NGFZ and Commissioner of Taxation (Taxation)

[2019] AATA 5410

NGFZ and Commissioner of Taxation (Taxation) [2019] AATA 5410 (25 October 2019)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2015/6680-87

2015/6692-99

Re:NGFZ

HPML

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:25 October 2019

Place:Brisbane

2015/6680 to 2015/6687 - NGFZ

1.For the 2005, 2006, 2007, 2008, 2009, 2011, and 2012 income years, the decision under review (including in respect of the administrative penalty assessments) is affirmed.

2.For the 2010 income year:

a.the part of the decision under review to include NGFZ’s taxable income an amount of $15,000 is remitted to the Commissioner for reconsideration; and

b.the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

2015/6692 to 2015/6699 - HPML

3.For the 2005, 2006, and 2008 income years, the decision under review (including in respect of the administrative penalty assessments) is affirmed.

4.For the 2007 income year:

a.the part of the decision under review to exclude from HPML’s taxable income an amount of $20,000 is remitted to the Commissioner for reconsideration;

b.the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

5.For the 2009 income year:

a.the following parts of the decision under review are remitted to the Commissioner for reconsideration:

i.exclude from HPML’s taxable income an amount of $35,621;

ii.exclude from HPML’s taxable income an amount of $30,000;

b.the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

6.For the 2010 income year:

a.the following parts of the decision under review are remitted to the Commissioner for reconsideration:

i.exclude from HPML’s taxable income an amount of $30,535;

ii.exclude from HPML’s taxable income an amount of $15,000;

b.the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

7.For the 2011 income year:        

a.the following parts of the decision under review are remitted to the Commissioner for reconsideration:

i.exclude from HPML’s taxable income an amount of $100,000;                 

ii.exclude from HPML’s taxable income an amount of $55,000;

b.the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

8.For the 2012 income year:        

a.the following parts of the decision under review are remitted to the Commissioner for reconsideration:

i.exclude from HPML’s taxable income an amount of $171;

ii.exclude from HPML’s taxable income an amount of $13,000;

iii.exclude from HPML’s taxable income an amount of $10,000;

the decision under review (including in respect of the administrative penalty assessments) is otherwise affirmed.

........................................................................

Deputy President Bernard J McCabe

CATCHWORDS

TAXATION – amended assessments for undisclosed income – asset betterment analysis – fraud or evasion – shortfall penalty – operation of s14ZZK – establish Commissioner's amended assessment is wrong – establish correct assessment – balance of probabilities – onus on applicants – access to an indeterminate amount of undeclared income – cash sales from business – whether income is attributable to both applicants – joint enterprise – cash proceeds not always deposited into accounts – gaps in records – syndicated arrangement of hui – gambling winnings – undocumented loans – cash loans – lack of contemporaneous evidence – interest income – casino records – proceeds of jewellery sales – administrative penalties – intentional disregard of a taxation law

LEGISLATION

Income Tax Assessment Act 1936 – ss 170, 264

Taxation Administration Act 1953 – ss 14ZZK, s 298-20,

Social Security Act 1991

CASES

Binetter v Commissioner of Taxation (2016) 346 ALR 357

Briginshaw v Briginshaw (1938) 60 CLR 336
Commissioner of Taxation v Dalco (1990) 168 CLR 614
Commissioner of Taxation v Trautwein (1936) 56 CLR 63
Denver Chemical Manufacturing Co Ltd v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Jones v Dunkel (1959) 101 CLR 298
Ma v Commissioner of Taxation (1992) 37 FCR 225

McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284

REASONS FOR DECISION

Deputy President Bernard J McCabe

25 October 2019

1. Where did the money come from? That is the key question in a case like this where the taxpayers appeared to have lots of cash flowing through their hands during the years of income under review – more than one would expect having regard to the amounts they returned as assessable income.

2. The applicants produced a large amount of evidence to substantiate their claim that nothing was amiss: (almost) all of their income has been correctly disclosed to the Commissioner of Taxation, they say. The Commissioner has his own theory of what the applicants were up to, and where the monies came from.

3. Neither account is particularly satisfying. The evidence provided at the hearing often hinted at alternative explanations for the cash that tended to tantalise rather than persuade or clarify. I was left with the uncomfortable sensation that I was never given the whole story.

4. The story, such as it is, begins with the applicants’ returns filed in the 2005-2012 years of income. They both reported relatively modest income from their various business activities that often dealt in cash. Following an audit that included an asset betterment analysis, the Commissioner concluded the applicants must have received undisclosed income from those businesses, or perhaps from some other source. Amended assessments were issued. Penalties were imposed. Objections were taken and decided. The dispute has now come before the Tribunal for review.

5. The applicants provided statements and filed a large number of documents in support of their case. They also called a parade of witnesses at the hearing to help corroborate their claim that all (or almost all) of the income they derived during the extended period under review had been properly disclosed to the Commissioner. I say ‘almost all’ because there was a concession before the hearing that interest on loans the couple had made had not been properly reported – although even then there was some doubt as to whether both applicants or just one had derived that income.

6. The substantial interval between the events which gave rise to the dispute and the date of the hearing contributed to the evidentiary challenge in this case. Memories had faded, and some of the witnesses were no longer available. The recollection of a number of witnesses may have been affected by the passing of time. In some cases, the recollection of witnesses may have been affected, even if unwittingly, by the applicants (especially the female applicant and her daughter) as they assisted witnesses by drafting statements when preparing for the hearing. While there were, generally speaking, fewer documents than one would expect given the claims about loans and other financial transactions, at least some of the documents might have been lost. The male applicant also referred to some documents – he was unable to be sure which ones – being seized from the accountant by police: transcript at p 376. It was suggested some of those documents were no longer available.

7. I am conscious there has also been a substantial and regrettable delay between the date of the hearing and the delivery of my reasons for decision. I have relied on my extensive notes that were made during the course of the hearing, and I have also carefully reviewed the transcript and the documents provided in evidence. As it happens, the transcript was always going to be important as I prepared my reasons because most of the witnesses gave evidence through an interpreter. The parties were careful to make corrections to the transcript at the beginning of the hearing each day. I am satisfied the passage of time has not prevented me from dealing effectively with all of the evidence.

8. This is ultimately a case about credit. Section 14ZZK(b) of the Taxation Administration Act 1953 (the TAA) is of central importance. As I will explain in more detail below, that sub-section casts the burden of proof onto the applicants. They must establish the assessments and penalty decisions were excessive or incorrect and identify the correct (or more nearly correct) amount of tax owing. Their task is made more difficult by the passage of time, for reasons I have already explained.

9. Ordinarily, the Commissioner would not have been permitted to issue amended assessments after so much time had elapsed. He says he is entitled to do so in this case because he formed the opinion there was fraud or evasion in the original returns. Fraud or evasion is an exception to the rule against issuing assessments after such a long time. While the decision-maker must form an opinion there was fraud or evasion before amending the assessments, the applicants have the burden of establishing in these proceedings that the fraud or evasion finding should not have been made.

10. After reviewing all of the evidence, I am satisfied the applicants were able to discharge their burden of proof in some respects, which has implications for the assessments in individual years. Overall though, the applicants did poorly in their quest to persuade me. It follows the decisions under review will be varied in some respects, but otherwise affirmed. I explain my reasons below.

    BACKGROUND TO THE DISPUTE AND THE APPLICANTS’ DIRECT EVIDENCE

11. I will begin with some brief discussion of the applicants and their affairs. (I will refer to the applicants in these reasons as Mr and Ms Applicant as they asked that the proceedings be held in private, as is their right.) I will also make some observations about their individual accounts offered in statements and at the hearing. That information will help the reader make sense of what follows.

12. The applicants are in a long-term de facto relationship with each other. They have two adult children, one of whom – Ms Daughter – played an active role in preparation of the applicants’ case. Mr and Ms Applicant are Vietnamese emigres who have lived in Australia for decades. They are (and were at all material times) business partners. The partnership conducted a number of businesses. There may be some doubt as to precisely where the boundary lay between the business activities that were carried on in common with a view to profit and other activities which may have been conducted by each individual on their own account. The applicants agreed a fishing business and a retail shop were partnership businesses. It appears they were also both parties to loans made out of their common funds, although Ms Applicant may have made or received loans on her own account.

13. Both applicants also enjoyed gambling. They had some good fortune in 2000 when Mr Applicant won a $500,000 jackpot on the pokies. Some of those winnings were spent but it appears some of the money was loaned or perhaps distributed amongst family members and others in the local Vietnamese community. Both applicants continued to gamble during the periods under review. Mr Applicant said he would regularly attend the casino to gamble using cash on hand, although he claimed he also withdrew funds from his various bank accounts for gambling and deposited winnings into those accounts: transcript at p 379. Ms Applicant, on her own evidence, became something of a fixture at the casino during the period under review. She won another jackpot in 2012. Notwithstanding that success – or perhaps in part because of it – she admitted she developed a significant gambling problem. In any event, her activities at the casino generated significant movements in cash which the Commissioner says are suspicious. She won and lost monies but she also says she entered into loan transactions with friends and associates. The applicants both claimed they would often gamble in company and might place bets for friends.

14. The applicants have accumulated some valuable assets. During the relevant period, they owned a number of rental properties and a fishing trawler. Large amounts of cash also flowed through their bank accounts. The bank statements recording the flows were provided in evidence. The Commissioner analysed the applicants’ affairs through the audit process and concluded they did not add up. The Commissioner said the applicants must have had access to significant unreported income. He made an estimate of their true income having regard to the assets and flows of cash. He issued amended assessments that would otherwise be out of time after concluding there was fraud or evasion. He also imposed swingeing penalties.

15. I have already pointed out the applicants bear the burden of displacing the Commissioner’s assessments. I will have more to say about that in due course. As a practical matter, it was necessary for each of the applicants to descend into considerable detail in describing their business and financial affairs and the various transactions in which they were involved. The hearing, when it occurred, was lengthy and relied in particular on statements and on oral evidence from a variety of witnesses including relatives, friends, an accountant, casino employees and an array of acquaintances.

    The evidence of Mr Applicant

16. Mr Applicant was principally involved in the conduct of the partnership’s fishing business. He explained in his oral evidence that he regularly went to sea during the fishing season aboard a fishing trawler the partners owned in each year of income under review. The fact Mr Applicant went out alone on these voyages has this significance, at least: there is nobody (certainly no witnesses called in the proceedings) able to verify the frequency or duration of the voyages or the typical size of the catch. On the other hand, the fact Mr Applicant was away so much meant he was unable to provide much evidence about his wife’s conduct in his absence. Most of the evidence provided by witnesses related to her conduct.

17. I was told the fishing season lasted up to nine months of the year. Each trip would last four or five days. The vessel was equipped with cold compartments that could hold around a tonne of product. Mr Applicant was able to cook prawns on board before they were placed in the cold compartments. I have no reason to doubt this evidence.

18. Mr Applicant explained he typically sold the bulk of the catch to a wholesaler after each trip. The wholesaler paid for those supplies by cheque. The cheque was usually delivered a week after the sale.

19. The recorded transactions involving the wholesaler appear uncontentious. The payments were made by cheque and they were deposited into one of the business accounts. The Commissioner was more concerned with what happened to the undefined balance of each catch that was not sold to the wholesaler. He said the cash sales of this product were more lucrative than has been reported. He suggested this component of the business was the most logical source of undisclosed income for the applicants.

20. Mr Applicant initially agreed he would occasionally have product left over after dealing with the wholesaler. He said the surplus product was of second quality, and the wholesaler would not buy it: statement of Mr Applicant dated 9 September 2016 at [22] (exhibit A41); transcript at p 388. He sold that left-over product (typically prawns, cuttlefish or squid and sand crabs) to friends in the Vietnamese community or to the public in a shopping centre car-park. But Mr Applicant also admitted his usual wholesaler started to pay less attractive prices over time. The wholesaler’s retail business closed at some point and it became less willing to pay the premium price Mr Applicant was previously able to command: statement at [20]-[21]. Mr Applicant acknowledged during cross-examination that he could get a better price for his product from the private sales in the shopping centre carparks: transcript at p 388. It seems likely that, over time, Mr Applicant sold a larger proportion of his catch in this way.

21. The evidence in relation to the private sales is of particular importance to these proceedings. His evidence about the ad hoc sales of product to friends in the Vietnamese community was sparse. It is not clear how much money he derived from those transactions. The evidence in relation to the sales of product to members of the public was more detailed. During cross-examination, Mr Applicant explained he owned a utility vehicle with a refrigeration compartment on the back. The vehicle carried a set of scales. He said he would set up in a shopping centre car-park after a fishing trip and deal from the rear of the vehicle. He did not have a cash-tin, use a cash register or offer credit card facilities. He dealt in cash, and carried change: transcript at p 388. He insisted in his oral evidence that he diligently recorded the total of the day’s sales activity in the cashbook at the conclusion of each day after he had sold the product on hand. (He agreed in cross-examination that he was always able to sell the product on hand at these sales. There were no left-overs: transcript at p 388.) He said he provided the cashbooks and other relevant documentation (like bank statements) to the partnership’s book-keeper and tax agent so the sales could be reported to the ATO: see also exhibit A41 at [23] – [25].

22. Mr Applicant acknowledged the fishing business as a whole was generally profitable: statement dated 30 September 2014 at [31] (exhibit 1, T-Documents of Mr Applicant at p 369). The applicants insist they have accounted for all the income from that business, including the cash sales. They argue they were thereafter entitled to use the money for their own purposes as they saw fit. There was certainly evidence confirming the couple met living expenses in cash out of the business, including mortgage and credit card repayments, and they were able to make loans to family members: see, for example, transcript at p 414. That evidence tends to support the Commissioner’s argument that the fishing business was generating significant amounts of cash. Mr Applicant agreed he would hold cash at home to give to his wife: see exhibit A41 at [26]. He also liked having money on hand so he could gamble at the casino. Significantly, after being vague about the proportion of the sale proceeds he deposited into a bank account, he eventually conceded in cross-examination that he kept most of the cash from the private sales at home rather than depositing the money into the bank: transcript at p 387.

23. Dr Schulte, the Commissioner’s counsel, asked Mr Applicant about a number of deposits made into the applicants’ accounts. Given the passage of time, it can be no surprise that Mr Applicant was unable to clearly recollect all the individual transactions. His uncertainty might also be explained by the fact he said Ms Applicant was principally responsible for the banking: transcript at p 392. That claim was surprising at first glance, given at least one of the accounts was in Mr Applicant’s name alone. In his statement, Mr Applicant said Ms Applicant would ask him for money from that account when she needed it: exhibit A41 at [36]. But he explained in cross-examination that his wife was also issued with cards on a number of the accounts and, I infer, was therefore able to operate those accounts. It makes sense that she would do so in circumstances where he was often absent from home aboard the fishing trawler in Moreton Bay. But Mr Applicant’s evidence about the deposits is still of interest. Mr Applicant was shown a number of deposit slips which had presumably been completed by his wife. He was unable to recognise the handwriting of Ms Applicant on deposit slips he was shown during the cross-examination: transcript pp 392 – 394. While allowing for the fact that some of the deposit slips might have been filled out by a bank officer, it seems odd that he could not recognise his long-term partner’s handwriting. As he explained through the interpreter in cross-examination (transcript at p 393):

    INTERPRETER: I cannot recognise but I will – I think it could be my wife’s handwriting.

    MR SCHULTE: And is that correct for the previous deposit slips?

    INTERPRETER: Yes.

    MR SCHULTE: So are you saying that the handwriting that’s in the previous deposit slips, this is page 5023 and the 5002, that’s your wife’s handwriting also?

    INTERPRETER: I can’t be sure it will – it’s definitely my wife’s handwriting because sometimes in the bank the tellers also help fill out the slip.

    MR SCHULTE: I see.

    DEPUTY PRESIDENT: But you know what you wife’s handwriting looks like?

    INTERPRETER: I do not pay attention.

    DEPUTY PRESIDENT: How long have you been together?

    INTERPRETER: Since 1987.

    DEPUTY PRESIDENT: You’re saying that you’re not sure that you can tell what her handwriting looks like?

    INTERPRETER: That’s right, I can’t be sure.

1. Mr Applicant’s response to this line of questioning contributed to an impression I formed that he was a cagey, evasive witness. While allowing for the fact these events occurred many years ago, and that he was – on his own evidence – not as centrally involved as his wife in the banking and financial transactions, he exhibited a surprisingly poor memory for detail. At a minimum, these observations suggest there were serious questions over Mr Applicant’s credit. That is a problem given the applicants’ case turns on me accepting Mr Applicant’s word that he scrupulously recorded the amount of each day’s sales in the cashbooks which were subsequently provided to the accountant.

2. Mr Applicant also gave evidence about his gambling. The evidence does not suggest he was as big a gambler as his wife but he was clearly a regular patron of the casino in Brisbane. He said in his oral evidence that he would typically use his casino rewards cards while gambling but others might borrow it from him from time to time. He also said he might not cash out the chips every time he finished at a table, so he often had chips in his pocket which he could use at a different table rather than buying fresh chips which would be recorded on the card. Interestingly, he said in his evidence (transcript at p 378) that he often slipped chips into his pocket:

   [b]ecause I didn’t want people who I know realise that I was winning and then they might ask me for a loan.

3. As I will explain, Mr Applicant’s discretion in this regard contrasts with Ms Applicant’s approach in the casino which, she claims, involved extensive financial relationships with other gamblers.

4. Mr Applicant also said he would occasionally use chips belonging to other gamblers who wanted to bet on his hands. As he explained in his statement (exhibit A41 at [64]):

   Sometimes other people would play Baccarat when I was playing at a table. The way this worked is that people would stand behind me and pass me chips to place a bet on my hand. I would put the chips on top of my chips when I placed a bet.

5. Mr Applicant confirmed that, on occasion, the gamblers standing behind him might place cash in his pocket if they did not have chips, and he would then bet on their behalf using his own chips: transcript at pp 377-378. He insisted he deposited cash winnings into the bank, but it is unclear how often that occurred and whether it was his routine practice. Indeed, given his evidence about his predilection for having cash on hand to gamble and pay other expenses, it is unclear that a good deal of that money ever found its way into a bank account.

6. The clear thrust of Mr Applicant’s evidence was that a significant portion of his regular catch was sold in cash, and the proceeds of those sales never made their way into a bank account. The cash proceeds of those sales were retained at home, along with gambling winnings. I have no way of knowing precisely what proportion of the catch was sold on this basis; the records, such as they are, do not say. There are significant gaps in the records provided in any event. While Mr Applicant provided a number of cash books, several of them related to periods outside the relevant years of income. He only provided cashbooks covering the periods 8 October 2010-17 June 2011 and 1 July 2011-25 May 2012: affidavit of Mr Applicant dated 9 September 2016 (Exhibit A42), Annexure A pp 3 – 4. Perhaps the other records were lost; perhaps they were never prepared.

7. Mr Applicant did not have a clear recollection of expenditures and deposits into accounts, which is not altogether surprising given the passage of time. He was ultimately unable to provide much assistance because he said Ms Applicant was principally responsible for the management of the couple’s bank accounts. There were significant gaps in the records he did provide, and such records as did exist – most obviously the cashbooks – were prepared in a way that depended crucially on Mr Applicant being rigorous and honest in his reporting of each day’s transactions. As I have already indicated, his evidence did not establish he was likely to be scrupulous in making a record of his sales and declaring his income.

8. Mr Applicant’s concession that he retained most of the proceeds of the cash sales at home without depositing them into a bank is important, however. It means the cash moving through those accounts must be explained in other ways. The applicants cannot rely on the cash sales – even if I am unable to make a finding as to the amount of those sales – as a source of those deposits. That concession on its own makes the applicants’ case much more difficult. While they appear to have had access to cash from their fishing business, they sought to provide other explanations for the source of monies flowing into their bank accounts. Mr Applicant’s evidence about deposits of casino winnings might assist in that endeavour, but it was not sufficiently precise for me to be confident that those deposits could adequately explain what was going on.

   The evidence of Ms Applicant

9. The business affairs managed by Ms Applicant were more complicated. She ran a clothing shop during the period under review. It was agreed the clothing shop formed part of the partnership business. The shop reportedly generated only modest income. I did not understand there to be evidence suggesting the retail business generated cash that was not reported. But the Commissioner says Ms Applicant did have access to cash, judging by the flows recorded in the couple’s bank accounts and other transactions.

10. There were various loans to which Ms Applicant claims she was a party, either as borrower or lender. Many of those loans were not documented, or I was told the real terms did not conform to what documentation did exist. Ms Applicant argued a lot of the money passing through her hands and accounts was the product of advances made and received, and only some of those amounts – the interest earned – should have been reported but were not. I heard evidence from a succession of relatives, friends and acquaintances from within the Vietnamese community who each claimed to have borrowed money from – or loaned money to – Ms Applicant.

11. Ms Applicant was also an habitué of the casino in Brisbane which (she said) resulted in some winnings and a lot of money transfers but no assessable income as such. Ms Applicant was able to reproduce copies of winnings’ cheques she received from that casino in each year under review, including a large jackpot she won in November 2011. The figures are set out in the table below which is reproduced from the applicants’ closing submissions at [384]:

    (a)$3,500 in FY07

    (b)$45,000 in FY08;

    (c)$140,161 in FY09;

    (d)$41,685 in FY10;

    (e)$61,746.19 in FY11; and

    (f)$507,156 in FY12 (including [Ms Applicant’s] jackpot of $443,901.36 in November 2011).

12. I do not understand the Commissioner disputes those amounts. His written submissions were silent on that issue. Given I have no reason to dispute the evidence, it should be accepted and – to the extent they have not already been dealt with – they should not be counted in the assessable income of the applicants in the years under review.

13. While that evidence was uncontroversial, I had more difficulty with Ms Applicant’s evidence about her gambling practices and the existence of ‘casino buddies’. These individuals were apparently members of an informal fraternity of gamblers who only knew each other from the casino. A number of witnesses told me it was common for regular patrons to ‘help each other out’: if one patron was having a good night and another was caught short, the patron who was flush with cash might share his or her good fortune by loaning money to the patron who was experiencing a run of bad luck at the tables. I visited the casino in Brisbane in the course of a view and heard from casino officials about gambling practices and the casino rewards scheme. I will have more to say about that evidence below.

14. There was also a good deal of evidence about Ms Applicant’s participation in hui, a syndicated arrangement – or game, depending on how it is described – that is well-known in the Vietnamese community. In a hui, participants acquire a share that requires them to make periodic contributions of an agreed amount into a common pool, or pot. At regular intervals, the participants would ‘bid’ to ‘win’ the pot. The ‘winner’ would have access to the cash pot – but he or she would be required to continue making regular contributions so that other participants might enjoy a win in turn. I will have more to say about this hybrid form of gambling and financing in due course. For now, it is enough that I acknowledge evidence from a number of witnesses and documents evidencing Ms Applicant’s involvement in multiple hui during the period under review until she was banned from playing. I was told Ms Applicant was excluded because she was habitually abusing the rules by taking out more money than she put in. 

15. I have mentioned the applicants’ Vietnamese ethnicity because it is relevant to the story. I was asked to keep in mind that the applicants were long-standing members of a close knit émigré community where Ms Applicant in particular enjoyed some prominence. Most of the witnesses were members of the same community. The applicants had accumulated some wealth before the period under review as a result of winning a significant poker machine jackpot in 2000. I was told members of the community – especially recent arrivals – sought assistance from the applicants, or felt an obligation to advance monies to Ms Applicant when asked because of support she had provided to community members in the past. (The Commissioner invited me to infer that any sense of obligation felt by members of the community might have extended to an obligation to assist the applicants in their dispute with the Commissioner.) The cultural background was also offered as an explanation for the preference for dealing in cash, failing to properly record loans, the ubiquity of the hui, and the gambling. The majority of witnesses – some of whom had lived and worked in Australia for nearly 40 years – gave their evidence through an interpreter.

16. Ms Applicant was not a reliable witness. As I will explain below, she has a track record of misrepresenting her income to financial institutions. On her own story, she has a history of welching on responsibilities she incurred when participating in hui. She was prepared to deceive members of her own community by participating in hui using shares in the names of other people, including her daughter. The evidence she gave about her interaction with casino buddies strained credulity. I will explain these findings in more detail as I explore the evidence.

    The role of Ms Daughter

17. I should pause at this juncture to properly introduce Ms Daughter into the narrative. Ms Daughter assisted Ms Applicant in arranging a large number of the statements provided in the course of these proceedings. Ms Daughter speaks good English and Ms Applicant said Ms Daughter assisted the applicants by facilitating the provision of statements. It turns out a number of the statements filed in the proceedings were in a similar format and were similar in structure and content so as to suggest a common author. In many of the cases, Ms Daughter was involved in the drafting of the English version of the statement which was read back to the deponent in the deponent’s language without the deponent obtaining independent advice and verification of the contents. Ms Daughter and Ms Applicant both denied suggesting answers or observations that called into question the integrity of the statements signed by the witnesses. I will make further observations about the role of Ms Daughter and the impact of her involvement in this process when I discuss the evidence of individual witnesses. But first I should address two other issues in more detail: the operation of s 14ZZK(b) of the TAA and the preliminary finding of fraud or evasion.

    The operation of s 14ZZK

18. The Commissioner typically must guess at the true state of an individual’s affairs. The individual will almost always be in a better position to explain and substantiate any transaction, course of dealing or expenditure. Section 14ZZK of the TAA is a response to the challenge posed by asymmetrical information. The Commissioner’s best guess as to the individual’s affairs is contained in the objection decision. The individual can prevail in the review by explaining why the Commissioner is wrong and by establishing on the balance of probabilities the correct – or more nearly correct – amount of taxable income he or she earned in the period under review: see, generally, the judgment of Latham CJ in Commissioner of Taxation v Trautwein (1936) 56 CLR 63. In doing so, the applicant must identify cogent evidence which persuades me to make findings of fact that support his or her explanation. What is required to persuade will depend on the particular circumstances of the case: Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624 per Brennan J.

19. The decision in Dalco confirms that the Tribunal’s approach to evidence must be informed by common sense. Where questions arise over the credibility or motivations of an applicant or a particular witness, or where the larger story the Tribunal is told seems unlikely or questionable, the Tribunal might require more before it is persuaded.

20. While the tax laws lay down substantiation rules that apply to the proof of some transactions, as a general rule a taxpayer is not inflexibly required to prove matters by reference to contemporaneous documentary evidence – although contemporaneous records will often help. The Tribunal may draw inferences, and it may be persuaded in a particular case by uncorroborated oral evidence from taxpayers or others: McCormack v Commissioner of Taxation (1979) 143 CLR 284 at 302 per Gibbs J. The important point is that the Tribunal is actually persuaded on the balance of probabilities by cogent evidence. As Burchett J explained in Ma v Commissioner of Taxation (1992) 37 FCR 225 (at p 230):

    …if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax.

21. The challenge for the applicants, then, is to produce “acceptable evidence” that demonstrates an (alternative) “reasonable explanation” that should be preferred by the Tribunal. Whether I am persuaded by particular evidence will depend at least partly on my assessment of the inherent likelihood of the events or conclusions urged upon me in all the circumstances. Those circumstances might include adverse assessments I have made about other aspects of an applicant’s case. To put it another way: my assessment of each piece of evidence occurs against the background of the entirety of the evidence. Just as a stopped clock will be right twice a day, the Tribunal will not necessarily accept evidence on one point that may be persuasive if viewed in isolation. If an applicant’s case is, on the whole, incredible, inherently unlikely or patently suspicious, the Tribunal may yet look askance – or at least look much harder – at evidence that might otherwise be persuasive if viewed in isolation. 

22. Even a fraudster – especially an accomplished fraudster – will be able to point to individual transactions that are, on their face, regular, corroborated and unobjectionable if viewed in isolation. The Tribunal might be persuaded by some of the taxpayer’s evidence and make adjustments to the amended assessment while remaining unpersuaded by other aspects of the case. But the cumulative effect of the evidence may be such that it leaves the open-minded decision-maker with the impression the applicant’s case is, at its heart, contaminated by fraud. In that event, the Commissioner’s assessment may stand even if the Tribunal is unsure precisely how far the fraud at the heart of the case has spread.

23. I should add that s 14ZZK is also relevant to the review of the penalty decisions. If there is a tax shortfall – and there certainly is in this case, although there is a dispute over the amount – then it is for the taxpayer to establish that any penalty which is imposed is excessive.

    Fraud or evasion?

24. Section 170(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA36) permits the Commissioner to issue an amended assessment within 2 (or in some cases 4) years of the day on which the Commissioner gave notice of the original assessment. Most of the amended assessments in dispute in this case were issued outside the standard time frames identified in s 170. The Commissioner relies on an exception to the general rule which permits him to issue an amended assessment that would otherwise be out of time. The exception applies where the Commissioner is of the opinion there was fraud or evasion.

25. The expression ‘fraud or evasion’ is not defined in the taxation law, but it is well understood. At a minimum, there must be some sort of blameworthy conduct beyond mere neglect or misunderstanding which resulted in the false statement: see generally Denver Chemical Manufacturing Co Ltd v Commissioner of Taxation (NSW) (1949) 79 CLR 296 at 313 per Dixon J. That blameworthy conduct might be the conduct of the taxpayer or somebody acting on his or her behalf. I note there is no suggestion that the tax agent retained by the applicants in this case had done anything inappropriate or blameworthy. By all accounts, he prepared the returns on the basis of the information he was provided.

26. The applicant has the onus of proving the opinion as to fraud or evasion should not have been made: Binetter v Commissioner of Taxation (2016) 346 ALR 357 at [93] per Siopis J. The fraud or evasion does not have to extend to all of the applicant’s affairs in a given year of income. If the finding can be made in that year (or, perhaps more accurately, if the applicant has not discharged its burden of negating the Commissioner’s opinion in that year), the amended assessment can be issued out of time.

27. The Commissioner says there is no doubt interest was paid by borrowers on a number of loans made by the applicants. He says there is no doubt interest payments are assessable income. The applicants insisted until comparatively late in the day that they had declared all of their sources of income. They finally conceded in the statement of facts, issues and contentions that they had received interest income which should have been declared, but which was not. The concession was probably inevitable but it was subsequently qualified. During cross-examination, Mr Applicant claimed he did not receive any interest on loans after all. He said any interest that was earned had been earned by Ms Applicant. When asked during cross-examination why a concession was made on his behalf in the statement of facts, issues and contentions, he claimed he had not read the document before it was submitted. He explained his wife handled the loan transactions. His response to questions about one of those loans (transcript at p 423) illustrates the thrust of his evidence:

    To tell the truth, that loan was made by my wife. She did tell me she was taking the money from my money to advance that loan, so really I don’t have a lot of knowledge or information as to how it was made.

28. That answer tends to indicate the loan in question was part of a common enterprise, even if Ms Applicant was taking the lead. I was told Mr and Ms Applicant were operating their various businesses in partnership, and they both had access to all or most of the accounts even if Ms Applicant tended to take responsibility for the banking. If the applicants were partners then Mr Applicant surely was entitled to a share of the interest on the loans made by his partner if those loans were made as part of that joint enterprise. He was required to disclose that income regardless of whether he actually handled the money: such is the nature of partnerships. It is hard to credit Mr Applicant’s claim that he did not know about the unreported interest, even if he was only generally aware of the arrangement in relation to each particular loan.

1. As it happens, the parties did not squarely address the extent to which particular activities might be taken to have occurred inside or outside the partnership. I have already noted it was conceded by the parties that they conducted the fishing business and the retail shop in partnership. The applicants did not expressly concede Ms Applicant’s money-lending activities were part of the partnership business – although the answer provided by Mr Applicant that I have quoted above tends to confirm there was a common enterprise. The parties did not make any submissions with reference to the cases on the law of partnership that might assist me in making a more definitive ruling. It probably does not matter for present purposes. There is no reason to doubt Mr Applicant contributed to the monies from which Ms Applicant advanced loans. (Mr Applicant was the lucky winner of a jackpot that was said to turbocharge the applicants’ wealth. That money was used to fund advances and other expenditures by Ms Applicant.) There is also no reason for doubting monies received by way of interest on loans advanced by Ms Applicant were applied to Mr Applicant’s benefit. The evidence does not suggest the interest income was paid into separate accounts or was otherwise unavailable to Mr Applicant. The evidence appears to establish all of the money the couple derived from various businesses was deposited into accessible accounts or held in cash. There is no reason to doubt the monies were available to them both. The interest income was used to increase the couple’s joint wealth and was available to both to fund their household and lifestyle.

2. Ms Applicant claimed during cross-examination that she derived the interest, not Mr Applicant: see also, Loan Interest Overview (Exhibit A46). That evidence is at odds with the concession made on her behalf in the statement of facts, issues and contentions: applicant’s consolidated statement of facts, issues and contentions dated 18 November 2016 at [147]. Dr Schulte also pointed out Ms Applicant’s cross-examination occurred following evidence given by Mr Applicant. In those circumstances, and in light of criticisms I make of her credit elsewhere, I am not inclined to give her evidence any weight.

3. Mr Applicant has not persuaded me the interest was derived by Ms Applicant on her own account. Even if the interest was not associated with loans made through the partnership, he contributed to the funds which were advanced, and he appeared to benefit from any interest which was generated. He appeared to be generally aware of Ms Applicant’s activities and their financial consequences. I was not provided with sufficient evidence to dispute Ms Applicant was acting on his behalf.

4. As I have already explained, it is not enough to establish that the applicants failed to disclose income where that non-disclosure was the product of mere misunderstanding or oversight. More is required before a finding of fraud or evasion is justified.

5. Ms Applicant was questioned about how the non-disclosure came to pass: transcript at p 491. She said she did not realise the interest payments qualified as income. There was also a suggestion that cultural differences might have played a factor. Perhaps her lack of English prevented her from learning what almost every taxpayer presumably knows about interest income forming part of their assessable income.

6. Even if I accepted the applicants were at a disadvantage in some respects, they also experienced countervailing advantages. In particular, the applicants had the assistance of an apparently competent tax agent and accountant who took care of their affairs throughout the period under review. The accountant explained in his evidence that he went through the source documents (including bank statements) that were provided to him each year and attempted to reconcile individual receipts and expenditures. He said he asked the applicants about anything that struck him as requiring explanation: transcript at pp 23-24. The accountant said he relied on the applicants’ instructions as to the characterisation of particular transactions recorded in the books and accounts: transcript at p 24. Given that advice, it is unlikely the applicants were ignorant of their obligations with respect to the interest. It seems likely the applicants did not declare the interest payments because they had no intention of paying tax on the income. The evidence suggests to me the failure to declare the income was deliberate and dishonest.

7. In all the circumstances, I am not satisfied the opinion as to fraud or evasion should not have been formed in any of the years of income under review. It follows there is no bar to issuing the amended assessments.

   The dispute over the applicants’ income and its sources

8. The applicants have identified what they say are the correct amounts of assessable income they each received in the periods under review. Those amounts, which include the income that was derived from interest but not disclosed, are set out at p 17 of the applicants’ written closing submissions. (Those submissions also include a set of figures at pp 16-17 prepared on the assumption that Ms Applicant was the sole recipient of the interest income. As I have already explained, I am satisfied any interest income derived by the parties should be attributed to both applicants. The figures reflecting that attribution of income are the figures I have referred to at p 17 of the submissions.) The table is reproduced below:

   Mr [Applicant’s] taxable income for the relevant years was (as per his original returns plus half of the interest):

   (i)     $13,792 for FY05;

   (ii)    $34,064 for FY06;

   (iii)   $35,674 for FY07;

   (iv)   $56,191 for FY08;

   (v)    $44,564 for FY09;

   (vi)   $52,551 for FY10;

   (vii)     $50,040 for FY11;

   (viii)    $32,444 for FY12.

   Mrs [Applicant’s] taxable income for the relevant years was (as per her original returns plus half of the interest)

   (i)     $11,648 for FY05;

   (ii)    $28,930 for FY06;

   (iii)   $35,133 for FY07;

   (iv)   $57,974 for FY08;

   (v)    $47,009 for FY09;

   (vi)   $57,508 for FY10;

   (vii)     $50,868 for FY11;

   (viii)    $34,408 for FY12.

9. Some of these figures do not gel with information provided by Ms Applicant in support of at least five loan applications that she made to Westpac and Amadeus between 1997 and 2009. The application form in relation to each of those transactions required the applicant to provide information about income, assets and liabilities. Ms Applicant provided estimates of her income in each application form that appear to have overstated what she now says she earned. Dr Schulte asked Ms Applicant about some of those amounts in cross-examination. The questions elicited confusing responses. There were also discrepancies in the amounts recorded as assets. Dr Schulte pointed out Ms Applicant failed to disclose the many undocumented loans she claimed she made to friends, family and others prior to 2005. Those figures should have been referred to in the application forms, but they were not. Dr Schulte asked whether those advances had in fact occurred. Ms Applicant insisted they had, as well she might: it was an important part of the applicants’ case that many of the flows of money into their accounts after 2005 were repayments of loans made prior to 2005 – and therefore not assessable income. Those earlier advances were paid out of monies won by Mr Applicant on the pokies in 2000, I was told.  

10. I am not satisfied Ms Applicant’s explanation for the discrepancy between what was said in the application forms, what she said in her returns and what she says now reveals anything reliable about her income and assets at the time. Her lawyers argued in written submissions that the applicant may not have regarded some of the informal loan arrangements with family and others as being the sort of thing a financier would want to know about. I have some trouble with that explanation because it assumes Ms Applicant turned her mind to the questions she was asked. Ms Applicant says she did not read the application forms closely and generally relied on others, including bank officers and brokers, to assemble the required information. She signed whatever was written on the form without looking closely or asking questions. I was invited to infer that she was naïve or inexperienced and too trusting of others. I am not satisfied that characterisation does Ms Applicant justice.

11. Ms Applicant’s casual approach to the loan application process – the apparent absence of any concern for providing adequate and truthful answers to requests for information even when required to do so by law – confirms the figures in the application forms are wholly unreliable. But I am not satisfied she was merely careless or naïve. Ms Applicant was clearly prepared to tell financiers whatever they wanted to hear in order to achieve the outcome she desired. That she may have had willing assistance from others in that cynical exercise is beside the point. The evidence in relation to the loan applications suggests she is not a reliable witness. That finding has important implications for the applicants’ case in circumstances where it appears Ms Applicant was primarily responsible for the banking and financial affairs while Mr Applicant got on with the fishing business.

12. That brings me to a more detailed discussion of the applicants’ claims. How should I reconcile the large flows of cash and the accumulation of assets with the relatively modest amount of income for which the applicants now contend?

13. The Commissioner argued the bank statements before the Tribunal recorded significant deposits of cash throughout the period under the review. Mr Applicant was asked about some of these statements during cross-examination. He was able to identify a number of deposits he made in connection with the fishing business but insisted his wife was the one who mostly operated the accounts. As I have already explained, the way in which Mr Applicant accounted for cash sales from the fishing business is problematic. As a result, I am unable to reliably quantify the amount of income generated from cash sales of seafood. My finding leaves open the real possibility that any income he generated from cash sales is merely a tributary stream that swells the flows of cash that swept along Ms Applicant. In any event, the applicants – and Ms Applicant in particular – bears the burden of explaining where the money came from. She was not able to offer a clear and convincing account of the sources of the funds that she dealt with. As she conceded in cross-examination, she “can’t keep track of which money is from where”: transcript at p 509; see also the applicants’ written submissions at [120].

14. Ms Applicant’s concession was made in response to questions about a sample of transactions. But it is telling all the same. That evidence underlined the challenge Ms Applicant faced in trying to reconstruct the couple’s affairs. It would be understandable if she had difficulty explaining particular transactions after such a long period had elapsed even if the accounts had been compiled with meticulous care and transactions had been documented properly. The response was wholly unsurprising in circumstances where Ms Applicant did not appear to prize accuracy or diligent record-keeping. The Commissioner invited me to infer there was another obvious explanation for Ms Applicant’s difficulty in explaining the transactions: she was dissembling.

15. The Commissioner surmised that one obstacle to Ms Applicant giving accurate and reliable evidence was the possibility there was two sets of books. I was invited to draw that inference in light of Ms Applicant’s reference to a ‘cash flow analysis’ included in her statement: transcript at p 518.  The Commissioner suggested the cash flow analysis appeared to diverge from the figures in the returns. Mr May, in his written submissions on behalf of the applicants, sought to explain how the figures in the analysis document were derived. He explained the cash flow analysis was prepared in response to the asset betterment analysis. It was used to demonstrate movements of cash while the figures included in the returns were adjusted to take account of depreciation and other technical accounting considerations that were appropriate to a tax return. Mr May argued the figures in the cash flow analysis are not inconsistent with those in the returns. He said the apparent differences were the product of looking at the same set of affairs in a different way, for a different purpose. Ultimately, he explained the figures in the cash flow analysis were derived through an examination of the transactions in one account: applicants’ written submissions at [93]-[118].

16. It is tolerably clear the cash flow analysis was prepared having particular regard to transactions recorded in one of the principal bank accounts. I accept the cash flow analysis is not, of itself, inconsistent with the figures included in the returns if one accepts the assumptions about accounting adjustments suggested by Mr May. I am not satisfied it was prepared having regard to a second set of books as the Commissioner suggests. Ms Applicant’s apparent disregard for detail that was evident in her approach to the loan applications does not give me any confidence there was another (albeit hidden) set of books that were more reliable. The cash flow analysis is ultimately an exercise in reconstruction and a submission. It is an attempt to make sense of the available figures. But it is only as good as the data available, and – as I will explain – there is doubt about the quality of that data.

17. I should say something at this juncture about the Commissioner’s approach to analysing the applicants’ track record at the casino. The Commissioner used records supplied by two casinos frequented by the applicants to assist in the calculation of their income. While casino winnings would not ordinarily be regarded as assessable income in the hands of an amateur gambler, the Commissioner focused on dealings in unexplained amounts. His analysis of the figures provided suggested the applicants – especially Ms Applicant – gambled much larger amounts than would be expected if each of them were simply relying on their reported income. The Commissioner said the applicants’ gambling patterns were evidence of unreported income.

18. The records provided by the casinos included data associated with the rewards program. Two employees of the Star Entertainment Group gave evidence about the operation of that casino’s rewards program. They explained players were encouraged to join the scheme. Each player was issued with a rewards card that included a photo ID. The player swiped the card at the gaming table or inserted the card into the poker machine, so the player’s wagers on each occasion were connected with the card. There was an incentive to use the card each time the player gambled because they accrued points and became entitled to privileges. The casino, for its part, was able to monitor the playing habits of each individual.

19. The applicants argued it was unsafe to rely on the rewards program. Mr and Ms Applicant both said their cards were used by others, even though that practice was against the rules: see, for example, transcript at p 377; exhibit A41 at [58]; exhibit A1, T documents of Ms Applicant, p 619 at [144]. While the cards included a photo ID, there was no guarantee the use of the card would be scrutinised by a supervisor or dealer at the tables, and the dealer at the table would not necessarily require production of the card in connection with each and every bet. There was an obvious risk that the cards might be used by others when operating the poker machines. Ms Andrea Long, a casino manager with knowledge of the rewards program, said casino staff did not routinely police the use of cards in the machines, and there was no guarantee they would detect the misuse of the card at the tables: transcript at p 43. But card-holders had an incentive to use the card regularly because they accrued points. It follows they had an incentive to flout the rules by allowing others access to the card. As it happens, there is specific proof that other people did use Ms Applicant’s card, at least. The supplementary T documents reproduced material provided by the casino include a note (at p 4167) that Ms Applicant had at least four cards and that one of them was confiscated when it was found in the possession of another person trying to use the card to access the casino car-park.

20. There were other reasons why the records provided by the casino were potentially unreliable. A number of witnesses gave evidence that the betting at the tables could be hectic. I have already recounted Mr Applicant’s evidence in this regard. To similar effect, Ms Applicant explained she might be seated at the table after swiping her card so that chips she purchased would be recorded against her account; but she might also be placing bets on behalf of others, and she might purchase chips at one table and use them at another in circumstances where it would be difficult for the dealer or the supervisor (or the surveillance cameras) to keep track. Mr Eddy Lumley, another casino manager who gave evidence, confirmed the dealer could only record whatever he or she saw. When the table was very busy, the dealer and supervisor would only see so much: exhibit A5 at [41]; see also transcript at p 48.

21. I visited the casino during the course of the hearing in the company of the parties’ representatives. The view occurred in the middle of the afternoon, when the gaming tables were presumably less busy. Even in those circumstances, it was obvious how difficult it would be to police the use of the rewards card by every player or accurately monitor how the players were interacting with each other unless they were specifically targeted for surveillance.

22. The applicants also argued the records provided by the casino were not intended to generate the sort of information that the Commissioner purported to derive. They pointed to the evidence of Ms Long who explained in her statement (exhibit A4 at [8]) that the records:

    …are not intended to be a precise calculation of the amounts that patrons win or lose at the casino. Rather, the records are used to allow [the casino] to make decisions about various loyalty and rewards benefits. The main factor that is relevant in that regard is the player’s turnover. The amount cashed in or cashed out is not particularly relevant to making decisions about loyalty and rewards benefits.

23. Mr Lumley gave evidence to similar effect. He explained in his statement (exhibit A5 at [41]:

    The Records are not an accurate representation of how much a patron gambles at the casino.

24. Mr Lumley agreed the records focused on the turnover generated by a player. In those circumstances, he explained, “The win/loss is irrelevant”: transcript at p 50.

25. There is force to the applicants’ criticisms of the Commissioner’s reliance on the casino records. While the Commissioner notes the applicants have not disputed the methodology he used to conduct the analysis, they have pointed to reasons which suggest the underlying data is unreliable – so unreliable that the Commissioner’s conclusions about unexplained income are likely to be wrong. But therein lies the problem for the applicants. It is not enough for them to establish the Commissioner’s assessment is wrong. As I have already explained, the Commissioner is typically making a guess on the basis of incomplete and confusing data. The applicants must go further and establish what is the correct (or more nearly correct) assessment. While the Commissioner’s analysis of the casino data may be wrong, the applicants have no way of establishing the correct figures. On their own evidence, the gambling was hectic and regular. Ms Applicant in particular was routinely placing bets for other people and apparently having others place bets for her. (Mr Applicant also did that, although it not clear if he did so as regularly.) The applicants did not use their rewards cards consistently, and freely allowed others to use them. If the casino records were of less assistance to the Commissioner than he thought, they were of even less assistance to the applicants. I am left in a position where the Commissioner has identified a methodology he used to make an assessment that is – while flawed – literally as good a guess as any.

1. I have already addressed Mr Applicant’s evidence about the operation of the trawling business, the sale of product for cash, and his gambling. I indicated I was not satisfied he properly accounted for all of the cash sales, and that it was unclear what proportion (if any) of the proceeds of cash sales made it into the bank accounts. To be clear: I am satisfied both applicants had access through the partnership to an indeterminate amount of undeclared income generated through the sale of seafood during the years of income in question. Those findings on their own explain why the applicants cannot enjoy substantial success in their case.

2. Having said that, there was other evidence led at the hearing which needs to be considered because it impacts on the extent to which the individual assessments might be varied. Much of that evidence focuses on the conduct of Ms Applicant. A good deal of the evidence was directed to three activities said to explain the flows of money. The three activities were:

   ·the loan transactions (especially the undocumented loans that were the subject of oral evidence). The applicants say at least some of the cash flows showing up in the accounts were merely repayments of loans rather than assessable income. There were also loans to Ms Applicant which resulted in cash coming into the accounts, and loan advances from Ms Applicant to others which might appear to be expenditures. As I have already explained, the applicants’ task in this regard is complicated by the fact many of the loan transactions discussed in the evidence did not pass through the accounts: they were cash transactions;

   ·Ms Applicant’s participation in Hui. Ms Applicant claimed she was able to obtain significant amounts of cash from hui – so significant, in fact, that she was barred from participating in huis at one point because she was taking more out than she put in. Those cash flows were not assessable in Ms Applicant’s hands, she claimed; and

   ·the gambling activities.

   The loan transactions

3. I will begin by dealing with the incoming tide of money in the 2005-2006 years of income as debtors supposedly repaid advances that were made to them during earlier periods. I will then examine the claims made in relation to loans supposedly made to the applicants, and loans allegedly made to others and repaid during the years of income under review.[1]

   The loans the applicants say they made to others before 2004 and which they claim were repaid during the periods under review

   [1] I have not taken account of a $35,000 loan that the applicants supposedly made to a member of the Vietnamese community in 2002. That loan was referred to in exhibit A47 at [111]-117]. The loan was discharged when the applicants purchased a property from the borrower in late 2003 and the amount of the loan was set off against the purchase price. Given the transaction falls outside the period under review, I do not need to reach a conclusion about the veracity of the account.

4. I have already noted Mr Applicant won a jackpot in 2000. The applicants also clearly had access to cash from the fishing business (and perhaps from other sources) in the period before 2004.

5. The applicants say they made a number of loans prior to the period under review. The existence of the loans is relevant because some of the payments into the accounts in the years under review that were not otherwise explained were said to be repayments of those loans. Interest apart, repayments of amounts advanced would not usually be regarded as income.

6. The loans which are said to have yielded repayments are listed in a table in Mr May’s submissions on behalf of the applicants at [126]. I have reproduced the table below although I will redact the names of the individuals in the version of these reasons that is released publicly.

Loans to third parties from pre-FY05 funds – repayments received per FY	FY05	FY06	FY07
Debtor One	$100,000
Debtor Two	$100,000
Debtor Three	$50,000	$150,000
Debtor Four	$50,000
Debtor Five	$20,000
Debtor Six	$15,000	$15,000
Debtor Seven	$10,000
Debtor Eight	$10,000
Debtor Nine	$10,000
Debtor Ten	$5,000
Total	$15,000	$370,000	$150,000

1. Debtor One is Mr Applicant’s brother. He gave evidence at the hearing (transcript at pp 79 – 91) and provided a statement (exhibit A8). He explained he borrowed money from the applicants in several tranches. He received around $30,000 between 1990 and 1993, and a further $20,000 in 1998 to buy a car. He said he borrowed a further $50,000 in 2000 and 2001 to buy household items and a collection of bonsai trees. He said the applicants asked him in 2005 to repay the entire amount of the loans in 2006. He said he repaid $100,000 in 2006 using a combination of bank cheques and cash. Debtor One says he recalls there was one bank cheque but Ms Applicant recalled there might have been three or four when she gave evidence about the transactions: exhibit A47 at [33]. Mr Applicant’s evidence was broadly consistent with this account.

2. The loan advances to Debtor One were undocumented. Debtor One did not produce any bank statements of his own recording the deposit of the advances, or the repayments, or the purchase of the bank cheque. He did not receive a receipt from the applicants. He was shown his income tax returns for the years immediately preceding 2006 during cross-examination. The returns showed modest income which raises questions over how the witness would be able to repay the loan in 2006. He was unable to show any records of him selling the bonsai collection or other property to raise money for that purpose.

3. Debtor one was also asked about his discussions with Ms Applicant and Ms Daughter. Ms Daughter looms large in this case. She actively assisted her mother to liaise with witnesses who wrote statements and gave evidence. She acted as an interpreter for many of the witnesses and provided assistance to them when they prepared statements. She was not a disinterested interlocutor.

4. Debtor One, who required an interpreter because he did not speak English, was asked about what Ms Applicant and Ms Daughter had said to him, and who had prepared the statement he signed: transcript p 83. Debtor One’s responses to these questions were evasive. While Dr Schulte did not affirmatively establish Debtor One had colluded with Ms Applicant and Ms Daughter in relation to his evidence, the story Debtor One told about the loan and the circumstances of repayment is not persuasive. I do not doubt Debtor One might have benefitted from his brother’s largesse over time. I have no reason to doubt Mr Applicant might have felt a sense of obligation to his brother given Debtor One apparently took responsibility for caring for their mother (although it is unclear why Mr Applicant would have cleared such a debt of obligation simply by loaning money to his brother, as opposed to gifting the funds): transcript at p 422. I also acknowledge the largesse might have been dispensed to Debtor One in small amounts over time, and that the advances he received – if that is what they truly were – occurred a long time ago. Those things must be kept in mind when assessing his evidence. But questions have legitimately been raised about the reliability of Debtor One’s evidence in light of his family connection and discussions with Ms Applicant and Ms Daughter, and in light of his limited means of repaying the amount out of his resources. The applicants said I should accept Debtor One’s uncertain, uncorroborated recollection as a convenient explanation for a significant payment. I am not satisfied I should do that given the proximity of his relationship with the applicants. There is insufficient evidence of a loan advanced or repaid, even allowing for the passage of time and the familial nature of the relationship. While I accept some money may have changed hands between siblings, Debtor One’s evidence about the existence of a debt and its repayment is unpersuasive. It follows the applicants have not discharged their burden of proof in relation to any monies attributed to Debtor One.

5. Debtor Two in Mr May’s table is a couple. The male is Ms Applicant’s brother (Mr AB) and the female is Ms Applicant’s sister-in-law (Ms SL). The applicants say they loaned Debtor Two $30,000 in 1993 and a further $70,000 in late 2000 or early 2001. There is no loan documentation in relation to these advances, no record of either advance being made at the time, and no bank statements clearly showing deposits in those amounts. Mr AB agreed in cross-examination that there was never any discussion of a term of the loan nor was there any expectation of interest being paid: transcript pp 161-163. The Commissioner says that if monies were provided to Debtor Two, there is no reason to suppose they were advanced by way of loan. In any event, Ms Applicant says that in late 2005 she asked for repayment of the total amount. A total of $100,000 was repaid in January 2006, I was told.

6. The evidence in relation to the 2006 repayment is inconsistent. Debtor Two (that is, the two individuals) provided information to the Commissioner in response to a notice issued under the former s 264 of the ITAA36 suggesting the money was repaid using a bank cheque in favour of the applicant in the amount of $70,000. In a later statement (exhibit A16 at [11]), Ms SL says she recalled repaying the balance by giving Ms Applicant $30,000 in cash and $70,000 in bank cheques. It seems the money to repay the advance was sourced from Debtor Two’s savings, from a payment made by another individual to whom Debtor Two had on-loaned some of the money that was originally advanced by the applicants, and from business and personal loans. There is no evidence from the other individual who had borrowed money from Debtor Two confirming that the money advanced to her was loaned or repaid. Mr AB also confirmed in cross-examination that he had declared a loss in the 2005 year of income on his tax returns and reported nil assessable income the following year: transcript pp 163 – 164. This raises a question over how he was able to afford the repayments he claims to have made in early 2006. Ms SL did not work but claims to have made a small amount of money baking cakes and baby-sitting. It is unclear in those circumstances what she could have added. Mr AB’s taxable income in the preceding financial years was positive, although it is surprising he would borrow when making money and subsequently embrace an hitherto unmentioned obligation to repay when he was in more straitened circumstances.

7. Ms Applicant says Debtor Two provided a number of bank cheques totalling $70,000 and a further $30,000 in cash that was converted into a bank cheque that was subsequently paid to the applicants’ solicitor, apparently in connection with a property purchase: exhibit A47 at [43].

8. All this occurred a long time ago, and there were essentially no records of the original advance and limited evidence of the repayment. It would not be surprising if the recollections of different witnesses diverge on minor details. The Commissioner expressly criticised the statements provided by Mr AB and Ms SL on the basis that they faithfully repeated the evidence given by Ms Applicant in relation to the transaction. Dr Schulte, for the Commissioner, points out Ms SL and Mr AB were less certain about their evidence when cross-examined. Dr Schulte suggested the statements had been prepared in conjunction with Ms Applicant and Ms Daughter. Dr Schulte said the statements were unreliable because they did not suggest an independent recollection of events, which would explain the confusion in the oral evidence. Mr AB, for his part, was evasive when asked about the circumstances in which he came to sign his statement. He said his wife and daughter arranged the statements and his purpose in signing the statements was to (belatedly) confirm and document the obligation to repay the applicants. He initially refused to confirm he knew the applicants were in a dispute with the Australian Taxation Office. He implausibly insisted his statement was simply an exercise in setting the record straight after the event. His story began to crumble when he was reminded during cross-examination that he had received a notice issued under s 264 of the ITAA36 and was pressed on what his wife and daughter had told him.

9. Mr AB’s evidence on behalf of Debtor Two was unconvincing. His evasive responses to questions about whether he was aware of a taxation dispute when he made his original statement raised questions over his credit. His claim that he made the statement to simply document a loan that had been repaid years before was not credible. The evidence from both Mr AB and Ms SL gave the impression of being motivated by a desire to assist Ms Applicant in particular. I am not persuaded by their evidence.

10. That finding has important implications for the treatment of the monies supposedly repaid by Debtor Two. After analysing the various bank records available in relation to Debtor Two, the Commissioner conceded (Respondent’s closing submissions at [207]) Debtor Two paid a total of $50,000 to the applicants. But the Commissioner insists I should not automatically accept any payment was inevitably a repayment of a loan advance. Dr Schulte said there was no evidence of monies being advanced to Debtor Two that included an obligation of repayment.

11. Financial dealings between siblings are not always carried on with the level of formality and clarity that one expects in financial relationships between more distant acquaintances and business associates. Family members sometimes give money to each other precisely because they are family; while there may not be a formal obligation to repay the money being advanced, there may be a familial expectation that the favour will be returned at some point, especially if family circumstances change. If Debtor Two had decided to gift the money to the applicants, that would suggest the money did not have the character of income in the applicants’ hands (although there would still be some doubt over how Debtor Two raised the money that was repaid). A finding to that effect might help the applicants’ case because it would provide an explanation for the immediate source of the money. But that is not how the financial relationship was explained. The applicants (and Debtor Two) insisted there was every expectation that the money would be repaid when it was advanced: in other words, that it was a loan. That explanation does not sit comfortably with the other evidence. Debtor Two behaved as if the money paid to them over the years was their own money which they were free to use as they saw fit – for example, by loaning the money to another acquaintance rather than applying it for an identified purpose that would provide a basis for securing repayment. That is not how one ordinarily behaves with borrowed money.

12. Given my findings about the credit of the witnesses who were party to these transactions, and my uncertainty over how the money supposedly (re)paid by them should be treated, I am not satisfied the applicants have discharged their burden of proof with respect to any amounts attributed to Debtor Two.

13. Debtor Three is a married couple whom I will refer to as Mr and Mrs Farmer. They are members of the Vietnamese community in Brisbane who are not otherwise related to the applicants. I was told Mr and Mrs Farmer came into contact with the applicants in 2001 when the two couples were planning a joint farming venture. The applicants say they contributed $50,000 towards that venture which was used to purchase farming equipment before they decided they would not participate in the venture – but they did not thereafter recover the money or liquidate the assets that were acquired. Mrs Farmer’s statement (exhibit A3) said it was agreed the $50,000 investment would be treated as a loan to Mr and Mrs Farmer: exhibit A3 at [8]. Mr and Mrs Farmer were favoured with a further advance of $100,000 in 2001 which was to be used as working capital to fund the acquisition of plant and equipment, fertiliser, chemicals and seeds: exhibit A3 at [6]-[9]. Ms Applicant says both advances were made out of cash left over from the jackpot winnings: exhibit A47 at [95] and [98]. Ms Applicant said she trusted Mr and Mrs Farmer because they were friends and Buddhists. There was no term agreed: Mr and Ms Applicant say the applicants told the Farmers they could repay the money when they were able to do so: exhibit A47 at [97].

14. Surprisingly, the applicants and the Farmers’ did not produce any evidence of equipment being purchased using the money that was advanced. There is no record of the money being received or used in the course of the farming business that was ultimately carried on by a company controlled by the Farmers.

15. Mr and Mrs Farmer said the applicants approached them in or around late 2005 and asked for the money to be repaid: exhibit A3 at [11]. The Farmers said they could not repay the money immediately but they say they managed to repay the entire amount together with an amount in respect of interest in two instalments during 2006.

16. The Commissioner concedes there is evidence that the Farmers purchased two Commonwealth Bank (CBA) bank cheques in the amount of $25,000, and that both cheques were deposited into the applicants’ accounts on 17 or 18 January 2006. There is some uncertainty over the date of the deposit because there was another Westpac bank cheque apparently purchased by the Farmers and deposited into the applicants’ accounts at around the same time. Neither the Farmers nor the applicants have adequately explained that further payment. The Commissioner accepts that two further bank cheques totalling $100,000 were purchased by the Farmers in November 2006 and that the funds were received by the applicants – although the Commissioner does not accept the funds were banked. In any event, the Commissioner says that while I may be satisfied the monies in question came from the Farmers, I should not be satisfied they were intended as repayment of a loan.

17. The applicants pointed me to evidence of a loan facility and advance provided by the National Australia Bank to the Farmers that is consistent with the Farmers’ claim that they refinanced in order to repay the loan to the applicants. That is so, but that evidence is also consistent with a decision to pay the applicants for some other reason. There is another curiosity worth noting, if only because the Commissioner sought to make something of it. The November payments to the applicants have been debited against what appears to be the trading account of a company controlled by the Farmers. I was invited to infer the Farmers could not have regarded themselves as being obliged to repay a loan made to them personally if they purported to discharge that obligation with company money. I am not sure that inevitably follows but in any event I did not form the impression that the Farmers were attuned to the niceties of corporate law to the extent they would have appreciated it was inappropriate to pay personal obligations out of company funds was inappropriate.

18. Mrs Farmer also claimed in her statement (exhibit A3 at [16]-[18]) that $6000 interest was paid on the loan in 2005, and $12,000 in 2006. The payment of interest had not been mentioned in an earlier statement or in response to the notice issued under s 264 of the ITAA36,[2] so it is difficult to know what to make of the sudden recollection of interest payments in odd amounts that do not appear to correspond to the amounts outstanding at any given time. That they should be mentioned late in the day does the Farmers no credit.

    [2] The repealed section required the recipient of the notice to require information provided under this section to be given on oath or affirmation and either verbally or in writing.

1. On each visit to the casino, Creditor Twenty-four explained, she would take “just a few thousand and sometimes when I run out I’ll go back home and get more”: transcript at p 276. Her answers in cross-examination confirmed she kept the monies she won at home in cash – although some of the money was also lent to friends. Her evidence suggests she was part of the same fraternity described by Creditor Twenty-three. She must have been a very successful gambler if she could afford to continue gambling regularly and lend relatively large amounts of money to friends, including Ms Applicant.

2. Creditor Twenty-four said she expected to be repaid the amounts that were advanced. Indeed, she said she prepared the first of the statements that was subsequently tendered by the applicants in order to make a (belated) record of the debt she claims she was owed. Interestingly, she said she had not prepared the first statement in particular in connection with the applicants’ taxation dispute. She claimed her niece had advised that the document would serve as proof of the debt if she were to commence legal proceedings against Ms Applicant to recover the monies: transcript at p 284. I note the statement is addressed to “Whom It May Concern” for reasons that were not clearly explained, and it does not identify Ms Applicant by name. Even allowing for the cultural differences and the fact Creditor Twenty-four was supposedly being advised by her unqualified 20-year-old niece, that is an implausible explanation. She ultimately agreed a later version of the statement was supplied to the Australian Taxation Office but she insisted she had not discussed what she wrote with Ms Applicant or Ms Daughter.

3. I am troubled by the absence of contemporaneous records in relation to the alleged advances. Creditor Twenty-four’s claim that she subsequently produced a statement for the purposes of creating a record is implausible in the circumstances, and tends to call the whole story into question. The account of her gambling habits and her loans during 2010 and 2011 is also implausible given the questions over her limited means, even allowing for the jackpot she received in 2009. I do not doubt that Creditor Twenty-four gambled alongside Ms Applicant at the casino on a regular basis and that monies may well have changed hands, but – to the extent those financial transactions occurred – I am not satisfied they should be characterised as loans in the relevant years of income.

4. The next transaction involves Creditor Twenty-five, who is discussed at [322]-[328] of the applicants’ submissions. This individual claimed she loaned Ms Applicant a total of $52,000 between September 2011 and October 2012: statement of Creditor Twenty-five, exhibit A23 at [3]. I understand that only $37,000 of that amount was advanced during the period under review. I was told the money has not been repaid.

5. Creditor Twenty-five was receiving Centrelink benefits at the relevant time, and she was only working casually at a juice bar. She was also a single mother of two children. She said she had saved the money over the course of nearly two decades before most of it was loaned, in cash, to Ms Applicant. She added in cross-examination that her boyfriend occasionally gave her some of his casino winnings in amounts between $1,000-5,000: transcript at p 249. Creditor Twenty-five knew Ms Applicant through Creditor Twenty-five’s mother. Creditor Twenty-five explained Ms Applicant was a prominent member of the community and regarded as a person of means – which rather calls into question why Ms Applicant would need a loan from a single parent of two children who subsisted on a pension. Creditor Twenty-five’s mother supposedly advised her to hold off approaching Ms Applicant about recovering the debt given Ms Applicant’s financial difficulties.

6. The story, if true, is very sad. But aspects of the story do not ring true. Creditor Twenty-five regularly attended the casino and gambled in relatively large amounts for a person of such modest means. She said she would bet a hundred dollars or more on a hand at the baccarat tables or ‘ride the machines’. She said in cross-examination that she would limit herself to $1,000 in losses on each occasion. She added she won up to $3,000-4,000 on occasions, and she indicated that, over time, she won more than she lost: transcript at p 250. It seems unlikely that a person of such modest means could gamble with apparent success on that scale. The evidence about her boyfriend sharing his winnings of up to $5,000 adds texture to the story of how she might have accumulated the savings – but he was not called to give evidence or explain his gambling activities or financial relationship with Creditor Twenty-five. The suggestion that Creditor Twenty-five would hand over her life savings in these circumstances is also inherently unlikely.

7. The loan was not documented and there is no record of monies being paid or received. There was a vague suggestion from Ms Applicant (exhibit A47 at [363]) and Creditor Twenty-five (exhibit A23 at [11]) that the loan would attract interest. There is no evidence of interest ever being paid. There is no evidence as to the term of the loan either, and Creditor Twenty-five has never demanded repayment. Indeed, as Dr Schulte pointed out, there is no contemporaneous record of Creditor Twenty-five and Ms Applicant agreeing that the money would in fact be repaid at any point.

8. I do not doubt that Creditor Twenty-five and Ms Applicant had some sort of financial relationship – perhaps one that centred around the casino – but I am not satisfied the applicants have established the relationship was that of debtor-creditor.

9. That brings me to Creditor Twenty-six, who is discussed at [329]-[331] of the applicants’ written submissions. The applicants say they were unable to locate this individual after he provided a statement (reproduced in exhibit one, T-documents of Ms Applicant at p 853). He was not available to give evidence at the hearing.

10. Creditor Twenty-six said in his statement that he loaned $35,000 to Ms Applicant in June 2012. He said he loaned a further $27,000 to Ms Applicant in July 2012, but that amount is irrelevant for present purposes as it falls outside the period under review. In a by-now-familiar account, Ms Applicant stated she was provided the monies in a series of smaller cash advances over several weeks: exhibit A47 at [355]. She says she used the money to gamble (exhibit A47 at [356]-[357]) and it has not been repaid.

11. There is no contemporaneous record of the monies being advanced or received and no loan documentation. The statement offers only a vague guide to the terms, including that Ms Applicant was to pay interest on the loan, but that she has not done so: exhibit A47 at [358].

12. Not surprisingly, the Commissioner says I should not give the statement of Creditor Twenty-six any weight in circumstances where that individual was not made available for cross-examination. The applicants say he simply could not be located: transcript at p 452. That is a problem. In a case like this, it is critical that I have the opportunity to assess the credit of witnesses – especially in circumstances where the applicants themselves turn out to be poor witnesses and there are few, if any, contemporaneous documents. Given the close involvement of Ms Applicant (and perhaps her daughter) in the preparation of statements made by other witnesses, it would be unsafe to accord this statement any weight without more information about its provenance. In all the circumstances, I am satisfied the applicants have not established there was a debtor-creditor relationship between Ms Applicant and Creditor Twenty-six.

13. Creditor Twenty-seven also provided a statement (see exhibit one, T-documents of Ms Applicant at p 842) detailing two loan advances but – like Creditor Twenty-six – he was not called to give evidence at the hearing. His situation is discussed in the applicants’ submissions at [332]-[336].

14. In his statement provided to the Commissioner at the objection stage, Creditor Twenty-seven said he was a banker of a hui which commenced on 1 August 2010. Ms Applicant participated in that hui. She withdrew $15,650 on 24 August 2011 (but paid Creditor Twenty-seven $100 immediately) and a further $16,305 on 28 August 2011 (paying Creditor Twenty-seven a further $100 again on this date). Ms Applicant confirmed this evidence in her own statement: exhibit A47 at [317]-[319]. She agreed she owed an amount of $31,755 to Creditor Twenty-seven given she stopped making regular contributions to the hui after that time: exhibit A47 at [318]-[320].

15. The applicants knew the Commissioner wanted to cross-examine Creditor Twenty-seven in relation to his statement. Ms Applicant agreed she had approached Creditor Twenty-seven about providing evidence at the hearing but “his wife wasn’t very happy about it so I stopped going to him”: transcript at p 453. That is a weak explanation, although the applicants say I should not draw a Jones v Dunkel inference that the evidence was unlikely to assist their case.[3] Even if I do not go that far, there is not much to be said for this evidence. As I have already explained, I have real difficulty giving any weight to evidence provided by a witness without the opportunity to assess the credit of that individual. Credit is critical in a case like this. There are no contemporaneous documents (apart from a scrap of paper in relation to the hui which was annexed to the witness’s statement) and there are questions over the similarity between that statement and the evidence provided by Ms Applicant. Given that finding, I cannot be satisfied the applicants have established the payments attributed to the relationship with Creditor Twenty-seven should be treated as loans in any of the relevant years of income.

    [3] Jones v Dunkel (1959) 101 CLR 298 at 320 per Windeyer J.

16. A familiar name appears in a new guise in the applicants’ submissions at [337]-340. Debtor Four (who is introduced at paragraph 102 above as a borrower in 2006), supposedly became a creditor of the applicants in the 2011 financial year. The debt to Debtor Four supposedly arose like this: Ms Applicant participated in a hui which was conducted by Debtor Four. Ms Applicant withdrew $30,000 from the hui in March 2011 and thereafter ceased making contributions. Debtor Four, the banker, was required to make good on Ms Applicant’s obligations – and thus became a creditor. Debtor Four explained all this in her various statements: exhibit A11 and exhibit one, T-documents of Ms Applicant at p 854. Ms Applicant, for her part, confirmed in her statement (exhibit A47 at [230]-[234]) that she used the money for gambling. The outstanding debt was supposedly repaid in 2014 out of the proceeds of sale from one of the applicants’ properties, outside the period under review.

17. The Commissioner acknowledged there was evidence of Ms Applicant participating in the hui in question and that there was an obligation to make the contributions as required. But there is no documentary evidence of the withdrawal occurring, or of Debtor Four making contributions in lieu of Ms Applicant. The absence of contemporaneous evidence is particularly troubling in circumstances where there are question marks over Debtor Four’s financial capacity to make the contributions she claims she made. She reported a loss in 2010 and a nil income in her 2011 returns (transcript at p 135) – although I note the Commissioner has now lodged amended assessments that suggest Debtor Four made very significant amounts of money during those years: closing submissions of the Commissioner at [1114]. If the Commissioner’s amended assessments are right, the concerns about her financial capacity to incur debts might be alleviated – but there might be fresh reasons to doubt her credit.

18. I am not satisfied the applicants have established the loan to Debtor Four in the 2011 year of income was incurred as described. That amount should not be excluded from assessable income in that period.

19. The next individual referred to in the applicants’ written submissions (at [341]-[358) is Creditor Twenty-eight. Creditor Twenty-eight gave evidence that she loaned Ms Applicant up to $30,000 over the period 2011 through 2013. The loan was comprised of numerous small cash advances, and the advances were all given at the casino: exhibit A26 at [5]-[7]. Creditor Twenty-eight recalled there were some repayments made but she did not keep any written records of the advances or repayments and there was no written loan agreement. When pressed during cross-examination, Creditor Twenty-eight was unsure how much of the money was loaned during 2013, and therefore after the years of income in question. She suggested about half of the total was advanced in 2013: transcript at p 265.

20. Ms Applicant had a different recollection of the timing of the advances. In her statement (exhibit A47 at [339]-[345]), she recalled the advances being made in small amounts throughout the 2011 and 2012 years of income. She lost the money gambling. She said Creditor Twenty-eight reminded her of how much was owed every time an advance was made: exhibit A47 at [343]. Should I accept that evidence, an obvious question arises: if Ms Applicant had to be reminded of how much she had borrowed, why should I give any weight to her evidence as to the timing of the advances in question?

21. Creditor Twenty-eight’s explanation of the circumstances in which she came to prepare the first statement dated 21 May 2014 is eerily reminiscent of the evidence given by Creditor Twenty-four: exhibit one, T-documents of Ms Applicant at p 851.  Creditor Twenty-eight suggested the decision to prepare the statement was a spontaneous attempt to document the loans after the fact. The document was apparently intended for use in debt recovery proceedings against Ms Applicant. Creditor Twenty-eight chose to address the statement to “Whom It May Concern” as part of a bluff, she explained: she wanted Ms Daughter in particular to think Creditor Twenty-eight was serious about suing Ms Applicant if the money was not paid back: transcript at pp 269-279.

22. The suggestion that Creditor Twenty-eight spontaneously decided to prepare the first statement in order to record the debt and threaten the applicants is not especially convincing. But there was worse to come. Creditor Twenty-eight admitted during cross examination that she knew of the taxation dispute ongoing between Ms Applicant and the Commissioner. She agreed (transcript at p 267) that repayment of the loan might depend on Ms Applicant succeeding in that dispute. She denied she spoke to Ms Daughter about the contents of her second statement dated 23 December 2014 but she accepted she subsequently spoke to Ms Daughter before preparing a third statement dated 20 January 2017. She agreed Ms Daughter assisted with some of the details that were included in the statement.

23. There are some inconsistencies between her various statements which raise further concerns. For example, her reply to the s 264 notice on 23 December 2014 makes clear that Creditor twenty-eight and Ms Applicant often loaned money to each other: the relationship between the two of them was, in effect, a two-way street as they would “help each other” when they were gambling: exhibit one, T-documents of Ms Applicant at p 967. In her last statement (exhibit A26), she expressly denied that she ever borrowed money from Ms Applicant (at [10]).

24. Creditor Twenty-eight’s evidence is problematic because of its inconsistency. But there are questions over whether she had the capacity to provide financial accommodation to Ms Applicant at the relevant time in any event. I was referred to Creditor Twenty-eight’s tax returns which showed she reported only modest income in 2011 and 2012. Given that evidence, and given the lack of any records of the advances being made, I am not satisfied the applicants have established the payments attributed to a loan transaction with Creditor Twenty-eight (or any part of that alleged debt) should be excluded from assessable income. While I accept there may have been financial transactions involving the applicant and Creditor Twenty-eight, I am not satisfied those transactions were loan transactions as the applicants contend.

25. The next individual is Creditor Twenty-nine, who is mentioned in the applicants’ written submissions at [347]-[355]. This individual claimed she loaned $30,000 to Ms Applicant in February 2010. She is the ex-wife of another person who claimed he loaned $10,000 to Ms Applicant in October 2011. I should say at once that the Commissioner accepted the ex-husband was a witness of credit, and conceded that a loan was made as he claimed: submissions at [1339]-[1341]. I note that individual explained he made a loan to Ms Applicant out of a sense of obligation in circumstances where he and his wife could not afford to make the loan. He said Ms Applicant had provided valuable assistance to him and his wife when they first moved to Brisbane, and he felt indebted. As he said during cross-examination (transcript at p 189):

    I know I was in a difficult situation, however people have helped me in the past and I cannot refuse to return the favour. As a person, one has to remember a favour that others have made.

26. I have no reason to doubt the Commissioner’s concession in relation to the husband of Creditor Twenty-nine, and I accept it. The amount of $10,000 loaned by the husband of Creditor Twenty-nine should not be included in the assessable income in the year ending 30 June 2012.

27. The story told by Creditor Twenty-nine about her loan is somewhat more complicated. There is evidence in the form of bank cheque records which show a $30,000 payment being made out of the proceeds of a house sale. The documents produced to the Commissioner include written instructions to the solicitor handling the house sale to make the payment to Ms Applicant. There are also bank records provided by the applicants showing the deposit of a bank cheque in the amount of $30,000 at the relevant time: exhibit one, T-documents of Mr Applicant at p 79. So far, so good. The complication arises in the explanation provided by Creditor Twenty-nine about her motivation for agreeing to make a loan, and – especially – the degree of secrecy which attended the transaction. Creditor Twenty-nine went to some lengths to conceal the fact of the loan from her then husband. She explained in cross-examination that she did not want her husband to find out about the loan because he would be upset, even though (as I have already acknowledged) the husband subsequently agreed to advance a loan to Ms Applicant. When pressed, Creditor twenty-nine claimed that her marriage collapsed because her husband became aware of the loan and was, in fact, upset it had been kept secret from him: transcript at p 195.

28. The written submissions for the applicants suggest I should not read too much into the vagaries of the relationship between Creditor Twenty-nine and her then husband. While I am perplexed by aspects of the story, it is not inherently unlikely. I am prepared to accept a loan advance was made and that it has not been repaid. That amount should not be included in assessable income in the year of income ending 30 June 2010.

29. I turn next to Creditor Thirty, who is referred to in the applicants’ written submissions at [356]-[366]. Creditor Thirty says he loaned a total of $30,000 to Ms Applicant in February 2009. In his statement (exhibit A21 at [3]-[5]), he recalled specifically the loan was comprised of two advances of $15,000 in cash made over the course of several weeks. Ms Applicant, for her part, recalled the loan was comprised of smaller advances made over that period: exhibit A47 at [199]-[205]. There is no record available of money being advanced or received at the time, and there is no written loan agreement in evidence. Creditor Thirty said he has repeatedly asked for repayment of the outstanding amount. Ms Applicant has promised to pay once she sells a property, he said: exhibit A21 at [15].

1. Creditor Thirty says he had cash available at the time of the loan as a result of the settlement of a claim for personal injuries that arose out of a motor vehicle accident. The accident occurred in July 2006 and impacted on his ability to work. He produced some correspondence from his solicitors in the proceedings which ensued. The correspondence included a costs agreement. He says the settlement payout in the amount of $180,000 occurred in 2008: exhibit A21 at [5]; see also transcript at p 231. He does not have any records of receiving that payout. He says the bank account was closed some time ago and he has lost the bank statements and other documents from the solicitor that recorded the settlement agreement. He says he was unable to receive social security benefits after the settlement until 2011 or 2012 even though he could not work. That evidence is consistent with the imposition of a preclusion period under the Social Security Act 1991.

2. While the evidence in relation to the settlement is incomplete, it has the ring of truth. I am satisfied Creditor Thirty was involved in a personal injuries’ claim. The payment of a lump sum settlement in 2008 following an accident in 2006 was a plausible outcome of those proceedings. The fact a preclusion period appears to have been imposed on the applicant under the Social Security Act is certainly consistent with the parties to those proceedings agreeing to a lump sum settlement.  It is unsurprising that Creditor Thirty has not retained records of the settlement after all this time. I am not prepared to make a finding of how much money Creditor Thirty received in the bank: while I accept there was a settlement for a headline figure of $180,000, it is not clear whether the whole of that amount would have been paid over to Creditor Thirty after costs and other charges were excluded. But I accept he received a cash settlement that would mean he had funds in the bank.

3. It is surprising – at least at first glance – that Creditor Thirty would loan some of the money he received to Ms Applicant. He was unable to work at the time and did not have access to social security benefits because of the preclusion period. The settlement money was supposed to last. Yet he would not be the first recipient of a lump sum settlement who expended the money unwisely. The Tribunal deals regularly with recipients of lump sum settlements who ask that the preclusion period be shortened after the money runs out.

4. Creditor Thirty explained he felt indebted to Ms Applicant. She was a prominent member of the Vietnamese community. He said she had assisted him when he first arrived in Australia, and he felt an obligation to assist when she came calling: transcript at 225. Given he presented as a relatively unsophisticated individual, it is not inherently unlikely that he would, in all the circumstances, go along with her request in the confident expectation he would be repaid.

5. Ms Daughter appears to have played a role in the preparation of two (if not three) of Creditor Thirty’s statements. During cross-examination, Creditor Thirty described the assistance he received: transcript at pp 229-230. While he downplayed that assistance – and specifically denied Ms Daughter had assisted him in preparing the second statement – the actual level of assistance provided is unclear. Having said that, I have no reason to doubt his claim that money was available and that he gave some of it to Ms Applicant. There is some confusion about when and how the amounts were advanced, but that is not necessarily decisive for present purposes.

6. It is less clear how the payment (or payments) in February 2009 should be characterised. Dr Schulte, for the Commissioner, argued there is no specific evidence that the parties to the transaction agreed at the time of the advance that it would be repaid. A contemporaneous agreement to repay is one of the hallmarks of a loan. The absence of a written agreement which articulates the terms of the arrangement gives me pause before to making a finding on that issue. I acknowledge there is no clear evidence of the parties agreeing at the time of the advance that the money would be repaid, but Creditor Thirty insists he has asked about repayment on numerous occasions. That evidence is consistent with there being a contemporaneous obligation to repay.

7. Ms Applicant said in her statement (exhibit A47 at [201]) that she approached Creditor Thirty after she heard he had received a lump sum settlement that gave him access to cash. That evidence is certainly consistent with her track record of opportunistic behaviour.

8. On balance, I am persuaded by the evidence of Creditor Thirty. He struck me as an essentially reliable witness, albeit that the detail of his evidence might have been influenced by Ms Daughter. I am satisfied he extended a loan of $30,000 to Ms Applicant in February 2009, and that the loan was not repaid during the period under review. The loan monies should be reflected in the assessment for the relevant period.

9. Debtor Ten makes another appearance at this point – but this time, as a creditor. Her situation is discussed at [367]-[370] of the applicants’ submissions. Debtor Ten was another member of the gambling fraternity that allegedly loaned each other amounts of cash at the casino. She says she loaned Ms Applicant a total of $20,000 during the course of 2011. In her statement included in exhibit one, T-documents of Ms Applicant p 852, she suggested she had advanced $12,000 by early 2011 and then advanced a further $8,000 in August 2011 – which means the payments, if made, are potentially relevant in two different years of income. There are no records of the advances being made or received or any documentary evidence of an understanding between Debtor Ten and Ms Applicant.

10. Debtor Ten’s evidence is, at this point in my reasons, wearily familiar. She said she and Ms Applicant would gamble together. (Interestingly, she agreed in her response to the s 264 notice that she attended the casino regularly but she downplayed the regularity of her attendance in the course of her evidence-in-chief: transcript at p 129.) The pair would lend each other money as needed: exhibit A13 at [32]. If Ms Applicant was having a bad night at the tables, Debtor Ten would lend a small amount so Ms Applicant could continue gambling. Ms Applicant would repay the favour if Debtor Ten was losing. The advances were usually repaid the next day or shortly after. Ms Applicant lost more than she won over time and the amount she received from Debtor Ten (amongst others) began to increase. That evidence is consistent with Ms Applicant’s account, which paints a picture of a problem gambler.

11. Dr Schulte suggested the consistency of the accounts was no accident. He asked Debtor Ten during cross-examination about the assistance Ms Daughter had provided as Debtor Ten prepared her statements. Debtor Ten agreed Ms Daughter in particular assisted with the content and said Ms Daughter actually drafted at least one of the statements: transcript at pp 131-132.

12. I am inclined to approach Debtor Ten’s evidence with caution given that question-mark, but the evidence of Ms Daughter’s involvement does not inevitably mean Debtor Ten’s statements are incredible. But there are other difficulties with the account. Dr Schulte asked Debtor Ten about her financial capacity to make loans and gamble at the relevant time. In particular, Dr Schulte asked her about documents she supplied in connection with a home loan application. The loan required her to make large repayments even though she was not earning any income at the relevant time. (I note she did not file tax returns in a number of the years of income because it was not required and she returned no income in the 2008 and 2011 years of income). I have already discussed some of that evidence in my earlier discussion of Debtor Ten’s claim she borrowed an amount from the applicants. I doubted Debtor Ten’s financial capacity to repay a loan earlier in the period under review. There is even less reason to be confident Debtor Ten had the financial means to be loaning relatively large amounts in cash to Ms Applicant in 2011.

13. I accept monies may have passed between Ms Applicant and Debtor Ten while they were gambling. I am not persuaded on the evidence before me that the relationship was that of debtor and creditor. I do not accept the amount of $20,000 (or any part of that amount) purportedly loaned by Debtor Ten during 2011 should be excluded from assessable income during either the 2011 or 2012 years of income.

14. The person I shall refer to as Creditor Thirty-one is discussed at [371]-[373] of the applicants’ written submissions. She provided a written statement dated 20 January 2017 in connection with these proceedings. She also provided a statement at the time of objection that is reproduced in exhibit one (T-documents of Ms Applicant at p 848) and a response to a s 264 notice (exhibit one, T-documents of Ms Applicant at p 997). She was not available for cross-examination because I was told she was in Vietnam, caring for her sick mother.

15. Creditor Thirty-one claims she loaned Ms Applicant a total of $15,000 in in March 2012. The loan was supposedly comprised of an $8,000 advance made just before Creditor Thirty-one’s birthday, and several smaller amounts totalling $7,000 paid in cash over the next few weeks: statement of 20 January 2017 at [5]-[6]. The advances were made in cash and Ms Applicant said she used the funds to gamble. Interestingly, Creditor Thirty-one said in her statement that she knew Ms Applicant would gamble the money, yet she made the loan anyway. She said she understood Ms Applicant to be a person of means with access to property and other resources: at [8]-[9].

16. I have already explained there is a difficulty in dealing with statements provided by witnesses who are not made available for cross-examination in a case which turns on credit. I accept for the purposes of the argument that Creditor Thirty-one has a legitimate reason for not being made available, and that her absence should not be held against the applicants in a Jones v Dunkel sense. But whatever the reason for her absence, I am still left with the difficulty of knowing what to make of the evidence in circumstances where there are questions over the way in which the evidence was prepared (eg, did Ms Applicant and Ms Daughter provide any assistance to Creditor Thirty-one, and if so how much?). The absence of any contemporaneous records of the cash being paid or received or any other record of the agreement between Ms Applicant and Creditor Thirty-one just makes the job harder. In all the circumstances, I am not satisfied the applicants have discharged their onus of proving Creditor Thirty-one advanced a loan of $15,000 in the 2012 financial year.

    Other sources of income

17. Before I address the question of penalties, I should deal with evidence in relation to two other matters. The first of these was Ms Applicant’s claim that she sold $85,000 worth of jewellery between 11 November 2011 – the date she won a significant jackpot – and 30 June 2012. She says some of the jewellery she sold had been given to her by her mother-in-law. Ms Applicant said she sold one of those items, a ring, for $30,000: A47 at [368]. There is no record of the sale. Some of the jewellery was from a jewellery store Ms Applicant owned at the time. Ms Applicant explained she had acquired stones and set them into various items which she then sold: at [369]. None of those sales was recorded and there was no evidence from buyers or evidence about the value of the items or the sale price of individual items apart from the mother-in-law’s ring.

18. It is not hard to imagine a person hocking their jewellery to fund a gambling problem. To that extent, the story is not inherently unlikely. But Ms Applicant’s account of the circumstances in which she made the sales does not have the ring of truth. At [370] of her statement, she said she would sell the jewellery at the casino whenever she needed cash. She said it was common for ladies to wear jewellery they wished to sell at the casino; Ms Applicant claimed she would approach other gamblers to ask whether they wanted to buy items from her. Indeed, she claims she was able to make sales because she had a reputation for selling good quality jewellery on the floor of the casino.

19. Mr May, in written submissions, said Ms Applicant’s evidence was not challenged, and should therefore be accepted. I disagree. I have made clear that I do not regard the applicant as a reliable witness. I need more than her assertion in the statement that she sold jewellery totalling $85,000 in the 2012 year of income. She may have sold some jewellery, but I would need more information before I could accept that figure. But I am not inclined to accept Ms Applicant’s story about the sale of jewellery in any event. It strikes me as inherently unlikely that individuals would be routinely trading in jewellery on the floor of the casino. If that were a common practice, I would expect to have been provided with additional evidence that properly corroborated Ms Applicant’s account.  

20. In those circumstances, I am not satisfied the applicants have discharged their burden of proof in relation to the monies they argued were the proceeds of jewellery sales. Those monies should not be disregarded for the purposes of calculating assessable income.

21. I turn next to the monies the applicants identified as rental income, and deductions claimed in respect of the rental properties. As it happens, there was limited evidence about these amounts presented at the hearing. Ms Applicant mentioned the expenses in a statement dated 29 October 2014 (included in exhibit 1, T Documents of Ms Applicant, at pp 598 – 629) but she was not cross-examined about those matters. In written closing submissions, the applicants pointed out briefly that the claims arising out of the rental properties were supported by documents that had been prepared by the accountant. The Commissioner’s written submissions did not refer to those claims at all. In the circumstances, I apprehend the Commissioner does not dispute those claims and they should be accepted.

    PENALTIES

22. That leaves only the question of penalties. Both parties made remarkably brief submissions on this issue – perhaps because the outcome of my deliberations on the substantive questions would suggest a clear outcome on penalties. The objection decision in relation to penalties concluded as follows:

    (a)In relation to Ms Applicant, the Commissioner stated that administrative penalties for intentional disregard were correctly imposed, and should not be reduced or remitted.

    The Commissioner imposed administrative penalties pursuant to subsection 284-75(1) of Schedule 1 of the TAA because, at audit, he considered that you or your agent had made a false or misleading statement and you had a shortfall amount (in relation to things done before 4 June 2010) because of that statement.

    A base penalty amount of 75% was imposed in respect of the financial year ended 30 June 2005 because the Commissioner considered that you or your agent had intentionally disregarded a taxation law in respect of that year.

    A base penalty amount of 75%, increased by 20% (effectively 90%) was imposed in respect of the financial years ended 30 June 2006 to 30 June 2012 because the Commissioner considered that you or your agent had intentionally disregarded a taxation law in respect of those years, and you were previously liable for administrative penalties.

    (b)In relation to Mr Applicant, the Commissioner stated that administrative penalties for intentional disregard were correctly imposed, and should not be reduced or remitted.

    The Commissioner imposed administrative penalties pursuant to subsection 284-75(1) of Schedule 1 to the TAA because, at audit, he considered that you or your agent had made a false or misleading statement and (for things done before 4 June 2010) you had a shortfall amount because of that statement.

    A base penalty amount of 75% was imposed in respect of the financial year ended 30 June 2005 because the Commissioner considered that you or your agent had intentionally disregarded a taxation law in respect of that year.

    A base penalty amount of 90% was imposed in respect of the financial years ended 30 June 2006 to 30 June 2012 because the Commissioner considered that you or your agent had intentionally disregarded a taxation law in respect of those years, and you were previously liable for administrative penalties.

23. The applicants’ arguments with respect to penalties were framed on the basis I would find there was only a small shortfall in the tax liability after the missing interest payments were included in Ms Applicant’s income. (The applicants assumed Mr Applicant’s affairs would be found to be in order so there would be no shortfall in his case, and hence no penalty.)

24. I have concluded both applicants should include interest income in their assessable income, but the shortfall extends much further. I have rejected the bulk of the applicants’ claim and decided that most of the contentious payments made by or to one or both of the applicants should be included in assessable income. That inevitably means there will be a substantial shortfall. In reaching that conclusion, I have found fraud and evasion in relation to the interest payments and a larger pattern of misrepresentation and dishonesty. Both applicants have misrepresented the truth, even if cumulatively Ms Applicant was party to more misrepresentations than her partner. In those circumstances, I do not see any basis for imposing a lower rate of administrative penalty. They have both intentionally disregarded the taxation laws.

25. The applicants argued there was a basis for remitting part of the penalty under s 298-20 of Schedule 1 of the TAA, at least, given the applicants have had to cope with extensive burdens in relation to the hearing, and given they came clean about the unreported interest income in advance of the hearing. I disagree. The hearing was much longer than it would otherwise be because the applicants chose to run a case that was tenuous and likely rested on misrepresentation. They should not be given any consideration for the burdens in doing so. I would add that the concession about the interest payments was still being reworked as the hearing unfolded: despite the concession made in the statement of facts, issues and contentions, Mr Applicant was still arguing that the interest payments should not be included in his income, and that all of those missing payments should be attributed to Ms Applicant.

26. The applicants have not demonstrated any good reason for disturbing the objection decision with respect to penalties. The rate of penalty should not be reduced, and the penalties should not otherwise be remitted.

    CONCLUSION

27. The parties are directed to propose orders within 28 days giving effect to the reasons for decision. In the absence of agreed orders, I will resume the hearing and take submissions from the parties as to the appropriate form of those orders.

I certify that the preceding 281 (two hundred and eighty –one)paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

............................[SGD]............................................

Associate

Dated: 25 October 2019

Date(s) of hearing:	20 – 24 November 2017, 27 – 28 November 2017, 30 November – 1 December 2017, 4 – 5 December 2017, 13 December 2017
Counsel for the Applicant:	Mr May
Solicitors for the Applicant:	Cooper Grace Ward Lawyers
Counsel for the Respondent:	Dr Schulte
Solicitors for the Respondent:	Australian Government Solicitor