Nguyen and Commissioner of Taxation

[2011] AATA 544

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 544

ADMINISTRATIVE APPEALS TRIBUNAL      )           No      2008/2984, 2008/2985

)  2008/2986

TAXATION        APPEALS       DIVISION		)
Re		HUNG VAN NGUYEN

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal

Mr Frank O’Loughlin, Senior Member

Mr Egon Fice, Senior Member

Date4 August 2011

PlaceMelbourne

Decision The Tribunal varies the reviewable objection decision in respect of the 2003 tax year by reducing the understated income for the 2003 tax year by $12,500.  The Tribunal affirms the remainder of the reviewable objection decisions including the decision to impose a 50 per cent penalty on the tax shortfall.

......[sgd] Frank O’Loughlin.........

Senior Member

MR FRANK O’LOUGHLIN, SENIOR MEMBER

TAXATION – Deposits to bank accounts in excess of returned income – Whether assessments excessive – Whether taxpayer has discharged burden of proof – Strength and weight to be given to evidence – Weight to be given to evidence of witnesses who contradict their own evidence

Taxation Administration Act 1953 (Cth) s 14ZZK

Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74

Davis v Federal Commissioner of Taxation (2000) 171 ALR 654

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614

George v Federal Commissioner of Taxation (1952) 86 CLR 183

Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation (1991) 91 ATC 4546

Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402

Tisdall v Webber [2011] FCAFC 76

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63

REASONS FOR DECISION

4 August 2011  Mr Frank O’Loughlin, Senior Member

1.      This matter concerns whether the applicant has demonstrated that a number of deposits or credits to bank accounts during the years ended 30 June 2003, 2004 and 2005 (each a “Year”) ought not be assessed as income and whether penalty at the 50% rate should be reduced.  The deposits in issue and their sources, as alleged by the applicant in his witness statement, are summarised in the tables below.

Year	Category of Deposit	Amount
2003	Commonwealth Bank (CBA) Deposits totaling $12,000 alleged to be: (a)      salary:         20 August 2002          $1,000         2 October 2002          $3,400         12 December 2002      $   500         6 March 2003              $1,000         17 March 2003            $1,100 (b)     proceeds of Hui advances	$7,000 $5,000
	National Australia Bank (NAB) Deposits totaling $31,300 alleged to be:
	(a)     proceeds of Hui advances:         2 October 2002           $6,500         24 March 2003            $6,500 (subsequently asserted to be gambling winnings)	$13,000
	(b)     proceeds of gambling winnings:         10 July 2002                $5,000         4 September 2002        $1,100         17 February 2003        $3,000         25 February 2003        $1,500	$10,600
	(c)     a re-deposit of funds gathered to purchase a motor vehicle 17 October 2002	$  7,700
	Total assessable amount in dispute	$43,300

Year	Category of Deposit	Amount
2004	Westpac deposits alleged to be from non-income sources or post taxation sources of money.	$15,000
	NAB Deposits of $29,100 alleged to be:
	(a)     proceeds of gambling winnings:         31 July 2003                $5,000         1 December 2003        $2,500         31 May 2004                $   800         11 June 2004               $2,000         17 June 2004               $4,000	$14,300
	(b)     proceeds of Hui advances:         23 December 2003       $7,000         9 February 2004          $7,800         (both subsequently asserted to be accumulations of wages)	$14,800
	Total assessable amount in dispute	$44,100

Year	Category of Deposit	Amount
2005	Westpac deposits alleged to be from non-income sources or post taxation sources of money.	$18,000
	NAB Deposits totaling $27,383 alleged to be:
	(a)     proceeds of gambling winnings:         16 July 2004                $1,000         29 July 2004                $5,000         24 September 2004      $4,000         3 November 2004        $6,000         7 February 2005          $4,600	$20,600
	(b)     proceeds of Hui advance deposited on 4 April 2005	$  6,000
	(c)     Interest NAB Term Deposit - $39 and $744*	$     783
Total assessable amount in dispute	$45,383

*The applicant did not contend that the interest was not assessable income.

2.      The Commissioner has not assessed the applicant in respect of any deposits to his Commonwealth Bank account for the 2004 and 2005 Years, even though the applicant asserted that one of those deposits ($3,175.31 on 23 July 2004) was a gambling win.

3.      The Commissioner identified the amounts in dispute in an audit of the applicant’s affairs. The audit was triggered by a home loan application that was made by or on behalf of the applicant.  The application disclosed that the applicant received income from two sources in the 2003 Year: a salary of $35,000 from Birelos Engineering and a salary of $30,000 from Kim Long Pressing. 

THE COMPETING CONTENTIONS

4.The  applicant contends that:

(a)he was never employed by Kim Long Pressing and he was not responsible for completing the home loan application that disclosed those details;

(b)he is, and was in the 2003 to 2005 Years, an employee boiler maker, and his salary or wage from that work was his only source of income;

(c)during the 2003 Year he was paid in cash, and these payments together with other available moneys were the sources of the deposits to his Commonwealth Bank account in the 2003 Year;

(d)he did not derive any rental income from a residence in Yallourn Street, Ardeer that he owned but did not occupy continuously;

(e)he socialised and gambled at Crown Casino and overall lost money but from time to time he had wins that were deposited in his bank accounts;

(f)during the 2003 to 2005 Years, he participated in four Hui.  A Hui is an arrangement by which individuals contribute a monthly amount to a pool, which entitles them to bid each month for an advance of the monthly pool.  The applicant contends that these Hui provided him with sources of funds that he used to make some of the deposits in question.  Particulars of the Hui and the organisers (or their assistants) on whose evidence the applicant relies are as follows:

Hui Name	April 01 Hui	25 August 2003 $300 Hui	4 July 2004 $300-1 Hui	4 July 2004 $300-2 Hui
Hui Start date	1 April 2001	25 August 2003	4 July 2004	4 July 2004
Monthly Hui commitment amount per membership	$300	$300	$300	$300
No of Hui memberships	43	40*	37	37
Hui term	43 mths	40 mths*	37 mths	37 mths
Applicant’s monthly commitment	$300	$300	$150	$300
Monthly Hui pool	$12,900	$12,000*	$11,100	$11,100
Witness	Dong Van Nguyen	Lan Thi Hoang	Thanh Thi Hoang	Phuc Thi Hoang

*   In fact the Hui list of members disclosed that this Hui had 21 members, a 21 month life and a $6,300 monthly pool;

(g)he deposited money in his Westpac account to allow mortgage repayments to be made and these deposits were from his salary, Hui draws and  gambling winnings; and

(h)it was possible for him to have met all of his commitments  to the various Hui he claimed to be a member of and in respect of his outstanding loans, to have made the withdrawals to fund his gambling activities and to meet his living expenses during the three years in question from his after tax salary from Birelos Engineering and borrowings from Hui and gambling winnings;

(i)there should not be any penalty or, if there is a liability for penalty, it should be remitted.

5.      The Commissioner contends that the applicant has not demonstrated that the assessments are excessive or that the penalty should be reduced.

THE APPLICANT’S ONUS

6. The applicant has correctly acknowledged that pursuant to s 14ZZK of the Taxation Administration Act 1953 (Cth):

(a)he bears the onus of proving that each amended assessment is excessive;

(b)he must demonstrate that excess, on the balance of probabilities, by proof which excludes all sources of income, other than those he admits.  The applicant accepts that this requires him to satisfy the Tribunal, either explicitly or by inference, that all of the deposits in issue are not income;[1]

[1]     Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at [11] and [12] per Brennan J (with whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed) quoting Kitto J in George v Federal Commissioner of Taxation (1952) 86 CLR 183

(c)he must show the corrections that will make the Respondent's assessments correct.  The applicant asserts that he will succeed if he establishes that the Respondent erroneously included in the assessed taxable income amounts which, on the facts accepted by the Tribunal, ought not to have been included in the taxable income;[2] and

[2]     Dalco, above, at [13] per Brennan J quoting Latham CJ in Trautwein v Federal Commissioner of Taxation (1936) 56 CLR. 63

(d)evidentiary burdens are increased when there are no documents to prove the source of particular amounts of money which have appeared in bank accounts and which might be inter-bank transfers.

7.      There are two further principles that have a particular relevance in this proceeding. 

(a)The evidence of witnesses who have interests that turn on whether that evidence is accepted, typically parties to an application in the Tribunal or litigants in a court, needs to be approached critically,[3] and will necessarily be the subject of careful scrutiny.[4]  Similar principles ought be applied to the evidence of those who have close relationships with parties to a proceeding.  In Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation[5] (“Imperial Bottleshops”), a setting where business expenditures were said to have been incurred, Hill J expanded on the caution required and said:

[3]     See Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74 at [81] and [82] per Ryan, Jessup and Perram JJ and their explanation of the remarks of Fullagar J in Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 at 403.

[4]     See Davis v Federal Commissioner of Taxation (2000) 171 ALR 654 at [47] per Hill J.

[5] 91 ATC 4546.

A taxpayer who does not keep records of his deductible outgoings faces a very difficult task.  If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement.  That does not necessarily mean that he is not to be believed.  Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111.  It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive.  Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed.  It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation (1978-9) 143 CLR 284 at 302 per Gibbs J.

In Imperial Bottleshops there was substantial, corroborating, non- documentary evidence.  Two employees of a supplier to the taxpayer and six current or former employees of the taxpayer company gave evidence that was consistent with and corroborated the taxpayer’s evidence.  In addition, the statement of wealth did not show unexplained accumulations of assets that were inconsistent with the taxation position asserted by the taxpayer.  The corroborating evidence, together with a rational reason for an absence of records, allowed Hill J to form a view that the taxpayer should be believed;[6] and

[6] See 91 ATC 4546 at 4554-4555.

(b)inferences can at times be drawn from observed facts.  However, mere assumptions, guesswork and speculation are not accommodated in the process of arriving at conclusions.[7]  There must be a body of evidence that might reasonably sustain a relevant finding of fact or permit the Tribunal to draw an inference.[8]

[7]     See Tisdall v Webber [2011] FCAFC 76 at [128] per Buchanan J, with whom Tracey J agreed.

[8]     See Tisdall, above, at [127] per Buchanan J, with whom Tracey J agreed.

8.      Accordingly, given the nature of the assessments that underlie the objection decisions and the applicant’s contentions in relation to the amounts assessed, the applicant must adduce evidence from which the Tribunal can make findings or draw inferences, that these amounts have their origins in the sources the applicant alleges to sustain his challenge to the Commissioner’s decisions on the objections.  Or, alternatively, that these amounts have their origins in other, non-assessable sources of money or post tax income.  It is not enough for the applicant merely to deny the amounts are income.  Nor is it enough for the applicant merely to assert that the amounts have their sources in non-income receipts, without corroborating evidence that could sustain such a finding or permit the Tribunal to draw such an inference.  It is necessary to examine critical aspects of the evidence in some detail.

THE EVIDENCE LED

9.Some important aspects of the evidence are summarised below.

10.The applicant gave his own evidence and led evidence from:

(a)Ms Tuan Kim Luong, who is said to have been the applicant’s friend, sometime landlady and partner in various Hui;

(b)Ms Thanh Thi Hoang, (Ms Luong’s daughter) who was involved in the 4 July 2004 $300-1 Hui;

(c)Ms Lan Thi Hoang, who was involved in the 25 August 2003 $300 Hui;

(d)Ms Phuc Thi Hoang, who was involved in the 4 July 2004 $300-2 Hui;

(e)Mr Dong Van Nguyen, who was involved in the April 01 Hui; and

(f)Ms Jennifer Jenkins, an employee of Birelos Engineering.

the applicant’s evidence

11.The applicant gave evidence to the effect of his contentions set out above. 

12.He made the following claims or assertions in his evidence:

(a)by way of explanation of a number of bank accounts:

This is an old fear that the bank or banks might go bankrupt, and if I put all my eggs in my one basket, and I might lose all my eggs.  So I divided up my money; I put them in separate accounts in separate banks.

(b)by way of explanation of available cash money used for various purposes:

Vietnamese people like to keep cash money in their pocket

…

Like all Vietnamese people, I really love to have cash money ready.

…

as a Vietnamese person, we love to have cash money; we love the sight, and to hold the money

…

and beside I love to have cash money on me.

(c)his  weekly expenses for the relevant years were approximately $652 per week, comprising (each an approximate or average amount):

(i)$50 groceries;

(ii)$50 petrol;

(iii)$25 utilities;

(iv)$70 rent;

(v)$15 socialising;

(vi)(from August 2003 at the latest) $125 Monastery Loan repayments;

(vii)(from October 2003 at the latest) $317 average weekly Westpac mortgage repayments; and

(d)he and Ms Luong shared payments and withdrawals from the Hui equally.  In his witness statement, the applicant said he contributed $83,100 with Ms Luong to the various Huis and received $33,800 as his share;

(e)the 25 August 2003 $300 Hui had 40 participants and a pool of $12,000 per month;

(f)he resided at the house he bought at 32 Yallourn Street Ardeer for approximately 12 months following its purchase but was vague as to the precise date of his departure.  Ms Luong’s evidence about the applicant’s residential arrangements was vague, as was that of her daughter, Ms Thanh Thi Hoang.  The applicant said that the house was empty for several months after he left, and that he did not seek tenants because of his depression.  He stated that he sold the property in 2004;

(g)the bank account deposits of $7,000 and $7,800, made on 23 December 2003 and 9 February 2004 respectively, were drawings from the 25 August 2003 $300 Hui.  (He subsequently asserted that these deposits were accumulations of wages and were not drawings from the Hui);

(h)the bank account deposit of $6,500 on 24 March 2003 was  proceeds from a Hui.  (The applicant subsequently said he could no longer recall whether that deposit was a Hui payment or gambling winnings); and

(i)he banked his Hui drawings as soon as he received them.  (The applicant subsequently said that sometimes he did not bank the drawings promptly.) 

ms tuan kim luong’s evidence

13.In her witness statement, Ms Luong gave evidence that:

(a)she had known the applicant since 1994 and was friendly with him; 

(b)the applicant lived in a room in her property;

(c)she was a member of the following Hui:

(i)the April 01 Hui - 2 memberships;

(ii)the 25 August 2003 $300 Hui - 2 memberships;

(iii)the 4 July 2004 $300-1 Hui - 1 membership;

(iv)the 4 July 2004 $300-2 Hui - 2 memberships;

(d)she participated in these Hui jointly with the applicant;

(e)she and the applicant contributed $83,100 to these Hui and withdrew that amount;

(f)she gave the applicant $41,550 in drawings from the Hui (compared with the applicant’s account that his receipts from the Hui were  $33,800); and

(g)she was listed as the owner of the shares in the Hui because she was known to the promoters of the Hui.

14.Ms Luong’s oral evidence was that:

(a)the rules for the 25 August 2003 $300 Hui provided that members with two shares could take a draw or advance from the Hui for only one share in each half of the life of the Hui; 

(b)the applicant paid her $200 per week for rent and food; when he could not pay it from time to time, he paid more later;

(c)her only income was her Centrelink payments (not the rent);

(d)the applicant was not listed on the Hui lists of members because the organisers did not know him.  (When Ms Luong was confronted with the inconsistency between that evidence and the evidence of the organisers, which was that they had known the applicant for some years, she changed the reason to the applicant not being trusted because he had changed addresses and was a single man.)

15.     Ms Luong’s oral evidence was generally vague and imprecise.  There were some exceptions.  For example, she claimed to recall dates and amounts of money that she had given to the applicant some years ago.  This detail was out of step with the rest of her evidence. The impression that this evidence left was that Ms Luong was attempting to assist the applicant in this application.  The Tribunal must therefore exercise greater caution in accepting her evidence as sufficiently reliable.

ms thanh thi hoang’s evidence

16.In her witness statement, Ms T T Hoang gave evidence that:

(a)she was a boilermaker when this was not true.  It is apparent that the witness was not pretending that she was a boilermaker – rather, a statement prepared for one of the other witnesses had been used as a precedent and not fully altered to be an accurate statement for Ms T T Hoang.  It is, however, indicative of the accuracy that might have been employed in the remainder of the statement;

(b)she had known the applicant for 11 years;

(c)she started the Danh Sach Hoi Ven Hoi $300-1 (the 4 July 2004 $300-1 Hui) with another member (Lan) and was the assistant to the principal of that Hui;

(d)she helped create the register of participants in the 4 July 2004 $300-1 Hui;

(e)she invited her mother to participate in the 4 July 2004 $300-1 Hui;

(f)she got to know all of the participants in the 4 July 2004 $300-1 Hui personally;

(g)the participants in the 4 July 2004 $300-1 Hui paid her $300 per month;

(h)as assistant to the principal, she had the second right to withdraw from the 4 July 2004 $300-1 Hui;

(i)the applicant was a participant in the 4 July 2004 $300-1 Hui as the partner of her mother;

(j)the applicant and her mother contributed $11,100 to the 4 July 2004 $300-1 Hui and withdrew that amount from it; and

(k)there were no defaults in the 4 July 2004 $300-1 Hui.

17.In her oral evidence, Ms T T Hoang indicated that:

(a)she had lived at the same residence as the applicant for about 10 years, with some breaks;

(b)she was not involved in the creation of the Hui register; the principal of the 4 July 2004 $300-1 Hui created it;

(c)she only knew a few members of the 4 July 2004 $300-1 Hui;

(d)the applicant never attended 4 July 2004 $300-1 Hui meetings;

(e)the 4 July 2004 $300-1 Hui was a mutual Hui that did not have interest  and she was unaware whether some Huis had interest features;

(f)the principal of the 4 July 2004 $300-1 Hui invited the participants to join and she was not involved;

(g)she did not know whether there were any defaults in the 4 July 2004 $300-1 Hui;

(h)she did not know whether the applicant and her mother contributed $11,100 to the 4 July 2004 $300-1 Hui or drew that amount from it;

(i)all she knew was that she overheard the applicant and her mother talking about participating in the 4 July 2004 $300-1 Hui; and

(j)she did not recall ever collecting money from the applicant and never gave money to the applicant in connection with the 4 July 2004 $300-1 Hui.

ms lan thi hoang’s evidence

18.In her witness statement, Ms L T Hoang gave evidence that:

(a)she was the principal of the 25 August 2003 $300 Hui;

(b)she created the register for that Hui;

(c)she had known Ms Luong for 17 years and the applicant for 10 years;

(d)she invited Ms Luong to be a member of the 25 August 2003 $300 Hui;

(e)she got to know all of the members of the Hui over time;

(f)the applicant was a participant in that Hui as Ms Luong’s partner;

(g)the applicant and Ms Luong contributed $6,300 to the Hui and withdrew that amount; and

(h)the Hui finished without any defaults.

19.     Ms Lan Thi Hoang’s oral evidence was that all payments to and from the Hui were made by Ms Luong, and that she did not know the source of the funds that Ms Luong paid into the Hui or what Ms Luong did with funds withdrawn from the Hui.

mr dong van nguyen’s evidence

20.In his witness statement, Mr D V Nguyen gave evidence that:

(a)he was a boilermaker who had known the applicant and Ms Luong for more than 10 years;

(a)he started the April 2001 Hui and was its principal;

(b)he created the register of participants in the April 2001 Hui;

(c)he invited the applicant’s partner (Ms Luong) to participate with him in the April 2001 Hui;

(d)over time he got to know all of the participants in the April 2001 Hui;

(e)the applicant was a participant in the April 2001 Hui as Ms Luong’s partner;

(f)the applicant and his partner contributed $25,800 to the Hui and withdrew that amount; and

(g)the Hui was completed without defaults.

21.Mr D V Nguyen’s oral evidence was that:

(a)Ms Tuan Luong was not a member of the April 2001 Hui and her name did not appear on the April 2001 Hui register.  In re-examination Dong Van Nguyen was unable to recall the identities of the person(s) listed on the April 2001 Hui Register as "Hung-Tan".  The applicant claimed that “Hung-Tan” represented Ms Luong and himself;

(b)he had known the applicant for 10 years and had visited him at 14 Menzies Street, Braybrook (the Menzies Street Property) from time to time over this period and had not visited him at any other address during this period.

ms phuc thi hoang’s evidence

22.In her witness statement, Ms P T Hoang gave evidence that:

(a)she had known Ms Luong for 15 years and the applicant for 10 years;

(b)she was the secretary of the 4 July 2004 $300-2 Hui and started that Hui with another member (Lien);

(c)she helped to create the register of participants in that Hui;

(d)as an assistant to the principal of the Hui, she had second right to draw from the Hui;

(e)either she or another member invited Ms Luong to participate with the applicant in the Hui;

(f)she got to know all  the participants in the Hui over time;

(g)the applicant participated in the Hui as Ms Luong’s partner;

(h)the applicant and Ms Luong contributed $11,100 to the Hui and withdrew that amount from it; and

(i)the Hui finished as planned, without any defaults.

23.Ms P T Hoang’s oral evidence was that:

(a)she did not have any high position in the Hui;

(b)she was not the organiser of the Hui;

(c)(after claiming to know all members of the Hui)  she did not know every member of the Hui;

(d)she had no involvement in creating the Hui list of  members;

(e)she collected Hui money from  Ms Luong but not the applicant;

(f)she had no knowledge as to the source of Ms Luong's funds.

ms jenkins’ evidence

24.     Ms Jenkins’ evidence, unchallenged by the Commissioner, was that the applicant was paid in cash during the 2003 Year and that he received approximately $26,122 net of tax.   

other evidence

25.The documents filed in the proceeding revealed the following matters.

26.     A Hassle Free Home Loan application dated 28 July 2003 and signed by the applicant disclosed that:

(a)the applicant's total income was $65,000: $35,000 per annum from employment with Birelos Engineering and $30,000 per annum from employment with Kim Long Pressing;

(b)the applicant had provided his two most recent pay slips and a recent group certificate for employment income verification purposes;

(c)the applicant had provided his last 6 months’ bank statements to confirm that he had 5% genuine savings;

(d)employment verification confirmations from both Birelos Engineering and Kim Long Processing were signed by a Tai Nguyen from Hassle Free Loans, whose signature bears a striking resemblance to the signature of the person who signed a separate loan checklist document as the broker.

27.     Between July and September 2003 the applicant purchased and settled the property at 32 Yallourn Street Ardeer for $265,000.  A contract of sale for this property discloses that the property was sold in August 2007, at which time the outstanding mortgage was $214,033.55.  In his oral evidence, the applicant said that he sold the property in 2004.

28.     All documentary records, the applicant's tax returns and bank statements for the 2003 to 2005 Years state that his residential address throughout this period was the Menzies Street Property.

29.     The applicant borrowed $20,000 (the Monastery Loan) on 20 July 2003 and was obliged to make monthly repayments of $500.

OBSERVATIONS ON AND INCONSISTENCIES IN THE EVIDENCE

30.     The evidence can be categorised as having come from two sources: the first from the applicant and someone with whom he shares a close friendship, Ms Luong; and the second from the other witnesses, who might be seen as more detached.

31.     It will be apparent from the foregoing that there are various inconsistencies in the evidence.  The more significant inconsistencies are set out below.

32.     The applicant indicated that his living costs were approximately $652 per week and his evidence was that this included $70 per week in rent and $50 per week for groceries.  However, Ms Luong indicated that he paid $200 per week in rent and if the applicant did not pay on time, he paid more later.  Even if the $200 absorbed the $50 groceries amount there is another $80 that is not included in the $652 described above.  This exhausts the applicant’s money supply required to fund his gambling activities and the timing of cash flows required for involvement in the various Hui.

33.     The applicant sold the Yallourn Street, Ardeer property in 2007 and not 2004, as he alleged.  If the applicant’s account is accurate, he left it vacant for nearly all of the time he owned it.  This property did not generate rental income for the applicant while he did not occupy it, even though he had mortgage commitments in respect of it.

34.     All documentary records show that the applicant resided with Ms Luong throughout the 2003 to 2005 Years; whereas, while he was vague as to the details, the applicant contends that he lived at the Yallourn Street property for approximately one year.

35.     The 25 August 2003 $300 Hui had 21 members, not 40 as the applicant and Ms Luong asserted.  A number of consequential inconsistencies in the evidence fall from this fact.  The term of the Hui would have been 21 months and the pool size $6,300 per month and, if they were members, the applicant and Ms Luong would have been entitled to make two draws of $6,300, not two of $12,000.  Ms Luong’s evidence was that she gave the applicant $41,550 from Hui draws.  The $41,550 is the aggregate of the participating entitlements in the various Hui, based on the 25 August 2003 Hui having 40 members, not 21.

36.      The applicant originally asserted that deposits of $7,000 and $7,800, made on 23 December 2003 and 9 February 2004 respectively, were drawings from the 28 August 2003 $300 Hui.  Given the pool size, that is not possible.  Ms Luong asserted that participants could only make one draw in the first half of the life of the 28 August 2003 $300 Hui and another in the second half.  This too is inconsistent with the applicant’s assertion that the two deposits in question were sourced in the draws from this Hui.  The applicant subsequently changed his assertion and said that the source of these deposits was accumulations of wages.

37.     More generally, the timing of withdrawals or receipts that the applicant alleged he made or received from the various Hui is not clear on the evidence.  The Hui documents show the dates on which draws were made and the Hui rules generally provided that the contributions to the Hui, which were the means by which the Hui organisers assembled funds to make advances from the Hui, needed to be made within three days from the date of the draw.  If these three days were needed to make up the funds for Hui advances, it is unlikely that all of the deposits to the bank accounts could be reliably explained by Hui withdrawals, on account of the dates of the deposits.  

38.     The applicant changed his account of the source of some of the deposits when confronted by the improbability of his earlier accounts.  The applicant’s contention that he deposited the proceeds of the 28 August 2003 $300 Hui in his bank account and his contention as to the deposit of $6,500 on 24 March 2003 are examples of this change.

39.     Ms Luong’s evidence was that she gave the applicant $41,550 from Hui draws, while the applicant asserted he received his share of $33,800 – an unequal share.  The $33,800 amount coincides with the aggregate of five deposits, $6,500 on 2 October 2002, $6,500 on 24 March 2003, $7,000 on 23 December 2003, $7,800 on 9 February 2004 and $6,000 on 4 April 2005.  It is possible that the applicant’s evidence of the total received from the Hui was influenced (innocently or otherwise) by the need to explain these deposits.

40.     According to Ms Luong, the applicant was not listed as a member of the Hui because the organisers did not know him.  When challenged, she changed her explanation and said that the applicant was not listed because he had changed address, was a single man and was not trusted.

41.     Ms Luong was generally vague in her evidence but asserts that she recalls particular amounts and dates. Some of these, for example the amounts associated with the 28 August 2003 $300 Hui, could not have been correct.

42.     Ms T T Hoang gave oral evidence that completely contradicted her witness statement evidence. The discrepancies were material.  Further, these discrepancies came from someone who lived in the same house as the applicant, was a participant in one of the Hui in which the applicant asserts he was a member and was close enough to him to call him uncle. In summary, she is someone who could be presumed to be in a better position than most to give an accurate account of the applicant’s involvement in the Hui in which she was involved.  In these circumstances it is not appropriate to accord any weight to the corroborative parts of the evidence of Ms T T Hoang.

43.     Ms L T Hoang’s witness statement was significantly different to her oral evidence.  Her oral evidence lacked the precision that the Tribunal would expect, given the content of her witness statement.  She could not throw any light on the applicant’s involvement in the 25 August 2003 $300 Hui.  Accordingly, great weight cannot be afforded to any corroborative parts of her evidence.

44.     Mr D V Nguyen’s oral evidence stood in stark contrast to his witness statement.  He was not able to throw any light on the applicant’s involvement in the April 01 Hui.  A conflict in evidence of this significance, from someone who had known the applicant and Ms Luong for over 10 years, renders it inappropriate to give any weight to the corroborating parts of Mr D V Nguyen’s witness statement.

45.     Ms P T Hoang recast her assertions as to her level of involvement in the 4 July 2004 $300-2 Hui and her knowledge of the members of the Hui.  She could not throw any light on the applicant’s financial participation in the Hui.  This evidence was consistent with the evidence of other witnesses concerning Hui participation.  It lacks the consistency necessary for it to be regarded as reliable.  Accordingly, great weight cannot be afforded to any corroborative parts of it.

46.     By way of a response to information requests made by the Commissioner’s staff about the alleged Hui deposits, the applicant provided a copy of a statement to the effect that he had collected the Monastery Loan of $20,000 on 20 July 2003 and was repaying it in monthly instalments of $500.  In an interview with the Commissioner’s staff in 2008, the applicant relied on that document to explain the Hui deposits.  The applicant has not made a similar assertion in this proceeding.

47.     Each witness who gave evidence concerning the running of the various Hui said that they were not aware that the applicant was a participant in the Hui.  The only witness who gave oral and written evidence that the applicant was a participant in the relevant Hui was Ms Luong, the applicant’s friend and (from time to time) landlady, who gave evidence that was vague, that changed when challenged and in the end was of questionable reliability.

48.     The written rules for each of the Hui contradicted the oral evidence as to how they operated.  The written rules implied that the monthly tendering or bidding process involved a form of discount that would, in effect, mean that each lender to the Hui pool would earn interest, or an amount in the nature of interest, in respect of the monthly contribution.  Each witness called by the applicant gave evidence that the particular Hui that they ran or assisted in running did not provide discounts or interest.

49.     Any involvement in the Hui was not, over time, a real source of funds and until a draw, it was a drain on available funds.  Assuming the no interest and no discount aspects of the Hui as described by the organisers is correct, participation in a Hui is cash flow negative until a draw and then cash flow positive over the remaining life of the Hui, concluding with balanced cash flows at the end. 

50.     The witness statements of those who organised or assisted in organising the various Hui in which the applicant claims to have participated have striking similarities.  The similarities are such that, together with the different version of events these witnesses gave under cross-examination, it is difficult to accept that evidence is sufficiently reliable.

51.     The only evidence that might be regarded as consistent with the claims that a significant proportion of the deposits in issue are the product of gambling activities is the fact that a number of transactions through the applicant’s bank accounts were at bank branches or teller machines that included the name Crown Casino.  The applicant alleges that he frequented the casino to gamble and socialise.  He did not lead any evidence from anyone with whom he socialised at the casino or from anyone who observed his gambling activities.  In fact, the applicant claims to have lost money through his gambling activities, an assertion that does not corroborate deposits in a bank account that he claims were referrable to gambling activities. 

52.     The applicant also claimed that he liked to carry cash on his person.  This is not entirely consistent with his practice of banking gambling winnings and banking the collections from the Hui promptly and his preference for putting eggs in multiple baskets.

53.     The only evidence that the deposits to the Westpac account were from general non-income sources is the assertions from the applicant.  The remaining evidence does not corroborate his evidence.

54.     Two features of the applicant’s circumstances differentiate his position from those of the taxpayer in Imperial Bottleshops.  They are that:

(a)the present matter concerns deposits to bank accounts whereas Imperial Bottleshops concerned undocumented purchases and other expenditures; and

(b)the present applicant’s independent evidence does not assist him whereas the independent evidence did assist the taxpayer in Imperial Bottleshops.

55.     In a case where business expenditures and purchases are under examination, the natural presumption is that if the outlays claimed had been made there would be documentary evidence of them.  Accordingly, the need for corroborating evidence of undocumented outlays is greater.  Where the case for the taxpayer is that various amounts received are not income, at least in some circumstances, it might be expected that there would be less documentary evidence associated with the receipts. If so, the extent of corroborating evidence required to support the contention that the receipts were not income might not be as great as in a case where the natural presumption is that documentation could be expected.

56.     The applicant may not be required to go to the lengths the taxpayer did in Imperial Bottleshops to corroborate his and Ms Luong’s self-serving evidence, because the expenditure in Imperial Bottleshops was business expenditure.  However, there are still thresholds he must meet and facts he must explain if he is to succeed.  The independent evidence he has led does not assist him to do that. 

FINDINGS

57.     In light of the discussion above, it is difficult to make findings of fact as contended for by the applicant.  The findings that can be made are as follows.

58.     The applicant signed a loan application that indicated he had two sources of income, one of which was disclosed in returns of income and one of which was not.  The loan application process appears to have included verification of the two sources of income through contact with both employers and the provision of two pay slips. 

59.     The applicant was paid in cash by Birelos Engineering during the 2003 Year and by direct deposit to his Commonwealth bank account during the 2004 and 2005 Years. 

60.     The deposits to the various bank accounts are set out above. 

61.     The applicant also made withdrawals from the bank accounts from time to time.  These are set out in the statements in evidence.  Those statements show that, preceding a number of deposits claimed to be gambling winnings, there were withdrawals, as set out in the table below.

Date	Withdrawal amount	Deposit amount	Location of withdrawal or deposit on bank statement
28 Jul 2003	$3,500	N/a
31 Jul 2003	$5,000	n/a
28 May 2004	$200	Crown Casino
28 May 2004	$300	Crown Casino
31 May 2004	$800	Crown Casino
7 Jun 2004	$500	Crown Casino
7 Jun 2004	$500	Sino CI
8 Jun 2004	$500	Crown Casino
8 Jun 2004	$500	Crown Casino
11 Jun 2004	$2,000
12 Jun 2004	$500	Crown Casino
12 Jun 2004	$500	Sino Bh
13 Jun 2004	$500	Crown Casino
13 Jun 2004	$500	Crown Casino
14 Jun 2004	$500	Crown Casino
14 Jun 2004	$500	Footscray
16 Jun 2004	$500	Sino Cl
16 Jun 2004	$500	Sino Cl
17 Jun 2004	$4,000	n/a
2 Jul 2004	$1,000	Crown Casino
3 Jul 2004	$500	Sino Cl
3 Jul 2004	$1,000	Sino AB
4 Jul 2004	$500	Sino Cl
5 Jul 2004	$1,000	Crown Casino
6 Jul 2004	$500	Footscray
6 Jul 2004	$500	Sino Cl
7 Jul 2004	$500	Crown Casino
7 Jul 2004	$500	Crown Casino
8 Jul 2004	$500	Crown Casino
9 Jul 2004	$500	Crown Casino
10 Jul 2004	$200	Sino Bh
11 Jul 2004	$200	Crown Casino
11 Jul 2004	$300	Crown Casino
11 Jul 2004	$300	Crown Casino
14 Jul 2004	$500	Crown Casino
16 Jul 2004	$1,000	n/a
16 Jul 2004	$500	Crown Casino
16 Jul 2004	$500	Sino Cl
17 Jul 2004	$500	Footscray
18 Jul 2004	$500	Sino Bh
20 Jul 2004	$700	WES Supermarket
21 Jul 2004	$500	Crown Casino
21 Jul 2004	$500	Sino Cl
22 Jul 2004	$500	Footscray
22 Jul 2004	$500	Crown Casino
23 Jul 2004	$500	Crown Casino
23 Jul 2004	$500	Sino Af
23 Jul 2004	$3,000	n/a
25 Jul 2004	$500	Sino Cl
25 Jul 2004	$500	Sino Cl
29 Jul 2004	$5,000	n/a
29 Jul 2004	$500	Crown Casino
29 Jul 2004	$500	Crown Casino
1 Aug 2004	$550	Crown Casino
2 Aug 2004	$500	Crown Casino
2 Aug 2004	$500	Crown Casino
7 Aug 2004	$1,000	Footscray
8 Aug 2004	$500	Sino Cl
9 Aug 2004	$1,000	Sino Cl
9 Aug 2004	$2,000	n/a

62.The remaining amounts deposited said to be casino wins, namely

Date of deposit	Amount deposited
10 July 2002	$5,000
4 September 2002	$1,100
17 February 2003	$3,000
25 February 2003	$1,500
23 July 2004	$3,175.31
24 September 2004	$4,000
3 November 2004	$6,000
7 February 2005	$4,600

were not deposited within days of any significant withdrawals from the applicant’s accounts.

63.     The applicant bought a house at Yallourn Street, Ardeer and settled its purchase in September 2003 but did not live there continuously, if at all.

64.     The applicant enjoyed a close friendship with Ms Luong.

65.     The applicant resided in Ms Luong’s house for most of the 2003 to 2005 Years.

66.     Having regard to the level of the applicant’s salary, which he asserts was his only source of income, he withdrew large amounts of money from his bank account at what appear to be terminals located in the Crown Casino complex.

67.     Beyond these findings, it would be necessary to rely on evidence that, for the reasons outlined above, is not sufficiently reliable.

CONCLUSIONS

68.     The applicant accepts that he must demonstrate the excessive assessments, by proof, on the balance of probabilities, excluding all sources of income other than those he admits.  The applicant accepts that this requires him to satisfy the Tribunal, either explicitly or by inference, in relation to the sources of all of the deposits, that they are not income.[9]  That standard can also be expressed as that the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment.[10]

[9]     Dalco, above, at  [11] and [12] per Brennan J.

[10]    Dalco, above, at [14] per Brennan J.

69.     The evidence is equivocal as to whether the 2003 Year Commonwealth Bank deposits were deposits of salary.  There are two pieces of evidence from independent sources that need to be considered:

(a)Ms Jenkins’ evidence to the effect that the applicant was paid in cash by Birelos Engineering in the 2003 Year; and

(b)the statements signed by the applicant that he had a second source of income, and the apparent corroboration of that in applications to Hassle Free Home Loans.. 

70.     In these circumstances, the applicant’s statements do not establish that the amounts deposited were amounts of cash he received from Birelos Engineering. The applicant admits this.  The applicant has not excluded the possibility that the deposits were other salary income.  Mere denials of receipt of such income, in the face of signed statements that such income existed, do not discharge the burden the applicant must meet.  The finding that follows is that the applicant has not discharged his burden of proving that these amounts were not income.

71.     Similarly, the evidence concerning the deposits that the applicant says came from the various Hui in which he claims he participated is equivocal.  There are material contradictions in the evidence about his participation in these Hui.  Even if it can be accepted that he participated in the Hui, some of the applicant’s assertions in terms of the timing and amount of entitlements he enjoyed cannot possibly be correct. In addition, there are distinct possibilities that some of his other assertions concerning the timing and amount of entitlements enjoyed are not correct.  In these circumstances, the evidence does not establish the proposition that the amounts deposited were amounts of cash the applicant received from participating in Hui.

72.     The applicant’s evidence concerning the deposits that he claims were from his gambling winnings does not support that assertion.  There is no independent evidence that the applicant was ever seen at the casino or seen there gambling or socialising.  The fact that he made withdrawals from machines located in the Crown Casino complex does not establish that he used the money for gambling activities or that there were gambling winnings or that an inference to that effect can be properly drawn.  Money might pass through teller machines at casino complexes for a number of reasons.  In these circumstances, the evidence does not support the assertion that the amounts deposited were gambling winnings.

73.     The applicant’s evidence concerning the deposits to his Westpac account is limited.  The applicant’s assertions are not supported by any evidence of withdrawals or reductions in other available sources of money which are not income.  In these circumstances, the evidence does not support the assertion that the amounts deposited were not income.

74.     The applicant does not dispute that the interest amounts are assessable as income.

75.     Finally, it is necessary to address the applicant’s submission that it was possible for him to have met all of his living expenses and commitments from his Birelos Engineering income.  An assertion that it is possible to have lived on less income than has been assessed may carry some weight in a case where deposits in bank accounts have been explained.  Where such an assertion is accompanied by a reliable explanation for the deposits, found in reliable evidence that either does not need to be received with great care or has been so received, demonstrating the possibility of living within lesser means may well provide powerful assistance to a taxpayer’s claims.  This is not such a case.  Where, as here, there is a lack of reliable corroborating evidence, the applicant’s assertion that he was living within lesser means does not carry the day. 

76.     Given the standard that the applicant must meet, the conclusion that follows from the evidence and the findings of fact that can be made is that the applicant has not proven the assessments are excessive.

77.     It follows that there has been a tax shortfall.  If the deposits are represented by a separate source of income that has been concealed, then penalty at the 50% rate is more generous than that which ought be imposed.  In these circumstances, the penalty imposed has not been shown to be excessive. 

78.     As to remission of penalty, the relevant question is whether there are circumstances that would suggest the penalty imposed is harsh.  There has been no such evidence led.  Assertions from the bar table are not a substitute for evidence in this regard.

I certify that the seventy-eight [78] preceding paragraphs are a true copy of the reasons for the decision herein of:
Mr Frank O’Loughlin, Senior Member

Signed: .......[sgd]....................................................................
                Y. Maker, Associate

MR EGON FICE, SENIOR MEMBER

TAXATION – Income tax returns – Administrative penalty – Undisclosed income – Burden of proof – Balance of probabilities – Wages – Gambling winnings – Hoi proceeds – Living expenses – Bank accounts – Withdrawals – Unexplained deposits – Liability to pay penalty – Recklessness – False and Misleading – Remission of penalty

Income Tax Assessment Act 1936 s 190(b)

Taxation Administration Act 1953 ss 14ZZK(b)(i), 284-75, 284-90, 298-20

Dixon v Commissioner of Taxation (2008) 69 ATR 627

Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60

Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81

George v Federal Commissioner of Taxation (1952) 86 CLR 183

Hart v Commissioner of Taxation (2003) 131 FCR 203

Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148

Kajewski v Federal Commissioner of Taxation (2003) 52 ATR 455

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

Tisdall v Webber [2011] FCAFC 76 (7 June 2011)

Re Confidential and Commissioner of Taxation [2008] AATA 415

Vu v Commissioner of Taxation [2006] 63 ATR 341

W R Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 237 CLR 198

Shorter Oxford English Dictionary (3rd ed, 1983) vol 1

Practice Statement LA 2006/2

Taxation Ruling TR94/4

REASONS FOR DECISION

4 August 2011 Mr Egon Fice, Senior Member      

1.      I have read the Decision and Reasons for Decision of the presiding member, Senior Member O’Loughlin, and although I agree with the decision he has reached, I find it necessary to express my own reasons for doing so.

2.      The Commissioner of Taxation (Commissioner) conducted an audit of Mr Hung Van Nguyen’s (Mr Nguyen) income tax returns for the tax years 2003, 2004 and 2005.  On 16 March 2006 the Commissioner informed Mr Nguyen that he intended to amend Mr Nguyen’s assessments for those years resulting in an increase in income tax in the amount $72,390.45 and an administrative penalty in the amount of $36,195.38.

3.      According to the Commissioner, the amendments resulted from undisclosed income.  The Commissioner found the following understated income totals:

(a)1 July 2002- 30 June 2003 - $56,210.55;

(b)1 July 2003 – 30 June 2004 - $55,959.02; and

(c)1 July 2004 – 30 June 2005 - $55,383.26.

4.      Mr Nguyen lodged a Notice of Objection with the Commissioner on 4 August 2007.  On 17 January 2008 the Commissioner wrote to Mr Nguyen seeking further information in order to enable him to make a decision on Mr Nguyen’s objection.  Mr Nguyen’s lawyers, Willocks Lawyers, responded to that request on 21 February 2008.  His lawyers provided to the Commissioner a number of bank statements and documents dealing with what is described as a Hoi, which is sometimes spelt Hui.  Witnesses described a Hoi as a community fund which exists for the purpose of raising money to assist the members who participate.  I have more to say about this source of funds below. 

5.      On 6 May 2008 the Commissioner issued three Notices of Decision on Objection (the objection decisions) relating to the three tax years in question.  The Commissioner:  

(a)allowed Mr Nguyen’s 2003 tax year objection to the extent of $410.55;

(b)allowed Mr Nguyen’s objection to the 2004 tax year assessment to the extent of $11,859.02; and

(c)allowed Mr Nguyen’s objection to the 2005 tax year assessment to the extent of $10,000.

6.      On 10 June 2008 the Commissioner issued Notices of Amended Assessment for the three years in question.  However on opening his case, the Commissioner conceded that the understated income for the 2003 tax year should be reduced by $12,500 which was a re-banking of monies drawn by Mr Nguyen.

7.      The Commissioner also issued a Notice of Assessment and Liability to Pay Penalty on 4 April 2006 in respect of all three tax years in question.  The penalties for each of those years were assessed at 50 per cent of the assessable income on the grounds that the omissions of income were reckless.  In the Notice of Objection prepared by Willocks Lawyers, Mr Nguyen sought remission of the penalty tax amount in whole or in part and, alternatively, that the penalties should be waived due to hardship.  However, in his reasons for the objection decision, the Commissioner maintained that Mr Nguyen was liable to pay penalty tax and interest.  The Commissioner maintained that the 50 per cent penalty rate was a correct reflection of his behaviour in this matter.  The tax shortfall penalty was amended to reflect the adjustments to taxable income made for the three years in question.

8.      The issues which this Tribunal was required to consider are whether Mr Nguyen:

(a)had unexplained income in the amount of $43,300 in the 2003 income tax year;

(b)had unexplained income of $44,100 for the 2004 income tax year;

(c)had unexplained income in the amount of $45,383 for the 2005 income tax year;

(d)had satisfied the onus of proving that the assessments for the tax years in question were excessive as is required by s 14ZZK(b)(i) of the Taxation Administration Act1953 (the Tax Administration Act); and

(e)was liable to pay penalty tax.

MR NGUYEN’S BURDEN OF PROOF   

9. Section 14ZZK(b)(i) of the Tax Administration Act provides:

14ZZK Grounds of objection and burden of proof

On an application for review of a reviewable objection decision:

...

(b)  the applicant has the burden of proving that:

(i)  if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or ...

10. It follows that Mr Nguyen bears the burden of proof to establish, on the balance of probabilities, that the deposits in his bank accounts referred to by the Commissioner were not undisclosed income. An example of the application on s 14ZZK is found in the High Court of Australia case George v Federal Commissioner of Taxation (1952) 86 CLR 183. The Court (Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ) referred to s 190 of the Income Tax Assessment Act 1936. That section provided that upon every appeal to the Court the burden of proving that the assessment is excessive shall lie on the taxpayer.  The Court said at 204:

The fact is that unless the taxpayer discharges the burden laid upon him by s 190(b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the commissioner to establish affirmatively what judgment he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds.

11.     The term excessive, as it is used in s 14ZZK(b)(i) relates to the substantive amount of the assessment. This was explained by the High Court in W R Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 237 CLR 198 at 203:

The selection of the term “excessive” in a provision which preceded the enactment of s 14ZZO (namely s 190(b) of the Act in its original form) was said by Dixon CJ, McTiernan and Webb JJ in McAndrew v Federal Commissioner of Taxation (19) to be “perhaps not a good choice”, but their Honours emphasised that “excessive’ relates to the amount of the substantive liability”.

12.     As the Commissioner submitted, where the evidence is equivocal and where a proper inference cannot be drawn to support an applicant’s claim, the applicant will fail to discharge the onus.  This was clearly explained by Gibbs J in McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 where he said, at 303:

The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26 (a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.

13.     Gibbs J also made it clear in McCormack’s case that there was no onus on the Commissioner to show that the assessments were correctly made.  He referred to the dissenting judgement of Mason J in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, at 89-90.

14.     In the Tribunal review of an assessment, it is not necessary for the Commissioner to seek to establish that the applicant’s assessable income was, or was at least, a particular figure (see the decision of Finn J in Vu v Commissioner of Taxation [2006] 63 ATR 341 at 344).

15. There are several ways in which a taxpayer can discharge the burden of proof placed on him by s 14ZZK of the Administration Act. When referring to the predecessor s 190(b) of the 1936 Assessment Act, Murphy J said in McCormack’s case, at 323:

A taxpayer might discharge the burden of proof placed on him by s. 190 (b) in any of several ways. He may prove all relevant circumstances and from these establish that an inference should be drawn that the property (from the sale of which by the taxpayer a profit arose) was not acquired by him for the purpose of profit-making by sale. Or he may prove by direct evidence that such a purpose did not exist. The burden might also be discharged by a combination of direct evidence and inference from other circumstances. He may, of course, rely upon any evidence or any inference from evidence adduced by the Commissioner.

16.     Murphy J also dealt with credibility issues relating to witnesses.  He said, at 323‑324:

I would not single this case out for remission for another hearing, especially if the purpose contemplated is that the court to which it is remitted should find whether the taxpayer or a witness is "honest" or "dishonest". In some cases a tribunal may conclude that a witness is, or is not, an honest witness. It is not required to do so. In civil cases such as this, it is generally undesirable to express such a finding in a proceeding which after all is to be decided on the balance of probabilities. Tribunals should not be encouraged to make findings that witnesses are honest or dishonest. In some cases, the evidence may point to such a conclusion. Even in these cases, assessment is often based on the demeanour of the witness and intuitive perception. The supposed special capacity of judges to decide the honesty of witnesses from demeanour and intuitive perception has never been established, and is, I suspect, grossly overrated. Even where witnesses contradict one another, it is not necessary to find that one is honest and the other dishonest. Both may be honest or both dishonest. It is enough for the tribunal to state that it does, or does not, accept certain evidence, or that it is, or is not, satisfied to the requisite standard.

I respectfully adopt what his Honour said regarding the credibility of witnesses.

2003 INCOME TAX YEAR

17.     According to the Commissioner, the unexplained earnings for the 2003 income tax year were identified as deposits in a Commonwealth Bank account (Streamline Account No 10004989 (CBA account)) and the National Australia Bank account (National Flexi Direct account No 49-141-7379 (NAB account)). 

CBA Account Deposits

18.     The Commissioner identified the following deposits which made up the $12,000 of unidentified earnings.  They are as follows:

DATES	AMOUNTS
20 August 2002	$1,000
2 October 2002	$3,400
12 December 2002	$   500
6 March 2003	$1,000
17 March 2003	$1,100
4 June 2003	$5,000

19.     Mr Nguyen testified that he earned income from his employment as a boilermaker, working for Birelos Engineering.  He said that until 1 July 2003, Birelos Engineering paid his salary in cash and after 1 July 2003, he was paid by electronic deposits into his CBA account.  This was confirmed in a letter provided to the Commissioner by Birelos Engineering.  Mr Nguyen’s tax return for the 2003 tax year discloses income in the amount of $33,166 from an occupation described as Factory Hand.  From that gross sum, $7,044 was withheld as tax.  Therefore, Mr Nguyen’s net or disposable income for that year was $26,122.  That equates to approximately $502 per week.  Mr Nguyen’s subsequent payment summaries indicate that his salary was paid on a weekly basis.

20.     In a witness statement affirmed by Mr Nguyen on 2 February 2009, he said that the deposits in his CBA account in the year ended 30 June 2003 represented his net accumulation of wages and his gambling winnings, less any withdrawals and living expenses.  By way of contrast, in Mr Nguyen’s objection lodged by Willocks Lawyers on 4 August 2007, Mr Nguyen said that the $12,000 comprised employment earnings, winnings from gambling and loans from a Hoi.  I have explained the operation of a Hoi more fully below. Payments are usually made into the Hoi on a monthly basis by all participants and one participant is permitted to withdraw the funds provided by all participants at the end of each monthly period. In effect, a participant in the Hoi is able to borrow from the other participants, the total sum which that person is required to contribute over the period of time which the Hoi operates.

21.     Although Mr Nguyen said in his witness statement that the $12,000 was less than half of his cash wage for the financial year ended 30 June 2003, that statement is misleading.  The deposits were made between 20 August 2002 and 4 June 2003, a period of approximately 38 weeks.  Over that period of time, Mr Nguyen’s net wage would have resulted in an accumulated total of $19,076.  Therefore his deposits comprised about 63 per cent of his net earnings during that period.

NAB Account Deposits 

22.     In addition to those deposits in his CBA Streamline account, in the same period of time as those deposits were made, Mr Nguyen also had a number of substantial deposits into his NAB account.  Taking into account the first deposit on 10 July 2002, which occurred just before the deposits into the CBA account, over the period corresponding with the CBA deposits, Mr Nguyen deposited $31,710 (excluding the redeposit of $12,500) into the NAB account.  Therefore, over a period spanning some 38 weeks in which Mr Nguyen’s total net income was $19,076, there were deposits totalling $43,710 into his CBA and NAB accounts.  That leaves at least $24,634 unaccounted for, without taking into consideration living expenses over that nine and a half month period.   

23.     However, Mr Nguyen claimed that the balance, or the shortfall, was made up by winnings from the casino in the sum of $10,600; and the sum $13,000 which was sourced from draw‑downs in the Hoi in which he was then a participant.

Gambling Winnings

24.     There are some problems with what Mr Nguyen said about his casino winnings.  The only evidence produced by Mr Nguyen regarding his attendance at the casino comprised bank statements indicating withdrawals from an automatic teller machine (ATM) at that facility.  There was no evidence at all that Mr Nguyen gambled at the casino other than his statements in evidence to that effect.  I have more to say about that below.  For the present purposes, during the period between 20 August 2002 and 4 June 2003, withdrawals from the casino ATM are recorded on only two days, 21 October 2002 and 28 January 2003.  The total of those withdrawals is $1,500.  Despite these figures, Mr Nguyen said in his witness statement:

I am not a professional gambler, and I never conducted any business as a gambler. I never profited from my evenings at Crown Casino gambling and socialising.  Over the relevant period, I was a loser.

That statement is clearly inconsistent with what appears to be an outlay of $1,500 for winnings of $10,600.

Hoi Proceeds

25.     The second source of the excess monies deposited in Mr Nguyen’s accounts was claimed by him to have been derived through the Hoi in which he said he participated.  The only Hoi of which the Tribunal has documentary evidence during the relevant period was that which was described as commencing on 1 April 2001.  That Hoi had 43 participants and ran for a period of 43 months.  Mr Nguyen’s name does not appear on that list of participants.  The translated copy of the Hoi document which was in evidence indicated that participants could bid for the pool of funds at 6pm every month.  The document also states that members were required to pay their contribution (monthly) within three days of each bidding round. 

26.     There are several problems with Mr Nguyen’s claim to have received monies from Hois during the August 2002 – 4 June 2003 period.  The first and obvious is that Mr Nguyen’s name does not appear on the list of participants.  In his oral testimony, Mr Nguyen confirmed that he was a member of the Hoi but said that in his household, there were two people, himself and a friend, Ms Tuan Luong.  In his written statement, Mr Nguyen said that Ms Luong and he were involved in the Hois.  In cross-examination, he said that he was not personally invited by the organiser of the Hois to participate as he had no relatives in Australia and very few assets.  He said that the organisers would not trust a person like him.  Ms Luong made a witness statement dated 12 November 2009 which was admitted into evidence.  In that statement, she said that she was a member of the 1 April 2001 Hoi.  She said that she held two shares out of the 43 participating shares, being numbers 24 and 25.  The participants of that Hoi, at numbers 24 and 25, have the names Hung-Tan.  Ms Luong also testified that she was shown as the owner of the shares because she was known to the promoters of the Hoi.  She claimed her participation was jointly with Mr Nguyen whose first name appears as Hung.

27.     Ms Luong also gave oral evidence at the hearing of this matter.  She described her occupation as housewife.  She said she lived at 14 Menzies Street, Braybrook which is also the residential address of Mr Nguyen.  Although Ms Luong said in her witness statement that she had known Mr Nguyen since 1994, when cross examined about that, she said she arrived in Australia in December 1994 and that Mr Nguyen only became familiar to her in 1995.  Ms Luong said that she had shared a house with a group of people after arriving in Australia, and Mr Nguyen was a member of that group.  However, Mr Nguyen married but subsequently separated from his wife.  Ms Luong said that she obtained a house from the government, which was the Menzies Street house, and after becoming aware that Mr Nguyen had separated from his wife, she contacted him and they have shared the Menzies Street house since.  Ms Luong said that although the house was a Housing Commission house, she now owned it.  She said that Mr Nguyen pays rent to stay with her.  She indicated that although Mr Nguyen did not necessarily regularly pay rent, he did pay about $200 per week which included money for food.  Although Ms Luong initially explained that she shared accommodation with Mr Nguyen before she was given accommodation in the Housing Commission house, she later said that Mr Nguyen was in fact sharing that house with her immediately prior to being married and then, after his marriage failed, he resumed living at the Menzies Street house.  Ms Luong was then asked whether Mr Nguyen lived in the house he purchased in Ardeer in about 2003.  Ms Luong said that he had moved to the house but for his everyday living, he continued to stay with her, because she provided the food and he ate at her house.  I have more to say about this below. 

28.     Ms Luong testified that together with Mr Nguyen, they contributed to three Hois. This was despite the fact that subsequent evidence was that Ms Luong and Mr Nguyen participated in four Hois.  Ms Luong was handed a copy of the list of participants of the 1 April 2001 Hoi and she confirmed that she together with Mr  Nguyen were those parties identified at numbers 24 and 25.  Ms Luong said that the names were put on the list by Dong (Mr Dong Van Nguyen).  Ms Luong agreed that it was important that the names of the members of a Hoi be listed but she also said that Vietnamese people may type names but not precisely as English speaking people might do.  In other words, it was not very important to Vietnamese people if there were mistakes in the spelling because we know each other by face.  Ms Luong said that the person’s name written as Tan was in fact her. 

29.     Mr Dong Van Nguyen (Mr Dong) made a witness statement dated 22 December 2008.  In that statement, Mr Dong said he was the secretary of the 1 April 2001 Hoi.  Because he started the April 2001 Hoi, he also described himself as the principal of that Hoi.  Mr Dong testified that Mr Nguyen was a participant in the Hoi as the partner of Ms Luong.  He said Ms Luong had been known to him for more than 10 years.  He recalled that Mr Nguyen and Ms Luong contributed $25,800 to the Hoi and that they withdrew that sum from the Hoi, although he did not say when their contributions were withdrawn.  Mr Dong also gave oral evidence at the hearing of this matter on 19 November 2009 and again on 5 July 2010.  The reason for the significant break in proceedings was that the solicitors for the applicant complained about the interpretation of Mr Dong’s oral testimony given on the afternoon of 19 November 2009.  As I understood it, the parties agreed that Mr Dong’s cross-examination should commence afresh following his attendance on 19 November 2009.

30.     In cross-examination Mr Dong was asked how long he had known Mr Nguyen and he answered from the day he was interviewed for a job with Birelos Engineering in about 2000.  He agreed that he continued to work with Mr Nguyen up to the present time.

31.     Mr Dong was shown the Hoi document and he identified it as the Hoi of which he was the principal.  He said the handwriting at the bottom of that document was not his but belonged to a friend of his, by the name of Thang.  Mr Dong confirmed that payment of the monthly sum of $300 was required to be paid within three days after the bids had been put in at 6.00pm at the start of every month.  He agreed that all members of the Hoi were given a copy of the document.  He agreed that the document in evidence was not in his possession and that he obtained it, possibly from Tuan but he was not certain.  He agreed that it listed all the participants on that Hoi. 

32.     Mr Dong’s attention was drawn to a statement he made in paragraph 10 of his witness statement where he said that if a person participates in a Hoi, the person agrees to remain a member of the Hoi for its duration.  He agreed that statement was not strictly speaking correct and said that a person can withdraw although their name will continue to appear on the document, and a friend can be substituted.  When it was put to Mr Dong that was not what he said in his witness statement, he insisted that his statement was correct but the translation of the paragraph was not given its true meaning.  This was despite the fact that he agreed that it had been translated before he signed it.  Mr Dong also agreed that payments were required to be made within three days after a bidding date and said that some payments were made on the second day and some on the third day.  He agreed that he did not receive all of the money required to be contributed to the pool on the bidding day.

33.     Ms Schilling, who appeared on behalf of the Commissioner, asked Mr Dong whether Tuan Kim Luong was a member.  At first Mr Dong suggested her name appeared at item numbers 27 and 28.  He then agreed he was incorrect and said that her name was not there.  When asked if he recalled her being a member of his Hoi, he responded: No.  Ms Schilling then asked Mr Dong to confirm that Tuan Kim Luong was not a member of the 1 April 2001 Hoi and Mr Dong responded that her name did not appear on the list.

34.     There was one other aspect of this Hoi (and the other Hois) which I have found to be most unusual.  That had to do with the way participants could bid for the pool every month.  The 1 April 2001 Hoi states, under the list of participants:

To ensure fairness, higher bids of $5 are ‘ok’ [will win] – For equal bids, the bid drawn first is ‘ok’ [will win].

The member with a $5 higher bid will win the right to receive the pool money.

35.     Mr Dong insisted that in this Hoi, no interest was charged to the participants but rather, the fund was designed to assist all members of the group.  This was in accordance with what other principals of the remaining Hois said about bidding for the pool of funds.  However, and with respect to all of those persons, such a statement stands in stark contrast to what appears to be a basic rule of this and the other Hois.  That is, members are required to bid dollar amounts to win the right to receive the pool of money. 

36.     Like the other principals, Mr Dong said that the bids put in were simply numbers and not dollar amounts and that the bid with the highest number would simply succeed.  However, that is simply illogical and not in accordance with what appeared to be the rules of this and the other funds.  Ms Lan Thi Hoang, who was the principal or secretary of another Hoi, attempted to explain the bidding process.  She said that pieces of paper with numbers such as 5, 10 and 15 were put in a small bowl and those who wished to bid drew a number from the bowl.  The person with the highest number was the person who succeeded in bidding for that particular pool. 

37.     The first thing to be said about this is that there is no logical reason for placing the numbers 5, 10 or 15 on the pieces of paper.  The persons who wished to bid for the pool could just as easily have put their name on the piece of paper and a raffle conducted in the normal way.  Secondly, the rules of the Hois clearly indicate that a member must bid a dollar amount.  The word bid simply means to ask, entreat or demand (the Shorter Oxford English Dictionary).  Generally speaking, one bids for something by making an offer.  That accords with the language of the Hoi which states that a member with a $5 higher bid will win the right to receive the pool of monies.  As I understand the meaning of that sentence, an offer of $5 or higher must be made for the pool.  The person with the highest offer is entitled to take the money from the pool.  The process is not a raffle; it is one of making offers for the pool which, logically, will result in a discounted amount being paid in by members.  Furthermore, where there are equal amounts bid by members, the bid drawn first is the bid which wins.  That also indicates the members bidding must identify themselves in order for that to operate.  Therefore, it follows that members needed to identify themselves and bid a dollar value for the pool of funds available.  Logically, one would expect the bids to be at a much higher level at the commencement of a Hoi when compared with bids late in the life of the Hoi.  Regardless, the rules appear to indicate that bids cannot be less than $5.  If in fact the Hoi operated as Mr Dong said in his evidence, then it would be remarkable indeed if every member of a Hoi would not bid every month.  It would simply become a raffle with one member’s name being drawn out of the hat.  Presumably, once a member who only has one share in a Hoi has had their name drawn, they could not participate further in the raffle.

38.     In the course of re-examination by Mr D Lockie of counsel, Mr Dong was asked to look at the entries at numbers 24 and 25 where the name Hung-Tan was written.  Mr Dong accepted that those entries indicated two people jointly participating in two shares.  When asked who Tan was and who was Hung, Mr Dong said he could not remember the names.

39.     It was quite clear that all of the persons who gave evidence about the operation of Hois were, contrary to the rules and logic, intent on making it clear that no interest was paid to anybody as a result of a bidder gaining access to the pool of money at the beginning of a month.     

40.     With respect to Mr Dong and the other principals of the Hois who gave similar evidence, I cannot accept the accuracy of that evidence.  It is contrary to what is expressly stated in the Hoi document and, furthermore, there is little or no logic in what was said.  This also raises very serious doubts about the accuracy of their evidence regarding the participants in a Hoi.  In fact, as far as Mr Dong’s evidence regarding the participants in the 1 April 2001 Hoi is concerned, I am not satisfied on the balance of probabilities that the names said to be those of Mr Nguyen and Ms Luong at numbers 24 and 25 are in fact those persons.  When Mr Dong was directed to the names at numbers 24 and 25, he did not recognise those as Mr Nguyen and Ms Luong.   Accordingly, I find on the balance of probabilities, that neither Mr Nguyen nor Ms Luong were members’ of the 1 April 2001 Hoi. 

41.     A further question was raised about drawings from the Hoi as Mr Nguyen said that in the period 20 August 2002 to 4 June 2003, two lots of $6,500 where drawn from the pool.  At least that is what is stated in his witness statement at paragraph 16.  However, attached to that witness statement are copies of Mr Nguyen’s CBA and NAB accounts for the relevant period.  On the NAB account, Mr Nguyen has annotated, with the letter capital H, those deposits in his account which came from the Hoi.  The two sums I have referred to above are marked but, in addition to that, on his CBA statement, there is an entry on 4 June 2003 indicating a deposit of $5,000.  Mr Nguyen has marked a letter H beside that entry indicating at the bottom of the page that this was also the proceeds of a Hoi.  In other words, during the nine and a half month period, there were three drawings from the Hoi. 

42.     If I were to accept that Mr Nguyen was involved in the four Hois which have been referred to in the course of this hearing, the second Hoi in which Mr Nguyen said he was involved commenced on 25 August 2003.  Therefore, the three withdrawals from the Hoi could only be referred to the 1 April 2001 Hoi and not any subsequent Hois.  However, that causes another serious problem for Mr Nguyen.  Unlike the other three Hois which were in evidence before the Tribunal, the 1 April 2001 Hoi said nothing about an entitlement to draw twice from the pool where one person held two shares.  The remaining three Hoi documents deal with multiple shares, at least to the extent where a member has two shares.  Those Hois restrict a participant’s entitlement to bid for the pool amount a second time until the fund is halfway through to completion.  Nothing is said about persons holding more than two shares. 

43.     In the 1 April 2001 Hoi, one of the participants held seven shares.  If that person was allowed to bid on seven occasions, without any restriction, that individual or pair of individuals could conceivably dominate the bidding in the early part of the Hoi and gain a significant advantage by having the pool funds available to them on seven occasions for relatively small outlays.  It seems to me that if such a course were available, it would hardly be a benevolent community fund as has been described by Mr Dong.  Furthermore, when Ms Luong was asked in cross-examination whether she took the money out of the Hoi as one lump, in two lumps,  she said:

67.     In her witness statement, Ms Luong also said that because she was known to the promoters of the Hoi, she was shown as the participant, although her participation was jointly with Mr Nguyen.

68.     Ms Lan Thi Hoang (Lan Hoang) made a witness statement on 14 July 2009 which was admitted into evidence.  Ms Lan Hoang said in her statement that she was the secretary of the 25 August 2003 Hoi.  She said she started the Hoi and was its principal.  Attached to her witness statement was the list of participants which were, as I have referred to above, 21 in number and not 40 as deposed to by Ms Luong.  She said she recalled extending an invitation to Ms Luong, whom she described as Tuan, to participate in that Hoi with her partner.  It is of some interest to note that Mr Nguyen’s evidence was that Ms Luong was not his partner in the sense that expression is generally used in the English language.  Rather, he testified that she was an acquaintance and he resided at her premises, paying board for his accommodation and meals. 

69.     Ms Lan Hoang also stated that a Hoi involves trust between its participants and she seemed to place some weight on the fact that the participants were known to her.  She said Ms Luong had been known to her for some 17 years and the applicant for 10 years.  However, in cross-examination, she changed that testimony to state she had known Mr Nguyen for about seven or eight years.  Ms Lan Hoang said that she was required to know everybody who wished to participate and to list their names.  However, despite the fact that Mr Nguyen was well known to her, whether it was for seven, eight or ten years, his name was not listed on that Hoi.  Ms Lan Hoang also testified that the fourth and fifth named parties, Phuc Huc Duong, was a couple rather than a single person.  She said that where one name was written, that was a reference to only one person although in some instances, where two names appeared, such as Bao Thuan, that was also one person.  Ms Lan Hoang was not asked why she did not list two names when she was aware that Ms Luong was participating together with her partner, Mr Nguyen.  She testified that Mr Nguyen did not attend the Hoi meetings and that she did not give any money to him on the bidding dates. 

70.     In her witness statement Ms Lan Hoang said that Mr Nguyen and Ms Luong contributed $6,300 to the Hoi and that they withdrew that amount in the course of Hoi.  However, when it was pointed out to her in cross-examination that Ms Luong is said to have held two shares (six and seven), she said Ms Luong was entitled to be paid $12,600 in total.  In other words, one payment for each of the shares.

71.     The rules set out on the list of members of this Hoi state that members with two shares are entitled to bid for the pool amount a second time, but only after the fund is halfway into its completion.  Therefore, the earliest opportunity for persons with two shares to make a second bid, according to the bidding dates, was 3 April 2004.  Ms Lan Hoang said in her witness statement that the $300 monthly payment by participants was required to be made within three days of the first day of each month.  Although when asked whether that statement was incorrect, she answered no, when it was put to her that she may have intended to say it is within three days of the bid, she agreed that it was three days after the bid.  It is plain from the bidding dates that there was more than one bidding date in a month in three of the months in question.  When it was pointed out to Ms Lan Hoang that her witness statement at paragraph 25 was incorrect because she had testified that Mr Nguyen and Ms Luong had contributed $6,300 to the Hoi and had withdrawn that amount rather than the $12,600 amount, she said she could not recall the dates on which Ms Luong lodged a successful bid.  She nevertheless testified that Ms Luong did make payments to the Hoi as required.

72.     In her witness statement Ms Luong said that she gave Mr Nguyen two payments of the $6,000 from the 25 August 2003 Hoi.  She did not indicate when those monies were paid to Mr Nguyen.  Ms Luong was asked in cross-examination why Mr Nguyen’s name was not on the Hoi list of shareholders.  Ms Schilling suggested to Ms Luong that Mr Nguyen was not on the list because he was not a member.  Ms Luong simply responded that Lan Hoang knew her and that she did not trust Mr Nguyen.  With respect to Ms Luong, no such suggestion was made by Ms Lan Hoang.  Also, when in the course of re-examination the errors in her statement were pointed out to her, Ms Luong suggested that the explanation probably lay in translation problems.  However, and with respect to Ms Luong, the solicitor who signed her statement certified he understood the English language and the Vietnamese language and that he correctly interpreted the contents of the statement.  I do not accept her explanation.

73.     According to Mr Nguyen’s statement of 2 February 2009, there were two Hoi withdrawals in the 2004 tax year, on 23 December 2003 ($7,000) and 9 February 2004 ($7,800).  Those deposits are recorded in Mr Nguyen’s NAB account.  Because Mr Nguyen claimed that there had been two prior withdrawals from Hois in October 2002 and March 2003, although I have found he was not a participant in the 1 April 2001 Hoi, assuming I am wrong, the December 2003 and February 2004 deposits cannot relate to that Hoi as the two prior withdrawals relate to the two shares in the 1 April 2001 Hoi.  Although there were two further Hois in which Mr Nguyen claimed he participated, both of those Hois commenced on 4 July 2004 and therefore cannot account for the December 2003 and February 2004 deposits.  If Mr Nguyen is correct about participation in the Hois, both sums must have been drawn from the 25 August 2003 Hoi. 

74.     The Hoi document stated there was a bidding date on 20 December 2003.  Members were required to pay their dues within three days of the bid to the winning bidder.  Assuming of course that the rules of the Hoi are followed by its members, the pool of monies available on 20 December 2003 would not have been paid to the winning bidder before the end of the day on 23 December 2003, at the earliest.  Furthermore, the pool comprised $6,300.  Therefore, on the balance probabilities, it is unlikely that an amount of $7,000 can be attributed to the proceeds of a winning bid on 20 December 2003 in the 25 August 2003 Hoi.  The timing of the deposit and the amount do not logically lead to that conclusion. 

75.     The second deposit of $7,800 also suffers from similar problems.  First, the pool was $6,300 and yet the deposit was $7,800.  There is no logical connection between the two sums.  Secondly, the only bidding date in February was 21 February 2004.  Plainly, the deposit does not relate to any monies available as a consequence of a successful bid on that date.  The bid date which precedes 21 February 2004 is 31 January 2004.  Again, there is no logical connection between monies produced as a consequence of a successful bid on that date and the 9 February 2004 deposit.  Additionally, as the rules state, members with two shares can only bid a second time in that Hoi after the Hoi is halfway into its completion.  As I have indicated above, if the rules were followed, then Ms Luong would not have been permitted to make a second bid until 3 April 2004.  It follows, logically, that the sum of $7,800 deposited in Mr Nguyen’s NAB account on 9 February 2004 was not the proceeds of the 25 August 2003 Hoi.

76. Given my findings regarding the unexplained deposits identified by the Commissioner in the 2004 tax year, I find that Mr Nguyen has not, by evidence, established the provenance of those unexplained funds. He has not discharged the evidentiary onus in s 14ZZK of the Administration Act.

2005 TAX YEAR

77.     The assessable income which the Commissioner says Mr Nguyen has not accounted for in this tax year, include deposits into his Westpac account in the amount of $18,000 and deposits into his NAB account in the amount of $27,383.

78.     According to Mr Nguyen’s tax return for the 2005 tax year, his taxable income amounted to $41,224.  After tax, his net income for that year was $31,094.  The Commissioner has calculated that the combined total of deposits into Mr Nguyen’s NAB, CBA and Westpac accounts for that financial year was $85,578.  After deducting Mr Nguyen’s monthly $1,500 mortgage repayments from his net income, the Commissioner calculated that his disposable income for other living expenses was $13,094.  That calculation does not take into account the regular repayments Mr Nguyen was required to make as a consequence of his borrowing $20,000 from Abbess on 20 July 2003.  Those repayments presumably continued given that at the rate of $500 per month repayment, the loan would not be extinguished until some 40 months after the borrowing date.  Therefore, effectively, Mr Nguyen’s disposable income for the 2005 tax year would have been $7,094. 

79.     The Commissioner contended that Mr Nguyen’s disposable income, calculated by subtracting from the total bank deposits in that year the Westpac $1,500 monthly commitments, was $67,578.  That of course could be reduced by a further $6,000 if repayments to the Abbess are also taken into account.  Regardless, there appears to be a large discrepancy between the funds Mr Nguyen had available to him to meet his living expenses and home-loan mortgage based on his salary and the disposable income calculated by the aggregation of deposits in his bank accounts.

Westpac Account Deposits

80.     In his witness statement of 2 February 2009 Mr Nguyen stated that the 12 monthly deposits of $1,500 into his Westpac account represented cash he had saved from his wages, withdrawals of savings in his CBA account and his NAB account as well as gambling winnings.

81.     As I have already indicated above, Mr Nguyen made regular $1,500 deposits into his Westpac account, usually around the 17^th or 18^th day of each month.  If monies for those mortgage payments came from his wages, which were now being deposited on a weekly basis into his CBA account, logically, one would expect to see some relationship between the wages deposited and a depletion of the bank account by the mortgage repayment sum, save perhaps for gambling winnings which I will deal with presently.  Mr Nguyen did not claim that withdrawal of sums from Hois was used to pay his monthly mortgage repayment.  The vast majority of withdrawals from Mr Nguyen’s CBA account appear to be the withdrawal of cash at ATMs, often from an ATM located at Crown Casino.  The amounts are relatively small, ranging from $100 to $500 on any one withdrawal.  Similarly, the withdrawals for the 2005 tax year from Mr Nguyen’s NAB account are commonly listed as having been cash withdrawals from ATMs, many at Crown Casino.  Some of those entries have the word Sino beside them which, according to Mr Lockie’s submissions, are non-bank ATMs also at the Casino.  I did not have evidence about that but I have no reason to doubt what Mr Lockie said.  There are some larger withdrawals from the NAB account, for example, on 9 August 2004 there is a $2,000 withdrawal which was not made through an ATM.  However, that withdrawal does not logically bear any relationship to the monies deposited in the Westpac account.  There was a $5,000 withdrawal on 5 January 2005 although Mr Nguyen has annotated the copy attached to his witness statement indicating that this money was withdrawn in order to repay a friend.  There were no other withdrawals from the NAB account which have any logical link to the Westpac account deposits.  Therefore, I find that the provenance of the money deposited in Mr Nguyen’s Westpac account during the 2005 tax year has not been established. 

nab account deposits

82.     According to the Commissioner, there were unaccounted deposits in Mr Nguyen’s NAB account totalling $27,383.  Mr Nguyen contended that deposits totalling $20,600 resulted from his gambling and $6,000 from withdrawals made from successful bids in Hois.  There is a further small sum of $783 which the Commissioner claims was interest Mr Nguyen earned on his NAB term deposit but which he did not declare as income.  Mr Nguyen’s income tax return for the 2005 tax year discloses he did not declare any interest for that year.  Therefore, I have no doubt at all that the interest, as calculated by the Commissioner, should be taxed.

Gambling Winnings

83.     I have already referred to the fact that Mr Nguyen has not provided any corroborative evidence of his gambling activities.  I have also stated that it is incorrect to draw the inference that he was in fact gambling simply from the fact that there were many withdrawals from his accounts via ATMs situated at the Crown Casino.  To do so is to speculate or to make an assumption that the monies were used for gambling purposes.  Furthermore, as Ms Schilling submitted, there are many inconsistencies in Mr Nguyen’s evidence.  For example, in his witness statement he said that he withdrew the sum of $22,050 from his NAB account in the 2005 tax year to fund his gambling.  However, accepting that those ATM entries with the word Sino beside them were withdrawals for gambling purposes, my calculation indicates that the ATM withdrawal figure to be $19,220.  This accords with Mr Lockie’s calculations referred to in his closing submissions.  Mr Lockie submitted that that was simply a calculative error made by counsel.  Be that as it may, one would ordinarily expect Mr Nguyen to have taken more care in making the calculations for himself.  Regardless, the amounts withdrawn from ATMs at the Crown Casino do not, in themselves, either point to the fact that Mr Nguyen was gambling or that Mr Nguyen had winnings from gambling.  Again, it is illogical to draw the inference that because he withdrew some $19,220 from his NAB and CBA accounts at a Crown Casino ATM, the deposits in the NAB account are the result of gambling winnings. 

84.     Mr Nguyen said in evidence that he liked to keep cash rather than deposit money in bank accounts. Therefore, the source of the deposits in the NAB account during the 2005 tax year, in the absence of objective evidence regarding the provenance of those monies, cannot simply lead to the conclusion that they must be gambling winnings.  That is simply speculation.  There are a number of cash deposits in sums between $1,000 and $6,000 which were not accounted for by Mr Nguyen.  Given the onus Mr Nguyen bears in proving that the Commissioner’s assessment was excessive, in my opinion, he cannot discharge that burden of proof without corroborative evidence of his claim that these were gambling winnings.

Hoi Proceeds

85.     Mr Nguyen claimed that $6,000 of the monies deposited in the 2005 tax year came from a withdrawal on 4 April 2005 from a Hoi.  Mr Nguyen did not identify which Hoi that money came from.  At that time, all four Hois referred to by Mr Nguyen remained operative.  In addition to the two I have already dealt with above, there were a further two, both dated 4 July 2004 but described as number one fund and number two fund.  The number one and number two funds each had 37 members and therefore ran for 37 months.  The organiser of each of those funds was described as Lan.  Despite this, Lan Hoang’s witness statement describes her as the principal only of the 4 July 2004 number one Hoi.  In her witness statement she said that Thanh Thi Hoang acted as her assistant in that Hoi.  She made no reference at all to the 4 July 2004 number two Hoi.  In fact, Ms Phuc Thi Hoang claimed she was the assistant secretary of the 4 July 2004 number two Hoi.  She made a witness statement to that affect. 

86.     The number one and number two 4 July 2004 Hois have identical bidding dates.  Mr Nguyen’s name does not appear on either list of members for those Hois.  The name Tuan appears at number 8 in the number one July 2004 Hoi, and her name appears twice, at 11 and 12, in the number two Hoi.  There are no bidding dates within three days before April 2005.  The bidding date which precedes 4 April 2005 is 13 March 2005.  The next bidding date is 10 April 2005.  Therefore, despite Mr Nguyen’s statement that all of the deposits from Hois were contemporaneous with withdrawals from those Hois, there is no evidence to link successful bids for the pool of funds in either of those Hois with the 4 April 2005 deposit.  There are no grounds before me on which any logical connection can be made between the $6,000 cash deposit on 4 April 2005 and any of the Hois I have referred to above.  Accordingly, I find that the cash deposit in the sum of $6,000 made on 4 April 2005 into Mr Nguyen’s NAB account was not the proceeds of any of the Hois referred to by Mr Nguyen.  Therefore, Mr Nguyen has failed to prove, on the balance of probabilities, that his tax assessment for the 2005 tax year was excessive following the Commissioner’s decision that this amount was undeclared income of Mr Nguyen.

PENALTIES

87.     In his objection decision dated 6 May 2008 the Commissioner refused to remit the penalties for the years in question and determined that the rate of 50 per cent of the tax shortfall should be maintained.  The Commissioner said that Mr Nguyen chose to disregard the consequences foreseeable by a reasonable person who disregarded his or her obligations under the Income Tax Assessment Act. The Commissioner said 50 per cent was the correct reflection on Mr Nguyen’s behaviour and was in accordance with paragraph 17 of Taxation Ruling TR94/4.  That taxation ruling was withdrawn on 14 May 2008.

88. The current legislation dealing with penalties is to be found in Division 284 of Part IV-25 of Schedule 1 of the Administration Act. A taxpayer’s liability to pay penalties for making false or misleading statements about a tax related matter or in taking a position which was not reasonably arguable about a tax related matter are dealt with under Subdivision 284-B of the Administration Act. Section 284-75(1) provides:

284‑75  Liability to penalty

(1)You are liable to an administrative penalty if:

(a)     you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and

(b)     the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

Note 1:Subsection 2(2) specifies laws that are not taxation laws for the purposes of this Subdivision.

Note 2:This section applies to a statement made by your agent as if it had been made by you: see section 284‑25.

89.     Drummond J in Kajewski v Federal Commissioner of Taxation (2003) 52 ATR 455 at [121] attempted to explain the meaning of false and misleading. He said:

[121] A taxpayer makes a false or misleading statement in a return within s223(1)(a)(i) if a return which the taxpayer furnishes to the Commissioner in obedience to s161(1) contains a statement that is erroneous or incorrect: no element of deceitful or dishonest conduct on the part of the taxpayer or anyone else needs to be established. This is the position where the return containing the false statement is prepared by the taxpayer's agent and the taxpayer is not aware of the falsity.

90.     Quite plainly, Drummond J, while explaining the meaning of the word false, did not deal with the word misleading.  In Re Confidential and Commissioner of Taxation [2008] AATA 415 at [50], Deputy President Forgie dealt with the word misleading.  She said:

My reluctance to embrace his Honour’s interpretation and apply it to s 284-75(1) comes from the fact that he appears to have focused only on the word “false” for it carries with it the senses of “erroneous or incorrect”.  The word “misleading” has a different connotation in its ordinary meanings.  It is an adjective meaning “likely to mislead; deceptive” and the word “mislead” means “1 to make someone take a wrong or undesirable course of action. 2 to cause someone to have a false impression or belief. …”  It is clear that a statement need be neither erroneous nor incorrect and yet mislead the reader.  This is the thought behind s 284-30 ...

91.     The Commissioner submitted that the income tax returns lodged by Mr Nguyen for the 2003, 2004 and 2005 tax years were both false and misleading as they were incorrect and omitted income which the Commissioner identified as unexplained deposits in Mr Nguyen’s bank accounts. Quite plainly, given my findings in respect of those unexplained deposits, I accept the Commissioner’s submission and find that Mr Nguyen’s tax returns for the years stated were false and misleading. 

92.     It follows that the issue for me to determine is the correct base penalty amount, giving consideration to the matters set out in s 284-90 of the Administration Act.  Item 2, which attracts the base penalty amount of 50 per cent, refers to the shortfall amount having resulted from recklessness as to the operation of a taxation law.  The Full Court of the Federal Court in Hart v Commissioner of Taxation (2003) 131 FCR 203 (Spender, Hill and Hely JJ), at 214, explained the concept of recklessness in the following way:

[43] Recklessness is a concept well known to the law, particularly in the fields of tort and criminal law. In those fields, recklessness will usually be found to have been established if the person's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. In some contexts a subjective test is applied, but in others the test is objective. In BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 at 364 Cooper J made the following observations in relation to recklessness in the context of s226H;

'Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.'

[44] There is a line between recklessness and dishonesty, and as the Explanatory Memorandum for the Taxation Laws Amendment (Self Assessment) Bill 1992 (at p 89) confirms, a finding of dishonesty is not necessary for a taxpayer to be subject to a s 226H penalty. Wherever a tax return includes deductions that are not allowable, a foreseeable consequence is that there will be a tax shortfall, particularly in a system of self assessment. But, in the ordinary case, the mere fact that a tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established although there are some sections (eg s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than an intentional disregard of the Act (s 226J).

93.     Mr Lockie submitted that should Mr Nguyen fail to discharge the onus of proving his tax assessments were excessive for the years in question, that did not automatically result in the imposition of penalties for recklessness.  He submitted it was not reckless for a person with poor command of English and technical tax concepts to have provided a better audit trail of his activities.  He also submitted Mr Nguyen was co-operative and that he had a reasonably arguable position in arguing that the disputed amounts should not have been included in assessable income.  With respect to Mr Lockie, I disagree.

94.     As Ms Schilling submitted, Mr Nguyen has been an Australian resident since 1992.  He chose to conduct his affairs using substantial amounts of cash without keeping documentary evidence of transactions.  He must be taken to have understood the requirements of substantiation for the purposes of Australian taxation law.  In my view, his conduct shows a disregard or indifference to the consequences of his actions which were foreseeable by a reasonable person.  He must have been aware that his true income was substantially in excess of that declared as a result of his work at Birelos Engineering.  That income by itself was not sufficient to properly meet his living expenses, allowing for his mortgage commitments and repayment of the loan to the Abbess.  Despite that, he appeared to have relatively large sums of money available for other activities.  In my opinion, the evidence does not go so far as to disclose an intentional disregard of the Act but it does disclose something more than a failure to exercise reasonable care.  Therefore, I find that the base penalty amount of 50 per cent imposed by the Commissioner was correct.

REMISSION OF PENALTY

95. Section 298-20 of Schedule 1 of the TAA deals with remission of penalty. Section 298-20(1) simply provides that the Commissioner may remit all or part of the penalty. In exercising his discretion, the Commissioner has set out in Practice Statement LA 2006/2, the matters which should be regarded when exercising that discretion. There can be no doubt that reference to those guidelines is permissible particularly where discretionary decisions are required to be made under an enactment. As Bowen CJ and Deane J said in Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60, at 69:

Ordinarily, however, an administrative officer charged with the exercise of discretionary power will be entitled, in the absence of specifically defined criteria or considerations, to take into account government policy. …  Indeed, the consistent exercise of discretionary administrative power in the absence of legislative guidelines will, in itself, almost inevitably lead to the formulation of some general policy or rules relating to the exercise of the relevant power.

96.     The Practice Statement, at paragraph 137, sets out the objectives, including:

a)the larger the item, the greater the level of care required;

b)the objective of the penalty regime is to promote consistent treatment regarding the rates of penalty imposed and the Commissioner must ensure that the decision to remit in part or full or not to remit is made in good faith and is reasonable taking into account all relevant matters;

c)entities with a good compliance history should be encouraged to remain compliant by treating them more leniently than those entities which do not have a good compliance history;

d)an entity without a good compliance history bears a heavier burden of proof justifying why remission is warranted; and

e)the discretion to remit should be administered such that it meets the objectives of the penalty regime without causing unintended or unjust results.

97.     Ms Schilling also referred to the decision of the Full Court of the Federal Court in Dixon v Commissioner of Taxation (2008) 69 ATR 627 where the Court held it was not necessary to establish special circumstances before the discretion to remit could be established.  However, it found that consideration of whether the imposition of the penalty was harsh was a permissible consideration.  The Court said, at 632:

... To the extent that the Tribunal had regard to the particular circumstances of the taxpayer in concluding that there was a harsh outcome such that part of the penalty should be remitted, that was a permissible course open to the Tribunal as the decision‑maker.

[21] To the extent that the primary judge concluded that it is necessary that there be special circumstances before the discretion to remit can be exercised, her Honour was in error.

98.     Ms Schilling referred to paragraph 142 of Practice Statement LA 2006/2 which states:

Where an entity has been more culpable and has behaved recklessly or with intentional disregard it is difficult to envisage a situation where the Commissioner would exercise discretion to remit.  It would be exceptional if the discretion was exercised when an entity had behaved recklessly or with intentional disregard. 

99.     Mr Lockie submitted that due to Mr Nguyen’s fixed income from his employment, his available cash flow will only be sufficient to enable him to repay by instalments, the primary tax owing to the Commissioner.  However, that submission does not accord with my findings regarding the additional income to which Mr Nguyen seems to have had access during the years in question.  There was no evidence before the Tribunal of Mr Nguyen’s asset position and whether any assets could be realised to repay monies owing to the Commissioner.  Although Mr Lockie submitted that Mr Nguyen will suffer severe financial hardship over the next several years, and that he would be left with no choice but to declare bankruptcy, there was no evidence of that before the Tribunal.  Mr Lockie also submitted that Mr Nguyen’s borrowings and liabilities are such that all available cash flow will be directed to paying the primary tax.  Again, as Mr Nguyen has since sold the Ardeer property, and he appears to have what can only be described as a flexible arrangement with Ms Luong regarding the payment of rent, it is certainly not clear to me that there will be a cash flow difficulty in future years.  There was no evidence before the Tribunal allowing a finding that there may be a greater probability of future default in meeting liabilities including taxation obligations.  Accordingly, I am unable to find grounds for remission or reduction of the penalty. 

CONCLUSION

100.   The Commissioner issued Mr Nguyen with amended tax assessments for the tax years 2003, 2004 and 2005 following an audit.  Although the Commissioner allowed some objections to the amended assessments, he nevertheless found that Mr Nguyen had substantially understated his income in each of those tax years.

101.   Mr Nguyen contended that the additional amounts of money deposited in his bank accounts were attributed to borrowings from friends, gambling winnings and withdrawals of the pool of funds available from various Hois. 

102.   After careful analysis of the claimed source of the unaccounted for monies, I have found that Mr Nguyen has not discharged the onus of proving that the Commissioner’s assessments were excessive.  He was unable to establish by evidence or necessary inference, on the balance of probabilities, the claimed source of the unaccounted for deposits in his bank accounts.  Accordingly, I find that the Commissioner’s amended assessments issued to Mr Nguyen on 10 June 2008 were correct, save for the re-deposit of $12,500 on 17 October 2002. 

103.   The Commissioner also determined that Mr Nguyen was liable to pay a penalty in respect of the three tax years in question.  Although I accept that Mr Nguyen’s failure to discharge the onus of proving the relevant assessments were excessive does not necessarily mean he must suffer a penalty, in the circumstances of this case, I have found that he acted with reckless indifference to the consequences of his decision not to disclose all of his income.  The Commissioner’s decision to impose a 50 per cent penalty on the tax shortfall was correct and I would affirm that decision.  I have also formed the view that this is not an appropriate case to allow remission or reduction of the penalty.   

I certify that the one-hundred and three [103] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr Egon Fice, Senior Member

Signed: .........[sgd]..................................................................
  E. Montalto, Associate

Dates of Hearing  18-19 November 2009
  5-6 July 2010
  28-29 October 2010
Date of Decision  4 August 2011
Counsel for the Applicant               Mr D. Lockie
Solicitor for the Applicant                Mr L. Nguyen, Willocks Lawyers
Counsel for the Respondent          Ms M. Schilling

Solicitor for the Respondent         Mr N. Gulati, Australian Taxation Office, Legal Services Branch