Little Joe Rigoli and Commissioner of Taxation - [2012] AATA 757

[2012] AATA 757

Division TAXATION APPEALS DIVISION

File Numbers

2009/0142 – 2009/0149

Re

Little Joe Rigoli

APPLICANT

And

Commissioner of Taxation

RESPONDENT

DECISION

Tribunal
Egon Fice, Senior Member

Date 1 November 2012

Place Melbourne
The Tribunal finds that the Objection Decisions made by the Commissioner of Taxation (the Commissioner) on 19 December 2008 in respect of the 1994 – 2001 income years are incorrect in so far as they disallowed Mr Rigoli's claims for depreciation deductions on the capital items set out in paragraph 366 of these reasons for decision. The Tribunal sets aside those Objection Decisions and remits this matter to the Commissioner for reassessment taking into account depreciation deductions for the items of capital equipment set out in paragraph 366 of these reasons for decision.
...[sgd Egon Fice].....................................................................
Egon Fice, Senior Member
TAXATION – assessment of income – income tax – failure to furnish income tax returns – default assessment – partnership – depreciation – onus of proof – credibility of witnesses – manufacturing polystyrene and cardboard boxes
Administrative Appeals Tribunal Act 1975 (Cth) s 37
Income Tax Assessment Act 1922-1934 (Cth) s 39
Income Tax Assessment Act 1936 (Cth) ss 54, 56, 59AA, 60, 62, 82, 82AAT, 90, 91, 92, 166, 167, 173, 177, 190
Income Tax Assessment Act 1997 (Cth) ss 4-15, 995, 995-1
Income Tax and Social Services Contribution Assessment Act 1936-1955 (Cth) s 190(b)
Income Tax (Transitional Provisions) Act 1997 (Cth) ss 42-2, 42-9
Partnership Act 1958 (Vic) s 24
Taxation Administration Act 1953 (Cth) s 14ZZK
Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 44 ALR 607
Areffco v Commissioner of Taxation [2011] AATA 628
Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148
Johnson v Johnson (2000) 201 CLR 488
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
McCormack v Federal Commissioner of Taxation (1979)143 CLR 284
O’Brien and Others v Komesaroff (1982) 150 CLR 310
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd(in liquidation) and Others (1999) 160 ALR 588
The Commissioner of Taxation of The Commonwealth of Australia v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466
Tisdall v Webber (2011) 193 FCR 260
Trautwein v The Federal Commissioner of Taxation (1936) 56 CLR 63
WR Carpenter Holdings Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (2008) 237 CLR 198
15 C.T.B.R. Case 83
Demeanor by Olin Guy Wellborn, William C. Liedtke, Sr. Professor of Law and Associate Dean for Academic affairs, The University of Texas School of Law, published in 76 Cornell Law Review 1075, July 1991
Oral v Written Evidence: The Myth of the "Impressive Witness" by Loretta Re, B.A., LL.M., Dip. Ed., published in the December 1983 The Australian Law Journal, Vol. 57 (starting at pg 679)
Shorter Oxford English Dictionary (3^rd ed, 1983)
REASONS FOR DECISION
Egon Fice, Senior Member
1 November 2012

Little Joe Rigoli has two tax file numbers. In March 1999, the Commissioner of Taxation (Commissioner) issued assessments for the income years 1994 – 1997 under one tax file number. Mr Rigoli did not object to those assessments. In October 1999 the Commissioner issued amended assessments for the income years 1994 – 1997 reducing the taxable income for each year other than the 1997 income year, which was increased. Mr Rigoli did not object to those assessments.
In December 2001 the Commissioner issued further amended assessments for the income years 1994 – 1997, increasing the taxable income for each year and assessments for the income years 1998 – 2001. These assessments were issued under the second tax file number. These assessments were issued under s. 167 of the Income Tax Assessment Act 1936 (ITAA 36) which enables the Commissioner to make a default assessment upon the failure of a taxpayer to furnish an income tax return. The December 2001 amended assessments were treated by the Commissioner as an alteration or addition to the assessments as a whole, thereby imposing a fresh liability against which Mr Rigoli could object (see Trautwein v The Federal Commissioner of Taxation (1936) 56 CLR 63, 93 – 94).
In a handwritten letter dated 7 January 2002 Mr Rigoli objected to the assessments stating: No taxable income. The objection was said to be from HRH (His Royal Highness) Prince L J Rigoli.
In a letter dated 2 August 2005, William Buck, Business Advisers and Chartered Accountants, advised the Commissioner that they had been engaged to assist Mr Rigoli with the preparation of income tax returns for the income years 1991 – 2000. The income tax returns for the income years 1994 – 2000 appear to have been lodged with the Australian Taxation Office (ATO) on 8 August 2005. The Commissioner made it clear that those income tax returns would not be treated as voluntary disclosure or original assessments.
William Buck, on behalf of Mr Rigoli, lodged further income tax returns for the income years 2001 – 2005 on 30 May 2006.
On 19 December 2008 the Commissioner issued Notices of Decision on Objection to Mr Rigoli regarding his objection to the assessments for the income years 1993 to 2001. The Commissioner allowed in part Mr Rigoli's objection for the income years 1994 – 2000 and disallowed his objection for the income year 2001. Mr Rigoli lodged his application with the Tribunal seeking review of the Commissioner's Objection Decisions on 13 January 2009. The Commissioner, on 4 March 2009, issued amended assessments to give effect to the decisions on objection.
In his opening submissions on the first day of hearing this matter, Mr D Clough of counsel, who appeared on behalf Mr Rigoli, informed me that the questions regarding Mr Rigoli's gross income for the years in question was no longer in issue. Mr Rigoli had accepted the Commissioner's estimate of his income in the relevant income years. The only issues remaining were the depreciation expenses which ought to have been taken into account in assessing Mr Rigoli's taxable income in the relevant years and the assessment of a capital gain by the Commissioner following the disposal of a capital item of equipment. On the fourth day of the hearing, 17 April 2012, Mr Clough informed the Tribunal that Mr Rigoli was no longer proceeding with the capital gains claim.
Therefore, the first issue which I am required to determine is whether Mr Rigoli's claim for depreciation expenses in the relevant income years should be allowed. If I find that some depreciation should be allowed, I must then determine whether, in those circumstances, Mr Rigoli has satisfied the onus of proving, on the balance of probabilities, that the assessments finally issued by the Commissioner are excessive.
HISTORY
In order to properly understand the dispute between Mr Rigoli and the Commissioner I need to set out in some detail the nature of the business conducted by Mr Rigoli; the way in which that business was conducted; and how it came about that Mr Rigoli failed to lodge income tax returns between 1994 and 2001.
Mr Rigoli's parents, Virgilio Rigoli and Consolata Rigoli, migrated to Australia from Italy in July 1967. On 11 November 1977 they became the registered proprietors of a property known as Lot 1 Swainston Road, Shepparton. On 15 October 1979, they also became the registered proprietors of a property known as Lot 2 Swainston Road Shepparton. An orchard was planted on the properties.
Virgilio and Consolata Rigoli had three children, a daughter born in 1967, and two sons, Philip Rigoli (later known as Robert Palazzolo) born in 1969 and the applicant, Mr Rigoli, born in 1975.
By a deed of gift which appears to have been made on 15 July 1988, Virgilio and Consolata Rigoli assigned to Philip Rigoli what was described as all of the furniture, chattels and other property set out in the schedule hereto. The list in the schedule is extensive and it includes vehicles, machinery and implements which appear to have a use in the orchard, in addition to a cool store and compressor equipment.
On 7 November 1988 Consumer and Business Affairs Victoria received a business name application lodged by Philip Rigoli for the business name Bonanza Pack which was to commence on 1 December 1988. The application form lists Virgilio, Consolata and Philip Rigoli as the owners of the business. The nature of the business is described as manufacturing of polystyrene products. On 2 November 1990 Philip Rigoli entered into an agreement for the sale of equipment set out in an accompanying schedule to Mr Rigoli. Included in the schedule attached to the agreement is what is described as a satellite box fabricator, quarter cases polystyrene, wrapping paper, box inners and shrink wrap plastic. These items appear to have had something to do with the manufacturing of polystyrene products.
On 25 January 1991 Philip Rigoli lodged with the Corporate Affairs Office a Statement of Change under the Business Names Act 1962 indicating that he ceased to be one of the persons carrying on the business under the name Bonanza Pack. The date of cessation is registered as 1 December 1990. Philip Rigoli changed his name to Robert Palazzolo (sometimes spelt Palazollo) in about February 1991.
On 2 May 1991 Virgilio Rigoli lodged with Corporate Affairs Victoria a Notice of Cessation of Business under Business Name. The notice stated that Bonanza Pack's business ceased to be carried on under that name on 1 April 1991.
On 4 June 1991 Virgilio and Consolata Rigoli entered into a lease with Philip Rigoli whereby Philip Rigoli leased part of the Swainston Road property for a term of 10 years. The rental was $100 per annum to be paid annually in arrears; and the premises were to be used for fruit handling and storage.
On 19 May 1992, Virgilio Rigoli became a bankrupt.
On 2 April 1993 Westpac Banking Corporation, as mortgagee, entered into a contract of sale of real estate with Philip Rigoli for the sale of lots 1 and 2 Swainston Road. The purchase price was said to be $90,000, being a deposit of $10,000 with $20,000 payable on 30 June 1993, $30,000 on 30 September 1993 and the final payment of $30,000 on 30 December 1993. On the settlement date, possession of the property and the right to receive the rents and profits were to be given upon acceptance of title. The purchaser, Philip Rigoli, acknowledged that the vendor was not required to give vacant possession of the property to the purchaser on settlement date as it was subject to occupancy by Virgilio and Consolata Rigoli.
Following Warrants of Seizure and Sale being registered on both titles in 1991 and 1992, Philip Rigoli lodged caveats on each of those titles on 30 April 1993. Mr Rigoli turned 18 years of age on 12 September 1993.
Although the circumstances are not disclosed, Mr Rigoli became registered as the proprietor of Lot 1 on 2 March 1994. It was in about July 1994 that the Rigoli family purported to secede from the Commonwealth of Australia and declared their property to be an independent state called The Principality of Ponderosa. Mr Rigoli appears to have adopted the name HRH Prince Little Joseph Rigoli.
On 5 March 1995 Mr Rigoli entered into a residential tenancy agreement with his parents. The premises were described as the residence and surrounds on Lot 2 Swainston Road Shepparton East. The rental was $5000 per annum and the term of the lease was for three years.
Mr Rigoli appears to have entered into a sale agreement with his brother, Robert Palazzolo, whereby Mr Rigoli sold to his brother for $10,000 all right title and interest in farm machinery, furniture, fixtures, electrical or gas appliances and household goods, tools, all plant and machinery, agricultural or otherwise, tyres, tubes and rims and unfixed assets as they may be. Although the agreement appears to have been executed it is not dated.
Virgilio Rigoli again became bankrupt on 10 April 1995. He appears to have been discharged from bankruptcy on 13 October 2006.
On 1 June 1995 Mr Rigoli appears to have entered into another lease with his parents for a term of 60 years. The demised premises were described as Lots 1 and 2 and included all machinery, plant and equipment with all chattels as they may be on the demised premises at any given time from the commencement of the lease up to and during the term of the lease. This lease of course would not have been possible if the sale agreement was in fact made prior to entry into the lease. To save confusion, I should mention that Mr Rigoli claims some of the documents evidencing leases or sales are simply a sham.
On 11 September 1995 Robert Palazzolo lodged a caveat over Lot 1. This was said to have been in his capacity as Purchaser/Fee Simple. Robert Palazzolo was subsequently registered as the proprietor on 9 October 1995. His mother, Consolata now referred to as Connie Schepis, became the registered proprietor on 14 July 1997 and Robert Palazzolo lodged another caveat, in the capacity of chargee on 27 November 1998.
On 25 October 1995 a further business name application was lodged with the Office of Fair Trading and Business Affairs by Robert Palazzolo. The business name registered was The Principality of Ponderosa. Mr Rigoli was recorded as an owner of that business in a document lodged on 31 January 1996. A notice of cessation of business under a business name was lodged by Mr Rigoli on 3 May 1996.
In a witness statement dated 24 July 2009, Mr Rigoli testified that the family purchased plant and equipment to manufacture cardboard cartons in about 1996 or 1997. He also testified that the cardboard box business was commenced in approximately 1997 and discontinued in approximately 1999.
Robert Palazzolo appears to have retired from the business in March 1998. An agreement made between Virgilio Rigoli, Consolata Rigoli, Little Joe Rigoli and Robert Palazzolo which was executed on 4 March 1998 sets out in its recital that those persons previously conducted a business in the manner of a partnership for the production or manufacture of both polystyrene and corrugated cardboard containers. The agreement notes that on the payment of $125,000 to Robert Palazzolo, he was to retire from the business. The agreement also provides that the continuing partners shall be entitled to receive all profits from the business to the exclusion of the retiring partner including all and any profits accrued but not paid prior to the signing of the agreement.
In his statement of 24 July 2009, Mr Rigoli said that he took over the running of the family business in 2000. I understood that to mean that for the 2001 income year, he was to be assessed as a sole trader.
THE PARTNERSHIP
Section 995 of the Income Tax Assessment Act 1997 (ITAA 97) defines the word partnership as an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly. The ITAA 36 contained a similar definition until 2004 when the definition was amended to simply state that it had the same meaning as in ITAA 97.
The liability of partnerships to taxation is dealt with in Division 5 of Part III of ITAA 36. Section 91 provides that a partnership shall furnish a return of the income of the partnership, but shall not be liable to pay tax thereon. The net income of a partnership means the assessable income of the partnership, calculated as if the partnership were a taxpayer who was a resident, less all allowable deductions except deductions allowable under s. 82AAT of ITAA 36 or Division 36 of ITAA 97. A partnership loss is also defined in s. 90 and it means the excess (if any) of the allowable deductions, other than deductions allowable under s. 82AAT of ITAA 36 or Division 36 of ITAA 97, over the assessable income of the partnership calculated as if the partnership were a taxpayer who was a resident.
Section 92 of ITAA 36 defines the assessable income of a partner. Section 92 (1) provides:
(1)The assessable income of a partner in a partnership shall include:
(a)so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was a resident; and
(b)so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.
Section 92 (2) provides for partnership losses. Insofar as it is relevant, it provides:
(2)… if a partnership loss is incurred by a partnership in a year of income, there shall be allowable as a deduction to a partner in the partnership:
(a)so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was a resident; and
(b)so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.
Ms D Harding of counsel, who appeared on behalf of the Commissioner, submitted that the partnership taxation provisions treat a partnership as if it is the taxpayer and a resident, and the partnership is subject to the same kinds of provisions as are the resident taxpayers. I agree with that submission. Therefore, if a partner wishes to claim a deduction for depreciation, the facts and circumstances relating to the particular item of property must meet the same criteria under the legislation for depreciation as other taxpayers.
In his witness statement of 24 July 2009 Mr Rigoli testified that businesses trading under the name Bonanza Pack and later Principality of Ponderosa comprised himself, Virgilio Rigoli and Philip Rigoli for the income years 1993-1997; and Virgilio Rigoli and himself for the income years 1998 – 2001, in equal shares. In cross-examination, Mr Rigoli confirmed that to be correct. When it was put to Mr Rigoli that his mother was not mentioned in his witness statement, Mr Rigoli responded that his mother was never really a part of the business. This is despite the fact that she was named as one of the owners of the business trading under the name Bonanza Pack. Nevertheless, trading under that business name was said to have ceased in April 1991. Consolata Rigoli was not named as one of the owners conducting a business under the name Principality of Ponderosa. However, the agreement made on 4 March 1998 between Robert Palazzolo (the retiring partner) and the remaining partners names Consolata Rigoli as a continuing partner of the business.
When asked about the agreement made on 4 March 1998, Mr Rigoli said that it was signed under duress at the insistence of his brother. He said it was to keep the family peace. He explained that in any old-fashioned Italian family, it was normal that wives were not involved in the business.
In cross-examination, Mr Rigoli's attention was also drawn to a statement in an affidavit he made on 31 August 2011 wherein he said that he took over the business in 1994. When he was asked whether he in fact took over the business in 1994, Mr Rigoli responded: I'm sorry. Okay, what's intended by that comment is prior to me taking over in the role as the plant – running the plant and getting more actively involved being involved as a partner that’s what it means.… My father and my brother basically run the business up until about 94/95 and then that's the time where I sort of had more involvement into the business, and then my brother left for family reasons about 97/98 and then me and my father basically continued the business until 2000, and then at 2000 it's when my father retired and I’ve basically taken the reins and continued on the business. When further questioned by Ms Harding, Mr Rigoli agreed that his father and mother were involved in the business when the business concerned the orchard but this was prior to commencing the manufacturing business. He said that his father and brother commenced the manufacturing business.

In fact, in the affidavit made by Consolata Rigoli on 2 April 2004, she deposed to the fact that Philip Rigoli took over the manufacturing of polystyrene boxes from Virgilio in early 1993. She said Philip ran the business on his own with Mr Rigoli's help. She testified that Philip and Mr Rigoli worked in the factory manufacturing polystyrene boxes and that she hardly ever visited the factory and never worked there. She also said that Virgilio did not take an active part in the business. She said she never took part in the running of the business or its management. As to the agreement she signed on 4 March 1998, Consolata Rigoli said that at no stage did she agree to make that agreement or agree to its contents. She said that had she been told by Mr Rigoli what that document was, she would not have signed it.
I did not have the benefit of Consolata Rigoli's evidence in the course of the hearing. As I understood Mr Rigoli, his mother could not have assisted the Tribunal in its decision. Nevertheless, in cross-examination Mr Rigoli said: In the early years, from 1988 to about 1994, my brother and my father predominantly been in charge. My mother never really had anything to do with it. She's – my mum stays home. She cooks and cleans and, you know. She doesn't – she doesn't – she has never really been a partner. When asked if he was able to offer an explanation as to why his mother had signed a statement of change in relation to the persons carrying on the business on 14 December 1990, Mr Rigoli accepted that the signature of his mother appeared on that document and his only explanation was that which I have set out above. Furthermore, despite lodging a notice of cessation of business under the business name Bonanza Pack, the bank account statements provided by the Commissioner under s. 37 of the Administrative Appeals Tribunal Act 1975 revealed that the name Bonanza Pack continued in use at least up until June 1995. He agreed that the name Bonanza Pack was the business name used in the manufacture of polystyrene products.
Although it may well be correct to say, as does Mr Rigoli, that his mother had little or nothing to do with the running of the business involved in manufacturing polystyrene boxes, that, by itself, is not evidence of Consolata Rigoli not being a partner in that business. It is not uncommon for persons to be partners in a business venture and yet not be involved in the day to day running or management of that business despite the fact that they may be entitled to do so. Furthermore, on 15 December 1998 Robert Palazzolo issued a Complaint in the Magistrates' Court of Victoria at Melbourne naming Virgilio Rigoli, Consolata Rigoli and Little Joe Rigoli as defendants. The action was brought by Mr Palazzolo to enforce the terms of the agreement made on 4 March 1998. A defence was apparently lodged on behalf of all defendants on 22 February 1999. In addition, the defendants lodged a counterclaim. The claim was transferred to the County Court on

18 November 1999.
In her affidavit dated 2 April 2004 which appears to have been lodged in the County Court proceeding, Consolata Rigoli testified that when she signed the agreement of

4 March 1998, she did not know what the document was about. Despite signing the document, she said that at no stage did she agree to that agreement or its contents. She also testified that at no stage was she part of the polystyrene making business or that she had an interest in it. She claimed not to have received legal advice or to have instructed a solicitor in relation to the matters the subject of the claim. In fact Consolata Rigoli testified that her husband and Mr Rigoli instructed solicitors to act on behalf of all of the defendants. She claimed that neither her husband nor Mr Rigoli advised her that they had instructed solicitors to act.
It should be noted that Consolata Rigoli's affidavit was lodged after judgement was entered in favour of Robert Palazzolo and a costs order made on 5 September 2000 had been taxed. As a party to the agreement upon which the action was brought, Mrs Rigoli had now become liable jointly and severally on the judgement and costs. I am not aware of the final outcome of this matter although, nowhere in her affidavit does Consolata Rigoli reject the statement in the 4 March 1998 agreement that she was a continuing partner or that in fact she was never a partner in the business which was concerned with the production or manufacture of both polystyrene and corrugated cardboard containers.
Given the proceeding brought by Robert Palazzolo to enforce the agreement made on

4 March 1998, I accept that he ceased to be a partner upon the execution of that agreement. I find that in the income years 1994 – 1997 inclusive, the partners conducting the claimed business of manufacturing polystyrene and cardboard boxes were Mr Rigoli, Virgilio Rigoli, Consolata Rigoli and Robert Palazzolo.
In his witness statement of 24 July 2009 Mr Rigoli said that from 2000 onwards he had taken over the running of the family business. Then, in the subsequent paragraph, he said that in the income years 1998-2001, the partnership business was conducted by himself and Virgilio Rigoli. These statements are contradicted in a letter written by William Buck dated 2 August 2005 addressed to the ATO. William Buck stated that Virgilio Rigoli was a partner in the partnership throughout the period 1991 to 2000 but ceased to be a partner at 30 June 2000. In a further letter from William Buck to the ATO dated

30 May 2006 William Buck said that from 1 July 2000 Mr Rigoli operated a business as a sole trader manufacturing polystyrene boxes. The difficulty I have with these statements is that there is no direct evidence from either Virgilio Rigoli or Consolata Rigoli regarding whether they continued to be partners in the business.
Virgilio Rigoli did not give evidence at the hearing of this matter. Mr Rigoli explained in his examination in chief that his father had been very ill for some time and that in the week preceding recommencement at the hearing in 2012, he was admitted to hospital. Mr Rigoli said he almost died that week and that he had been in the intensive care unit for about four or five days. During the hearing Mr Rigoli presented a letter from Virgilio Rigoli's doctor in which he stated: In view of his current condition and extensive medical history, he is unfit to attend court cases for at least two months as they are seen as stressful events which can have adverse effect on patient's health.
In cross-examination Mr Rigoli was asked whether his business was conducted as a sole trader from 2000 onwards. He answered yes. Ms Harding referred Mr Rigoli to a statement he made in his second affidavit dated 31 August 2011 where he said: Prior to me taking over the business in 1994…. When asked to clarify that statement, Mr Rigoli indicated that what he intended to say was that from 1994 he took over the role of running the plant and becoming more actively involved as a partner in the business. With respect to Mr Rigoli, it seems that he has on a number of occasions conflated the notion of being actively involved in the business with taking over the business and running it as a sole trader. He nevertheless maintained in cross-examination that his father retired in 2000. This was despite the fact that in his witness statement he testified that he and his father operated the business between 1998 and 2001.
It should be apparent that the state of the evidence regarding the constitution of the partnership which conducted the claimed business of the manufacture of polystyrene and cardboard boxes between 1998 and 2001 is unsatisfactory. Given the state of the evidence, I am not prepared to alter the Commissioner's finding that between 1998 and 2001, the partnership was constituted by Mr Rigoli, Virgilio Rigoli and Consolata Rigoli.
ONUS OF PROOF
In this proceeding the Commissioner put Mr Rigoli to his burden of proof which is set out in s. 14ZZK of the Taxation Administration Act 1953 (the Administration Act). The section provides:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving that:
(i)      if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii)     if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii)    in any other case—the taxation decision concerned should not have been made or should have been made differently.
In the course of the hearing, an issue arose regarding how Mr Rigoli could prove that the assessment made by the Commissioner, based on an estimate because no income tax returns had been lodged, was accurate. It will be recalled that Mr Rigoli, prior to the commencement of the hearing, conceded that the income assessment made by the Commissioner, although based on an estimate, in the relevant years was correct.
Despite the concession made by Mr Rigoli regarding his income in the years in question, Ms Harding rejected the notion that the only dispute in this matter was about depreciation. She submitted that default assessments are necessarily estimates based on limited books and records made available to the ATO. When I put to her that the consequence of this was that the Commissioner’s assessment of income must stand, she replied: What it means, sir, is that the Commissioner's assessment is not a statement of the true substantive liability of the taxpayer; it cannot be. She concluded that the Tribunal could not reach the conclusion that Mr Rigoli's true substantive liability was the amount shown in the assessments and therefore it was against that amount shown in the assessments that the deduction, depreciation expense, is made. Ms Harding submitted that at no stage had the Commissioner indicated that this case could be resolved on the question of depreciation alone.
Mr Clough rejected Ms Harding's submissions regarding the concession about income. He was also critical about the fact that neither the Commissioner's Reasons for Decision nor the Amended Statement of Facts, Issues and Contentions indicated that this would be the Commissioner's position following the making of the concession. The Tribunal was only notified of the concession regarding income on the first day of hearing this matter on 1 September 2011. I am uncertain as to when Mr Rigoli's legal representatives notified the Commissioner. However, Mr Clough was provided with a letter from the Commissioner's solicitors dated 11 April 2012 which said:
In our view, it is incumbent upon your client to establish: what is his true substantive liability. We consider that all issues related to your client's taxable income remain solidly in dispute.
With respect to Mr Clough, the Commissioner’s amended Statement of Facts, Issues and Contentions was lodged with the Tribunal on 25 August 2011. At that time, it was apparent that no concession had been made by Mr Rigoli regarding the estimates of his net income in the relevant years. That clearly accounts for why the Commissioner said that the applicant has not established the amount of income derived or expenditure incurred by the partnership in any of the relevant years. The letter dated 11 April 2012 says nothing more about Mr Rigoli's net income. As I understood Mr Clough, he was taken by surprise by the fact that the Commissioner, despite the concession being made about Mr Rigoli's net income, nevertheless maintained that in order for Mr Rigoli to establish that the assessments were excessive, he was required to establish his true substantive liability.
Mr Clough referred me to the High Court of Australia decision in The Commissioner of Taxation of The Commonwealth of Australia v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466. In that case, the Bank had borrowed moneys to subscribe for units in a trust fund. It expended interest on money borrowed to subscribe for the units and claimed those interest payments as an allowable deduction in the calculation of a partnership loss (the partnership being between itself and Australia & New Zealand Banking Group Ltd). The Commissioner disallowed the deduction and the Bank objected to the assessment. In his Objection Decision, the Commissioner wholly allowed the deduction which he had previously disallowed in calculating the partnership loss. However, the Commissioner also significantly increased the Bank's assessable income arising from the assessable income of the trust estate. The Federal Court dismissed the Bank's appeal. On appeal to the Full Court, the Commissioner contended that although he had allowed the taxpayer's objection in part by permitting the deduction of the totality of the interest incurred by the partnership, he could defend the assessments by raising afresh the question of deductibility which should be apportioned on the ground that the interest was not incurred wholly in gaining or producing assessment income. The Full Court held that the Commissioner was not at liberty to take that course.
On appeal to the High Court by special leave, the Commissioner argued that s. 190 of ITAA 36 imposed upon a taxpayer the burden of proving that the assessment, the subject of an objection, was excessive. The taxpayer did not discharge the burden by showing that the Commissioner erred in making the assessment. He needed to show what the correct amount of the assessment should have been. In discharging that burden, the taxpayer was limited to the grounds stated in his objection. Subject to procedural fairness and the facts which were then before the Court, the Commissioner was entitled to rely upon any grounds to uphold the assessment. Where a taxpayer is dissatisfied and refers the decision to the Court, the whole of the decision comes before the Court. The taxpayer cannot divide up the court's jurisdiction. No conduct of the Commissioner can operate as an estoppel against the application of the Act.
The High Court (Brennan, Deane, Dawson and Toohey JJ) disagreed with the approach taken by the Full Court. It said, at 476:
True it is that the decision was referred by the taxpayer so that the inclusion of income by the Commissioner might be challenged. But it does not follow that the Court was not then seized of the decision in its entirety. The power of the Court in these circumstances is to "make such order in relation to the decision to which the appeal relates as it thinks fit, including an order confirming or varying the decision" (s. 199).
Their Honours referred to the dissenting judgement of Davies J in the Full Court where he said that s. 190 (b) placed on a taxpayer the burden of proving that an assessment is excessive and in a matter referred to the court (or the Tribunal for that matter) there is nothing in the Act which confines the Commissioner to the matters referred to in the notice of objection. The High Court then referred to the decision in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 620 and 631. The question for the Court hearing an appeal was not whether the grounds of objection had been made out, but whether the taxpayer has satisfied the burden cast to prove that the assessment is excessive.
Mr Clough then referred to what was said by the High Court regarding notice to be given to the taxpayer. It said, at 479:
In several decisions it has been held that the Commissioner may support the amount of the assessment on a ground not taken into account at the time the assessment was made (27). The Commissioner will be required to give proper notice to the taxpayer and, where appropriate, will be directed to furnish particulars.
Mr Clough submitted that the Commissioner in this case had not given proper notice or particulars of any change whatsoever in its approach to the income issue. That, he submitted, resulted in the Commissioner failing to accord to Mr Rigoli procedural fairness. In those circumstances, Mr Clough submitted that Mr Rigoli is entitled to adopt the Commissioner’s reasoning on matters that he did not contest.
However, as I understood the submissions made by Ms Harding, the Commissioner has never altered his position regarding net income regardless of the concession made by Mr Rigoli at the commencement of hearing this matter. The Commissioner's argument was simply that for Mr Rigoli to prove on the balance of probabilities that the assessment is excessive, he must necessarily prove his true substantive liability. I will examine that statement presently.
Dealing first with Mr Clough's protestations regarding failure of the Commissioner to provide Mr Rigoli with proper notice that regardless of the concession made about income, he would nevertheless be expected to establish on the hearing of this matter, an accurate statement of his income for the relevant income years, I cannot accept that the Commissioner's stance has caused Mr Rigoli any prejudice. This issue involves a question of law. Section 14ZZK of the Administration Act makes it clear that an applicant has the burden of proving that the assessment made by the Commissioner is excessive. How that expression should be interpreted and how an applicant goes about proving that an assessment is excessive is solely for the applicant. One thing remains abundantly clear; there is no onus whatsoever on the Commissioner to demonstrate that the assessments were correctly made (Mason J in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89).
Section 166 of ITAA 36 describes an assessment in the following way:
From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and of the tax payable thereon (or that no tax is payable).
It is self-evident from the above description that the use of the expression assessment in s. 14ZZK is a reference to an assessment of the amount of taxable income of the taxpayer and the tax payable thereon. The expression taxable income is defined in Part I of ITAA 36 by reference to its meaning in ITAA 97. Section 995-1 of ITAA 97 provides that taxable income has the meaning given by s. 4-15. Section 4-15 describes how to work out the taxable income. In essence, it provides:
(1) Work out your taxable income for the income year like this:
Taxable income = Assessable income – Deductions
Once again, it should be self-evident that a taxpayer's taxable income is comprised of two components, the first dealing with income and the second dealing with deductions. It should also be apparent that the taxable income assessed by the Commissioner will be excessive if he has included in assessable income amounts which are not assessable income; or has disallowed deductions which ought to have been allowed. All of the cases dealing with onus of proof to which I have been referred are cases where the assessable income was in dispute. The deductions were either not in dispute or no objection was lodged in respect of that item of the equation.
In this case, Mr Rigoli failed to lodge income tax returns for the income years in question. For that reason, the Commissioner acted under s. 167 of ITAA 36 which provides for the making of default assessments. That section provides:
167 Default assessment
If:
(a)any person makes default in furnishing a return; or
(b)the Commissioner is not satisfied with the return furnished by any person; or
(c)the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his judgement income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

Section 173 of ITAA 36 provides that except where otherwise provided, every amended assessment shall be an assessment for all purposes of the Act.
It may also be of some importance to note the evidentiary value of a notice of assessment issued by the Commissioner. Section 177 (1) provides:
(1)[Notice of assessment] The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all particulars of the assessment are correct.
The High Court (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ) decision in Dalco dealt with a default assessment made by the Commissioner under

s. 167 of ITAA 36. The taxpayer sought to demonstrate that the Commissioner had wrongly treated the income of companies or trusts which the taxpayer or his family company acquired or controlled as assessable income of the taxpayer. Brennan J explained that the default assessment made by the Commissioner under s. 167 becomes the taxpayer's taxable income for the purposes of s. 166. He then said, at 619-620:
That amount may not be in truth the taxpayer's taxable income for a particular income year and it may not be so regarded by the Commissioner (as in Trautwein v Federal Commissioner of Taxation (29)) but, for the purpose of s. 166, that amount is the taxpayer's taxable income for the income year to which the assessment relates unless it is shown on appeal from, or on review of, the assessment that the amount of the assessment is wrong: Henderson v Federal Commissioner of Taxation (30).
Kitto J in the High Court decision McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 examined the construction of s. 190 (b) of the Income Tax and Social Services Contribution Assessment Act 1936-1955 which, like s. 14ZZK of the Administration Act, expressly placed on the taxpayer the burden of proving that the assessment was excessive. His Honour said, at 275:
The construction of s. 190 (b) upon which this view proceeds finds support in s. 177 (1). It is there provided that the production of a notice of assessment, or of a document under the hand of the commissioner, second commissioner, or a deputy commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence, not only, as has already been mentioned, of the due making of the assessment, but also (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct.
His Honour referred to the fact that the predecessor Act did not contain provisions corresponding with s. 190 (b) and there was nothing to account for the dropping of the words when it shall be prima facie evidence only unless the view upon which the drafting of s. 177 (1) proceeded was that those words became unnecessary upon the insertion of

s. 190 (b) of the new Act. He then said, at 276:
The view must have been taken, it would seem, that a taxpayer who denies that "the amount and all the particulars of the assessment are correct" will necessarily be asserting that the assessment is excessive. By the "particulars" of the assessment is meant, presumably, the ingredients or constituent elements (see Trautwein v Federal Commissioner of Taxation (1)) in the ascertainment of the amount of tax to be paid; indeed that appears to be the sense in which the word is used elsewhere in this group of sections: see s. 170 (3), and the proviso to s. 185. To say of those ingredients that they are "correct" is to say that they are rightly treated as ingredients as well is that they are right in point of amount.
The High Court of Australia in Trautwein was concerned with decisions disallowing objections to amended assessments. It dealt with the extent of the taxpayer's right to complain. Dixon and Evatt JJ explained that every alteration or addition which has the effect of imposing any fresh liability or increasing any existing liability shall be notified to the taxpayer affected and, unless made with his (or her) consent, shall be subject to objection. They explained that an assessment is a computation into which components enter that may be altered or added to. Reference to a taxpayer's liability must be a reference to the constituent elements of the assessment of taxable income, treating them as separate sources of liability. Their Honours said, at 108:
If the addition or alteration results in the introduction into the assessment of a new source of liability, or in the increase of the liability flowing from the source already included, it is to be open to objection and appeal. Other adjustments may qualify the extent to which the fresh liability or the increased liability is reflected in the final figure the tax payable. Suppose a taxpayer who has been assessed claims a further deduction, as, for example, the amount of the gift made out of the assessable income to a public charitable institution, and, by an amendment, the commissioner allows the claim. In dealing with the supposed taxpayer's assessment, it may occur to the commissioner that some separate item of revenue has been erroneously omitted from the assessable income. If, by amendment, he brings into the assessment the omitted item of revenue, it would, in our opinion, certainly be open to objection. It would be an addition or alteration having the effect of imposing a fresh liability. The fact that, at the same time, the commissioner allowed the perfectly independent claim to the deduction might very much lessen or entirely nullify the consequential increase in the final amount of tax assessed.
In her closing submissions Ms Harding was critical of the fact that Mr Rigoli had not established the amount of his substantive tax liability for any year. In particular, Ms Harding submitted that Mr Rigoli had not discharged the burden of proof in establishing the amount of his income as well as his deductions in any income year. This was despite the fact that on the first day of the hearing, Mr Rigoli made it clear that the first element of the equation to establish taxable income, that is, assessable income, was no longer in dispute. In her closing submissions, Ms Harding said:
… in a case such as this where the taxpayer has not lodged tax returns, and has not kept records, and has not sought to establish what was the taxable income i.e. the assessable income or allowable deductions in any year, the tribunal cannot be satisfied that the amount of the assessment for any year is excessive, and furthermore cannot be satisfied that a correction to one element of the assessment would necessarily produce the result that shows the taxpayer's true substantive liability for that year.
The first thing to observe about this submission is that the word true does not appear in any cases which refer to amount of the substantive liability. In fact, as the High Court (Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ) noted in WR Carpenter Holdings Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (2008) 237 CLR 198 at 204:
… The phrase "substantive liability" which appears in the case law does not appear in the statutory provisions, but is to be understood as epexegetical or explanatory of them. …
The word substantive means, in the context in which it appears to have been used in many cases which have referred to the expression substantive liability: 6. Having a firm or solid basis; not slight, weak, or transitory 1809 (The Shorter Oxford English Dictionary). In other words, the liability need not necessarily be true or correct although a sound basis needs to be demonstrated.
Ms Harding referred to the High Court decision in Dalco. At the outset, it should be recalled that the Court in Dalco was concerned with whether a taxpayer discharged the burden of proving that an assessment was excessive where he did not prove that the amount assessed as his taxable income in fact exceeded his taxable income, but that he was able to show that the Commissioner formed a judgement as to the amount of his taxable income on the wrong basis. Because the taxpayer in Dalco had received a default assessment from the Commissioner pursuant to s. 167 of ITAA 36, Brennan J said, at 619-620:
It is that amount [the default assessment] which, for the purpose of s. 166, becomes the taxpayer's taxable income. That amount may not be in truth the taxpayer's taxable income for a particular income year and it may not be so regarded by the Commissioner (as in Trautwein v Federal Commissioner of Taxation (29)) but, for the purpose of s. 166, that amount is the taxpayer's taxable income for the income year to which the assessment relates unless it is shown on appeal from, or on review of, the assessment that the amount of the assessment is wrong: Henderson v Federal Commissioner of Taxation (30).
His Honour pointed out that a taxpayer seeking to discharge the burden of proving that an amount shown on a notice of assessment is excessive is limited to the grounds stated in an objection against the assessment. He pointed out that the burden which rests on the taxpayer to prove that the assessment was excessive was not necessarily discharged by showing error by the Commissioner in forming a judgement as to the amount of the assessment.
Ms Harding also referred to this passage in the judgement of Brennan J, at 625:
But where, as here, the taxpayer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong. A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed.… Unless the amount of the assessment is found to be excessive in the sense of being greater than the taxable income on which tax ought to have been levied, the taxpayer fails on his appeal.
However, it should be noted that this statement was made in the context of a taxpayer attempting to establish that the assessment made by the Commissioner was excessive because the Commissioner formed a judgement as to the amount of the taxpayer's taxable income on a wrong basis. That is why his Honour disagreed with what Barwick CJ said in Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 217. He said, at 626:
I must respectfully disagree with it. Since McAndrew's Case (51) it has been generally accepted that "excessive" refers to the amount of the assessment, not to any unauthorised step in the process of its calculation.
In this case, as the taxpayer failed to discharge the burden of proving that his taxable income was in truth less than the amount assessed, his appeals were rightly dismissed by Yeldham J.
That last sentence in Brennan J's statement is not, as Ms Harding submitted, a statement about the true substantive liability of a taxpayer. As I understand that statement, in the context of the case before the Court, his Honour was simply stating that the way in which the taxpayer had argued his case did not permit a finding that his taxable income (ie the amount of his taxable income) was in fact less than the amount assessed.
In my opinion, none of the cases to which I have referred above points to the fact that, as Ms Harding submitted, I cannot be satisfied that the amount of an assessment for any year is excessive simply by a correction to one element of the assessment. In fact, Latham CJ, and Dixon and Evatt JJ in Trautwein's case strongly suggest the opposite. I have already referred to the statement made by the plurality above. Latham CJ said, at 92:
It is at least clear that sec. 39 places upon the taxpayer the burden of showing in relation to a particular year under consideration, say 1921, that the amount or some of the particulars of the assessment are incorrect and that their incorrectness operates to his prejudice.… He has not shown positively that the total amount, or that any particular item going to make up that amount, is wrong.
The s. 39 referred to by the Court is the section in the Income Tax Assessment Act 1922-1934. It provided that the production of any notice or copy notice of assessment under the hand of the Commissioner would be conclusive evidence that the assessment has been duly made and that the amount and all the particulars of the assessment are correct, except in proceedings on appeal against the assessment, when it was to be prima facie evidence only. It is not dissimilar to the current s. 177 in the ITAA 36.
In my opinion, s. 177 has an important role in cases such as this where one of the two elements which go to make up taxable income is not in dispute. In reality, it is no different to all of the cases where the taxpayer has argued that the Commissioner's calculation of assessable income was incorrect. It will be recalled that the assessment made by the Commissioner is an assessment of taxable income. In arriving at that assessment, the Commissioner must calculate both the assessable income and the deductions claimed. There is no suggestion in any of the cases where the Commissioner's calculation of assessable income was in issue and the deductions were not, that the taxpayer, in order to show that the assessment was excessive, was also required to prove the correctness of the deductions.
A review by this Tribunal, and an appeal to the Federal Court for that matter, is only concerned with an objection decision (leaving aside review of extension of time refusal decisions and Administrative Appeals Tribunal extension applications). Furthermore, as is set out in s. 14ZZK of the Administration Act, unless otherwise ordered by the Tribunal, an applicant is limited to the grounds stated in the taxation objection to which the decision relates. Although Mr Rigoli's objection was taken to be an objection against the Commissioner's default determination of his assessable income and deductions, at the commencement of this hearing, Mr Clough clearly submitted that the assessable income element was no longer in dispute. By that statement, I understood Mr Clough to be saying that Mr Rigoli no longer objected to that element of the Commissioner's assessment, or that the objection was withdrawn.
Therefore, not only did Mr Rigoli's assessable income no longer form part of the objection decision made by the Commissioner, but, because it formed one of the particulars of the assessment made by the Commissioner, and it was no longer an element of Mr Rigoli's proceeding under Part IVC of the Administration Act, the Commissioner's assessment of that particular must be taken to be correct irrespective of the basis upon which the Commissioner arrived at the amount of assessable income. It follows, in my opinion, that if Mr Rigoli is able to prove on the balance of probabilities that one or more of the deductions which he claimed and which were disallowed by the Commissioner, should have been allowed, he will necessarily prove that the amount of the Commissioner's assessment was excessive.
DEPRECIATION
As Ms Harding correctly submitted, for the income years 1994 to 1997, the applicable statutory provisions dealing with depreciation are to be found in s. 54 of ITAA 36. For the income years 1998 and following, Division 42 of ITAA 97 contains the relevant depreciation provisions.
Section 54 (1) of ITAA 36 provided:
54 (1)[Depreciation deductible] Depreciation during the year of income of any property, being plant or articles owned by a taxpayer and used by him during that year for the purpose of producing assessable income, and of any property being plant or articles owned by the taxpayer which has been installed ready for use for that purpose and is during that year held in reserve by him shall, subject to this Act, be an allowable deduction.
The meaning of plant is set out in s. 54 (2) and, for the purposes of this case, it includes machinery, implements, utensils and rolling stock.
The calculation of depreciation allowable in respect of an income year is set out in

s. 56 (1). It is a function of the effective life of the asset and the annual depreciation percentage. The annual depreciated percentage is the percentage of what is described as the depreciated value of the asset at the beginning of the year of income.
The expression depreciated value is defined in s. 62 of ITAA 36. Section 62 (1) provides:
62 (1)["depreciated value"] In this Division, "depreciated value" of any unit of property at any time means the cost of the unit to the person who owns or owned the property at that time less the total amount of depreciation (if any) allowed or allowable in respect of that unit in assessments of the income of that person, for any period prior to that time, under this Act or any previous law of the Commonwealth.
Section 60 of ITAA 36 deals with the depreciation of property which had already been depreciated prior to acquisition by the taxpayer. Section 60 (1) provides:
60 (1)[Depreciation allowable to purchaser] Where, either before or after the commencement of this Act, a person has acquired any property in respect of which depreciation has been allowed or is allowable under this or the previous Act, he shall not be entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if that person had retained it:
Provided that, where under section 59 an amount is included in the assessable income of the person selling the property, the person acquiring the property shall be allowed depreciation calculated on the sum of that amount and the depreciated value of the property under this Act immediately prior to the time of the sale.
The sum of the amount referred to in s. 60 (1) is deemed to be the cost of the property for the purposes of depreciation. Section 62 (2) provides:
62 (2)[Cost where acquisition of depreciated property] For the purposes of subsection (1), in any case in which section 60, or the corresponding provision of the previous Act, applied or applies in relation to any unit of property, the person who acquired or acquires the unit shall be deemed to have acquired or to acquire it at a cost equal to the depreciated value of the unit immediately prior to the time of the acquisition, or, if the case is one in which the proviso to subsection (1) of that section applied or applies, the sum of that depreciated value and the amount required to be added to that depreciated value for the purposes of that proviso.
Section 59AA deals with the disposal of depreciated property on a change of ownership or interest. Section 59AA (1) provides:
59AA Disposal of depreciated property on change of ownership or interest
(1)If, for any reason, including:
(a)the formation or dissolution of a partnership; or
(b)a variation in the constitution of a partnership, or in the interests of the partners;
a change has occurred in the ownership of, or in the interests of persons in, property in respect of which depreciation has been allowed or is allowable under this Act or the previous Act, and the person, or one or more of the persons, who owned the property before the change has or have an interest in the property after the change, the provisions of this Act relating to depreciation apply as if the person or persons who owned the property before the change (in this section called the transferor ) had, on the day on which the change occurred, disposed of the whole of the property to the person, or all the persons, by whom the property is owned after the change (in this section called the transferee).

Section 42-2 of the Income Tax (Transitional Provisions) Act 1997 (the Transitional Act) provides:
(1) The provisions of Division 42 of the 1997 Act apply to assessments for the 1997-98 income year and later income years.
In July 2001 the depreciation provisions contained in Division 42 were replaced by a Capital Allowances regime which replaced the existing Division 40 of ITAA 97. Section 42-9 of the Transitional Act provides that amounts deducted under the depreciation provisions in ITAA 36 are taken to be amounts deducted under the new regime.
As Mr Clough submitted, Mr Rigoli's claim regarding depreciation turns on:
(a)evidence of ownership of the assets on which depreciation was claimed;
(b)the cost of the assets or the depreciated value; and
(c)whether those assets were used in the year of income in question or whether they were installed ready for use for that purpose during the income year in question and held on reserve.
A significant problem confronting Mr Rigoli was the fact that the asset schedule and depreciated value of those assets relied on by him arise from a site inspection conducted by BMT & Associates, Quantity Surveyors, on 14 June 2006. Following that inspection, BMT & Associates produced a report (the BMT Report) setting out numerous items of plant and equipment, the total costs, the rate of depreciation and the depreciation which it was claimed should be allowed in the income years in question. The report appears to be dated 20 September 2006. It assumes an acquisition date of 14 December 1990 for items listed for the 1991 – 1994 income years, and 1 July 1995 as the acquisition date or the date on which the written down value was established for the latter income years. The acquisition costs are based on Mr Rigoli's instructions regarding his recollection of the cost of the plant and equipment depreciated. The report sets out two alternative bases for calculation of depreciation. The first schedule is based on the diminishing value method and the second schedule on the prime cost method of depreciation. It does not identify the nature of the business which was being conducted on Mr Rigoli's property.
In his witness statement dated 24 July 2009 Mr Rigoli testified that the business carried on by the partnership was that of manufacturing polystyrene and cardboard boxes and selling them, principally to vegetable growers. He said the cardboard box business was commenced in approximately 1997 and discontinued in approximately 1999. He said that the polystyrene box business commenced in approximately 1989 and continued to the present day.
However, in examination in chief he was asked about the cardboard box manufacturing machine, which he described as an Edson carton maker, and he said that the cardboard boxes were also used in the fruit industry, that the business wasn't just making polystyrene boxes. He said: We were making - we had the fruit business, as well, altogether. The polystyrene and the farm. And we had boxes for pears, and the boxes used to have to be folded up and glued together, and those sort of machinery were used to actually making those sort of cartons.
I understood Mr Rigoli's statement which I have set out above to mean that the partnership continued to be conducting the fruit growing business at the time it was involved in the manufacture of polystyrene and cardboard boxes. This impression was confirmed in cross-examination when Mr Rigoli was asked what business the partnership carried on. His answer was: Manufacturing of polystyrene boxes, orchard stuff and storage of fruit. When Mr Rigoli was referred to his witness statement of 24 July 2009 where he said that the partnership was involved in the business of manufacturing polystyrene and cardboard boxes, and that it did not refer to any other business, he said: In relation to the business at that time that's fairly accurate. He confirmed that he stood by his statement set out in his witness statement. When it was put to him that he was uncertain about the orchard business, his response was:… After about' 89/90 and that's when the recession hit and it ran for some years after – I can't remember exactly how many – but the focus was shifted from that business to the polystyrene business. When further pressed about the business of the partnership for the year ended 30 June 1994, he said that he might have grown some vegetables with his brother but he could not remember. He maintained that the main focus was on the manufacturing of polystyrene boxes.
When Ms Harding asked him whether he carried on any agricultural business in partnership in the year ended 30 June 1994, his response was: Possibly, but after that there would have been no – I don't think there would have been any activity. Mr Rigoli then attempted to explain that the agricultural activity had recommenced about 10 years ago, in about 2002. When Ms Harding put to Mr Rigoli that the agricultural activity was suspended by the year ended 30 June 2004 [sic-1994] Mr Rigoli said: Yes, the trees were bulldozed… Yes?… They were actually bulldozed and actually I don't know if – yes, the trees were bulldozed. In re-examination, Mr Rigoli was asked what he meant when he said that the agricultural aspect of the business was suspended. He said: In around '94, close to that period –'93,'94, somewhere there – there was no more sales of – commercial sales of fruit from the orchard to my recollection, and the reason for that is that prices were terrible.
There appears to be some inconsistency in Mr Rigoli's evidence regarding the carton maker. In his evidence in chief Mr Rigoli referred to the acquisition of an Edson carton maker which he said had come from a company by the name of Reactive Engineering in Sydney. He said the cardboard boxes were also used in the fruit industry and that the business (presumably the partnership) wasn't just the manufacture of polystyrene boxes. He said that at that time the partnership had the fruit business as well the boxes (cardboard boxes) which were used for pears. If that evidence is accurate, then, logically, after the partnership ceased agricultural production as part of its business activities, it had no reason to continue to manufacture cardboard boxes. Furthermore, while there was some evidence (in the form of receipts between 1993 and 2000) of the business selling polystyrene boxes to vegetable growers, I have only been able to locate two invoices which appear to have been in respect of cardboard boxes. They are dated 10 September 1998 and 8 January 1999. They refer to B cartons and cartons for broccoli which I presume are a reference to cardboard cartons.
In fact, William Buck, business advisors and chartered accountants, in a letter dated

2 August 2005 addressed to the ATO, stated that the firm was engaged to assist with the preparation of returns for the 1991-2000 income years. The letter states: The taxpayers had been involved in a partnership which manufactured polystyrene boxes since sometime around 1990. It makes no mention at all of fruit growing or the manufacture of cardboard boxes.
In her affidavit made on 2 April 2004 Consolata Rigoli refers to farming becoming a difficult business and by 1989 she and Virgilio owed a lot of money on account of mortgages which they were not able to repay. She said that at that time, Virgilio decided to start from scratch a polystyrene manufacturing business, making polystyrene boxes. Mr Rigoli was asked about his mother's health and whether she was able to give evidence in this proceeding and his response was: I don't know.
While I can readily accept that the partnership conducted the business of manufacturing polystyrene boxes, it is not so clear that it continued to manufacture cardboard boxes either for its own use in the orchard business or for the purposes of sale. However, given that I have located two invoices which appear to be in respect of the sale of cardboard cartons, and some invoices merely refer to boxes which could be a reference to cardboard boxes, I find that the manufacture of those products formed part of the business during the income years in question. I do not, however, accept that the business of fruit growing continued through the income years in question. The evidence does not permit such a finding.
My findings in respect of the business carried on by the partnership during the 1994 – 2001 income years necessarily limits the plant and equipment which is related to those activities and which might be the subject of the depreciation claim. In his examination in chief, Mr Clough took Mr Rigoli through many of the items listed in the BMT Report, asking him what each piece of equipment's function was; whether it was purchased new or second-hand; how he knew that it had been purchased by the partnership; what the cost of each piece of equipment was at the time of its acquisition; and whether it was used or installed ready for use in the business of the partnership.
The principal difficulty encountered by Mr Rigoli regarding depreciation of assets was the fact that the partnership did not keep basic business records during the income years in question. Mr Anthony Peter Xerri, a certified practising accountant, provided a witness statement dated 9 June 2010 and he also gave oral evidence at the hearing of this matter. In oral evidence, Mr Xerri said he became Mr Rigoli's accountant in 2008. In his witness statement, when dealing with depreciation expenses, Mr Xerri said that he used the BMT Report for the purpose of determining depreciation calculations because he was not able to determine the purchase of assets used by the partnership. In the course of his cross-examination, he gave the following answers to questions put to him:
To your knowledge, for any of the years covered in this report, did Mr Rigoli or any of the other persons involved in the business maintain a cash receipts book?… For those periods, no.
To your knowledge, did they maintain a cash payments book?… No.
A complete set of invoices?… No.
A complete set of receipts?… No.
A complete set of bank statements?… No.
A listing of assets acquired and disposed of from time to time?… I was not given any of that information.
A listing of capital works undertaken from time to time?… For that period, no.
To your knowledge for any of those years, did Mr Rigoli or any other person involved with the business prepare balance sheets?… No.
Profit and loss statements?… No.
Depreciation schedules?… No.
And to your knowledge, for any of those years, did the partnership lodge – did Mr Rigoli or any other persons involved with the business lodge income tax returns in respect of the business?… For that period, no.
So would you agree with me that the state of the business records do not reflect what normally happens in a business environment?… Yes, I agree.
There was in fact, would you say, a complete lack of information?… It was a mess, yes.
What would you say was missing?… Just basic business records. (Transcript day five page 7).
In her written closing submissions, Ms Harding was highly critical of the BMT Report. She made the following points:
·it said nothing about what items were in fact owned by the partnership and used during the years in question for the purpose of producing assessable income, or were installed ready for use for that purpose and held in reserve;
·one of the listed items, an extruder, was not used or installed ready for use in any of the income years in question;
·it assumes all of the assets listed were acquired on 14 December 1990 which, on Mr Rigoli's own evidence, was not the case;
·the listed items are grouped and where reference is sometimes made to one item, at other times it refers to a number of items, the assumption being that they were all purchased at the same time;
·for those tax groupings which cover more than one item, the report does not explain the portion of the total cost figure which applies to each of the items;
·the report assumes that all the items were acquired as new and there is no reference to any items in respect of which depreciation had already been claimed or any balancing charge which might apply, particularly given that some of the items referred to in evidence were new and others were used;
·the report assumes that all of the items listed were owned by Mr Rigoli and nothing is said about the partnership, any changes to the partnership over time, or any changes to the basis upon which the items were held, particularly given that it appears that items were, from time to time, disposed of under various transactions entered by Mr Rigoli and other members of his family regarding those assets;
·the report assumes that all of the items listed were used in the business conducted by the partnership and it includes a number of items, such as tractors, which were plainly used in the agricultural business which, on the evidence, had ceased in around 1993 or 1994; and
·the report fails to expose the process of reasoning upon which the opinions expressed in it depend.
In my opinion, each of the criticisms to which I have referred above is warranted. I have found the BMT Report to be unhelpful other than for the purpose of identifying items of plant and equipment which were on the property when inspected in 2006.
Mr Thomas Plenty, a quantity surveyor who said he was employed as a director at BMT & Associates, provided an affidavit made on 31 August 2011 which was admitted into evidence. He also attended the hearing and gave oral evidence. He confirmed that the contents of the BMT Report were true and correct. This was despite the fact that when he was asked in examination in chief what his role was in preparing the report, he said: I didn't prepare any documentation at all. I was just there overseeing – director of the business. When he was asked on what basis he could confirm the contents of the BMT Report, he simply said as a director of the business, overseeing the business.
Understandably, Ms Harding raised the question regarding how Mr Plenty could answer a question about whether the BMT Report was accurate when he simply oversaw the process and he was not in fact involved in its preparation. When Mr Plenty was asked about the costs of various items given to BMT by Mr Rigoli and why BMT had regard to that information, Mr Plenty responded that BMT preferred to use those as actual costs as opposed to estimating or valuing those items separately. He said this was particularly so if the material obtained by BMT supported the costs given by the client.
In cross-examination Mr Plenty confirmed that he never went to the property known as Ponderosa. Mr Plenty also made it clear that he assumed that the verbal information provided by Mr Rigoli regarding the assets listed in the BMT Report was correct. He had no personal knowledge about that. He also said he assumed that the assets referred to were owned by Mr Rigoli and that each of those items had been acquired on

14 December 1990. In his affidavit, Mr Plenty said that at no time had BMT had access to any documents substantiating dates of acquisition of the assets referred to in the report. While he referred to the activities being conducted on the premises as manufacturing, he was unable to be more specific. Mr Plenty agreed he assumed that each of the items listed in the BMT Report had been employed in an activity for gaining or producing assessable income from the date stated. He agreed that he had no actual knowledge about whether those assets in fact existed in December 1990 or that they were employed in manufacturing. Mr Plenty was also asked about assets listed in the BMT Report in the plural. For example, he was asked how many air compressors there were and his answer was that he did not know. In fact that was his answer to all of the questions which referred to a number of assets of the same type.
In his affidavit Mr Plenty said that when documentary evidence of the cost of an asset was not provided by the client, BMT generally estimated a fair value for an asset using the Australian Taxation Office's methodology from a document titled Marked Valuation for Tax Purposes. He also said that BMT estimated fair value with the assistance of in-house cost databases which are regularly updated. However, although asked to produce copies of the cost databases, Mr Plenty did not do so. Although he was asked specifically to mention the items for which details were in BMT's database, he said he could not say. He said that the in-house database was not available for the purpose of estimating the cost of the box making machines or other items which he described as unique.
Generally speaking, Mr Plenty's evidence did not assist in clarifying how BMT arrived at the conclusion that it should accept the costs of various pieces of plant and equipment given to it by Mr Rigoli. All that Mr Plenty was able to do was to give some assurance to the Tribunal that its processes and procedures were sound and that the reports prepared had been reviewed by persons more senior than those responsible for making the reports. For example, Mr Rigoli put into evidence a document describing the process undertaken in relation to four items of machinery: box making machines, the carton maker, the cold room – refrigeration equipment and extrusion machines. In describing the cost methodology used by BMT, the reports regarding each of those items have statements such as: As per standard practice, due to the assets uniqueness, research was conducted and manufacturers contacted. The given information was found to be within a reasonable fair value. However Mr Plenty was unable to state what the research involved and which manufacturers were contacted. As Ms Harding submitted, the BMT Report failed to expose the process of reasoning upon which the opinions expressed in the report depend.
The evidentiary problem
Although not entirely the case, much of the evidence regarding the acquisition and costs of assets used in the partnership business was provided by Mr Rigoli. The problem is that Mr Rigoli's evidence is necessarily in the form of a self-serving statement. Therefore, as Hill J said in the Federal Court of Australia decision in Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148 at 155:
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J; 9 ATR 610; 23 ALR 583.
Ms Harding submitted that in so far as Mr Rigoli sought to rely upon his own uncorroborated evidence, the Tribunal should not be satisfied to the requisite standard because Mr Rigoli was not a reliable witness. She gave some seven examples of that which I need not recite as I will deal with them when dealing with Mr Rigoli's evidence relating specifically to plant and equipment which he claims should be depreciated.

In his oral evidence Mr Rigoli said the pumps were used in the business to pump water from the dam into cooling tanks. He said pumps were also used to pump water into the boiler. They were used to pump high-pressure water into the machines to supply the polystyrene machines with high-pressure water. When asked about their acquisition, he said they were all purchased from Shepparton Irrigation. He said he remembered picking the pumps up and some pumps were delivered by truck. He said he did not have any involvement in the purchase but that his father and brother bought them.
The evidentiary problems regarding these items should be apparent. No cost has been attributed to any single item nor has the date of purchase been identified. In those circumstances, it is impossible to allocate depreciation to each item in any particular income year.
Refrigerators
These items are listed in the BMT Report at $1338 for depreciation.
Mr Rigoli's oral evidence was that the refrigerators were used in the smoko room. He said they were standard domestic refrigerators. He could not recall anything about their acquisition. There was no evidence to work out their cost or the date of purchase.
Obviously, the state of the evidence regarding these items is insufficient to permit depreciation to be calculated in any particular income year.
Scales
The BMT Report lists these items at $1352 for the purposes of depreciation. The BMT handwritten notes describe scales for $150, an item listed as Scaleman electronic scale and an item listed as Wedderburn scales. No value has been given to the electronic scale or the Wedderburn scale.
Mr Rigoli's oral evidence was that they were used in the business to test the raw material that came to the plant in order to check correct weight. He was referring to the polystyrene granules. He said that product was purchased in bulk and they needed to monitor the weights which were delivered. When asked about their acquisition, he said it would have been around 1994, 93/94. He also described other scales used in the fruit business but that they were smaller scales (Wedderburn scales) for weighing pears in a box. He said the smaller scales were acquired well before 1990, in about 1988/1989.
Mr Rigoli said that he could not recall when the scales used for the polystyrene plant were purchased although he remembered his father purchasing them. Once again, Mr Rigoli referred to listening to telephone calls which his father had with the supplier and telling him about it.
Accepting Mr Rigoli's evidence about this purchase, particularly in the scales used to weigh polystyrene granules, I find they were purchased in 1994 and that the cost of those scales was $1202. I accept that depreciation can be calculated in respect of this item over the income years in question.
Scanners
The scanners are valued at $380 in the BMT Report for the purposes of depreciation. Despite being expressed in the plural, the BMT handwritten notes identify only one scanner, a Umax Astra 1220S scanner.
Mr Rigoli said in evidence that the scanners were used for scanning paperwork in relation to the business. He also referred to them in the plural despite the fact that I have only been able to identify one item. He did not recall any details of their acquisition.
Given the state of the evidence regarding this item, it is simply not possible to allocate a depreciation expense to any particular income year.
Scissor lifts
These items are stated to be valued at $128,587 in the BMT Report for the purposes of depreciation. The BMT handwritten notes describes a scissor lift as being with a 50 hp motor. It appears to have been valued at $90,000.
In oral evidence Mr Rigoli said they were used in the business for access to the roof of the plant. However, when recalling where the scissor lift came from, he referred to it in the singular. He said that his father purchased it from South Australia in about 1995. He said he thought he had been involved in initial phone call when he found the scissor lift in a magazine or something of that nature which had equipment for sale. He said he made the initial enquiry and passed it on to his father.
Given Mr Rigoli's description of finding this machine in a magazine which had these types of items for sale, the question does arise as to whether this equipment was new when purchased. Without further evidence, it is not possible to calculate depreciation expenses in any particular income year in question.
Shelving
These items are recorded in the BMT Report as valued at $12,683 for the purposes of depreciation.
Mr Rigoli said in oral evidence that the shelving was used in the office at the house and some shelving in the shed, which housed the polystyrene plant. He could not remember where the shelving was acquired. Nor did Mr Rigoli give any evidence as to when the shelving was acquired. Given the state of the evidence, it is simply not possible to allocate depreciation expenses on these items in the income years in question.
Skid steel loaders
The BMT Report values these items $15,174 for the purposes of depreciation.
In his oral evidence Mr Rigoli said that these items of equipment were used for road repairs and general work around the sheds to clean grass and all that sort of stuff. He said he recalled they were acquired from Mr Iannelli in Canberra.
The problem with this item of equipment is Mr Iannelli did not refer to it either in his affidavit or in his oral evidence. Therefore, in my opinion it is not possible to say with any certainty which year these items of equipment were purchased or whether they were new or used at that time. Accordingly, I find that it is not possible to calculate a depreciation expense in respect of these items in the income years in question.
Storage tanks
The BMT Report values these items at $39,857 for the purposes of depreciation. The BMT handwritten document records numerous storage tanks.
In his oral evidence Mr Rigoli said storage tanks were used in the business for storing pre-processed polystyrene granules. There were water storage tanks vacuum tanks and tanks used for compressed air. When asked how many there were, he said: it was too many to mention. It would be – there would be – there would have to be at least 10 or 20 all up. Little ones, big ones.
When asked about their acquisition, Mr Rigoli said that some of the tanks were acquired from Alex Fraser Group from Laverton. He said he was there with his father when they were purchased. He said those tanks were used for compressed air and some for vacuum in the polystyrene plant. Mr Rigoli then said that other tanks were purchased, he believed, from Sydney in around 1989. When asked when the tanks were purchased from the Alex Fraser Group Mr Rigoli said: it would have to be from 1990, 1995, I can't remember an exact date, but it would be somewhere in that gap.
Given that there are numerous tanks of various sizes, purchased at various times for, undoubtedly, different sums of money, it is simply not possible to calculate the depreciation expense for each item in each income year in question.
Tables
The BMT Report values these items at $949 for the purposes of depreciation.
In his oral evidence Mr Rigoli said these items were used in the business in the smoko room and also for handling some of the polystyrene products, preparing them for packaging. He could not recall their acquisition.
Given this evidence about these items of equipment, it should be obvious that it is not possible to allocate a depreciation expense to each item in each income year.
Telephones
The BMT Report values these items of equipment at $122 for the purposes of depreciation.
In his oral evidence Mr Rigoli said these were used in the business and that there were three or four, some mobile telephones and a landline. When asked if he recalled anything about their acquisition, Mr Rigoli said: no, I don't. Actually, Amber Communications I think was a company that were acquired from, in Shepparton. He did not say when they were acquired.
Once again, given the state of this evidence, it is simply not possible to allocate a depreciation expense to each item in each income year in question.
Tractors
The BMT Report values these machines at $128,018 the purposes of depreciation. The BMT handwritten notes identify a Massey Ferguson 35 tractor; John Deere front-end loader 3 cubic metres; another Massey Ferguson 35 diesel tractor with three-point linkage; a Massey Ferguson 35 diesel tractor with a spray tank; a Massey Ferguson 130 tractor; a Massey Ferguson 35X tractor; and a Massey Ferguson 65 Mk 2 tractor. No serial numbers are recorded.
In his oral evidence Mr Rigoli said the tractors were used in the farming part business of chopping up grass, mulching, spraying, and harvesting fruit. When asked how many there were, he said there were maybe 6 or 7 or something like that roughly.
When asked what he recalled regarding their acquisition, he said they were acquired around 1987, 1988 by his father. When asked if he was referring to all of them, he said: Pretty much all of them, except for one which was a Massey Ferguson 294 four-wheel drive tractor, and I reckon that one, I'm pretty sure was 1987, 1988. He recalled riding on it when he was a child. He also said he remembered his mother took him for a drive on the tractor, despite previously giving evidence that his mother was not involved at all in the business of the partnership but only did the cleaning and cooking.
Given that these machines were only used in the farming part of the business which did not form the business which produced assessable income in the income years in question, any expenses associated with these machines cannot be deducted in the income years in question. In any event, Mr Rigoli did not give any evidence about the cost of each of the tractors when they were acquired, whether they were new or second-hand and which year each tractor was first used in the business of the partnership. Therefore, it would nevertheless not be possible to calculate the depreciation expense which should be allocated to each machine in each income year in question.
Trailers
The trailers were valued at $493,470 by BMT for the purposes of depreciation. These items of equipment, which come in various forms, attach to the prime movers (trucks) and were used to transport the polystyrene boxes to purchasers. The BMT handwritten notes identify three Freighter trailers. The notes also refer to one large trailer.
In his oral evidence, Mr Rigoli said there were numerous trailers, flat top trailers and Tautliners. He said they were used for polystyrene distribution and delivery. When asked how many there were, he said at least four, five. Mr Rigoli said one was acquired, he thought, in 1990. He said that was a tandem-type trailer, about 20 foot long and it was like a wire cage. He said there was a PAN tech, which was a 38 – 39 foot semi-trailer. He said it had an aluminium side rather than flexible curtains. Mr Rigoli said that was purchased between 1990 and 1995. When asked if he could be more specific, he said it would have been close to 1993/1994. Close to that sort of time.
Mr Rigoli said there was another trailer called a double drop deck Cubico Tautliner. He said that was acquired at around about the same time. He said that was also a Cubico aluminium double drop deck Pantech. That was acquired in about 1994. He said that then in 1996, there were two brand-new trailers described as Maxitrans or Freighter. He said there were others acquired in 2002 and 2003.
Mr Rigoli was asked what he recalled about the acquisition of the 1990 tandem-type trailer. He explained that his father had negotiated a deal with the supplier and that he and his brother picked it up. When asked how he knew his father had negotiated the acquisition, he again referred to overhearing telephone conversations and the fact that somebody from the manufacturer came out to speak with his father. In any event, he said: well, I'm pretty sure I remember him coming out to see him.
Mr Rigoli could not recall the name of the person who came to see his father.
He was then asked what he recalled about the acquisition of the 38 foot Pantech trailer acquired in 1993/1994. He said he could not remember where that trailer came from. He said: all I know is – all I know is, the cheques from the business were made or dad paid for them, and that's it. Although he was asked where the cheques or the cheque butts were, Mr Rigoli and said he did not know. He said his brother and father handled all the records. He never got involved on the payment side. He said it was very rare for him to go and pay for something.
Mr Rigoli was then asked what he remembered about the acquisition of the double drop deck Cubico Tautliner in 1993/1994. He said he thought that was purchased from a company called Freighter Australia.
Mr Rigoli was also asked what he recalled about the acquisition in 1996 of the two Maxitrans trailers. He said he recalled his father dealing with a Mr Ken Smith who came to the property many times regarding the specifications, the width, length and height and all that sort of stuff … back and forward until the deal was done.
Although it is difficult to reconcile the ownership of the trailers referred to by Mr Rigoli with the documents in evidence, there is evidence of the ownership of some of those trailers and the date of their purchase.
There is a letter dated 22 January 1992 amongst the s. 37 documents regarding a Fruehauf semi-trailer. It simply states that Dawson Moving & Storage Pty Ltd received $3000 from Mr Rigoli as full payment for the above-mentioned vehicle and that the vehicle is not encumbered. That document also does not evidence ownership of the semi-trailer as those items of equipment are valued considerably in excess of $3000. There is also a receipt from Freighter Australia Manufacturing Pty Ltd which refers to the balance of deposit on a Tautliner in the amount of $2585. Again, the amount does not indicate the purchase of that item and there is no date on that receipt.
There was in evidence an invoice dated 30 June 1996 from Freighter Australia Pty Ltd. It indicates that a new 1996 Drop Frame B – Double TAG 137 Tandem Axle T' liner was sold to Rigoli & Sons for $45,000. The serial number of the trailer is 56036.
The s. 37 documents also contain a lease agreement between Freighter Australia Pty Ltd and Philip Rigoli. The agreement was made on 19 September 1995. The equipment said to be leased was a Freighter B.Double Lead T-Liner Semi-trailer Serial No. 55450 and a Freighter B.Double Tag T-Liner Semi-trailer Serial No. 55451. The period of the lease appears to be 14 months with an initial payment of $30,000 payable on pickup of the units. The rent also included six monthly payments of $11,400 per month, payable in advance. However, as I have indicated below, this lease seems to have been converted to a purchase some six months later.
There is amongst the s. 37 documents a Freighter Australia Pty Ltd invoice dated 21 March 1996 for the sale of a Freighter B Double Lead T' Liner Serial Number 55450 for the cost of $47,525; and a Freighter B Double Tag T' Liner Serial Number 55451 for the amount $46,475. The total price of both items is $94,000 and the invoice indicates a deposit of $30,000 paid plus an amount of $4768 interest on the lease. The balance, $68,768 appears to have been paid in full.
In my opinion, the evidence is sufficient to allow the calculation of depreciation on three of the trailers only. They are those bearing the serial numbers 56036, 55450 and 55451. I find that the first of those trailers was acquired on 30 June 1996 at a cost of $45,000. The other two trailers were acquired on 21 March 1996 for $47,525 and $46,475 respectively. I find that they were used in the partnership business from the date of acquisition for the purpose of producing assessable income.
As for the other trailers referred to by Mr Rigoli, there is insufficient information in evidence to make any assessment of the amount of depreciation expense which should be allocated in any particular income year even if it were possible to make a finding that they were owned by the partnership during the years in question.
Weed sprayer
The BMT Report lists this item at $465 for the purposes of depreciation.
Mr Rigoli's evidence was that this item of machinery was used around the sheds to spray all the grass. When asked if he recalled anything about its acquisition, he said it would have been around the early 90s, probably 1992/1993, somewhere around that sort of area. He said he did not have any involvement in its purchase which was apparently undertaken by his father and brother.
With respect to Mr Rigoli, logically the use of a weed sprayer on a farming property would have a far wider uses than those described by him. In fact, it is reasonable to assume that its use in keeping the grass down around the sheds was merely incidental. In my opinion, this equipment was not used for assessable income producing purposes.
Welding equipment
The BMT Report lists this equipment at $18,320 for the purposes of depreciation. The BMT handwritten notes refer to an Idealarc 400 amp welder and some 1 ½ tonnes of welding rods.
In his oral evidence Mr Rigoli said the welding equipment was used in the business for welding pipes, frames, and general repairs and maintenance. He said it was mainly used in the polystyrene business but on occasions to weld farm equipment which might need repairs. Although Mr Rigoli did not specifically refer to the welder when asked about its acquisition, he said he recalled some of the equipment being acquired from a company in Shepparton which he thought was called Shepelec Services. When asked when the equipment was acquired, he said: sorry, I can't – yes. '89, '93, somewhere in that sort of region. When asked why he recalled the period of time in which the equipment was purchased, he said that was when the plant was built up most of the equipment was sort of acquired at that period of time. There might have been some welders later on down the track, but those ones come to mind straight away.
With respect to Mr Rigoli, the explanation he gave in oral evidence regarding the acquisition of the welding equipment does not accord with the equipment described by BMT. That report only refers to a single welder. Undoubtedly it is possible that there were welders before the one described by BMT, however, there are no details regarding those pieces of equipment. Given the state of the evidence regarding this equipment, it is simply not possible to make a reasonable calculation of depreciation expenses which should be allowed in each income year in question. Furthermore, the welding rods described in the BMT Report are consumable items and not capital equipment.
Whipper snipper
The BMT Report lists this item of equipment at $171 for the purposes of depreciation. It is described in the BMT handwritten notes as a Talon whipper snipper.
Mr Rigoli's oral evidence was that the whipper snipper was used in the business for trimming grass in areas where it was too hard to get to with a tractor. He did not recall its acquisition although he said it was acquired probably in 1995. He said he could not remember seeing it at an earlier time.
Even if I were to accept that this item of equipment was used in the partnership business for the purpose of producing assessable income, there is nevertheless insufficient evidence regarding its acquisition to permit calculation of the depreciation expense for the income years in question.
Depreciation Summary
As a consequence of my analysis of the evidence regarding depreciation claimed for various items of plant and equipment, I have concluded that there are a number of items which can and should be depreciated over the period of their useful life. I have found that these items of plant and equipment were used in the business conducted by the partnership, being the manufacture of polystyrene and cardboard boxes, for the purpose of acquiring assessable income. I have set them out in the table below.

Equipment

Date of acquisition

Cost for depreciation

1 Air Compressor

6 May 1998

$5500

1 Boiler

25 November 1992

$7000

1 Box crushing machine

27 April 1993

$19,212

4 Box making machines

1989 income year

$707,000

1 Hydraulic press

1990 income year

$30,358

1 Industrial sweeper

1995 income year

$6633

1 Laminator

2000 income year

$141

1 Microwave oven

1997 income year

$237

1 Polystyrene product printing machine

1994 income year

$13,286

1 Scale

1994 income year

$1202

3 Trailers

1996 income year

$139,000

CONCLUSION

Mr Rigoli's evidence was that the business conducted on the property owned by the Rigoli family from time to time was conducted in partnership. It was not a formal partnership and it did not have a Partnership Deed. For the purposes of ITAA 36, the net income of the partnership means the assessable income of the partnership calculated as if the partnership were a resident taxpayer, less all allowable deductions. In the income years in question, 1994 – 2001, I have found that the partnership conducted the business of manufacturing polystyrene and cardboard boxes used for the purposes of storing fruit and vegetables. I have also found that it ceased to operate the Orchard business in 1994. I have found that the partners comprised Mr Rigoli, Virgilio Rigoli, Consolata Rigoli and Robert Palazzolo in the income year is 1994 – 1997. In the income years in 1998 – 2001, the partnership was constituted by Mr Rigoli, Virgilio Rigoli and Consolata Rigoli.
Prior to the commencement of hearing this matter, Mr Rigoli conceded that the income assessment made by the Commissioner, although an estimate, was nevertheless correct. In the course of the hearing the issue regarding capital gains tax was also withdrawn. Therefore, according to Mr Clough, I was only required to determine whether the depreciation allowed by the Commissioner in arriving at Mr Rigoli's taxable income was correct. Mr Clough submitted that if Mr Rigoli was able to discharge the onus of proving that depreciation on certain plant and equipment which had been used in the income years in question in producing assessable income and disallowed by the Commissioner, should be allowed, then Mr Rigoli satisfied the onus of proving that the assessments made by the Commissioner in those years was excessive. Ms Harding submitted that even though Mr Rigoli had conceded the Commissioner's assessment of his assessable income, he was nevertheless required to establish what his true substantive income was in the years in question.
I have found that if Mr Rigoli was able to prove, on the balance of probabilities, that one or more that deductions which he claimed and which were disallowed by the Commissioner should have been allowed, he would necessarily prove that the amount of the Commissioner's assessment was excessive.
The depreciation of capital items is an allowable deduction in the year of income where those capital items are owned by a taxpayer and used by him or her during that income year for the purpose of producing assessable income, or those items have been installed ready for use for that purpose and are held in reserve.
The difficulty in establishing depreciation for the capital items employed in the partnership business during the income years in question was seriously compounded by the fact that the partnership did not maintain so much as basic financial records. In order to calculate depreciation in any particular income year, one first needs to establish ownership of the capital item by the taxpayer at a particular point in time and the cost of acquiring that item. One also needs to know whether the item was new or used at the date of acquisition and whether it had previously been depreciated.
Mr Rigoli attempted to overcome the difficulties he faced by having a firm of quantity surveyors, BMT & Associates, identify items of equipment on the Ponderosa property in 2006, and attribute a fair value to those items of equipment on the assumption that they were new when acquired and that they were acquired on 14 December 1990. The problem for Mr Rigoli is that the assumptions regarding the date of acquisition and whether they were new were frequently incorrect. Furthermore, BMT frequently grouped items of the same kind and simply allocated a lump sum cost to those items despite the fact that while similar, they were clearly not the same and must have been acquired for different values and at different points in time. Significantly, it was not possible to either establish the year in which a particular item was acquired or its cost. In those circumstances, no depreciation calculation could be made in respect of those items.
Although the state of the evidence regarding the capital items used in the production of polystyrene and cardboard boxes was unsatisfactory, there were some items for which depreciation could be calculated or a reasonable assessment of depreciation made. In those cases, I have allowed a depreciation deduction in the income years in question. Otherwise, I have disallowed the claim.
Having picked my way carefully through the evidentiary material, I have concluded that there are a number of capital items on which the Commissioner did not allow a depreciation deduction when it was possible to do so. Accordingly, I find that Mr Rigoli has, to a limited extent, established on the balance of probabilities that the Commissioner's assessment in the income years in question was excessive. I find that the Objection Decisions made by the Commissioner on 19 December 2008 in respect of the 1994 – 2001 income years are incorrect in so far as they disallowed Mr Rigoli's claims for depreciation deductions on the capital items set out in paragraph 366 of these reasons for decision. I set aside those Objection Decisions and remit this matter to the Commissioner for reassessment taking into account depreciation deductions for the items of capital equipment set out in paragraph 366.

I certify that the preceding 374 (three hundred and seventy four) paragraphs are a true copy of the reasons for the decision herein of

Egon Fice, Senior Member

..[sgd]......................................................................
Associate
Dated 1 November 2012

Dates of hearing
1-2 September 2011,
16-20 April 2012,
23-24 May 2012,
20 June 2012

Counsel for the Applicant Mr D Clough

Solicitors for the Applicant Lennon Mazzeo Lawyers

Counsel for the Respondent Ms D Harding

Solicitors for the Respondent Australian Government Solicitor

Division	TAXATION APPEALS DIVISION
File Numbers	2009/0142 – 2009/0149
Re	Little Joe Rigoli
APPLICANT
And	Commissioner of Taxation
RESPONDENT

Tribunal	Egon Fice, Senior Member
Date	1 November 2012
Place	Melbourne

Equipment	Date of acquisition	Cost for depreciation
1 Air Compressor	6 May 1998	$5500
1 Boiler	25 November 1992	$7000
1 Box crushing machine	27 April 1993	$19,212
4 Box making machines	1989 income year	$707,000
1 Hydraulic press	1990 income year	$30,358
1 Industrial sweeper	1995 income year	$6633
1 Laminator	2000 income year	$141
1 Microwave oven	1997 income year	$237
1 Polystyrene product printing machine	1994 income year	$13,286
1 Scale	1994 income year	$1202
3 Trailers	1996 income year	$139,000

Dates of hearing	1-2 September 2011, 16-20 April 2012, 23-24 May 2012, 20 June 2012
Counsel for the Applicant	Mr D Clough
Solicitors for the Applicant	Lennon Mazzeo Lawyers
Counsel for the Respondent	Ms D Harding
Solicitors for the Respondent	Australian Government Solicitor