Liu and Commissioner of Taxation
[2002] AATA 271
•22 April 2002
DECISION AND REASONS FOR DECISION [2002] AATA 271
ADMINISTRATIVE APPEALS TRIBUNAL )
) No NT2001/10-12
GENERAL ADMINISTRATIVE DIVISION )
Re Sunny S Liu
Applicant
And Commissioner of Taxation
Respondent
DECISION
Tribunal Mr M D Allen, Senior Member
Date22 April 2002
PlaceSydney
Decision The objection decisions under review are affirmed.
[SGD] M D ALLEN
Senior Member
CATCHWORDS
INCOME TAX – alleged understatement of income – taxpayer alleged income from brothel keeping subsidised by gambling wins – failure by applicant to prove his case – penalty for intentional disregard affirmed
Income Tax Assessment Act – s226J
Income Tax Administration Act – s14ZZK
Federal Commissioner of Taxation v Dalco 168 CLR 614
Galea v Commissioner of Taxation 90 ATC 5060
R v Federal Commissioner of Taxation Ex Parte Trautwine 56 CLR 63
REASONS FOR DECISION
22 April 2002 Mr M D Allen, Senior Member
By application lodged on 12 January 2001, the applicant sought review of three objection decisions which decisions upheld amended assessments issued by the respondent together with penalties for the tax years ending 30 June 1996, 1997 and 1998.
The amended assessments followed an audit of the applicant's affairs and an investigation of the applicant by the National Crime Authority. It is no part of these proceedings to canvass whether or not the allegations against the applicant as addressed by the National Crime Authority have a basis in fact or not. It was not disputed however by the applicant that he conducted at 5 Alan Street, Fairfield a lawful brothel and at 73 Albion Street, Surry Hills an unlawful brothel. The latter premises were closed by order of the Land and Environment Court and premises for the purposes of prostitution established at 359 Riley Street, Surry Hills. Consent was obtained for the latter premises in October 1998.
The applicant lodged income tax returns for the financial years ending 30 June and declaring income as follows:-
1996 $4064.00
1997 $15894.00
1998 $147532.00
Following the investigation of the applicant and his affairs, the respondent in reliance upon s107 of the Income Tax Assessment Act 1936 issued assessments raising debts as follows:
1996 $265369.92
1997 $324320.06
1998 $135231.89
The sums stated above included a penalty component of 75% imposed pursuant to s226J of the Income Tax Assessment Act 1936 which reads:
Subject to this Part, if,
(a) a taxpayer has a tax shortfall for a year; and(b)the shortfall or part of it was caused by the intentional disregard by the taxpayer or by a registered tax agent of the Act, or the Regulations; the taxpayer is liable to pay, by way of penalty, additional tax equal to figures 75% of the amount of the shortfall or part.
As was pointed out by the High Court in Federal Commissioner of Taxation v Dalco 168 CLR 614, s190(b) of the Income Tax Assessment Act 1936 (now s14ZZK of the Income Tax Administration Act 1953) casts the burden of proof upon the taxpayer to show that the assessment is excessive, and this is not achieved by merely showing that in some respects the Commissioner erred in the way in which he attributed income to the taxpayer or otherwise dealt with the material available to him. As stated by Brennan J (as he then was) at p625:
…where…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.
For reasons which were not disclosed, the applicant appeared in this matter assisted by his accountant and tax agent Mr Chang. Until 19 March 2002, the applicant was represented by solicitors. Exhibit A1 in these proceedings is a Statement of Facts and Contentions prepared by those solicitors on the applicant's instructions. Exhibit A2 is an affidavit of the applicant which was filed in the Tribunal by the said solicitors.
In particular, it was alleged by the applicant that apart from income gained as a brothel keeper, the majority of his income was from gambling.
Whereas there was no onus upon the respondent to make out a positive case to rebut that of the applicant, the fact that the respondent did seek to advance a positive case places the Tribunal in no different position and the onus still remains upon the applicant to satisfy the Tribunal on the civil standard of proof that the assessments are excessive, see Galea v Commissioner of Taxation 90 ATC 5060, at 5067.
In his affidavit of 8 October 2001 (Exhibit A2), the applicant took issue with factors which the respondent took into account in making the disputed assessments. He stated that of the monies sent overseas by him, some were remittances made to family still in South East Asia by prostitutes working for him. Other sums were to repay loans obtained from a friend in Singapore, one Ng Eng Kiat.
At paragraph 12 of his affidavit the applicant stated:
During the financial years ending 1996, 1997 and 1998 I won substantial amounts of money at the Star City Casino at Darling Harbour…
Cross examined, the applicant stated that when examined by the National Crime Authority, he told the truth. Earlier in his cross examination, he had repeated his statement that as to his gambling activity in the subject years, he was in front rather than behind. These statements in cross examination and in Exhibit A2 need to be compared to the evidence on oath the applicant gave to the National Crime Authority without objection.
Exhibit R4 is a transcript of evidence given by the applicant to the NCA on 23 October 1998. At that time the applicant was represented by Counsel. At transcript p109 the following questions and answers are recorded:
Q. Do you gamble a lot?
A. I gamble a lot.
Q. Do you win or lose when you gamble?
A. Sometimes win, sometimes lose.
Q. Each year would you be in front or behind?
A. Behind I would say.
At p124 of the transcript, the applicant stated inter alia, that in addition to the Casino he also gambled on horse races, either at the track or with the TAB. He said that he had won amounts of over $5000 at the TAB "many times" and added "they know that I am a big punter". I note that in these proceedings nothing was said by the applicant regarding betting at the TAB.
The applicant's account of his winnings at the Casino and with the TAB can then be contrasted with his evidence at transcript p129:
Q.See part of the problem I have is that you say you've been losing money gambling, you've borrowed lots of money from friends overseas.
A. Yeah.
Q. And you still owe a lot of money?
A. Yeah.
At p130 of the transcript, the applicant confirmed that he had purchased three motor vehicles including a Toyota Prado for $69400.00 paying it off at $1991.94 a month while another vehicle was being paid at $1000.00 per month.
Towards the end of his examination, the applicant was again asked about his gambling. At transcript p133, the following passage of evidence is recorded:
Q.Before you go on to the overseas transfers, you've lost a lot of money at the Casinos? Your behind rather than in front with the Casinos are you not?
A. Yeah.
Whereas the applicant in these proceedings contended that he had won substantial amount of money at either the Star City or Crown Casinos, that is in direct contrast to his evidence to the NCA. He was unable to produce any records at all regarding his gambling activities, so that I can only conclude that I am not satisfied that the applicant's source of moneys in the tax years 1996, 1997 and 1998 was from gambling. As was pointed out in R v. Federal Commissioner of Taxation Ex Parte Trautwine 56 CLR 63, at 87:
A taxpayer cannot get an advantage by losing either his memory or his books, but must show the true position.
Exhibit A3 is a statement by the applicant's accountant, Mr Chang. Attached to that statement is a reconstruction by Mr Chang of the respondent's calculation of undisclosed income (T1-18). That document does not advance matters as it is based upon assumptions made by Mr Chang. Conclusions based upon assumptions do not meet the onus of proof placed upon the applicant.
In any event, in cross examination, Mr Chang conceded that his accounting was based upon what he was told by the applicant and further, that if the records of the Star City and Crown Casinos obtained by the respondent were accurate, then the respondent's amended assessments had been generous to the applicant. He also conceded that if the applicant was a gambling loser, rather than a winner, his reconstruction at Annexure X to his statement would not be valid.
Mr Chang also conceded that he had written the document at page 6 of Exhibit R2, which was a letter to the National Australia Bank, dated 1 October 1998. In that letter he states:
There is no question about Mr Liu (sic) serviceability of $7000 loan repayment a month.
I have no reason to believe Mr Chang to be dishonest. If he, as the applicant's accountant, stated to the National Australia Bank that the applicant could service a loan repayment of $7000 per month, this indicates a knowledge of net income plus a regularity of income, not compatible with gambling.
Another matter which touches upon the applicant's credit, is that in his return for the 1996 tax year, his only source of income was stated to be a Social Security benefit, namely Newstart Allowance. Document T23 in the documents prepared for the Tribunal pursuant to s37 of the Administrative Appeals Tribunal Act 1975 is an application to ESANDA Finance. This document is an application for finance to purchase a motor vehicle for $40000.00. A deposit of $8000.00 was paid in cash, and monthly payments were scheduled at $821.35 per month. This is hardly the type of contract a finance company would enter into with a person whose sole source of regular income was unemployment benefits.
As stated above, I am simply not satisfied that the applicant has discharged the onus of proof required by s14ZZK of the Taxation Administration Act 1953.
I was invited by the respondent in reliance upon Exhibit R7 which is based in turn upon records of chips purchased by the applicant from the Star City and Crown Casinos and observations of alleged winnings by him (see Exhibits R5 and R6) to vary the decision under review so as to reflect the figures specified in Exhibit R7, which figures show that the applicant has been under-assessed by the respondent.
Whereas this course recommends itself to me, I do not propose to adopt it. The figures from the Casinos showing the amounts the applicant took away from the gambling tables may be erroneous in that some of the chips placed in front of the applicant when seated and playing baccarat may have belonged to other persons engaged in what was termed "back betting". That is to say, people standing behind the applicant who put their chips together with his, as the betting in that game is against the house.
Of course, if this did occur, then while the negative figures in Exhibits R5 and R6 may exaggerate the applicant's apparent "loss", any purported "gains" by him may be exaggerated as the said "gains" are to be shared with the people who were allowed to bet with the applicant. (I use the terms "loss" and "gain" for convenience. Any net loss or gain on any particular day could only be ascertained if the applicant had kept records of chips purchased and chips redeemed).
Thus while I am satisfied that Exhibits R5 and R6 correctly show the amounts of chips purchased by the applicant and the Austrac records show cashings of $10000.00 and above I am not prepared to adopt Exhibit R7 entirely so as to make any assessment over and above the current assessment the subject of these proceedings.
So far as penalty is concerned, I am affirmatively satisfied on the material before me that the applicant had deliberately understated his income in the years in question. Section 226J of the Income Tax Assessment Act provides for a penalty of 75% of the amount of shortfall of tax payable if the shortfall was caused by the intentional disregard by the taxpayer of the Income Tax Assessment Act. This is clearly the case here and the decision as to penalty is affirmed.
The net result is that the objection decisions under review are affirmed.
I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of
Signed: .....................................................................................
AssociateDate/s of Hearing 26 & 27 March 2002
Date of Decision 22 April 2002
Counsel for the Applicant Self Represented
Counsel for the Respondent D B McGovern
Solicitor for the Respondent Mr G Last, Australian Taxation Office
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