Nguyen and Commissioner of Taxation (Taxation)

[2018] AATA 117

Nguyen and Commissioner of Taxation (Taxation) [2018] AATA 117 (5 February 2018)

Division: TAXATION AND COMMERCIAL DIVISION

File Numbers:         2016/3171-3172

Re:Anh Nguyen

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President B McCabe

Date:5 February 2018

Place:Brisbane

The decision under review is affirmed.

..............................[sgd]..........................................

Deputy President Bernard J McCabe

CATCHWORDS

TAXATION - amended assessments - administrative penalties - whether reckless disregard for the law - onus of proof - taxpayer gambling - employer funded gambling trips - income and expenses - bank account churn - absence of contemporaneous records 

LEGISLATION

Taxation Administration Act 1953 (Cth) – ss 14ZZK(b), 284-75 Schedule One

CASES

Federal Commissioner Of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3

REASONS FOR DECISION

Deputy President Bernard J McCabe

5 February 2018

Introduction

1. The Commissioner of Taxation doubts the applicant disclosed all of her assessable income in returns filed in respect of the financial years ending 30 June 2014 and 30 June 2015.  The Commissioner’s suspicions were aroused because the applicant reported a comparatively modest income as a beauty technician yet she had an unexpectedly high volume of money passing through her accounts.  After analysing the applicant’s bank statements and other records (including records of her gambling at casinos and her expenses), the Commissioner issued amended assessments.  The Commissioner also imposed administrative penalties at the rate of 75% on the basis that the applicant made false statements in her assessments which suggested a reckless disregard for the law and for her obligations.  The applicant objected to these assessments.  She wants the Tribunal to review the Commissioner’s decisions on the objections.

2. In cases like this, the Commissioner is effectively making a guess as to the applicant’s income. It is an informed guess, to be sure, but – providing there is a rational basis for the estimate – the assessment will stand unless the applicant is able to demonstrate that the assessment was excessive: s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (the TAA). In making its case, the applicant must do more than establish that the Commissioner’s estimate was wrong.  Given the assessment involves guesswork, it is unlikely to be entirely accurate.  The applicant must establish what the correct (or more nearly) correct figure is: see, generally, Federal Commissioner Of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3 at [8] per Brennan J and [17] per Toohey J.

3. After hearing from the applicant and witnesses at the hearing and after reviewing the documents, I am not persuaded the applicant has demonstrated the Commissioner’s assessments are excessive.  Given those findings of fact, and having regard to submissions made with respect to the penalties, I am satisfied the penalty decisions must stand as well. I explain my reasons in more detail below.

   The applicant’s story

4. The applicant worked as a ‘beauty technician’ or cosmetologist specializing in nail care throughout the relevant period.  She was employed in a store owned by Hue Thi Nguyen. The precise terms of the employment arrangement are unclear.  The applicant confirmed in cross-examination that she commenced work at Hue Thi Nguyen’s store in early 2014 and “within a few months” the applicant was promoted to the position of manager.  The applicant worked full-time throughout the relevant years of income; she said in cross-examination that she was previously a student who had worked part-time elsewhere and the job with Hue Thi Nguyen was her first full-time role.  It appears she was employed by Hue Thi Nguyen on a casual basis.  She said her pay varied every week to reflect the number of hours she worked.  She said she was always paid in cash and she did not recall receiving pay slips.  She also said in her evidence in chief that she did not have any other sources of income because she was too busy working as a beauty technician to do anything else.

5. The applicant’s claim that she was too busy to do anything else needs to be read in light of the evidence of her extensive gambling.  She appears to have devoted significant time to that activity.  She claims she enjoyed some success at various casinos.  She said her gambling was the explanation for the money sloshing through her accounts during the periods in question.  As the gambling was a past-time rather than a business endeavour, it did not yield assessable income.

6. Much of the evidence at the hearing focused on the applicant’s gambling.  I will discuss that evidence below.  For now, it is enough to note the applicant’s declared income in her return for the financial year ended 30 June 2014 was $27,940 yet the Commissioner’s analysis of bank accounts, records of international money transfers and data provided by casinos suggests the applicant spent $40,446.  Her income in the following year was $61,482 but the Commissioner says she spent $107,328.

   What happened?

7. The applicant explained her gambling practices in the course of her evidence-in-chief at the hearing.  She says she went to the casino – mostly Crown Casino in Melbourne, although she lived in Brisbane – once or a twice a month during the period under review. She said she would fly to Melbourne with a friend.  She said she generally gambled $2,000 - $3,000 per visit.  She said her stake on each occasion was funded out of her work income.  (Before being employed by Hue Thi Nguyen, the applicant was a full-time student receiving youth allowance.  It is unclear how she was able to accumulate savings while she was a student.)  In any event, she said she won more than she lost; she claimed she would typically win $1,000 - $2,000 then leave.  She said she would usually deposit the winnings in her bank account.  She said she thought it was important to demonstrate to the bank that she had a pattern of regular deposits so she could improve her eligibility for a home loan in due course: see also exhibit three, witness statement of Anh Nguyen dated 20 September 2016 at [26]-[27]; [71]-[77].

8. The Commissioner points out there was a high level of churn in the accounts as money was deposited and withdrawn.  For example, in the ANZ Access Advantage account bank statements there is a record of deposited amounts being quickly withdrawn: exhibit one, section 37 Tribunal documents, T9.  It is not as if the applicant were saving the money, information that would surely have been more relevant to the bank when assessing credit-worthiness.  The applicant was asked whether she genuinely believed that depositing and withdrawing money on a regular basis communicated anything of value to the bank about her creditworthiness – especially when a number of the withdrawals occurred at casinos. The applicant was unable to offer a clear or convincing explanation for her behaviour.  When pressed during cross-examination about the point in depositing amounts that she proceeded to withdraw over the ensuing days, she conceded she did not have any purpose in mind for the money she withdrew.  She said she did not know why she did it.

9. I note the applicant’s wages were paid in cash.  Mr Brennan, who appeared for the Commissioner, asked the applicant why she would agree to that arrangement if she wanted to impress the bank with her creditworthiness.  Surely the bank would be more impressed if the applicant were able to demonstrate regular payments from an employer, Mr Brennan asked?  The applicant offered that the employer preferred it that way.

10. I also note the applicant said in cross-examination that she often kept a portion of her winnings in the form of chips that could be used to gamble on a subsequent occasion.  She claimed that was more efficient.  She suggested only a small proportion of winnings were retained in that form – although she suggested in her statement (exhibit three, witness statement of Anh Nguyen dated 20 September 2016 at [52]) she typically kept a larger portion of winnings in the form of casino chips.  She was unable to satisfactorily explain that apparent discrepancy in her evidence.  Interestingly, she appeared to dissociate herself from the statement in the course of cross-examination.  She claimed her lawyer had written it and she did not understand what it said.  In either event, that evidence tends to reduce the force of her earlier evidence that the bank account deposits were attributable to casino winnings, and further undercut her claim that she liked to make regular deposits into the bank to establish her creditworthiness.

11. The applicant gave further evidence about her track-record at the casino during cross-examination.  She repeated the claim she won more than she lost, but she confirmed she did not keep records of her winnings, nor was there any evidence of her keeping a running total.  She said she typically made or lost $1,000 - $2,000 on each trip, but on at least one occasion she lost up to $4,000.  She also agreed she made trips to Jupiters Casino on the Gold Coast and to the Star Casino in Sydney, although I gather Crown was her preferred venue.  While the applicant’s representative described the applicant in submissions as a ‘habitual gambler’ (applicant’s written submissions at [33]), the evidence does not suggest she lacked control over her behaviour, and she did not on her own account run up large losses she could not afford.

12. The applicant said she had a casino rewards card at Crown.  The rewards program was effectively a ‘frequent flyer’ program for gamblers that led to rewards like free flights, accommodation, meals and drinks at the casino.  Her use of the card at Crown was recorded in data provided by the casino and is reproduced at pp. 130-145 of exhibit one, section 37 Tribunal documents.  She claimed the casino records would not capture every one of her gambling transactions.  She said she did not always produce the card when gambling.

13. The applicant said she lived frugally apart from her gambling. She said she was able to support herself out of her wages, notwithstanding her gambling: exhibit three, Anh Nguyen statement dated 20 September 2016 at [29]. A table describing her expenses was included in exhibit one, section 37 Tribunal documents, T24 at p. 354. There are gaps in that account. In cross-examination, she explained she had limited expenses. She was unable to quantify or clearly explain what all of those expenses were. She did volunteer in cross-examination that she paid $250 per fortnight in rent, being half the rent on a house which she shared with her mother and another relative. Her mother was not employed. The applicant said relatives paid for food, and the applicant said her mother paid for clothing – although it is not clear how the mother afforded that expense along with a share of the rent. The applicant did not pay for electricity or transport. Those expenses were all met by her employer, she claims. Indeed, she suggested during cross-examination that her employer even paid for the cost of her seeing a fortune teller who was a mutual friend of her employer. These fringe benefits were apparently part of her package as a manager. (She conceded in cross-examination that members of her family had paid the electricity bills before she became a manager.)

14. I note the employer’s written statement (exhibit one, section 37 Tribunal documents, T24 at p. 357) does not mention paying for electricity or helping out with any other bills.  Hue Thi Nguyen’s statement dated 22 September 2016 only mentioned paying the applicant’s travel expenses (although the statement does volunteer at [8] that Hue Thi Nguyen treated her employees like family, explaining: “When [employees] need help, I am more than willing to provide it if I am able to.”)  I also note the applicant’s bank accounts include records of payments to Origin for an electricity account: exhibit one, section 37 Tribunal documents T9 at pp. 160, 166.  The applicant said she paid those bills and others herself but was reimbursed in cash by her employer and for any other travel expenses.  She said she kept the cash she received by way of reimbursement and used it for gambling.

15. The applicant’s mother was unavailable to give evidence about the applicant’s lifestyle or household expenses, or to corroborate her contribution towards meeting the applicant’s expenses.  I was told the applicant’s mother was overseas, and she did not speak good English in any event.

16. The applicant’s oral evidence about her gambling trips to Melbourne was interesting.  She claimed she never paid for the trips. They were complimentary: they were either paid for by Hue Thi Nguyen or by the casino under the casino rewards scheme.  She claimed the flights were arranged by simply contacting casino staff who were responsible for liaising with frequent gamblers.  The casino host would deduct points from the applicant’s account, or from the account of Hue Thi Nguyen.  The hosts took care of everything connected with the visit, so the applicant did not have any records.  She volunteered that Qantas might have records of the flights, but she did not produce them.

17. That evidence suggests it was important for the applicant to diligently provide her rewards card in connection with casino transactions to accrue points.  She was a person of modest means, after all, and (one would have thought) her taste of the high-roller’s lifestyle depended on her being able to access points.  Yet she said she did not always use her card to record transactions.  She said her employer provided points from the employer’s own account.  She did not clarify whether that benefit was an undocumented part of her employment contract, or simply an act of largesse on the part of Hue Thi Nguyen.  Indeed, she said in cross-examination that the rewards program did not matter much to her because she was able to access her boss’s points.  That raises the question of why she used the card on some occasions, but not (at least not on her evidence) on other occasions.

18. While the applicant said she made some of the trips on her own, she said in her oral evidence that she was often accompanied by a friend.  The applicant said the friend had access to the VIP room at the casino, so I infer the friend was a significant gambler.  It gradually emerged during cross-examination that the friend in question was Hue Thi Nguyen, the employer and source of rewards program points.  It is unclear why the applicant was so reticent in revealing this detail; Hue Thi Nguyen had already confirmed she accompanied the applicant: see, for example, statement of Hue Thi Nguyen dated 22 September 2016 at [12]; cf exhibit three, Anh Nguyen statement dated 20 September 2016, which did not discuss the fact the applicant routinely accompanied Hue Thi Nguyen to the casino.  The applicant’s reticence about the nature and extent of her relationship with the employer is perplexing.  The applicant said her employer paid for her trips to the casino, whether the employer accompanied her or not; a generous employer indeed.

19. Hue Thi Nguyen’s contribution towards the applicant’s lifestyle was obviously an important part of the applicant’s case.  Unfortunately, while Hue Thi Nguyen provided a statement and attended the first day of the hearing, she was not available for cross-examination.  I was told she had a cold.  Hue Thi Nguyen’s statement refers to assisting with transport expenses and mentions accompanying the applicant to casinos, but it is otherwise silent about the provision of other fringe benefits.

20. The applicant was also asked about AUSTRAC reports showing she remitted monies back to Vietnam.  In her statement, the applicant claimed the monies were sent to her aunt and a cousin in Vietnam who were ill and required support.  She confirmed the transfers were all funded out of her wages: exhibit three, Anh Nguyen statement dated 20 September 2016 at [78]-[81].  In cross-examination, she admitted that only two of five transactions were directed to a relative.

    Evaluating the applicant’s evidence

21. I have already explained it is for the applicant to persuade me (a) the Commissioner’s assessment is excessive; and (b) a different, lower figure which she is able to identify is correct, or more nearly correct.  She faces a number of challenges in discharging her burden of proof.

22. Perhaps the biggest challenge arises out of the fact the applicant relies on her own oral testimony.  She agrees she did not keep records of the proceeds of her gambling during this period.  I was provided with documents that attempted to reconstruct her activities and quantify her income sources and expenses, but those documents were prepared after the event and the applicant did not seem especially familiar with their contents.  Indeed, she answered questions about one of the claims in a statement by saying she did not write the document and did not really understand what it said.  In those circumstances, it is appropriate to be cautious about self-serving documents provided in connection with her case.

23. The applicant did not provide corroborating evidence that I would expect her to provide in support of her claim.  She did not obtain flight records from Qantas that recorded details of her travel or records from administrators of the casino rewards program that would corroborate the frequency of her travel to Melbourne.  The applicant did not lead evidence from her mother who could have corroborated the applicant’s account of her expenses, and Hue Thi Nguyen was not available for cross-examination in relation to her statement when the time came at the hearing.  The evidence from the applicant’s mother might have been useful given the applicant’s claim she made limited contribution to her own expenses, even though her bank accounts suggest she did make payments towards household expenses, such as electricity bills.

24. It would have been particularly helpful to hear from Hue Thi Nguyen given the applicant’s evidence about the employer’s agreement to meet or reimburse expenses over and above those contemplated in the contract of employment.  It would also have been useful to hear Hue Thi Nguyen describe the arrangement and funding of the casino excursions.  It seems surprising to me that an employer would routinely provide fringe benefits of this nature to an employee.  The applicant made little effort to justify the unavailability of these witnesses.  Her mother was overseas and Hue Thi Nguyen developed a cold, I was told.  I think I am entitled to accept the evidence from uncalled witnesses would not assist the applicant.

25. The absence of reliable contemporaneous documents and corroborating witnesses is a problem for the applicant in circumstances where aspects of her story seem inherently unlikely. Her claim that her employer indulged her with trips to the casino where she won modest but regular amounts is surprising.  This particular fringe benefit is not mentioned in the contract of employment.  The employer’s motivation for offering this benefit is never clearly explained beyond the untested claim in the employer’s statement that it was a passion she shared in common with the applicant.  But Hue Thi Nguyen did not even accompany the applicant on a number of these trips.

26. The applicant’s explanations for the churn in her bank accounts do not ring true.  Her claim that she was attempting to establish a record of transactions that would impress the bank did not survive cross-examination.  She was ultimately unable to explain why she was moving money through her accounts so actively.  She was also unclear about the identity of the recipients of the money transfers referred to in the AUSTRAC reports.

27. The applicant’s evidence is not persuasive.  The objective facts – the churn through the bank accounts, the absence of contemporaneous records beyond the bank accounts, and paucity of corroborating evidence from other witnesses – do not support her account of her income and expenditure.  Given aspects of her story are inherently unlikely as I have identified, I do not think the applicant has discharged her burden of establishing that the Commissioner’s assessment was wrong, and that an alternative, more favourable assessment should have been made.  It follows I affirm the objection decisions relating to primary tax in the two years of income under review.

    Penalties

1. That leaves only the question of penalties. I have already noted the Commissioner imposed administrative penalties on the amount of the shortfall which he said had arisen, and which resulted from an intentional disregard of the law: see s 284-75 of Schedule One to the TAA.

2. The applicant’s representative did not comprehensively address the quantum of the penalty in the course of his written submissions. He simply asserted the Commissioner had failed to adequately consider the applicant’s circumstances when the penalty was imposed.  The Commissioner, for his part, said a finding of intentional disregard follows almost inevitably if I find, as I have done, that I am not persuaded by the applicant’s story as to her primary tax liability.  The Commissioner says this is an ‘all or nothing’ case: respondent Statement of Facts, Issues and Contentions dated 19 October 2016.

3. The applicant’s representative said there was no evidence of intent on the applicant’s behalf, and suggested the applicant had such a limited understanding of her obligations that it would be difficult to be satisfied she had formed an intention to disregard the law. The representative said the applicant was a young woman with a basic education and limited experience before she took up work with Hue Thi Nguyen.  She was also unaware the Commissioner had taken an interest in her affairs.  The representative said the fact the applicant retained a tax agent should be regarded as evidence of her lack of knowledge.

4. I accept the applicant was neither experienced or well-educated, but her attempts to justify and corroborate her behaviour raise more questions than they answer.  The Commissioner concluded the applicant actively failed to record amounts of income; her explanations about gambling are not satisfying.  The fact she has consistently offered those unconvincing explanations suggests consciousness of what she was doing.  I am satisfied the administrative penalty was properly imposed at the rate of 75%.

5. I was provided with little other evidence about the applicant’s personal circumstances other than the evidence suggesting she is a person of modest means.  I am not aware of anything else that suggests it would be appropriate to remit the penalty.  There is no suggestion that the safe harbour provisions apply because there is no suggestion she provided information about her true income to the tax agent she employed.

   Conclusion

6. The objection decisions with respect to penalty are affirmed.

I certify that the preceding 33 (thirty three) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe.

................................[sgd]........................................

Associate

Dated: 5 February 2018

Date of hearing:	13 June 2017
Solicitors for the Applicant:	Essen Lawyers Pty Ltd
Counsel for the Respondent:	Vince G Brennan
Solicitors for the Respondent:	McInnes Wilson Lawyers