Palmer v Commissioner of Taxation

[2000] FCA 1508

FEDERAL COURT OF AUSTRALIA

Palmer v Commissioner of Taxation [2000] FCA 1508

TAXATION – cash gifts and loan – default assessment based on asset betterment statement – whether taxpayer has discharged onus of proof

Income Tax Assessment Act 1936 (Cth) s 167(c)
Taxation Administration Act 1953 (Cth) s 14ZZO

The Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614 - cited
Johnson v Johnson [2000] HCA 48 - cited
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 – cited

PALMER v COMMISSIONER OF TAXATION
V 469 of 1999

JUDGE:         MERKEL J
DATE:           3 NOVEMBER 2000
PLACE:         MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 469 OF 1999

BETWEEN:	GRAHAM PALMER APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT
JUDGE:	MERKEL J
DATE OF ORDER:	3 NOVEMBER 2000
WHERE MADE:	MELBOURNE

THE COURT DIRECTS THAT within 7 days the parties file minutes of orders that give effect to those reasons for judgment.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 469 OF 1999

BETWEEN:	GRAHAM PALMER APPLICANT
AND:	COMMISSIONER OF TAXATION RESPONDENT

JUDGE:	MERKEL J
DATE:	3 NOVEMBER 2000
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. The present proceeding concerns the applicant’s objections to assessments of his taxable income prepared by the respondent (“the Commissioner”) on the basis of an Asset Betterment Statement.

2. The applicant failed to lodge tax returns for the years of income ended 30 June 1992 to 30 June 1997.  After the Commissioner undertook a tax audit in respect of the applicant’s affairs, his officers prepared an Asset Betterment Statement analysis to determine the applicant’s assessable income for each of the years of income in that period.  The Commissioner, after taking into account the purchase, sale and movement in balances of all assets of the applicant, determined the taxable income of the applicant to be as follows:

   “For year ended 30 June 1992 $10,374
   For year ended 30 June 1993 $9,759
   For year ended 30 June 1994 $17,397
   For year ended 30 June 1995 $52,793
   For year ended 30 June 1996 $49,517
   For year ended 30 June 1997 $102,184”

3. Pursuant to s 167(c) of the Income Tax Assessment Act 1936 (Cth) (“the Act”) default assessments of tax were issued to the applicant in respect of the taxable income determined for each year during the relevant period. Penalties were also imposed on the applicant for non lodgement of tax returns.

4. The applicant objected to the assessments for each of the years in question but the objections were disallowed.  The applicant has appealed to the Court to set aside the objection decisions and claimed that his objections should be allowed by excising from his taxable income the whole of the amounts assessed by the Commissioner.

5. The purpose of the procedure of assessment, objection and appeal or review is “to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act” (The Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614 at 621 per Brennan J). Under s 14ZZO of the Taxation Administration Act 1953 (Cth) the burden rests on the taxpayer to prove that the assessments do not reflect the true tax liability of the taxpayer.

6. In the present case the applicant has not disputed the Commissioner’s calculations in the Asset Betterment Statement.  Rather, he has sought to discharge his burden of proving that the assessment is excessive by establishing that the “income” assessed as taxable income was not taxable income.  His case is that the assets, which formed the basis for the Asset Betterment analysis, were acquired as a result of gifts and a loan he received from his family in England (being his parents, Harold and Edith Wilkes, and his brother, Stephen Wilkes) and not as a result of any income he derived in Australia.  The applicant contends that:

   ·    between 1991 and 1994 he was sent £20,000 to £30,000 in cash gifts from England by his parents (in particular, his mother);

   ·    he received another £50,000 cash gift from his parents which was delivered to him, in a shoe box wrapped as a Christmas present, by his brother Stephen on a visit to Australia in January 1994;

   ·    between February and October 1994 he received a loan of £25,000 from his brother Stephen which was sent in cash instalments.

7. The applicant states that the gifts and the loan which he received account for the assets in his possession during the relevant years.  He contends that as the cash gifts and the cash loan are not taxable income, but have been treated by the Commissioner in his Asset Betterment Statement as if they are taxable income, the assessments are excessive and should be reduced to nil.

8. The Commissioner does not dispute that, if the applicant can discharge his burden of proving that the gifts or the loan were made, the assessments would be excessive and must be reduced accordingly.  However, the Commissioner contends that the burden of proof has not been discharged by the applicant and that I should not accept his evidence that the gifts and the loan were made.

9. Three witnesses were called to establish the applicant’s case: the applicant, his wife Diane Palmer and Deborah Griesdale.  Ms Griesdale came to Australia with the Palmers from England in 1981 as their son’s nanny and has stayed with them and been treated as a family member.

10. The substance of the applicant’s evidence was:

    “2.I was born on 5 November 1947.  On 5 April 1981, I came to Australia with my wife, Diane and our son Michael and our friend Deborah Griesdale.  We came to look after my wife’s mother who had cancer.  She was ill for many years before dying in January, 1995.  We arrived in Australia as visitors, but stayed on as illegal immigrants.

    3.My surname is Wilkes, but when we decided to stay on in Australia, Diane, Deborah and I all picked a new surname out of the phonebook, and since then we have also been known by the surname Palmer.  Deborah has lived with Diane and I and our son Michael as part of our family since even before we came to Australia.

    4.I earned an income until 1990 and paid tax.  From 1991, when I was retrenched from my job at BHP Tubemakers, I have not earned an income from any job.  I have never been someone who needed a lot of material things, and my family and I lived fairly simply in the country.  From October, 1996 we received a small amount of money as rent on our property at Birchip ($80 a week), and from a caravan on our property at Betley ($70 a week).

    5.My parents sent me money from England between 1991 and 1994 when my mother died.  I have calculated the amount to be between £20,000 and £30,000, although I had no reason to keep a record of it at the time.  It was sent in differing amounts of pound notes with letters and parcels sent by my parents.  Sometimes it would be wrapped in a newspaper.  The money helped support me, Diane, Michael, and Deborah.

    6.As we were illegal immigrants, I did not want to bank the money and draw attention to our position.  For the same reason, my parents could not send out cheques, or directly transfer the money.  My wife and I therefore approached her mother who we saw weekly and agreed with her that we would give her the money we received from England and she would have it changed into Australian dollars.  I understood from my mother-in-law that she gave it to her clients to change on her behalf.  She read palms very successfully and had a large clientele.  When I went to visit my mother-in-law, I would give her English pounds after I received them and she would give me Australian dollars after she had changed the pounds.  It was a loose arrangement, but worked well.

    7.…

    8.In January 1994, my brother Stephen came to visit from England.  He brought with him a wrapped present, which looked like a shoe box, from my parents.  I started to open it in the lounge room and then took it into the bedroom.  Diane followed me.  When I opened it, there was a large amount of English pounds within it.  We counted them and there were £50,000.  I did not mention this gift to my brother as he had not mentioned it to me and I presumed my parents did not want him to know about it.  I rang my mother after had had left Australia and thanked her for the gift.  She did not want to talk about it much but asked that we put the money into bricks and mortar.  My mother died on 27 March 1994, having been sick for some time. …

    9.Whilst my brother visited with us, he was appalled by the humble circumstances in which we lived.  He told me he wanted to lend me £25,000.  I did not want to tell him about the gift from my parents so I felt there was nothing I could say other than thank you.  Once he got back to England, he started sending money and by mid October 1994, had sent about £25,000.  It was to be a loan, but I have never repaid it.”

11. The substance of Diane Palmer’s evidence was:

    “2.I have read the affidavit of my husband sworn this day.  I was personally aware of many gifts of money being received from his mother and father up until his mother’s death as I saw him open letters and parcels from them containing money.

    3.I was present when my husband received a gift of £50,000 sent by his parents.  In early 1994 when his brother visited from England, Stephen brought with him a wrapped parcel from Graham’s parents.  Graham started to open it in the lounge room but then went into our bedroom.  I followed him.  He opened the parcel in our room in front of me.  I saw him take the wrapping paper off what looked like a shoe box.  It contained more money than I have ever seen in my life in English pounds.  We counted it later and it came to £50,000.  The money was in different denominations.  We did not mention this gift to Stephen as the fact that he had not mentioned to us made us think that Graham and Stephen’s parents did not want Stephen to know about the gift.

    4.I later overheard a conversation which my husband had with his mother in England on the telephone.  From what I could hear, he was thanking her for the gift.  I then spoke to her.  She not want to speak about it much with me but told me we were to use the money to buy ourselves some bricks and mortar.

    5.During Stephen’s visit, I heard him tell Graham he would lend us £25,000.  We were living in difficult circumstances at the time and he wanted to help.  We did not feel we could tell Stephen about the gift from Graham’s parents in the circumstances.

    6.…

    7.When we started receiving English pounds from Graham’s parents, I discussed it with my mother and father.  We could not bank the money without drawing attention to ourselves which we did not want to do as we were then illegal immigrants.  My parents came to see us every week or so, and we agreed that they would change the money for us.  Thereafter, Graham and I would take it to my mother and she would later give us cash in Australian dollars.  I understood from her that she was giving it to her clients to change for her.”

12. Ms Griesdale’s evidence, to some extent, corroborated the evidence given by the Palmers in relation to the cash gifts between 1991 and 1994 and the gift of £50,000 in January 1994.

13. The version of events put forward by the applicant is remarkable in a number of respects.  First, he claims that approximately £100,000 in cash was sent in envelopes, newspapers, a shoe box and other similar means of transmission over a four year period from England to Australia without any satisfactory explanation as to why his parents and brother would be in possession of such a large amount of cash, or why they would choose that, rather than other and more usual, means of transmission.  As the Palmers had changed their name and, from time to time, had their own accounts with banks or other financial institutions, I do not accept that the means of transmission was selected by the applicant’s family, or requested by him, because of his status as an illegal immigrant.

14. Secondly, the means chosen to convert the English currency into Australian currency is equally unusual.  The English currency was deposited on an ad hoc basis with Mrs Palmers’ mother, a palm reader who in turn gave it to some of her clients to exchange.  This methodology has all the hallmarks of “money laundering”, but no satisfactory explanation emerged as to why it occurred in that manner.  The applicant suggested it was to avoid his detection as an illegal immigrant.  Notwithstanding that explanation the applicant stated that he had exchanged £1,000 in a bank in Bendigo.  Mrs Palmer suggested that there was a concern that the Australian tax authorities may ask questions about where all the money was coming from; a version that is not consistent with her husband’s evidence.

15. There is a degree of implausibility about both explanations.  It is difficult to accept that, after their name change, the Palmers would have been detected as illegal immigrants merely because they were receiving transfers of money from time to time from England.  Also the alleged concern about questions from the Australian tax authorities loses some credibility when it is appreciated that the cash was allegedly sent from England in English currency.  Further, while some degree of trust might exist between the parties involved in exchanging the cash into Australian dollars, the version of events put forward by the applicant was extraordinary.  No records were kept, or checks made, of the amounts handed over, the amounts received in return, or the rates of exchange received.  I do not accept the applicant’s explanation that money was of little concern to him.  The applicant did not present as a person unconcerned with money.  The account given by him of his acceptance of, and failure without reason to repay, the alleged £25,000 loan from his brother is not consistent with his claim that he is a person with little concern for money.

16. Thirdly, the circumstances surrounding the alleged loan of £25,000 made by Stephen, the applicant’s brother, were also extraordinary.  It was said that the loan was made because Stephen saw that his brother and sister-in-law were in difficult financial circumstances.  Yet, on the version of events put forward by the Palmers, their difficulties had come to an end upon Stephen’s arrival with a shoe box containing £50,000, a gift from the applicant’s parents.

17. Most aspects of the story have a ring of improbability about them.  The first is that Stephen would be asked by his parents to courier £50,000 in a shoe box to his brother without being informed about the gift by his parents, especially where the carrying of such a large amount of currency across international boarders was fraught with risk.  One risk was the risk of discovery by the authorities of an unlawful importation of undeclared foreign currency, which is punishable by up to two years imprisonment: see The Financial Transactions Report Act 1988 s 15.

18. The second aspect is that the applicant said he reluctantly had to accept the loan as he presumed his parents did not want Stephen to know of the gift.  It didn’t seem to matter to the applicant that, in doing so, he was simultaneously misleading his brother and taking advantage of his generosity.

19. The third aspect is that, without explanation, the loan has never been repaid.  The loan funds came in cash instalments later in 1994 and so, plainly, it was open to the Palmers to either indicate that they no longer needed the money, or to repay it shortly after the loan was made.  The Palmers did neither.

20. The final improbable aspect of the story is that the alleged falling out between the applicant and his brother Stephen over the gifts and the loan was said to have involved a threat by Stephen (or his wife) to take steps to recover the money.  Notwithstanding that alleged threat in April 1997 no step has been taken since to recover the money or to request its repayment.

21. I have outlined the above matters in order to demonstrate that the unusual and extraordinary sequence of events claimed to have occurred by the applicant, while possible, is inherently improbable.  An orthodox and sensible method of testing the credibility of the applicant’s story is to consider whether there is any contemporaneous documentation or independent testimony that corroborates any aspect of the applicant’s version of events.

22. The applicant claims that between 1991 and 1995 he received cash in the sum of approximately £100,000 which was all exchanged into Australian dollars.  In the usual course, the transmission of £100,000 to Australia over four years and its conversion into Australian dollars, would be evidenced by some contemporaneous documentary material.  Corroboration of that kind can, plainly, be of importance in the fact finding process: see Johnson v Johnson [2000] HCA 48 at [18] and [66] and Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 at 603. However, no contemporaneous document was produced, or sought by the applicant, that corroborated the exchange of any English currency into Australian currency during the relevant period.

23. In extensive written submissions counsel for the applicant contended that a reasonable explanation for the absence of any corroborative material is that the applicant’s family is not a family for keeping records and that the events transpired some time ago.  I find the explanation to be unconvincing.  First, it does not explain the absence of any contemporaneous document.  Secondly, it was not an explanation given by the applicant.

24. Further, not only was no affidavit sworn by the applicant’s father, who was prepared to swear a statutory declaration for submission to the Commissioner, but he was not requested to file an affidavit or give evidence which could be tested by cross-examination.  I do not accept the applicant’s explanation that his father had suffered a serious injury and therefore couldn’t be called to give evidence.  No medical evidence was proffered in support of that statement.  Further, it appears that the applicant’s father visited Australia shortly after receiving the injury.  Finally, there is no suggestion that the injury was of such a nature that it would necessarily have impeded or prevented the applicant’s father from giving evidence.  I would have regarded evidence from the applicant’s father as having considerable significance because if, in the unlikely event the money had been transmitted in the manner suggested by the applicant, he may have been able to explain why it had occurred in that manner.  In the result the Court was left to speculate as to the reasons for the extraordinary sequence of events.

25. The applicant’s brother, Stephen, was another person who may have been able to provide some corroboration of the events claimed.  However, not only was he not called, but no evidence was adduced of any request being made to Stephen to give evidence in the proceeding.  It was suggested that the reason for this was that Stephen had fallen out with the applicant.  However, if the applicant’s version of events were to be accepted, Stephen would have an interest in assisting the applicant to the extent that such assistance may enable the repayment of the money allegedly owed to him.  A failure to assist may result in the applicant’s assets (allegedly procured in part by the £25,000 loan) being payable to the Commissioner and not in repayment of the loan.

26. In making the above observations I have given little or no weight to the information contained in the documents emanating from the applicant that were adduced in evidence as part of the Commissioner’s business records.  Two of the documents, being a copy letter (purportedly from Stephen) dated 25 April 1997, and a statutory declaration (purportedly by Harold Wilkes, the applicant’s father), offer some corroboration of the applicant’s version of events.  The documents in question came into existence after the commencement, and as a result, of the Commissioner’s tax investigation and therefore are not contemporaneous with any of the events investigated.  As neither Stephen or Harold Wilkes were sought to be called or called to give evidence the statements in the documents were not able to be tested.  The evidence that the documents are what they purport to be was the evidence of the applicant, who I do not regard as a reliable witness.  In any event, the applicant stated that he believed the letter purporting to be from Stephen was written by Stephen’s wife, rather than Stephen.  Thus, although the documents may be admissible as part of the Commissioner’s business records, I give little or no weight to the statements made in them in so far as they relate to any of the facts in issue in this matter.

1. For the above reasons I have concluded there is an inherent improbability about the version of events propounded by the applicant and his two witnesses who, clearly, are not independent witnesses.  Nonetheless, notwithstanding the above matters the question arises as to whether the viva voce evidence was sufficiently persuasive to discharge the burden of proof imposed upon the applicant.

2. The Commissioner submitted that, on his own evidence, the applicant was a man who was prepared to deceive others when it suited him.  The deception that was relied upon by counsel for the Commissioner included deception of the immigration authorities by applying for a tourist visa in 1981, in circumstances where he knew he was coming into Australia to stay permanently, and then adopting a false name for himself and his wife to avoid detection.  It was contended that, on his own evidence, the applicant was a person who misled his brother into making a £25,000 loan to him on a premise which he knew to be false and then, notwithstanding his ability to repay the money, failing without reason to do so.  This was said to be a further example of the applicant’s deception.  In my view there is substance in the criticisms made by counsel for the Commissioner.  Counsel for the applicant submitted that  the latter example is only relevant to credit if I accept that the loan was made.  The submission misunderstands the criticism made of the applicant which is that he is a person, who on his own version of events, would be prepared to deceive where it suited him to do so.  The criticism can stand even if, in the result, the version is not accepted.

3. There is a further aspect of the applicant’s version of events that is puzzling.  He had stable and continuing employment until his retrenchment in 1991.  Notwithstanding the difficult financial circumstances he said he and his family were in from time to time after that date (he said he couldn’t get unemployment benefits because of his illegal immigrant status) there is no evidence that he endeavoured to obtain any employment after his retrenchment in 1991.  Although he offered some evidence of small, but failed, ventures which he undertook, the failure to seek any employment is consistent with him having obtained an alternative and reliable source of income, which is the Commissioner’s case.  I do not regard the alleged ad hoc cash gifts from his parents from time to time between 1991-1994 as an alternative and reliable source of income upon which the applicant would be likely to rely to support himself and his family.

4. Counsel for the Commissioner relied upon a number of inconsistencies in the version of events proffered by the applicant to support the contention that the applicant was an unreliable witness.  One of the examples relied upon was that in answering the Preliminary Lodgment Questionnaire the applicant stated that the £25,000 loan from his brother was kept securely at his farm, but in evidence he appeared to state that he gave the cash he received to his mother in law to keep because it was not secure at his farm.

5. In giving evidence the applicant was evasive and argumentative and, in general, I formed the view that his evidence was unreliable.  In arriving at that conclusion I have considered, but have not been persuaded by, the extensive submissions on credit issues made by counsel for the applicant.

6. While Mrs Palmer and Ms Griesdale’s evidence was generally supportive of the applicant’s version of events, counsel for the Commissioner submitted that any corroboration by them should be given little weight.  Counsel argued that, as with the applicant, they were unreliable witnesses. He submitted that Mrs Palmer was also engaged in the same deception, for example in the applicant’s acceptance of his brother’s loan, and that both witnesses benefited from, and continue to benefit from, the applicant’s income and assets.

7. The absence of independent evidence and of contemporaneous documentary evidence to support the applicant’s case; the unreliability of the applicant’s evidence; the improbability of the version of events proffered by the applicant and his two witnesses; and the credit issues to which I have referred have led me to conclude that the evidence given to support the applicant’s case was not sufficiently persuasive to discharge the burden of proof imposed on him.  Accordingly, subject to one matter, it must follow that the application is to be dismissed with costs.

8. The parties are in agreement that even if the applicant fails he is nevertheless entitled to a spouse rebate for each of the relevant years.  Accordingly, as requested by the parties, I propose to direct that they file minutes of orders that give effect to their agreement and to these reasons.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.

Associate:

Dated:             3 November 2000

Counsel for the Applicant:	Ms S Marks
Solicitor for the Applicant:	John Buman & Co
Counsel for the Respondent:	Mr T Murphy
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	18 and 19 September 2000
Date of Judgment:	3 November 2000