Interest Pty Ltd, Kazacos and Commissioner of Taxation - [2001] AATA 710

DECISION AND REASONS FOR DECISION [2001] AATA 710

ADMINISTRATIVE APPEALS TRIBUNAL )

)QT1998/270,271

) QT1999/170,195,

TAXATION APPEALS DIVISION         )         196,197,198,199
           Re      INTEREST PTY LIMITED
  First Applicant

AndESTATE OF MICHAEL HARVEY KAZACOS
Second Applicant
AndMICHAEL CONSTANTINE KAZACOS
Third Applicant

And COMMISSIONER OF TAXATION
Respondent
DECISION

Tribunal Mr. D.W. Muller, Senior Member

Date10 August 2001
PlaceBrisbane

Decision The objection decisions under review are varied as follows: 1. For the tax year ending 30 June 1995 (i) The sum of money deposited to the account of Interest Pty Limited by PC Services in July 1995 was not the income of Interest Pty Limited for the tax year ending 30 June 1995 but formed part of the income of Michael Harvey Kazacos and Michael Constantine Kazacos in equal shares for the said tax year. (ii) There were no dividends paid by Interest Pty Limited to either Michael Harvey Kazacos or Michael Cosntantine Kazacos, deemed or otherwise. (iii) The undeclared cash received by Michael Harvey Kazacos and Michael Constantine Kazacos was not the income of Interest Pty Limited but formed part of the income of Michael Harvey Kazacos and Michael Constantine Kazacos in equal shares for the said tax year. (iv) A cheque to the value of $50,000 deposited to the account of Michael Harvey Kazacos and drawn on the account of Alex Pitts was not income. (v) Any increase in income tax liability of the second and third applicants for the said tax year as a result of part (i) of this part of the decision is not to result in the imposition of any penalty. 2. For the tax year ending 30 June 1996 (i) The income of Interest Pty Limited for the tax year ending 30 June 1996 was that which was declared to the accountant for Interest Pty Limited. (ii) The undeclared cash received by Michael Harvey Kazacos and Michael Constantine Kazacos was not the income of Interest Pty Limited but formed part of the income of Michael Harvey Kazacos and Michael Constantine Kazacos in equal shares for the said tax year. (iii) There were no dividends paid by Interest Pty Limited to either Michael Harvey Kazacos or Michael Constantine Kazacos, deemed or otherwise. (iv) Michael Harvey Kazacos received a dividend of $383,695 from United Displays Management Pty Ltd. 3. For the tax year ending 30 June 1997 (i) The income of Interest Pty Limited for the tax year ending 30 June 1997 was that which was declared to the accountant of Interest Pty Limited. (ii) The cash received by Michael Harvey Kazacos and Michael Constantine Kazacos was not the income of Interest Pty Limited but formed part of the income of Michael Harvey Kazacos and Michael Constantine Kazacos in equal share for the said tax year. (iii) There were no dividends paid by Interest Pty Limited to either Michael Harvey Kazacos or Michael Constantine Kazacos, deemed or otherwise. (iv) Michael Harvey Kazacos received a dividend of $458,419 from United Displays Management Pty Ltd. 4. The appropriate rate of penalty for the undeclared income in each of the tax years under review: (i) in the case of Michael Harvey Kazacos remains at 75 per cent for the undeclared cash receipts and 50 per cent for the dividends from UDM Pty Ltd, and (ii) in the case of Michael Constantine Kazacos is reduced to 50 per cent. 5. The matters are remitted to the respondent for re-assessment in the light of these decisions.

.............(Signed).................................
D.W. MULLER
SENIOR MEMBER

CATCHWORDS
TAXATION – undeclared income – deemed dividend – effect of imprisonment on penalty
Income Tax Assessment Act 1936: ss226E, 226H, 226J, 226Z, 226ZA, 227(3), 108

REASONS FOR DECISION

Mr. D.W. Muller, Senior Member

The First Applicant applies to the Tribunal for review of the Respondent's objection decisions in relation to amended assessments for the years 1995 to 1997.
The Second Applicant applies to the Tribunal for review of the Respondent's objection decisions in relation to amended assessments for the years 1995 to 1997.
The Third applicant applies to the Tribunal for review of the Respondent's objection decisions in relation to amended assessments for the years 1995 to 1996.
Michael Harvey Kazacos committed suicide on 2 November 1996. He will be referred to as "Michael Junior". His executor is the Second Applicant. Michael Constantine Kazacos will be referred to as "Michael Senior".
Each of the assessments arises out of the same set of facts involving the supply of legal brothel and escort services and the receipt of cash in respect of that supply. A large percentage of cash received by the brothel was shared by Michael Junior and Michael Senior and was not declared as income. The Respondent contends that from August 1994 the cash should have gone directly to the First Applicant, Interest Pty Limited, and then by way of dividend to Michael Junior and Michael Senior. The Respondent has decided to assess the income of Interest Pty Limited as including the undeclared cash plus penalties and to assess Michael Junior and Michael Senior as having received dividends upon which they must pay tax plus penalties without being allowed any reduction for the tax paid by Interest Pty Limited, because franking credits are only available on declared incomes.
There are also peripheral issues to be dealt with in the assessments of the Second Applicant for each of the tax years 1995, 1996 and 1997.
Michael Senior gave evidence to the Tribunal and he was cross-examined. The Tribunal is mindful of the fact that Michael Senior has been convicted of charges relating to dishonesty in his taxation matters and as a consequence thereof he has spent time in prison. He was sentenced to four years in prison. He served 15 months and was released on his own recognisance on 16 May 2000. Nevertheless, it was not put to Michael Senior nor to his accountant, Mr. Gallie, that anything they said was false and the Tribunal accepts their evidence as truthful and reliable.
The Tribunal makes the following finding of facts in relation to the main issues.
(i)In the 1970's, Michael Senior operated a pharmacy business in Sydney.
(ii)In the late 1970's, Michael Senior set up an operation called "Penthouse Beauty Clinique" at 32 Carrington Street, Sydney. It offered services such as hairdressing, facials, waxing, tinting, eye-lash treatment, solarium and gymnasium. A manager was employed by Michael Senior to run the operation.
(iii)In or about early 1984, Michael Senior became aware that his manager was offering sex services from the premises. He sacked his manager and installed Michael Junior as his new manager.
(iv)On 3 April 1984, a partnership agreement was entered into between Michael Senior and Michael Junior to carry on the Penthouse business at 464 George Street, Sydney. The business of the partnership was described in the agreement as "Entertainment". Michael Senior was to receive 90% of the proceeds and Michael Junior 10%. The premises became known as "Club 464". The entertainment consisted of paid entertainers such as singers and musicians providing the atmosphere for dancing and drinking. It also consisted of prostitution which was carried on under the name of PC Services.
(v)By the late 1980s the focus of the partnership was exclusively on prostitution.
(vi)In 1992 the partnership set up luxurious premises at 250 Pitt Street, Sydney and moved the operation to those premises. The premises were called "The Penthouse" and the partnership traded as PC Services. The two partners each shared the proceeds on a 50/50 basis from 1992 onwards. Michael Junior ran the business. Michael Senior had retired to the Gold Coast.
(vii)The two partners had some concerns about possible legal liability in the event that any person be injured on the premises. It was decided that they form a limited liability company and that the company should be the lessee of the property. On 11 November 1992, application was made for the reservation of a name of a new Australian company. On 16 November 1992 a certificate of registration was issued for Interest Pty. Limited. At all relevant times the only shareholders and directors of Interest Pty Limited have been Michael Senior and Michael Junior.
(viii)On 10 March 1993, Interest Pty Limited became the lessee of the Pitt Street premises for a term of 10 years, said by the agreement to date from 4 February 1993. This was later extended to 3 February 2004 by an agreement signed on 1 July 1994.
(ix)Clients of the Penthouse usually paid a fee to enter the premises. Regular customers did not have to pay an entry fee. They could pay an annual fee. Upon entering the premises the clients could merely drink at the bar or they could engage the services of a prostitute. Each individual client negotiated with the specific prostitute the fee for sexual service, which would be performed in one of the rooms on the premises. Fees were often paid in cash but it was also common for credit cards and cheques to be used. The prostitutes had an agreement with Michael Junior that the fee for services would be shared equally between the prostitute and the partnership. The prostitutes were not charged rent nor did they have to pay expenses. They were paid 50% of the gross fee which they had collected. If the client paid by credit card the fee charged would be increased by 10%. Michael Junior took that 10% as a banking service fee.
(x)Income from credit cards and cheques was banked, accounted for to the accountants of the partnership and ultimately to the Australian Taxation Office (ATO). Some income from cash receipts was revealed to the accountants but a large proportion was not. Prostitutes were paid by Michael Junior in cash. Running expenses were paid partly from the banked income but largely from the cash proceeds. Those cash amounts paid to the prostitutes and paid out for running expenses were declared to the accountants as income, and later claimed as deductions.
(xi)The partners paid tax on the profits from the declared income of the business, that is, from the declared cash, credit cards and cheques. The partners shared the profits from the non-declared cash side of the business and paid no tax on those profits. Michael Junior took his share of the cash and sent any excess plus Michael Senior's share, to Michael Senior. Michael Senior kept what cash he wanted and sent the balance to off-shore destinations, to a bank or banks in Vanuatu.
(xii)The prostitutes were never bound by any written contracts or employment agreements. They could work or not work as they wished. The turnover of prostitutes was high. When the prostitutes worked they had to conform to certain rules of behaviour, dress, grooming and hygiene. There were also rosters in place from time to time. Failure of a prostitute to present herself at the pre-determined rostered time would incur a penalty which would be deducted from her cash payment. The issue of whether the prostitutes were employees or independent contractors was explored by the ATO and PC Services during the period under review. Both the ATO and PC Services treated the prostitutes as independent contractors throughout the relevant period. This was consistent with the approach of the ATO in New South Wales at the time.
(xiii)In 1994, Michael Junior expressed some disquiet about the fact that he was paying tax at the highest individual marginal rate on the declared income, which was approximately 10% higher than the corporate tax rate. He suggested that the declared income part of the business should be transferred to Interest Pty Limited. He also suggested that Interest Pty Limited borrow the purchase price for that part of the business from the partners and then repay the loan to the partners from future after-tax profits.
(xiv)After receiving expert advice that there were capital gains tax implications in putting the loan idea into place, it was determined that the consideration for the sale of the cheque and credit card part of the business had to be shares in Interest Pty Limited issued for market value. This meant the after-tax profits could not be paid to the vendors. The arrangement was agreed to on 14 August 1994 but the actual transactions effecting the transfer of that part of the business did not occur until July 1995, and the proceeds of the business which it was intended Interest Pty Limited should receive were first banked to its account in July 1995. Until that time the said proceeds had been held by PC Services, and had been accounted for to the accountants. Thus, the amount collected by PC Services during tax year 1995 and banked to the account of Interest Pty Limited in July 1995, was in fact the income of the partnership PC Services and not Interest Pty Limited for the tax year 1995.
(xv)The market valuation of the business on transfer only took account of the amounts declared as income, the declared cash, credit cards and cheques. It was the value of the income stream known to the accountants.
(xvi)The only assets transferred to Interest Pty Limited were the plant and equipment. The company already had the lease of the premises from 10 March 1993. The prostitutes were not employees of the business who were then taken over by Interest Pty Limited. Nor were there any contracts between the partnership and the prostitutes that were taken over, nor capable of being taken over. There was no written agreement for the transfer of assets. No stamp duty was paid. Michael Junior did not provide any restrictive covenant to Interest Pty Limited not to compete.
(xvii)After the transfer, Michael Junior continued to receive cash, credit card payments and cheques from clients. The declared income was calculated in the same way as it had been before but it was put through the account of Interest Pty Limited and declared as the income of Interest Pty Limited. Michael Junior continued to deal with the undeclared cash in the same way as he had done before. The undeclared cash profit part of the business was never put through the account of Interest Pty Limited, nor was it ever intended to be. No dividends were paid by Interest Pty Limited. The profits of Interest Pty Limited accumulated in the company account.
(xviii)In the 1995 year, Interest Pty Limited paid directors fees of $91,000 to each of Michael Junior and Michael Senior. Michael Senior received no income from Interest Pty Limited in the 1996 year of income.
There is no dispute between the parties as to the quantum of the undeclared cash amounts actually received by Michael Junior and shared with Michael Senior. They were meticulous in their keeping of records. For the years in question the undeclared cash amounts were:
1995   -          $ 957,211
1996   -          $1,333,747
1997   -          $1,046,918
The Federal Police discovered the concealment following raids conducted on 16 January 1997. The raids were conducted on the Pitt Street premises, Michael Senior's home at the Gold Coast and on their accountant. The raids related to matters not connected with tax evasion. Nevertheless, officers of the ATO were interested spectators and liaised with the Federal Police. AUSTRAC had also uncovered the dealings with the banks in Vanuatu.
Shortly thereafter, and before the ATO had contacted Michael Senior or the accountants, Michael Senior instructed the accountants to voluntarily disclose the existence of the secret profits that Michael Junior and Michael Senior had shared between them. No audit of the affairs of the Applicants had been notified by the ATO prior to that time. However, the game was up. The ATO had gained possession of the books of account. Consequently, for the 1997 tax year, Michael Junior and Michael Senior each returned half of the $1,046,918 as their assessable incomes.
The Respondent has included the above cash amounts in the assessable income of Interest Pty Limited for the three years in question. The Respondent has also imposed penalties on Interest Pty Limited in each of the years of income, on the basis that the company had tax shortfalls in relation to the secret profits.
The Respondent has also included for the 1995 year half of $957,211 in each of the assessable incomes of Michael Junior and Michael Senior, on the basis that they are deemed dividends paid by Interest Pty Limited under section 108 of the Income Tax Assessment Act 1936 (the 1936 Act). The Respondent has treated the $1,333,747 for the 1996 year in the same way. Penalties have also been imposed. The result is that penalties have been imposed twice for the same income and franking credits are not available.
Although the amounts of the incomes not declared are large, this is a straight-forward case of a failure by Michael Junior and Michael Senior to declare the cash income which they received from the brothel enterprise. Michael Junior and Michael Senior as partners in PC Services eventually entered into a duties, role and profit sharing arrangement with Interest Pty Limited, whereby Michael Junior managed the enterprise and collected all proceeds whilst Interest Pty Limited leased the premises and paid certain overheads. The cash received by Michael Junior at the brothel was the income of the partnership, PC Services, and the cheques and credit cards processed through the account of Interest Pty Limited constituted the income of the company. The income of the company was declared. The income of the partnership, PC Services, was not.
There was nothing to prevent the partnership of PC Services from entering into the above partnership with Interest Pty Limited. All of the details of the arrangement were fully disclosed to the partners of PC Services and to the shareholders of Interest Pty Limited. This was not a situation where part of the proceeds were being "hived off" to entities which had nothing to do with the derivation of the income.
The Respondent's approach has been to assert that not only the income from the credit cards and cheques should have gone to Interest Pty Limited but also the cash which Michael Junior received. This approach prompts the question, what would the Respondent have done in 1995, 1996 and 1997 if Michael Junior and Michael Senior had made a full declaration of the cash receipts at the time? Would the respondent have insisted that all receipts, including the cash, had to go to Interest Pty Limited? The answer to the question is that the Respondent would not have made that direction for two reasons:
(i)The Respondent would have had no power to so direct; and
(ii)The Respondent would hardly have insisted that the partnership "hive off" to the company approximately one million dollars of income in each of the three years and thus deprive the Respondent of about $100,000 in tax for each year.
Counsel for the Respondent referred the Tribunal to a number of reported cases in which "hiving off" and income splitting with other entities were disallowed. Those cases turn on the question of whether or not the other entities were in fact involved in the derivation of the incomes. They do not apply to the facts of this case.
Consequently, the Tribunal determines that:
(i)For the tax year 1995
(a)The sum of money deposited to the account of Interest Pty Limited by PC Services in July 1995 was not the income of Interest Pty Limited.
(b)The money banked to the account of Interest Pty Limited in July 1995 was part of the income of Michael Junior and Michael Senior in equal shares for the 1995 year.
(c)The undeclared cash received by Michael Junior and Michael Senior was not income of Interest Pty Limited. It was the income of Michael Junior and Michael Senior.
(d)There were no dividends paid by the company to Michael Junior or Michael Senior, deemed or otherwise.
(e)Any increase in income tax liability for Michael Junior and Michael Senior as a result of parts (a) and (b) of this part of the decision is not to result in the imposition of a penalty because it has been brought about by a decision of the Tribunal.
(ii)For the tax year 1996
(a)The income of Interest Pty Limited for the tax year 1996 was that which was declared to the accountant of Interest Pty Limited.
(b)The undeclared cash received by Michael Junior and Michael Senior was not income of Interest Pty Limited. It was the income of Michael Junior and Michael Senior.
(c)There were no deemed dividends.
(iii)For the tax year 1997
(a)The income of Interest Pty Limited for the tax year 1997 was that which was declared to the accountant of Interest Pty Limited.
(b)The cash received by Michael Junior and Michael Senior was not income of Interest Pty Limited. It was the income of Michael Junior and Michael Senior.
(c)There were no deemed dividends.

Peripheral Issue 1, relating to tax years 1996, 1997.
(i)In the 1996 tax year, Interest Pty Limited paid a company called United Displays Management Pty Ltd (UDM) the sum of $784,051. This payment was claimed to be consideration for UDM providing advertising, staff selection and cleaning services to Interest Pty Limited.
(ii)In the 1997 tax year, Interest Pty Limited paid UDM the sum of $393,500. This payment was claimed to be consideration for UDM providing advertising, staff selection and cleaning services to Interest Pty Limited.
(iii)During the 1996 tax year, Michael Junior received the following sums from UDM.
(a)Wages in the sum of $56,660. A group certificate was issued and lodged with Michael Junior's tax return. The tax deducted was $6,660. (The balance of $50,000 was said to be a credit in that amount for interest on a loan account with UDM).
(b)Directors fees of $115,000.
(c)An amount of $383,695 (described as a loan).
(iv)During the 1997 tax year, Michael Junior received the following sums from UDM.
(a)Wages in the sum of $26,700. A group certificate was issued and lodged with Michael Junior's tax return. The tax deducted was $5,571.
(b)Directors fees of $106,154.
(c)An amount of $458,419 (described as a loan).
(v)At all relevant times the shareholders of UDM were Dario Gai, Michele Ronzel and Irene Fabris. They are not related to the applicants. The accountants for the applicants were also the accountants for Mrs. Fabris.
(vi)UDM had operated a manufacturing business but by 1995 it had become moribund and had accumulated large losses. Michael Junior's accountant, Mr. Gallie, suggested to Michael Junior that UDM could be a vehicle by which service fees from Interest Pty Limited could be "soaked up" by UDM. Mr. Gallie and Michael Junior became Directors of UDM. Mrs. Fabris was in her sixties and took no interest in UDM.
(vii)Michael Junior gained sole control over the finances of UDM. He caused the large payments mentioned above to be paid by Interest Pty Limited to UDM. He also removed the large sums of money referred to above, from UDM to his own account.
(viii)After the sudden and unexpected death of Michael Junior, his accountant, Mr. Gallie, decided to put the label of "loans" on the sums of money Michael Junior had transferred from UDM to himself. Mr. Gallie also invented an interest rate of 10 per cent.
(ix)No dividends, in the usual sense of the word, were ever paid to the applicants by UDM.
(x)No repayments of the "loans" were ever made.
The Tribunal has not been asked by the parties to determine whether or not UDM in fact supplied the services of advertising, staff selection and cleaning to Interest Pty Limited to the total value of $1,177,551, or at all, during the tax years 1996, 1997. The issue for determination is whether the so-called loans of $383,695 in the 1996 tax year and $458,419 in the 1997 tax year were in fact loans, deemed dividends to Michael Junior pursuant to section 108 of the 1936 Act or otherwise assessable to Michael Junior pursuant to s. 25(1) of the Act.
The Tribunal is not satisfied that the said amounts of $383,695 and $458,419 were loans from UDM to Michael Junior. There is no evidence that the amounts were ever characterised as loans during the lifetime of Michael Junior. It was only upon his death that his accountant decided to put the "loan" label on the amounts which had been transferred from UDM to Michael Junior. There is no evidence of any effort to repay the amounts.
The sums of $383,695 in the 1996 tax year and $458,419 in the 1997 tax year are more accurately classed as deemed dividends pursuant to section 108 of the Act.
Peripheral Issue 2, relating to tax year 1995.
(i)On 4 April 1995, a cheque in the amount of $50,000 was deposited into an account held by Michael Junior at Citibank. The cheque was from a Mr. Pitts.
(ii)The financial records of Michael Junior for the year ended 30 June 1995 purport to show a liability to Mr. Pitts for the sum of $50,000. This is possibly an inaccurate label.
(iii)From the material available to the Tribunal it seems that at some time prior to 4 April 1995, Michael Junior loaned $50,000 to Alex Pitts to allow Mr. Pitts to purchase a car. The cheque for $50,000 drawn on Mr. Pitts' account and deposited in Michael Junior's account on 4 April 1995 was a repayment of the loan.
The $50,000 deposited on 4 April 1995 was not part of Michael Juniors' assessable income.

PENALTIES

There is no tax shortfall for Interest Pty Limited. Therefore, no penalties are to be imposed on the First Applicant.
For the tax years 1995, 1996, a penalty rate of 75% of the tax shortfall was imposed on Michael Junior and Michael Senior, in relation to the tax shortfall which resulted from their deliberate failure to disclose the cash receipts. The penalty rate imposed was the rate provided for in s.226J of the 1936 Act which provides:
If: (a) a taxpayer has a tax shortfall for a year; and
(b)the shortfall or part of it was caused by the intentional disregard by the taxpayer…. of this Act or the regulations;
the taxpayer is liable to pay, by way of penalty, additional tax equal to 75% of the amount of the shortfall or part.
The penalty rate imposed on Michael Junior for the tax shortfall due to the undeclared distribution from UDM was 50% pursuant to s.226H of the Act which provides:
"226H Subject to this Part, if:
(a) a taxpayer has a tax shortfall for a year; and
(b)the shortfall or part of it was caused by the recklessness of the taxpayer or of a registered tax agent with regard to the correct operation of this Act or the regulations;
the taxpayer is liable to pay, by way of penalty, additional tax equal to 50% of the amount of the shortfall or part."

Prima facie the rates of penalty imposed on Michael Junior and Michael Senior are correct. There was clearly an intentional disregard of the law in relation to the undeclared cash receipts. Michael Junior has been given the benefit of the doubt in relation to the payments by UDM to himself.
It was submitted on behalf of the Second and Third Applicants that the additional tax must be reduced by 80 per cent because of the "voluntary" disclosure to the ATO of the undeclared cash, before the Second and Third Applicants or their accountants were contacted by the ATO and certainly before an audit was carried out. The relevant sections of the Act are 226Z, 226ZA and 226E which provide:
"226Z If:
(a)under a shortfall section, a taxpayer is liable to pay additional tax in respect of a year of income because of a tax shortfall or part of a tax shortfall; and
(b)before the Commissioner had informed the taxpayer that a tax audit relating to the taxpayer in respect of the year was to be carried out, the taxpayer voluntarily told the Commissioner, in writing, about the shortfall or part;
the amount of the additional tax because of the shortfall or part is reduced:
(c)if the shortfall or part is at least $1,000 – by 80%; or
(d)if the shortfall or part is less than $1,000 – to nil.
226ZA If a taxpayer voluntarily tells the Commissioner, in writing, about a tax shortfall, or part of a tax shortfall, for a year after the Commissioner has informed the taxpayer that a tax audit in relation to the taxpayer in respect of that year is to be carried out, the Commissioner may, if the Commissioner considers it appropriate in all the circumstances, determine that, for the purposes of sections 226Y and 226Z, the taxpayer is taken to have told the Commissioner before being informed."
226EIf:
(a)a taxpayer is liable to pay additional tax under a scheme section in respect of a year of income; and
(b)before the Commissioner had informed the taxpayer that a tax audit relating to the taxpayer in respect of the year was to be carried out, the taxpayer voluntarily told the Commissioner, in writing, about the matter because of which the wrongful behaviour provision applies;
the amount of the additional tax is reduced by 80%.
The Tribunal will not reduce the penalty pursuant to any of the above provisions. There was nothing voluntary about the disclosures to the ATO. The game was well and truly up.
It was also submitted that in the case of Michael Senior there should be a remission of penalty in any case because of the length of time he spent in prison for these matters. He was sentenced to four years and served 15 months before being released on parole. There is a general power to remit the whole or any part of the additional tax payable, under subsection 227(3) of the Act.
"227(3) [Commissioner's discretion to remit] The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax."

From the material available to the Tribunal it is clear that the penalty of 75 per cent was imposed in Michael Senior's case before he was sentenced to imprisonment. It is unclear as to whether the sentencing judge took the monetary penalty into account when he sentenced Michael Senior to four years in gaol. There is no doubt that Michael Senior should not be punished fully twice for the same transgression. However, the monetary penalty should not be reduced to a token amount, lest there be some notion generated that it might be desirable to spend a certain time in gaol to save large sums of money. There has to be a balance. The Tribunal believes that this balance can be achieved by reducing the penalty in the case of Michael Senior to 50 per cent.
The objection decisions under review are varied in accordance with the above reasons for decision.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of Mr. D.W. Muller, Senior Member
Signed:         .....................................................................................
           B. Hitchcock, Secretary
Date/s of Hearing  11, 12, 13 September 2000
Date of Decision  10 August 2001
Counsel for the Applicant         Mr. D. Russell, QC and
  Mr. M. Robertson
Accountants for the Applicant Hales Redden & Partners Pty Ltd
Counsel for the Respondent    Mr. J. Logan, SC
Solicitor for the Respondent    Australian Government Solicitor