex workers connect with clients however, this involvement went no further than providing assistance to place advertisements owing to their limited English language skills. Counsel for the Respondent pressed the Applicant on the extent to which she was helping others engage in sex work and drew her attention to the extent to which, over the years, the amount she was spending on accommodation decreased whilst there was a corresponding increase in advertising expenditure. The Applicant sought to explain these matters away by suggesting she was simply undertaking less work and needed to advertise more to get work in a competitive market. In this context, it was put to her by Counsel that she was operating a broad business and possessed a level of business sophistication such that one would expect her to have maintained some basic record keeping.
On the whole, I found the oral evidence of the Applicant to be somewhat superficial and lacking in critical detail. Her account of the manner in which she organised her sex work lacked specific details where one might expect there to have been given the complexity of the undertaking and seemed for a large part to be self-serving and mostly uncorroborated. For example, the state of the evidence around whether she might be facilitating the sex work of others was somewhat confused. She appeared to suggest that she would place advertisements for her friends owing to their poor language skills but those ads appeared to correlate with telephone numbers of phones which it appeared she controlled. This was not followed by any detailed explanations of how the work done by her friends was thereafter organised or administered. Additionally, her explanation about the trends of her expenditure (i.e. advertising expenses increasing whilst accommodation decreasing) was unconvincing, or at the very least, superficial and unsupported.
I cannot find with any degree of certainty the extent to which the Applicant was simply undertaking her own sex work and not then facilitating (and presumably being remunerated for) the sex work of other women. I can, however, be satisfied that over the course of the Relevant Years, the Applicant was operating a somewhat sophisticated endeavour, which at least required her to craft and organise advertising across multiple platforms, administer and arrange the booking of multiple jobs and to organise travel and accommodation to undertake such work over a number of years.
Despite these complexities, she purports to have maintained no contemporaneous diaries, notes or formal records that might show the number of clients she had over the relevant years or, with a level of basic precision, how much income she may have produced. It is self-evident that an applicant providing services on the scale described in this case will have significant difficulties discharging an onus where limited records have been retained.[43]
[43] See Bosanac v Commissioner of Taxation [2018] FCA 946 at [9]; Imperial Bottleshops.
The totality of the evidence around the Applicant’s sex industry work makes it impossible for the Tribunal to satisfied about a range of matters. As a starting point, the Applicant concedes that in the Relevant Years:
(i)She has earnt money from engaging in sex work which she did not return.
(ii)She kept no diary or even basic record of the clients she had nor the money she made through such work; and,
(iii)She banked most but not all of the money she made with some amounts being expended on “daily expenses”.
The Applicant now invites the Tribunal to accept that the banked amounts constitute her true and total taxable position (at least in respect of her Australian based affairs) in circumstances where, owing to the absence of records, one is simply left to guess how many jobs she might have undertaken and what she might have been remunerated for each job.
On the Applicant’s own evidence, it is clear that even she does not know what these amounts ought to be, except so far as she says that the Tribunal should be satisfied as to what her taxable income ought be by looking at the unexplained deposits in her Australian accounts. This proposition becomes more untenable when it is considered that on the available records the Applicant herself would be required to guess the extent of her “daily expenses” once she acknowledges that she has spent some of her income in cash, prior to depositing the rest into her bank account.
The Respondent has submitted that once it is accepted that the Applicant:
a. …received additional assessable cash earnings from working which she did not deposit into her bank accounts and has not included in her taxable income to date; and
b. she had no way to show the cash received not in her bank account
[then this] is necessarily fatal to her onus of proving that the amended assessments for the Relevant Years are excessive and, if so, what the assessments should have instead been in each Relevant Year.
I accept those propositions put by the Respondent and the conclusion drawn.
The Applicant’s Chinese financial affairs
Whilst the Applicant’s ‘fatal’ inability to identify the full extent of her Australian based income obviates any need to look too closely at her Chinese financial affairs, for completeness I will outline the evidence she has put on and highlight some of the challenges her case would have faced in discharging the onus if I had been satisfied as to the extent of her Australian income.
The Applicant claims a significant number of deposits in her Australian accounts, which the Commissioner took to be unexplained, were instead amounts made up of:
(i)Transfers from her own bank accounts in China which were either:
Capital sums primarily derived from property sales made prior to the Relevant Years; or
Amounts borrowed or gifted from her sister;
(ii)Amounts provided by her nephew as some form of an investment; or
(iii)Amounts gifted by her son who seemingly sourced amounts from his mother-in-law when in China.
The sum of the Applicant’s evidence seeking to substantiate each of these claims was limited. It comprised primarily of her bank statements (both Australian and Chinese) which showed the movement of funds, her own written unsworn statements about the purpose of the receipts, sworn statements from a range of related party witnesses that supported the Applicant’s statements about the receipts, and migration documentation showing that certain relatives had entered and departed the country at various times.
In addition to the Applicant’s own oral evidence, three other witnesses were called in support. These witnesses were each directly related, being the Applicant’s son’s mother-in-law, her sister and her nephew. Each had put on a very brief witness statement which sought, in rather basic terms, to verify the source funding for amounts that ultimately made their way to the Applicant’s Australian bank accounts.
Each witness was expected, as had been agreed between the parties, to make themselves available for cross-examination appearing by MS Teams however, as it turned out, and unbeknownst to the Tribunal until the hearing had well and truly commenced, the witnesses were located in China and could only appear by telephone. This was highly unsatisfactory however the Respondent raised no opposition to what was, effectively, a last-minute application from a legally unrepresented applicant for witnesses to appear by telephone and on that basis I allowed the witnesses to give their evidence.
The first of those witnesses, the Applicant’s nephew, had signed a statement dated 1 March 2022 which simply gave his Chinese residential address, identified a range of 4 amounts totalling $74,000 and asserted that he had transferred those amounts to the applicant’s account “to invest in property” from February to May 2020.[44] When it was put to him that the account statement contained a notation of “[witness name] tuition” he explained, somewhat implausibly, that “in China, there’s not any other description of it when you transfer money out.”[45] He went on to state that the amounts were, in fact, money from his business, which he wished for his aunt to invest in Australia in some fashion, because his business had slowed due to Covid. He explained that a document had been signed to verify the arrangement but accepted that he hadn’t mentioned that in his statement, nor had he received any money back in respect of his investment over the four or five years since.
[44] Exhibit 1 – Hearing Book T60-1023.
[45] Hearing Transcript of 4 December 2024- page 119.
The second witness, the Applicant’s son’s mother-in-law (the “Mother-in-Law”) had signed 2 statements in March 2022, disclosing her Chinese residential address and simply stating that:
·in November 2018 she had given $20,000 to her daughter and son-in-law when they were in China to take back to Australia as a “living allowance”; and
·In December 2018 she had given (when in Australia) $9,900 to her granddaughter; and
·in November 2019, when her daughter and son-in-law were once again in China a further $30,000 for “living allowance”.
The Mother-In-Law gave oral evidence by telephone re-asserting what had been in her written statements and, under cross-examination, further advising that in the course of those gifts, she had changed local currency into Australian dollars with a local currency exchanger but acknowledged that she had made no mention in her statements about where the money to provide those gifts had originally come from.[46]
[46] Hearing Transcript of 4 December 2024- page 140.
The third witness, the Applicant’s sister, had also signed a statement dated 8 March 2022,[47] which attached her ID card but was otherwise limited to the following content:
I certify that I lent AUD 29,385 and AUD 19,285 to [the Applicant] on 14 September 2015 and 12 October 2015 for purchasing a property in Australia.
[47] Exhibit 5 Statement dated 8 March 2022; Exhibit 1 – Hearing Book T60-1018.
In oral evidence, the Applicant’s sister went slightly further to explain that she gave money to her sister to help her as she was “in difficult conditions” in Australia. She explained that she made good income in China from the conduct of a business and had received government compensation for the demolition of a property she had owned. Under cross-examination, she told the Tribunal that she transferred amounts from her account and wasn’t aware that her sister had any Chinese accounts. When asked whether she had ever made deposits into the Applicant’s Chinese bank accounts she responded with a firm ‘no’.[48]
[48] Hearing Transcript of 4 December 2024- page 145.
Near the end of the 2^nd day of the hearing, a fourth supporting witness was called by the Applicant. This was another individual based in China, who was also a relative of the Applicant but one who had neither put on any witness statement or been foreshadowed in any way. This witness claimed to have purchased a property from the Applicant in the years prior to the Relevant Years and had ultimately paid the Applicant an amount of 500,000 local currency some period after the sale, in 2018,by placing it in her Bank of China account. The witness told the Tribunal that there was no written contract for the sale, simply a lending notice.[49]
[49] Hearing Transcript of 4 December 2024- page 152.
In two sets of closing written submissions, the Applicant provided a further summary of what she believed to be her income position and attached spreadsheets to assist. These calculations were largely reliant on the Tribunal accepting the evidence of the Applicant and her four supporting witnesses about the extent of the Applicant’s Australian derived income, the source of foreign transfers to her Australian accounts and the denials that the amounts expressly identified by the Applicant were not of an income nature.
In relation to the Applicant’s accounts in China, the Respondent submitted that the Applicant had not produced a complete set of account statements and that those that were produced showed a high, almost daily, level of activity which was inconsistent with claims from the Applicant that those accounts were solely used to either “hold wealth passively”, used for occasional on-line shopping.
The Respondent pointed to the large number of unexplained deposits in those accounts and argued that the Applicant failed to give any cogent or clear explanation for her Chinese bank account activity during the relevant period nor was she able to dispel the distinct possibility that she may have had income sources in China during the Relevant Years.
The Respondent pointed to a number of transactions in the Applicant’s Chinese accounts in the 2017 income year where funds ultimately made their way to her Australian accounts. One transaction in particular which took place in 2017 was focused upon by the Respondent – it involved $32,000 which was transferred to Australia. The Respondent argued that the accounts, along with the evidence of the Applicant showed that amount was made up of five separate Yuan to Australian dollar conversions; however, four of those conversions came from amounts sourced with an unexplained cash deposit. The Respondent argued that the Applicant was unable to provide any cogent explanation for where these cash deposits originated.
In relation to the other witnesses called on behalf of the Applicant, the Respondent submitted that where evidence was led to suggest that:
(a)amounts were provided from relatives to the Applicant, there was no clear evidence as to where amounts had initially emanated from, such that the Tribunal could be satisfied as to the source of those funds;
(b)the Applicant’s nephew had provided funds to be invested in Australia on his behalf, but there was no compelling evidence that such investment had ever occurred; and
(c)in respect of alleged proceeds from a sale of property sold in 2015 being provided in 2018, there were no accompanying land sale contracts provided and little corroborative evidence.
Given the uncertainty around many aspects of the Applicant’s affairs in China, the Respondent argued that the Tribunal simply could not be satisfied that she had satisfactorily explained either the derivation of a range of cash deposits or the extent of the Applicant’s income producing in China during the Relevant Years.

The Applicant’s evidence in relation to the foreign sourced transfers and deposits was, at times confused, inconsistent or inadequate. At its highest, one might describe it as being superficial, vague and lacking precision.
An issue for the Applicant was that, when taken to the Chinese bank accounts, it became apparent that at least some of these transactions commenced with an obscure cash deposit at the Chinese end. As was argued by the Respondent, the oral evidence given by the Applicant was unclear as to the initial source of many of these cash deposits with the suggestion that the amounts may have either been provided by her sister or come from “savings accumulated in the past” or “maybe that was from a fixed term and when the time came so I just withdraw the money”.[50] In truth, the Applicant had no distinct recollections about where each of the cash deposits in the Chinese accounts had come from, nor did she lodge any documents supporting the existence of term deposits that may have been held.
[50] Hearing Transcript of 27 November 2024- page 69-73.
Of the transactions that Counsel for the Respondent took her to the Applicant was able to do little more than simply point to deposits in her Australian accounts and provide an explanation that the money was either sourced from relatives and associates in China or, alternatively, were sourced from past savings.
There was little by way of verifiable documentation to support claims about past property sales, no explanation as to why cash was being routinely deposited into the Applicant’s Chinese bank accounts and no reliable explanation for where those savings might have been kept prior to the deposits being made.
When it was put to the Applicant that the deposits made across the 2017 and 2018 income years could equally or just as readily have been of an income character, it was vigorously denied.
In a global sense, I found that the evidence of the Applicant’s three related supporting witnesses fell some way short of adequately explaining the vast sums arising in the Applicant’s accounts. Their evidence was pitched at a superficial level and where one might expect detail or documents to be provided to support statements made about the transfer of significant sums of money there was little more than assertions. The evidence of these witnesses, in my view, shed little light upon and was not an adequate explanation for the significant cash deposits that could be identified in the Applicant’s Chinese banks accounts. One matter was for sure – they didn’t emanate from deposits made by the Applicant’s sister confirmed she knew nothing of the existence of the Applicant’s Chinese accounts.[51]
[51] Hearing Transcript of 4 December 2024- page 145.
On the whole, I could not be satisfied that the evidence from the applicant and her four supporting witnesses, both orally and from their very brief written statements, sufficiently explained the source of the cash deposits in the Applicant’s Chinese accounts.
The Respondent made extensive closing written submissions pointing out further deficiencies in relation to the applicant’s attempts to satisfactorily explain, to the requisite degree, the non-income sources of the foreign sourced deposits as well as the extent to which the Applicant may have been deriving other assessable income from China during the relevant years. I largely accept those submissions but will not endeavour to expressly address each of the matters because, as I have made clear already, the Applicant’s case is fatally punctured by the critical uncertainties surrounding the Applicant’s Australian derived income.
ISSUE 2 – Evasion and the Income Years ending 30 June 2016 to 2019
It was common ground between the parties that for the Income Years ending 30 June 2016 to 2019, the Commissioner was not entitled to amend the Applicant’s assessments because of the time limits imposed by s 170(1) of the ITAA 1936, unless the Commissioner had formed an opinion that the Taxpayer has engaged in ‘fraud or evasion’ (see s 170(1), Item 5).
The term ‘Evasion’ used in s 170(1) is not legislatively defined, however, its meaning is well established by a lengthy list of authorities, the most prominent being Denver Chemical Manufacturing Company v Commissioner of Taxation,[52]where Dixon J relevantly explains that:
I think it is unwise to attempt to define the word ‘evasion’. The context of s.210(2) shows that it means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the Commissioner should concede the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion..[53]
[52] (1949) 79 CLR 296.
[53] Ibid at [313].
On 15 February 2022, an officer of the Commissioner formed an opinion that the Applicant had engaged in evasion of the type contemplated by s 170(1) in respect of the Relevant Years. In forming that view, they identified that the relevant ‘blameworthy act or omission’ of the Applicant was the “failure to report significant and material amounts of unexplained income in her tax returns”.[54] The officer opined that “a reasonable person in [the Applicant’s] position should have known the amounts deposited and transferred into her bank accounts were income and that tax was payable on these amounts”. A conclusion was formed that the Applicant had engaged in ‘evasion’ to a sufficient degree to enable amendments to assessments for the income years ending 30 June 2016 to 2019.
[54] Exhibit 1 – Hearing Book ST1616-1620.
It is the task of the Tribunal on review to reconsider whether there was an avoidance of tax due to fraud or evasion with the Applicant, bearing the burden of showing that such a finding or opinion should not have been made,[55]and therefore no power to amend the assessments beyond the time provided for under s 170(1) was enlivened.
[55] See Binetter v Commissioner of Taxation [2016] FCAFC 163 at [93]-[94].
The Applicant concedes that in each of the Relevant Years there were amounts of income that she earnt from conducting sex work that wasn’t included in the income tax returns she lodged year on year and which the Respondent initially assessed her upon. However, the Applicant now seeks to explain that, rather than engaging in any act or omission that would have constituted evasion, the underreporting of her income was done unwittingly in circumstances:
(i)where she had been misled as to her tax obligations by her former accountant who she claimed was negligent in his duties and had simply asked her each year “how much tax do you want to declare” rather than advising her that she was obligated to declare and pay tax upon the entirety of her income; and
(ii)where she did not understand her obligations as an Australian Resident Taxpayer owing to her being a relatively new migrant with limited English.
When giving evidence at the hearing the Applicant sought to explain her conduct as follows:[56]
So every year I deposit my income into my bank account – every month, sorry. But my accountant didn’t declare the income for me. So if I intended to evade the tax, why would I put all the money in the bank account? It’s my accountant issue that he didn’t declare the income for me. He is irresponsible. That’s why I evade the tax every year. Now, the tax agent office blames me for evading the tax and imposed the highest amount of penalty on me. I cannot accept that. Because I don’t know anything about it, I asked my accountant to do it for me.
[56]Hearing Transcript of 27 November 2024- page 33.
Other than her submission dated 6 April 2023 and her own oral evidence given at the hearing, the Applicant led no other documents or evidence which disclosed the nature of the engagement with her former accountant or what happened whenever she attended to lodge her returns.
The Respondent for its part argued that on the balance of the evidence before the Tribunal, the Applicant ought to have been aware of her most basic obligations to pay tax on all her income. The Respondent argued that any suggestion that, absent express direction from her tax accountant, the Applicant genuinely believed that she could ‘arbitrarily determine the amount of taxable income she had each year and simply declare an amount under or around the tax-free threshold” was simply not a credible explanation for the omissions from her tax return.[57]
[57] Exhibit 1 – Hearing Book T99-1715.
The Respondent sought to highlight that the Applicant was seemingly a sophisticated business person who controlled a large number of accounts into which significant funds poured, was the owner of a business in Australia, had previously been a general manager of an enterprise in China and was sufficiently aware of the breadth of her taxable income to enable her to successfully complete (or adequately provide instructions to complete) an application for a home loan. The Respondent, during cross-examination, put each of these matters to the Applicant and suggested that rather than being a naïve individual, she was indeed a sophisticated businesswoman. The Applicant denied those suggestions explaining that, to the extent forms or documents were completed, they were mostly done so by people on her behalf and her understanding of each was limited.
From the evidence before the Tribunal, it is apparent that the Applicant, by the commencement of the Relevant Years, had resided in Australia for a period of around 10 years and in that time had managed to:
·purchase two Australian properties, having owned and dealt with extensive Chinese real property before that;
·obtain gainful employment, initially as a cleaner, before commencing and operating what can only be described as a somewhat complex interstate business in the sex industry.
·administer that business, in the course of which she would maintain and monitor series of advertisements on a website or various other platforms advertising her services (and potentially the services of others), whilst operating a number of phones whose numbers had been provided as part of advertisements; and,
·coordinate the conduct of her own work (at least) which included the securing of short and mid-term accommodation, the booking of flights and the conduct of the work itself.
Even if the Applicant’s account of her interactions with her former tax agent truly represented the advice she had been provided about her tax obligations and, absent corroborating evidence, I am loathe to accept it does, having regard to the extensive and varied nature of the Applicant’s commercial activities, it is difficult to accept that she ever genuinely believed that there was not an obligation to report all of her income in her returns. Rather, it is distinctly more likely that the Applicant omitted significant parts of her income from her returns intentionally, so as to ensure her liability to taxation would be less than it otherwise might have been.
I am satisfied that the Applicant committed a blameworthy act or omission that constituted evasion for the purpose of s 170(1). I accept the submission of the Respondent that the explanation provided by the Applicant for the omissions in her return was not a credible explanation and I am also not persuaded that the Applicant has discharged the burden to show that the evasion opinion formed by the Commissioner should not have been formed.
Issue 3 – Administrative Penalties
As described further above, on 22 February 2022, the Respondent raised the Penalty Assessment under s 284-75 of Schedule 1 of the TAA 1953 covering the Relevant Years after he concluded that:
· In lodging returns that understated her income the Applicant had made a statement to the Commissioner that was false or misleading in a material particular;[58] and
· The Applicant had a shortfall amount which resulted from that false or misleading statement.[59]
[58] See s 284-75(1) of Schedule 1 of the TAA 1953.
[59] See s 284-80 of Schedule 1 the TAA 1953.
That Penalty Assessment was calculated at the base level of 75% of the tax shortfall, because in the Respondent’s view, the Applicant knew that she was understating her income in her tax returns and in lodging those knowingly incorrect returns she was intentionally disregarding a taxation law.[60] A 20% uplift was imposed upon these amounts for the years ending 30 June 2017 to 2021.[61]
[60] Section 284-90(1) of Schedule 1 of the TAA 1953.
[61] Section 284-220 of Schedule 1 of the TAA 1953.
Section 284-90(1) of Schedule 1 of the TAA 1953, provides for base penalty amounts to be calculated at a level referential to the conduct of a taxpayer in making the false or misleading statement. That provision provides that the base penalty is to be calculated at the highest level (i.e. 75% of the relevant shortfall) in circumstances where the shortfall “resulted from intentional disregard of a * taxation law … by you or your agent”. As Collier J explained in Price Street Professional Centre Pty Ltd v Commissioner of Taxation,[62] when examining a similar provision (later subsumed into the regime under Division 284) “intentional disregard” …..requires, inter alia, an understanding by the taxpayer of the effect of the relevant legislation or regulations, an appreciation by the taxpayer of how that legislation or regulation applies to the circumstances of the taxpayer, and finally, deliberate conduct of the taxpayer so as to flout” [the relevant law].
[62] [2007] FCA 345 at [43].
As can also be garnered from the Commissioner’s public ruling MT 2008/1, the notion of intentional disregard requires something beyond mere recklessness, it is subjective in nature and involves a taxpayer making a deliberate choice to ignore a taxation law.[63] Importantly, such matters can be inferred from the factual context and circumstances.[64]
[63] MT 2008/1 Miscellaneous Taxation Ruling - Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.
[64] MT 2008/1 citing by way of example Dowsett J in Weyers v Commissioner of Taxation [2006] FCA 818 where his honour found that a tax agent “must have known” about certain matters in the circumstances present in that case.
On 10 October 2022, the Respondent disallowed an objection to the Penalty Assessment objection after it rejected an argument advanced by the Applicant that, in short, she:
· had not intentionally disregarded any tax laws because she was not aware that she had to declare and pay tax on all of her income; and
· that she had otherwise simply relied on the advice of her tax agent that she was required only to declare an amount of income of her choosing for the purpose of lodging income tax returns.
The Applicant now seeks to challenge the Respondent’s administrative penalty objection decision and to do so successfully, as with the review of the Amended Assessments, she must prove on the balance of probabilities that the Penalty Assessments are excessive or otherwise incorrect and what those assessments should have been.[65] In material or practical terms, in order to convince this Tribunal to reduce the Penalty Assessment (in its totality or by any degree), the Applicant must show that her actions in underreporting her income amounted to something other than her intentionally disregarding a taxation law.
[65] Section 14ZZK(b)(i) of the TAA 1953.
As explained in earlier paragraphs, from a broad consideration of the various written and oral statements made by the Applicant she accepts that the income that she returned in the Relevant Years was not the entirety of her taxable however she now argues that she did not intend to disregard Australian taxation laws by under-declaring such income. Rather, as she claims, she made those statements in circumstances where she had been misled by her accountant who advised her that she could simply choose an amount to return and advised her of the amounts upon which no tax would be payable.
The Respondent, for his part, has argued that the Penalty Assessment should remain as imposed “on the basis that [the Applicant’s] conduct was intentional (as distinct from merely reckless or from a failure to take reasonable care) having regard to her frank admission that she understated her taxable income and the circumstances of the matter more generally”.
Consistent with observations I have already set out, it is not contested that the Applicant, having resided in Australia for around 10 years had managed over that time to buy and sell both Australian and Chinese real property and undertake and operate a somewhat complex interstate business in the sex industry.
It is also not contested that in lodging her returns in each of the Relevant Years she willfully provided the tax agent who completed and lodged returns upon her instructions with information about her taxable income that did not account for its full extent. This resulted in the Applicant being assessed upon less than the taxable income which she ought to have been under an Australian taxation law and becoming liable for significantly less tax than she ought to have been.
Having regard to the extent and complexity of the Applicant’s general commercial affairs, I am not persuaded that the Applicant could have been unaware, irrespective of what advice she may or may not have received, of the most primary concepts of Australian tax law, that being that individuals in the Australian tax system have a basic obligation to declare the full amount of taxable income rather than an arbitrary or voluntary component. I note that the concept of ‘total income’ is a concept she seemingly grasped when completing loan application forms in the years prior and when it was in her commercial interests to answer similar questions more fulsomely.
Having made that finding, it follows that, even if her agent had provided the advice she claims that he did, irrespective of the Applicant’s poor English language capacities and other disconcerting administrative and cultural challenges that ordinarily confront recently arrived migrants, the Applicant must have been acutely aware that she had an underlying general obligation to pay tax upon all of the income she had earnt in each of the Relevant Years. To the extent she contravened those basic obligations, I find that she did so intentionally.
Lastly, I do not understand the Applicant to be making any argument that she may be entitled to rely on the ‘safe harbour’ provision contained at s 284-75(6) of Schedule 1 of the TAA 1953, as a defence to any liability to penalty. Rather I understand her concerns around her interactions with her accountant were focused towards her convictions that she did not understand her tax obligations generally.
To the extent, as the Respondent expresses concern the Tribunal might conclude, that such an argument may impliedly arise on the alleged version of the interactions between the Applicant and her accountant I accept the submissions put by the Respondent that:
(i)Such a defence cannot be relied upon where any resultant false or misleading statement arose from an “intentional disregard of a taxation law”.
(ii)The Applicant herself has conceded that she did not produce material that may have constituted “all relevant taxation information” (as s284-75(6)(b) requires).
Clearly, “all relevant taxation information” in relation to her sex-work enterprise alone would have (at least) required records of, or diaries showing, the extent of her income producing activities. The Applicant acknowledges that none exist in this regard, and, in those circumstances, I am uncertain how the conditions for the ‘safe harbour’ defence provided under s 284-75(6) could be established.
Issue 4 – Whether the Administrative Penalties should be remitted

The final issue for determination is whether the Tribunal, standing in the shoes of the Commissioner, should remit all or part of the Penalty Assessments under s 298-20 of Schedule 1 of the TAA 1953.
The discretion provided under that provision 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”.[66]The question to be considered is “simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit the penalty in whole or in part”.[67]
[66] See Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 at [193].
[67] Ibid at [249].
The Applicant has made no direct submissions asking the Tribunal to exercise its remission power beyond unparticularised pleas to “cut all the penalties”, that the level of penalties is “overcharging”,[68] and as she said in the witness box, the Tribunal should “just have pity on me as a single mother and I want to have my normal life back. This burden is too much; its going to ruin my life”.[69]
[68] Exhibit 1 – Hearing Book ST67-1087.
[69] Hearing Transcript of 27 November 2024- page 69-73.
The Respondent for its part submitted that the Applicant had pointed to no matters which might warrant remission. It was argued that the penalty provisions exist so as to encourage taxpayers to “voluntarily comply and take care in meeting their taxation obligations, and acts as both a general and specific deterrent” and that arbitrary remission would undermine the purpose of such a regime.[70]
[70] Respondent’s closing submissions dated 22 November 2024 at [96]
As the Commissioner correctly identifies in its published guidelines (provided to his officers who administer the penalty regime and the remission power),[71] “[t]he penalty provision aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care, or not making a reasonable effort to comply correctly with their reporting obligations”.
[71] PSLA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount
Whilst I accept (and am sympathetic) that the impact upon the Applicant’s personal circumstances may be significant, and it is hard to imagine it wouldn’t be given the quantum of the Penalty Assessments, I am not convinced that in the circumstances of this case those concerns alone provides a compelling reason for the discretion to be exercised in her favour.
As I have found above, the Applicant must have known that she was under an obligation to declare and pay the appropriate amount of taxation on the entirety of her taxable income. Over the course of a period of six years the Applicant, on my findings, made an intentional decision to declare a fraction of her earnings and pay a nominal amount of tax for each of those years. This evasion of tax did not involve some small or insignificant amount but the entire proceeds of a business.
CONCLUSION & DECISION
The Applicant has not discharged her burden to show that the Amended Assessments and Penalty Assessments were excessive and what they ought to have been. Nor am I satisfied that the Penalty Assessments should be the subject of any remission.
Pursuant to s 105 of the Administrative Review Tribunal Act 2024, the reviewable objection decisions are affirmed.

Date(s) of hearing:
27 November 2024
4 December 2024

Date final submissions received: 24 December 2024

Non-Legal Representative for the Applicant: Mr S Sun, Yellow Crane & Co (Accountant)

Counsel for the Respondent: Mr A Schatz

Solicitors for the Respondent: Mr P Daley, ATO

Year ending 30 June	Income Returned ($)	Additional Assessable Income ($)	Tax Shortfall Amounts ($)
2016	21,761	172,647	67,848
2017	22,023	289,575	122,358
2018	22,461	100,967	35,606
2019	23,145	157,153	57,908
2020	16,736	137,189	47,918
2021	25,675	62,993	19,267
Total	131,801	920,524	350,909

Date(s) of hearing:	27 November 2024 4 December 2024
Date final submissions received:	24 December 2024
Non-Legal Representative for the Applicant:	Mr S Sun, Yellow Crane & Co (Accountant)
Counsel for the Respondent:	Mr A Schatz
Solicitors for the Respondent:	Mr P Daley, ATO