Peter Sleiman Investments Pty Limited as Trustee for The Sleiman Family Trust and Commissioner of Taxation (Taxation)
[2017] AATA 999
•29 June 2017
Peter Sleiman Investments Pty Limited as Trustee for The Sleiman Family Trust and Commissioner of Taxation (Taxation) [2017] AATA 999 (29 June 2017)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2014/5118; 2014/5119; 2014/5120
Re:Peter Sleiman Investments Pty Limited as Trustee for The Sleiman Family Trust
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Professor R Deutsch, Deputy President
Date:29 June 2017
Place:Sydney
The decision under review is affirmed
.........................[sgd]..........................................
Professor R Deutsch, Deputy President
CATCHWORDS
TAXATION - default assessments issued against taxpayer – onus on applicant to establish the assessment is excessive or incorrect – failure to discharge onus – objection decision affirmed – applicant is liable for an administrative penalty - no grounds for remittal
LEGISLATION
Income Tax Assessment Act 1997 (Cth) s 8.1
Taxation Administration Act 1953 (Cth) s 14ZZK, sch 1
CASES
Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301
Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175
Radge & Ors and Commissioner of Taxation 2007 AATA 1317
Queensland v J.L. Holdings Pty Limited (1997) 189 CLR 146
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
REASONS FOR DECISION
Professor R Deutsch, Deputy President
29 June 2017
FACTUAL BACKGROUND
The Applicant was established by deed (the Deed) dated 14 September 1999, with Peter Sleiman Investments Pty Ltd being appointed as the trustee of the Sleiman Family Trust.
Mr Peter Sleiman is named as the Primary Beneficiary of the trust pursuant to the Deed.
Mr Peter Sleiman has five children under the age of 18 who are also Primary Beneficiaries. There are no other Primary Beneficiaries.
At all material times up to 29 September 2010, Mr Peter Sleiman was the sole director and shareholder of Peter Sleiman Investments Pty Ltd.
The Applicant lodged income tax returns with the Respondent for the years ended 30 June 2000 to 30 June 2004. For the years ended 30 June 2005 to 30 June 2007 the Applicant lodged forms with the Respondent which indicated that ‘returns were not necessary’.
In respect of the years ended 30 June 2008, 30 June 2009 and 30 June 2010 (the Relevant Income Years), the Applicant did not lodge income tax returns nor ‘returns not necessary’ forms.
In 2013, the Respondent conducted a without notice audit of the Applicant’s taxation affairs for the Relevant Income Years. The audit uncovered deposits in the Applicant’s the following bank accounts which were unexplained:
·St George Bank account in the name of Peter Sleiman Investments Pty Ltd; and
·Westpac Banking Corporation account in the name of Peter Sleiman Investments Pty Ltd, (collectively, the Bank Accounts).
The objection decision is the subject of this review and relates to the amount of the Applicant’s taxable income for the Relevant Income Years.
THE DEFAULT ASSESSMENTS AND PENALTY ASSESSMENTS
On 10 June 2013, the Respondent issued notices of assessment (Default Assessments) and notices of assessment of penalty (Penalty Assessments) for the Relevant Income Years to the Applicant.
The Respondent has provided a convenient summary which sets out the amounts in question as follows:
Year ended Taxable income Tax payable (including Medicare levy) Administrative penalty 30 June 2008 $983,198 $457,187.05 $342,890.25 30 June 2009 $4,735,341 $2,201,933.55 $1,981,740.60 30 June 2010 $2,410,713 $1,120,981.50 $1,008,882.90 Total $8,129,252 $3,780,102.10 $3,333,513.75
On 4 December 2013, the Applicant objected to the Default Assessments and Penalty Assessments (Objections).
On 30 July 2014, the Respondent allowed the Objections in part, essentially allowing a small reduction in assessable income for a GST debit (Objection Decision).
On 8 August 2014, the Respondent issued notices of amended assessment (Amended Assessments) for the Relevant Income Years to the Applicant. Again a convenient summary follows:
Year ended Amended taxable income Amended tax payable (including Medicare levy) Revised administrative penalty 30 June 2008 $967,683 $449,972.55 $337,349.41 30 June 2009 $4,713,923 $2,191,974.15 $1,972,776.77 30 June 2010 $2,361,230 $1,097,971.95 $988,174.76 Total $8,042,836 $3,739,918.65 $3,298,300.94 PRELIMINARY PROCEDURAL MATTERS
At an interlocutory hearing, which was held on the last working day before the hearing the Applicant raised two important procedural matters. These procedural matters needed to be resolved before the hearing of the substantive issues could proceed. I heard argument in relation to these matters on that day and on the morning of the first day of the hearing.
The first procedural matter related to a significant bundle of documents which the Applicant sought to file at a very late stage in the lead up to the hearing. These documents included a number of very relevant and important loan agreements. After considering the matter of the late filing of documents I decided that it would be unfair to the Applicant to deny them the opportunity to have these documents in evidence in circumstances where they were so fundamental to its case. This I did notwithstanding the fact that the Applicant had repeatedly failed to comply with numerous Directions for the filing of this evidence given by the Tribunal. In fairness, I offered the Respondent the unilateral opportunity to postpone the hearing to allow it more time to prepare its case. After some consideration, that offer was declined and the matter proceeded largely as scheduled.
The second procedural matter was an application by the Applicant to seek leave of the Tribunal pursuant to s 14ZZK(a) of the Taxation Administration Act1953 (TAA 1953) to rely on a further ground of objection which had not been raised in the Applicant’s formal grounds of objection dated 4 December 2013.
Clearly, the Tribunal has discretionary power to allow the Applicant to proceed on a further ground of objection that was not stated in its objection of 4 December 2013. Section 14ZZK of the TAA 1953 confirms this, stating that:
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
In Queensland v J.L. Holdings Pty Limited (1997) 189 CLR 146 (J.L. Holdings) Kirby J, while not listing them precisely in this fashion, observed that the following considerations weigh in favour of granting leave:
·That it is the only way the true factual or legal issues of the case can be litigated;
·That the fact that it is a new ground can be explained e.g. it arose out of sudden or unexpected events or was not included originally because of an unavoidable human error;
·That the proposed amendment would provide a complete answer to the claim;
·That a costs order could rectify any injustice that might otherwise arise;
·That the hearing is sufficiently in the future so as to enable the other party sufficient time to prepare and consider the amendment.
JL Holdings does not stand for the proposition that parties have a quasi-right or entitlement to amend pleadings to raise an arguable issue. In a further decision, Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 (Aon), it is made clear that the question of whether a party should have leave to amend its claim will depend on the provisions of the relevant court rules and all of the circumstances of the particular case.
J.L. Holdings and Aon both involved judicial court proceedings. However, there is no basis to for suggest that the considerations listed above are in any way inappropriate or less relevant in the context of the present Tribunal proceedings. Accordingly, they shall be considered here: Radge & Ors and Commissioner of Taxation 2007 AATA 1317.
The Applicant argued in the interlocutory hearing that the Applicant’s resources were necessarily focused on defending certain related proceedings in the Supreme Court and then subsequently appealing that decision to the Court of Appeal. This meant that attention was consequently diverted from these Tribunal proceedings until the Court of Appeal handed down a decision on the matter last month.
. Further, the Applicant argued that it was delayed in seeking leave as the Applicant’s previous solicitors had advised that all relevant evidence had been filed and there was nothing further to do. On taking over the matter, the new solicitors realised the evidence was in a poor state for the Tribunal to deal with. The difficulty in correcting that state of affairs was exacerbated by tension in the hand-over from the previous solicitors.
All this contributed to the error of the Applicant in not previously formally seeking leave to amend its grounds of objection.
Whilst the Applicant’s arguments are relevant and important there are more weighty countervailing factors, most significantly:
·The delay in putting the matter as a formal ground of objection is very significant;
·While the Respondent was on notice at one stage that this ground was to be raised, when the Respondent raised an alternative assessment he withdrew the alternative assessment raised. Exactly why that alternative assessment was withdrawn is unclear, but it appears to have been largely the result of requests made by the Applicant’s former solicitors;
·The prejudice to the Respondent would be substantial primarily because there would be real and cogent arguments to suggest that such alternative assessments may now be out of time;
·Borrowing from the words of JL Holdings the hearing as scheduled was not “sufficiently in the future to permit a party to meet the amendment”;
·The Applicant’s oversight cannot be explained by human error or sudden unexpected events;
·Any argument which the Respondent would seek to put to the Tribunal in response to the alternative assessment would require it to call for further evidence and to re-formulate its arguments with a likely considerable consequential further delay.
In summary, in a case where proceedings were initiated in 2014 and over the ensuing three years the Applicant has had the benefit of relying on numerous legal advisers, it would not be fair, reasonable or appropriate to allow this last minute significant extension to the grounds of objection, particularly where it is likely to give rise to material prejudice to the Respondent.
The Applicant had countless opportunities to seek to amend its grounds of objection and had it bothered to comply with the litany of directions issued by this Tribunal, it may have focused its attention sufficiently to assess whether such an amendment should be made.
While the Tribunal makes no finding on the matter, the possibility that the Applicant has deliberately set out to ensure that the Respondent could be argued to be out of time on any alternative assessment is noted.
DEFAULT ASSESSMENTS
It is clear from section 14ZZK(b)(i) of the TAA 1953 that it is for the taxpayer, in this case the Applicant, to establish on the balance of probabilities, that the default assessments issued by the Respondent in relation to the relevant years were excessive or otherwise incorrect.
In doing so, the Applicant is required to prove what its actual taxable income should have been: s 14ZZK(b)(i)TAA 1953.
There are a number of decisions which make it clear that the Applicant’s onus can be discharged if the taxpayer explains all its sources of income, deductions and assets and demonstrates that there are no other sources of income: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 and Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301.
It will not be sufficient to satisfy the onus if the Applicant merely identifies certain errors that may have been made by the Respondent in its approach to particular items: Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19.
THE SUBSTANTIVE ISSUES
The issues that arise for consideration in this case are:
1. Whether the Amended Assessments are excessive due to the inclusion of an amount of deposits from the Applicant’s Bank Accounts assessed as ordinary income;
2. Whether the Applicant is allowed certain deductions in respect of the relevant years for amounts withdrawn from its Bank Accounts and other bank accounts controlled by it;
3. Whether the Applicant has discharged its burden of establishing that it is not liable:
·to pay an administrative penalty at a base penalty rate of 75% on the assessed shortfall pursuant to s 284-75(3) of Sch 1 of the TAA 1953 for the Relevant Income Years; and
·to pay an administrative penalty at a base penalty rate increased by 20% on the assessed shortfall pursuant to s 284-220(1)(e) of Sch 1 of the TAA 1953 for the years ended 30 June 2009 and 30 June 2010.
ISSUE 1 Whether the Amended Assessments are excessive due to the inclusion of an amount of deposits from the Applicant’s Bank Accounts assessed as ordinary income?
This issue arises because there are a number of entries, being receipts in the accounts held by the Applicant, which the Respondent says are unexplained but should properly be treated as assessable income of the Applicant. These entries can be found in the Applicant’s St George Bank account and Westpac Banking Corporation account.
The Respondent raised a number of matters regarding this issue most notably problems with the evidence concerning:
·the Applicant’s business activities and the alleged sources of income that is argued to have flowed to the Applicant in the relevant income years;
·the rental income derived by the Applicant; and
·various loans the Applicant is alleged to have made to related parties and the alleged repayment of those loans.
Most of the relevant matters arising particularly in cross-examination can be considered under three broad sub-headings namely:
·Problems with the Evidence in respect of the Sources of Income;
·Problems with the Evidence in respect of the Rental Income; and
·Problems with the Evidence in respect of the Existence and Extent of the Loans
I have grouped the analysis which follows under those three broad sub-headings.
PROBLEMS WITH THE EVIDENCE IN RESPECT OF THE SOURCES OF INCOME
According to the Applicant, throughout the relevant period it did no more than own, and derive rental income from a series of properties it owned in Granville and Merrylands: Affidavit of Peter Sleiman, dated 16 May 2017.
Thus, according to the Applicant, the total income received as rent for the financial year ended 30 June 2008 from its properties was $225,547. The rental income from these properties was the only income that the Applicant apparently received.
The Applicant received no other income during the financial year as the only function that it had during the financial year ended 30 June 2008 was to hold and acquire the said properties.
Mr Sleiman relies on a similar position in respect of the income years ended 30 June 2009 and 2010.
Indeed, in his cross-examination, Mr Sleiman confirmed unequivocally that the Applicant’s office comprised of no more than “a desk and my computer” (Tr48.36) and that no-one was employed by the Applicant to work alongside him (Tr49.10, see also Tr38.35).
There are, however, a number of problems with the position adopted by the Applicant in this regard. This is demonstrated by a consideration of the evidence below:
The Depreciation Schedules
To begin with, the Applicant’s “Financial Information for 2010” comprises of a number of documents the most notable being the information contained behind the third tab headed “Depreciation schedule.” That document highlights a number of problematic issues for the Applicant as follows:
(a)At page 6 of the Depreciation schedule 2, under the heading “Plant & Equipment - At cost”, the line item for “Phone, Gymnasium and Copier” refers to an amount of $90,909.
(b)The next line item is a line item for a “Bomb Dog” in the amount of $4,545;
(c)On page 7 , under the heading “Motor Vehicles” is a list of line-items concerning over 35 motor vehicles - including a “Porsche 911”, a “BMW X5 Sports” and a range of cars, vans and wagons of different makes. One of the line items refers to “Two Hyundai Getz Melbourne” in circumstances where, for each of the relevant years, the Applicant says it only derived income from a number of properties in Granville and Merrylands;
(d)On page 8, 9 and 10, under the heading “Office Furniture and Equipment”, there are line-items referring to:
(i)“Office Equipments [sic] & General” in the amount of $85,565;
(ii)“Vertel Two Way Radios” in the amount of $22,913 (as well as “Vertel Two Way Radio” in the amount of $3 320 and $4,458 respectively and two references to “Vertel 2 Way Equipment” each in the amount of $5,293);
(iii)“Office Equipment” in the amount of $42,091;
(iv)“Elite Fitness” in the amount of $37,261;
(v)“Radios” in the amount of $6 747 ;
(vi)“Firearm Purchase” (x 3) in the amounts of $601, $2225 and $740 respectively;
(vii)“Knetic Radios” (x 5) in the amount of $3,518, $464, $1,594, $444 and $6,105;
(viii)“Memo Communicating 2 Way” in the amount of $1,338;
(ix)“Gunsafe” and “HPGS Glock Gun” in the amounts of $84 and $201 respectively;
(x)“Les Greenfields Firearms” and “Paddison Custom Guns” in the amounts of $498 and $429 respectively;
(xi)Many thousands of dollars’ worth of expenditure in relation to “Compu Sale” and other apparent purchases of IT equipment (eg see references to “Media Pro Computers”, “Eastcoast Office Equipment” and “IGD Computer Solutions”;
(e)On page 24, under the heading “Computer Equipment”, reference is made to what appears to be a total expenditure on computer equipment for the income year ended 30 June 2010 is $42,281 (following on from $35,815 in the preceding year) - which amount is apparently in addition to the substantial expenditure on computers and IT equipment that appears under the heading “Office Furniture and Equipment” at pages 8 to 16 (see (c)(xi) immediately above).
Equally, the Applicant’s spending in the income years ending 30 June 2008 and 2009 reflect a similar pattern. In 2008 and 2009 the Applicant purchased over 30 motor vehicles, a number of firearms and fitness equipment. This acquisition of an extensive number of cars, firearms and fitness equipment indicate that the proposition put forward by the Applicant, namely that the business activities of the trust are simply to own and rent a number of properties, is difficult to accept and appears to be highly implausible.
On this issue, Mr Sleiman gave confused and implausible answers when questioned in cross-examination. Thus, when asked about how or why a company with such supposedly confined business operations came to incur such expansive and substantial expenses the following exchange is a case in point (Tr73.30-38):
[C]ould you explain how a business with no employees that you described earlier comprised of a desk that you sat at with a computer on it, that was, as you say managing 10 or 11 or 12 properties, how it came to spend around $30,000 on IT equipment and printing in the course of a given year?—I’d have to go back and look at it. There was software. We tried to get a rental software program. Updated the computer. There’d be a number of reasons why.
Updated the computer. There was only one computer. Correct?—Yes.
Later, Mr Sleiman answers another question with equal confusion and implausibility (Tr99.29-35):
What has $91,000 worth of expenditure on gymnasium, phone and copier got to do with managing ten or 11 properties in Granville, sir?—It’s probably the phone system for the building.
For what building?—For 88 Parramatta Road, and we got a photocopier for it. The printer.
Mr Sleiman eventually concedes that the premises at 88 Parramatta Road are not mentioned in his affidavit at paragraph 10, 108 and 187 which outline the properties that the Applicant derived rental income from in the 30 June 2008, 30 June 2009 and 30 June 2010 financial years.
He answers a further question with this exchange (Tr99.43):
...I’ll ask the question again. What do these expenses have to do with the business activity you describe in your affidavit, the management or 11 or so properties in Granville?—Nothing.
In relation to the expenditure on a “bomb dog”, Mr Sleiman reluctantly albeit through a virtual non-response, seemed to accept that this had nothing to do with a business of owning property and deriving rent from it." (at Tr100.06-15):
And out of interest, is a [bomb dog] a dog that sniffs for explosive devices?—It is.
So we’re talking about a line of commercial activity in relation to that dog’s payment that’s a long way from the simple business of owning property and deriving rent, aren’t we?—M’mmm.
Further concessions were made by Mr Sleiman in the following exchange (Tr 101 .05-17):
What has two way radio equipment got to do with managing these properties around Granville?—Nothing.
Nothing at all, does it?—Nothing.
It would be ridiculous to suggest that in order to oversee those properties you needed a two way radio?—I might give the tenants a radio so they can radio and talk to me, but no.
But that would be fanciful...[a]s much as you want to look after your tenants, you don’t need to have them on two way radio, do you...?—No.
Mr Sleiman conceded one of the more significant (and repeated) items of expenditure incurred by the Applicant during the relevant period (Tr 77.27):
Can you explain how it comes to pass that a company that you say does no more than manage those 11 or 12 properties, spends $100,000 in one day on MIB protection and Asset security and training?— Nothing.
The Bank Statements
A review of the Applicant’s bank statements during the relevant period, like the above evidence, also highlights payments and expenses far removed from the simple rental property operation that Mr Sleiman describes.
Also of assistance in this regard are the summaries of the Applicant’s bank statements, which are annexed to the Applicant’s objection, in which the Applicant explains the nature of various transactions in its bank statements (see T13-169 to T13-223). These materials were explored extensively with Mr Sleiman in the course of his cross-examination.
No cogent explanation was given or even attempted to explain how it was that the broad array of transactions referred to could possibly be confined to the business activities of the Applicant which he describes in his affidavit. The following entries are particularly relevant:
(a)On 6 July 2007, the Applicant paid $53,000 from its St George Bank account in respect of “PAYOUT BALLOON FERRARI” (T28-381);
(b)On the same day: the Applicant paid an amount of $492,000 with the description “LOAN TO POWERHOUSE CORP”; the Applicant received $72,000 with the description “AVA RENT TO PSI”; and the Applicant paid $12,500 with the description “Loan PSI to JPA” (T28-381);
(c)On 8 November 2007, the Applicant withdrew $400,000 with the description “Loan frm PSI” (T28-399);
(d)The Applicant’s bank statements are replete with other examples of the Applicant extending loan funds (eg “Loan S Panetta" at T28-386 and “Loan PSI to JakesP” at T28-417 and “Loan to Robert Makhlouf’ at T13-173);
(e)On 30 June 2009, the Applicant received (into its Westpac bank account) a deposit of $62,000 with the description “FNDS TFR CONTRACTOR AVSA” (T35-503);
(f)On 30 August 2007, the Applicant paid an amount of $1, 100 in respect of “State debt recovery unlicensed guard” (T13-171);
(g)On 28 September 2007, the Applicant paid an amount of $1,400 in respect of “All occasions pyro technics”; on 1 October 2007 the Applicant paid $2,585 in respect of “Angelic Events & Design” (with the note “Consult fees - allowable deduction”)-, and on the following day the Applicant paid $2,500 in relation to “Hire cars haberfield-fivedock” (T13-172);
(h)On 8 November 2007, the Applicant paid $1,120 in respect of “Anthony Weiss Mens Wear 7 Uniforms” (T13-173) - this line item includes the note “Staff uniforms - allowable deduction”;
(i)On 10 January 2008 and 14 February 2008, the Applicant paid $140 and $80 in respect of “Gun licence Craig Ginger” and “Security Industry Registry” respectively (T13-175) - the latter line item is accompanied by the note “Registration fee - allowable deduction”;
(j)On 30 June 2008, the Applicant made two payments of $50,000, one in respect of “MIB Protection” and the other in respect of “ASET Security and Training” (T13- 179, see also T13-189 showing similar payments for the 2009 income year);
(k)On 6 March 2008, the Applicant paid approximately $13,000 in respect of “Middletons Sol Invoice” (T28-417) - that invoice has not been put before the Tribunal, nor has any explanation been proffered by reference to contemporaneous materials as to how this expenditure relates to the limited business activities of the Applicant Mr Sleiman describes;
(l)On 19 May 2008, the Applicant made a payment of $4,038 in respect of “Loan repayment (Melb Unit) (T13-186);
(m)The Applicant’s bank statements are replete with substantial payments directed towards “Fitness training” and “gym equipment” (see, for example T13-171, T13- 175;
(n)The Applicant’s bank statements are replete with unexplained and repeated entries styled as “customer deposit” (see, for example, T28-382, 386, 387, 388, 391);
(o)The Applicant’s bank statements contain a large number of entries concerning the childcare industry (see T13-190,191,192,193,195 and 197);
(p)The Applicant’s bank statements contain numerous line items relating to IT-related expenditure, printing and stationary (see throughout T13-169 to T13-223, see alsoTr73-74).
Thus, the bank statement entries reveal consistent and substantial expenditure which:
·bear no apparent connection to the limited operations of the Applicant. These limited operates were consistently asserted by Mr Sleiman; and
·point toward the Applicant engaging in business activities extending well beyond merely owning and renting out 10 or 11 properties in Merrylands and Granville.
The following passage from the cross-examination of Mr Sleiman again calls into serious question the scope and nature of the business carried on by the Applicant during the Relevant Years (at Tr 64.45-65.20):
“Now, sir, what does the obtaining of seven uniforms have to do with managing 10 or 11 properties in Merrylands or Granville?—I don’t know.
Well, the answer is, isn’t it, absolutely nothing?—Yes.
You don’t wear a uniform when you go and inspect these properties, do you, sir?—No.
And we know you didn’t have any staff, so there was no need to provide any staff members with any uniforms, was there?—No.
And it is inexplicable, isn’t it? Can you explain it?—No.
Mr Sleiman was also taken to other items of the Applicant’s expenditure including payments relating to “All Occasions Pyrotechnics and “Angelic Events and Design” (see Tr 65.33-66.20):
Now, this property development business that you say PSI was exclusively running, it had no pyrotechnic component, did it?—No.
It had no need for pyrotechnics?—No.
In fact, there’d be nothing about the nature of the business that could in any meaningful way connect with fireworks and pyrotechnics; correct?—No.
And if you look at the line item above it, there’s a reference to ‘Angelic Events and Design’; do you see that?—Yes. ...
Do you remember the second or third answer you gave today, sir, which is for the better part of 25 years you’ve been active in both the hospitality business as well as the security business?—Yes.
Well, look at that, Angelic Events and Design $2585; do you see that?—Yes.
It’s got nothing to do with managing properties in Merrylands or Granville, does it?—No, it doesn’t. No.
And if we go down a few more lines we’ll see on 2 October 2007...a similar amount, $2500 spent on “Hire Cars Haberfield - Five Dock”?—Yes.
Sir, you weren’t hiring cars to go and inspect those properties, were you?—No.
There’s absolutely no connection between that expense and the nature of the business you’ve described in the affidavit, is there?—No.
The St George Bank Loan Documentation
I now turn to the matter of the draft loan application which was put into evidence by the Applicant.
Somewhat curiously in view of the fact that it was the Applicant’s tender, the Applicant’s position as to its business and income-generating activities is directly contradicted by the application. That document is found at Annexure B to the Applicant’s SFIC and presumably was relied upon by the Applicant in pressing its case.
The document purports to summarise the financial position of the Applicant in the context of the Applicant applying for a loan facility with St George Bank. The information in that document is very revealing and I highlight the following key points:
(a)On page 4, under the heading “Ranking Justifications” and the sub-heading “Peter Sleiman Investments ATF the Sleiman Family Trust” (ie the Applicant), the following appears:
This entity is a property investment vehicle and collects rent and professional fees (paid across from security businesses). ...
(b)On page 3, immediately under the headings referred to at (a) above, a table of financial information concerning the Applicant records as follows:
EBITDA $5, 764, 886 EBIT $5, 413, 192 Debt $5, 721, 000 Plug Rate 8% Annual Interest Exp $457, 680 Shareholder Funds $15, 468, 912 Total Assets $19, 338, 385 Tangible Net Worth $14, 768, 912 (c)On page 4, a similar table appears reflecting the position “with no professional fees and thus purely rent”. It records as follows:
EBITDA $2,411,122 EBIT $2, 059, 428 Debt $5, 721, 000 Plug Rate 8% Annual Interest Exp $457, 680 Shareholder Funds $15, 468, 912 Total Assets $19, 338, 385 Tangible Net Worth $14, 768, 912 (d)On page 15, under the heading “Financial Analysis” and the sub-heading “Repayment Source”, the description for the Applicant reads as follows:
Repayments are sourced through the income of the Sleiman Family Trust, which in turn is paid via professional fees from the AVS Group.
The disconnect between Mr Peter Sleiman’s assertions and the figures in the table at (b) above is enormous - the St George Bank loan application points to the Applicant having earnings more than 20 times the rental income as asserted firmly by Mr Peter Sleiman.
Comparing the amounts shown in the Tables at (b) and (c) above are revealing. Reading the two tables together, what is suggested is that the Applicant’s EBITDA and EBIT position falls from approximately $5.76m and $5.41m to around $2.41m and $2.06m respectively, when “professional fees” are excluded and the focus reverts to ”“purely rent” (p 3).
Thus, some $3.3m in EBITDA and EBIT is attributable to the Applicant’s non-rental income.
Further, the Table at (c) suggests annual earnings of $2.41m and yet Mr Peter Sleiman says the Applicant’s annual income was between approximately $226,000 and $268,000 during the relevant periods (see 16 May Affidavit, [11], [109] and [188]).
The Applicant attempted to discount such substantial discrepancies in a fairly flippant and unconvincing manner. He simply asserted that the St George Bank materials are “not my document.” This is hardly an explanation of any real substance especially in view of the fact that these documents are likely to have been prepared on the basis of information provided by the Applicant or someone connected with the Applicant and it is the Applicant who chose to put those very documents before the Tribunal.
In other words, no contemporaneous documents have been presented to this Tribunal to suggest that the unidentified author of the document from the St George Bank, did anything other than accurately and faithfully record the information provided by the relevant persons and entities in seeking to obtain a loan facility from the St George Bank. In the view of this Tribunal, it is reasonable to assume that the document was prepared in part at least as a result of certain information provided to the Bank by parties who either represented or were associated with the Applicant.
Indeed, there is no basis for concluding anything other than that, in the ordinary course, accurate information was provided to the bank which was recorded in the documentation evidencing the bank’s analysis of the loan application.
The Applicant’s BAS
The position outlined above as to the Applicant’s activities is supported by what appears in the business activity statements (BASs) lodged with the Commissioner , which states in a quite straight-forward unequivocal way that “[i]n its activity statements the [Applicant’s] business activities are described as finance and investment services.”
Under cross-examination, Mr Peter Sleiman was unable to explain the broad description that was provided by the Applicant other than to suggest that it was something mistakenly done by the accountants.
The NRMA Business Insurance Form
A further document of some significance was a form prepared which concerned certain insurances held by the Applicant with NRMA Business Insurance. At Annexure I, Volume 1 of the materials annexed to the Applicant’s SFIC is a letter from NRMA Business Insurance referring to a transaction date of 9 December 2008, which contains the following header:
Insured: PETER SLEIMAN INVESTMENTS PTY LTD T/as ATF THE SLEMAN FAMILY TRUST
Business: HOSPITALITY AND PROTECTION/SECURITY INDUSTRIES
Again, Mr Peter Sleiman was unable or unwilling to explain in any meaningful way the breadth and scope of the business description which was quite frankly fundamentally inconsistent with the business of the Applicant as described by him in his affidavit and during cross-examination.
The Loans and the Returns
Finally, one apparently significant feature of the Applicant’s business activities during the relevant period involved the provision of loan funds to other entities and persons. In the first of the relevant income years, the evidence suggests, for example, that the Applicant made loans to other entities of approximately $400,000 and $460,000 respectively.
There is in this case a noticeable dearth of any cogent evidence as to the circumstances in which the Applicant extended these loans and the returns it derived from them.
The Applicant has not put before this Tribunal any materials which point to the income or returns it derived from loans it asserts it made to related parties. On being asked about this matter Mr Sleiman responded somewhat unhelpfully as follows: (Tr 58.40):
And the tribunal, sir, is completely in the dark about any return that PSI did generate from that loan; correct?—Yes.
Conclusions Regarding the Income Sources
Having regard to:
·The broad range of assets that have little or nothing to do with the ownership and maintenance of a small number of properties;
·The suggested levels of income from professional services and rent revealed in the bank statements;
·The broad description of the business found in the St George Bank loan application document;
·The broad description of the business found in the Applicant’s BAS
·The broad description of the business found in the NRMA;
·The dearth of evidence as to the nature of and the returns accrued on the various loans made by the Applicant;
the Tribunal cannot accept the Applicant’s assertions as to the confined nature of its business activities and, in particular, the quantum of income derived from them.
The contemporaneous materials including bank statements, certain books and records, bank loan application documents and insurance documents do not at any level support Mr Peter Sleiman’s contentions that the Applicant solely derived income in the form of rent from a limited number of properties in Merrylands and Greystanes.
Such evidence strongly suggests that the Applicant derived income from its rental properties and also the provision of financial services to other related companies and very likely from involvement in other industries such as the security and hospitality sectors.
PROBLEMS WITH THE EVIDENCE IN RESPECT OF THE RENTAL INCOME
The evidence presented by the Applicant sheds no clear light on what the rental income of the Applicant was during the relevant income years.
There are a number of issues that are relevant in this context.
The St George Bank Document
The St George Bank loan documents referred to above indicate that the Applicant’s rental income was significantly greater, in particular, than that which Mr Peter Sleiman testified to in his Affidavit of 16 May 2017 affidavit : paragraphs [11], [109] and [188] .
Failure to provide evidence
As previously mentioned, the Applicant has not put before the Tribunal any rental agreements or leases to substantiate the income that is said to have been derived from the various properties listed at paragraphs [10], [108] and [187] of Mr Sleiman’s 16 May 2017 affidavit. Further, there is a lack of any contemporaneous materials evidencing any negotiations or communications concerning such arrangements which might shed light on the terms on which the properties were leased.
88 Parramatta Road
The position regarding this property remains as confused as ever as is evidenced by an exchange that took place under cross examination of Mr Peter Sleiman.
In the course of answering a question as to where the Applicant operated from, Mr Sleiman indicated that the Applicant owned substantial commercial premises at 88 Parramatta Rd (comprising approximately 800 square metres). This led to the following prompted the following question/answer exchange in cross-examination (see Tr44.40-48.10):
You have indicated that PSI owned the property, correct?...—I’m just trying to remember. Yes.
You have indicated that it had a number of tenants, correct?—Yes.
Can you explain, sir, in circumstances where PSI was the owner of the property and had rented it to a number of tenants...why we don’t see a reference to 88 Parramatta Road in paragraph 10 of your affidavit?—I don’t know. Must have forgotten it, to be honest with you.
What about paragraph 109 of your affidavit... We’ll start at 108. This is for the next income year, 2009. You’ll see there’s a reference to a slightly larger number of properties in this income year?—Yes. Yes.
What you won’t see, will you, Mr Sleiman, is any reference to 88 Parramatta Road?—Yes, correct.
There’s no reference anywhere in this affidavit, is there...to any income that PSI derived from that...address, correct?—Correct.
How many square metres is 88 Parramatta Road, Mr Sleiman?—I think it’s about 800.
That’s an enormous site, isn’t it?—It is.
You said it’s called a business centre?—It’s just - just the name, yes.
Well they were the words you used?—Yes, yes. Okay.
Are you withdrawing those words?—No.
…What sort of rent do you tend to get from an 800 square metre site on Parramatta Road?—To be honest with you I’m not too sure...
Not interested?—What do you mean not interested?
Well, PSI’s the landlord. You controlled PSI. I presume this is one of PSI’s biggest investment properties, correct?—Yes.
…Are you seriously suggesting that, in preparing this... 310 paragraph affidavit, that it just completely escaped your mind to make any reference to one of the most significant investments that PSI had during the relevant period?—Yes.
It is unbelievable, isn’t it, Mr Sleiman?—Yes.
The fact is and remains that Mr Peter Sleiman in his previously referred to affidavit failed to reflect any rent being derived from this substantial property.
Having regard to:
·the fact that 88 Parramatta Road is a very valuable property;
·is a prominent asset within the Applicant’s portfolio; and
·it connects to the Applicant’s own commercial premises
the idea that this property was simply overlooked in the preparation of a detailed important 72 page affidavit is highly implausible.
The NRMA Policy
The contemporaneous materials before the Tribunal concerning the Applicant’s property insurance policy with NRMA Business Insurance strongly points to a conclusion that the Applicant’s non-disclosure of its rental income extends beyond the inexplicable omission of 88 Parramatta Road.
At Annexure I Volume 1 of the materials annexed to the Applicant’s SFIC (on the 43rd page behind Tab 8), a document with a NRMA Business Insurance letterhead dated 8 July 2008 and addressed to the Applicant, identifies the Applicant’s business as “Property Management & Various Business Activities”. More importantly, for present purposes, that document, which provides to the Applicant an “Industrial Risks Insurance Quote”, lists a large number of properties which are not referred to in, for example, paragraph 10 of Mr Sleiman’s 16 May 2017 affidavit. These include:
(a)88 Parramatta Road;
(b)14, 15 and 16 Cowper St, Granville;
(c)15 Mary Street, Granville (which is accompanied by the business description: “Tenanted Doctor ”);
(d)30-32 South Street Granville (which is accompanied by the business description, “Tenanted Takeaway & Bakery”),
(e)3 Garnett Street, Merrylands (which is accompanied by the business description “Tenanted Residential”);
(f)33 Garnett Street, Merrylands (which is accompanied by the business description “Tenanted Residential”
(g)5 Earl Street Merrylands (described as “Tenanted Residential”);
(h)23 Earl Street Merrylands (described as “Tenanted Residential”);
(i)81 Gardenia Street, Greystanes (described as “Tenanted Residential”);
(j)10 Powells Rd Lysterfield VIC 3156 (described as “Tenanted Office/Kennels - Dog Training Centre”);
(k)191/38 Kavenagh St Southbank VIC 3006 (described as “Tenanted Strata Office/Penthouse”;
(l)1st Floor 260 Dorset Drive Boronia VIC 3155 (described as “Tenanted Office- Security Company”);
(m)24 Lance Street Greystanes (described as “Tenanted Residential”);
(n)4 Leo Crescent Greystanes (described as “Tenanted Residential”);
(o)27A and 27B Eldridge Rd Greystanes (described as “Tenanted Childcare”); and
(p)55 Sixth Street Greystanes (described as “Tenanted Residential”).
In relation to a number of the above properties, Mr Peter Sleiman, when pressed about why they, and rent derived from them, did not feature in his affidavit materials, gave answers variously indicating:
·“we wouldn’t have charged rent for a certain period” (Tr53.27);
·“they didn’t pay any rent” (Tr83.24);
·“It’s not occupied by a tenant” (Tr89.05); or
·“it’s occupied by a family member - no rent is payable”.
There is, however, no contemporaneous material whatsoever before this Tribunal which substantiates these assertions in respect of any of the properties in question. For example, there is an assertion that the tenant at the dog kennel facility in Victoria was able to use the premises rent-free for the three income years in question largely because the premises were undergoing substantial renovations. However, one of the other witnesses who relevantly had a close connection with the property in question revealed under cross examination that he knew nothing of these renovations.
Further, no mention is made to any “rent-free” arrangements in the relevant documentation.
It is the Applicant who bears the burden of demonstrating that the assessments are excessive and yet the Applicant has chosen to not put on any contemporaneous materials to support its assertions that there were lengthy rent free periods.
The best that Mr Sleiman could seem to offer when questioned on this in cross examination was one very unconvincing word as follows.
“So, this is your sworn evidence that there was no rent charged for three whole financial years due to renovations at this dog kennel facility?—Possibly.”
Land Tax Documents/Depreciation Schedule
The various land tax documents put in evidence indicate that the Applicant has been assessed for land tax on the basis of owning properties which have not been identified by the Applicant as giving rise to any rental income: see Mr Sleiman’s 16 May 2017 affidavit.
Similarly, the depreciation schedules referred to above, evidence expenditure on the part of the Applicant in respect of properties which have not been previously recognised in Mr Sleiman’s affidavit.
PROBLEMS WITH THE EVIDENCE AS TO THE EXISTENCE AND EXTENT OF THE LOANS
The Applicant argues that certain amounts which the Respondent characterises as rent that it received during the relevant period related instead to loans it received from associated parties.
There are, however, a number of serious problems with the argument put by the Applicant in this context. I will deal with these problems under five discrete headings.
The Bank Statements
So as to understand the character of the payments in question, the bank statements of the named transferors and more specifically the descriptions given by the transferors is relevant and appropriate to consider. Such documents provide contemporaneous insight into what the entity transferring the funds to the Applicant understood the character of those funds to be.
In this context, the document at T3-144-5 being a Table provided by the Respondent (and the relevant bank statements from which it has been compiled tendered separately) is important. It summarises a series of bank statements for accounts held by various entities (including Monash Security Services Pty Ltd (“Monash Security”), AVS Group Australia Ply Ltd (“AVS Group”, AVS Group of Companies Pty Ltd (“AVSGC”), Precise Training Aust Ply Ltd (“Precise”), Jaken Group Pty Ltd (“Jaken”), Restwell Australia Pty Ltd and Nu Force Australia Pty Ltd).
Specifically, these documents show that various deposits made into the Applicant’s St George bank account which the Applicant has described as “Loan”, were described by the entity transferring the funds as “Rent”.
Thus, it is clear the bank statements of the entities from which the Applicant was receiving funds during the relevant period do not support the character that the Applicant seeks to place on those receipts. Indeed, such bank statements directly contradict the position the Applicant urges.
In an extensive and wide-ranging cross examination, Mr Peter Sleiman could provide no cogent explanation as to why the transferor quite regularly referred to the amounts as rent:
And is your sworn evidence that the people writing these descriptions for all of these entities all made the same mistake, Mr Sleiman, is that what you say?—I don’t know.
Well, how can you explain all these descriptions —?—I can’t explain.
…It can’t be explained, can it?—I can’t explain it.
Quite apart from all that, there is a particular line item in the bank statements for AVS Group of Companies annexed to the statutory declaration of Mr Peter Sleiman dated 9 March 2016.
On the fourth page of the unnumbered annexures to that statutory declaration is a bank statement for an account held by AVS Group of Companies, which shows that on 6 July 2007 a transfer was made to the Applicant’s St George Bank account in the amount of $61,600 which was described as “WITHDRAWAL FOR 2288553 8WEEKS RENT”.
Significantly, this is consistent with the bank statements of other of the relevant entities referred to above and the transferring company was controlled by Mr Peter Sleiman.
Notwithstanding the very clear wording of the description which refers not only to the payment being “RENT” but also to the referrable period to which it relates namely “8WEEKS”, Mr Sleiman persists with the argument that the payment related to a loan. He seeks to explain all this with the explanation that it was a “clerical error.” This looks unlikely to say the least especially because there is nothing in the contemporaneous documents to support that explanation.
The Ownership by the Applicant
The identification of these various payments as “rent” is entirely consistent with, in particular, the fact that a number of these related companies were operating from premises owned by the Applicant during the relevant period.
Lack of Evidence
The three witnesses called to give evidence in this case were three brothers namely Peter, George and Tony Sleiman. Each tried to explain away the entries on the bank statements as “clerical errors.”
This argument repeated by all three witnesses is impossible for this Tribunal to accept having regard, in particular, to the fact that the supposed authors of these many errors were never identified by name and as would be apparent by now were not called to give evidence in these proceedings.
It is quite telling in assessing the credibility of the witnesses and their testimony that not one of the three witnesses involved could identify who had made these repeated and alleged clerical errors.
Further, there was nothing provided to the Tribunal by way of contemporaneous materials - such as a communication from the relevant directors to the relevant staff members identifying the error made asking them to ensure it not be made again - which might corroborate these claims.
There was at no time any satisfactory explanation given so as to explain in any cogent fashion how it is that the same ‘clerical error’ was made in respect of multiple bank accounts by possibly multiple employees across multiple companies. Additionally, it was not explained how all these errors occurred in relation to payments to the Applicant described as “Rent”.
When one reviews the totality of what has been presented both by way of documented evidence and verbal testimony, there is little more than a series of vague inconsistent and largely self-serving assertions by three witnesses whose verbal accounts were at best unhelpful and at worst quite damaging. Certainly, they were incapable of being verified by independent contemporaneous material.
The Statutory Declarations
The statutory declarations provided by the three witnesses are:
·framed in almost identical terms with only minor variations to accommodate the name of the deponent, the name of the entity said to be extending the loan and the amount; And
·are not witnessed thus making their utility as binding declarations questionable.
Apart from those general comments, there are a multitude of other problems with these statutory declarations which the Tribunal will now outline in more detail.
First, the statutory declaration of George Sleiman which is dated 9 March 2016 comprises a single substantive paragraph, which reads:
I am the director of Precise Training Pty Ltd. In this period of 2007 to 2008 I loaned Peter Sleiman Investments Pty Ltd an amount of $92,800.
No explanation is given as to the circumstances in which this loan was made, the reasons for the loan being made or the terms on which it was made. Two pages of heavily redacted bank statements formed part of his statutory declaration. There is, however nothing in the relevant line-items which indicate in any way that the transfers in question are referable to any loans.
Furthermore, these documents show transfers of $11,000 and $15,050 respectively which do not add up to the loan amount indicated in the statutory declaration.
Secondly, the statutory declaration of Tony Sleiman, dated 9 March 2016, also suffers from similar problems. Again, Tony Sleiman provides two very simple and unhelpful largely identical sentences which strongly suggest that the deponent had little or no independent evidence or information with which to support the statements he was making.
Thus, there is, for example, no evidence as to the circumstances in which these loans were provided, the reasons for which the monies in question were arguably lent or the terms on which such loans were made.
Again, there is a noticeable and significant lack of information regarding the bank statements which are annexed in relation to each of the relevant entities and most of the statements are in any event heavily redacted.
Most significantly, yet again, the line-items highlighted in these statements do not add up to the loan amounts to which Tony Sleiman deposes in his statutory declaration. There is also no explanation given in the statutory declaration as to these discrepancies, or what is to be made of the bank statements in light of them. The account provided by Tony Sleiman in the witness box did nothing to clarify or explain the discrepancy or any of the other matters raised above.
Thirdly, similar problems emerge with the statutory declarations of Mr Peter Sleiman and Angela Michael.
As a quite separate matter, it is difficult to give any real weight to the evidence of Ms Michael in circumstances where her evidence was not able to be tested via cross-examination. I accepted her medical condition was a genuine issue and did not for that reason press for her attendance at the hearing for cross-examination. However, having regard to the nature of her declaration and the problems as previously outlined with all the declarations, it would be unfair to the Respondent to allow her declaration to stand and carry significant weight without the Respondent having had the opportunity to test her evidence by way of cross-examination.
The Loan Agreements
The loan agreements which were tendered in evidence shortly before the hearing commenced refer to loan amounts which are not the same as the amounts deposed to in the statutory declarations. The supposed loan from Monash Security is a case in point. Ms Michaels, in her statutory declaration, states that “Monash Security loaned the Applicant $682,250”. Yet, according to the loan agreement, the loan amount is $ 1.25m. Mr Peter Sleiman was unable to explain this material discrepancy. This discrepancy was never able to be put to the person perhaps best placed to answer questions in this regard, namely Ms Michaels;
The contemporaneous materials such as the bank statements and the books/records of the relevant entities do not in any way correlate with or otherwise substantiate the flows of funds which, on Mr Sleiman’s account, are said to have occurred on the basis of the loan agreements;
The loan agreements cannot be reconciled with and in fact are directly contradicted by the facts of the Applicant’s case. Thus, for example, Clause 2 of each of the loan agreements reads “the borrower confirms the receipt of the loan amount from the lender”.
The problem is that, as each of Mr Peter Sleiman, Mr Tony Sleiman and Mr George Sleiman accept, the very thing being confirmed by Clause 2, namely the receipt of the loan amount, had not occurred at the time.
According to all three witnesses, there was no lump sum transfer of the supposed loan funds before or at the time of entry into the loan agreements. To the contrary, all three witnesses intimated that following entry into the supposed loan agreements, funds were advanced in incremental amounts over a sustained period of time.
Indeed, there is no evidence of the parties to these loan agreements acting in accordance with them. For example, clause 3(a) of the loan agreement between the Applicant and AVS Group of Companies, provides, under the heading “Termination of the Agreement”, that
The agreement shall continue until termination by:
(i) mutual agreement in writing; or
(ii) otherwise, 11 July 2012, being five (5) years from the date of this agreement.
Not only does the evidence not substantiate the “loan amount” of $2.5m being advanced from AVS Group of Companies to the Applicant, there is no evidence as to the repayment of such a loan amount within the term of the loan agreement. There is no evidence as to the loan being terminated by reason of either Clause 3(a)(i) or (ii) extracted above. This position, in terms of the substantial gaps in the Applicant’s evidence, applies across each of the relevant loan agreements.
There is yet a further discrepancy between the terms of the loan agreements and the contemporaneous evidence in that clause 7 provides that “[t]he borrower shall be required to pay interest on the loan amount at the fixed rate of ten percent per annum 10%”.
There is simply no record of any interest payments having been made at any time and nothing to suggest that the companies involved kept interest schedules or records of their interest entitlements or obligations in some type of financial book or record.
Furthermore, there is no record of any emails attaching any of these agreements, drafts of these agreements, negotiations in relation to these agreements, communications such as requests for repayment or confirmations or repayment or repayment or interest schedules. The Tribunal also directed the Applicant to provide any further documents and this direction was largely ignored.
Finally, there is a further matter that has been of considerable concern to this Tribunal since it was first raised at the hearing.
This relates to the fact that the Applicant only provided the said written loan agreements to the Tribunal, 2-3 business days before the commencement of this hearing notwithstanding the fact that:
This dispute between the Respondent and the Applicant has been on foot for many years and before this Tribunal for over 2 years;
The dispute has to a very significant degree specifically centred on the Applicant’s failure to substantiate the existence of various asserted loans; and
Through numerous directions made by this Tribunal, the Tribunal has called for the Applicant’s evidence to be filed well in advance of the hearing in this matter. All such directions have been largely ignored,
Even more surprisingly, the Respondent’s Reasons for Decision in respect of the audit (T3-43) were provided to the Applicant in June 2013. Upon receiving that document, the Applicant would have become aware that a key issue in the argument with the Respondent is whether such loans existed but the Applicant did not provide any written loan agreements (or evidence of such) to the Commissioner in seeking to challenge the reasoning and conclusions outlined in that document.
Further, in its Objection, dated 4 December 2013 (T13-163), the Applicant makes no reference to any written loan agreements. Although a large number of documents are annexed to that Objection, there are no written loan agreements amongst those documents. Even though that Objection was prepared much closer in time to the events in question, the body of the Objection (see T13-163 to T13-168) provides only the barest of explanations in respect of the supposed loans. One might quite reasonably have expected to find some reference to the terms of a loan agreement which the parties recall signing but which was not then capable of being located. Yet no such reference or anything like it is to be found in that Objection.
On 14 January 2014, the Respondent wrote to the Applicant’s representatives, stating (T14-224):
Notwithstanding your submission, in the absence of any direct evidence in support of your assertions we are unable to accept that these amounts represent loans. Therefore, to assist us to verify the bona fide nature of the impugned transactions, as you assert, we request the following better and further particulars:
1. Please provide a copy of the loan contracts. ...
If there had been loan agreements in place at that time, providing them to the Respondent is likely to have addressed many, if not all, of the Commissioner’s concerns regarding the lack of substantiation of the asserted loans. If only missing at that time some reference to the missing agreements would have been appropriate.
However, none of that happened – instead the Respondent’s request was met with silence. Indeed, at no point in time until three or four days before the hearing were written loan agreements provided.
Further, the Respondent received no communication whatsoever to indicate to him that they existed but could not presently be located or indeed that they would be so provided at the earliest possible convenience.
All this was then followed by the Reasons for Decision in respect of the Commissioner’s Decision on Objection which stated as follows (T2-8):
The trust was asked to provide information and documentation about all loans including:
ocopies of loan contracts
odetails of verbal loan agreements or implied loans
oterms and obligations
owhether loans are current or fully repaid
odetails of interest and fees paid
orepayment schedules
oproof of payment
osecurity provided...
opurpose of the loan and use of the funds
However, the trust did not provide any further information or documentation to substantiate the existence of these loans.
The Reasons for Decision were provided to the Applicant in August 2014. If written loan agreements were in existence at that time, an obvious thing for the Applicant to do - particularly in light of the first bullet point from the passage extracted above - would have been to provide them to the Respondent. This did not occur and as far as this Tribunal can ascertain, there was not at any relevant time any communication made to the Resondent to advise him of the existence of any written loan agreements.
On 12 November 2015, the Applicant filed its SFIC. Six volumes of materials comprising hundreds of pages were annexed to that SFIC. Notwithstanding the emphasis the Applicant had placed on the existence of certain loans in the course of its dispute with the Respondent, no written loan agreements were included in this substantial body of materials.
Since the commencement of these proceedings in mid-2015, the Tribunal directed the Applicant to put on further evidence on 16 June 2015, 2 September 2015, 1 October 2015, 5 November 2015, 21 June 2016, 16 August 2016, 12 September 2016, and 19 December 2016. The Applicant did not put on any written loan agreements in response to any of these directions.
Significantly, at not one of the plethora of the relevant directions hearings, did the Applicant ever indicate to the Tribunal that there were written loan agreements that it would be seeking to rely on.
The Applicant put four statutory declarations before the Tribunal in or around March 2016. Those declarations made no reference to and did not attach any written loan agreements. Additionally, they did not refer to the existence of such agreements and that efforts were being made to locate those documents.
Against that extensive and problematic backdrop the provision of written loan agreements on the eve of the hearing is a development which this Tribunal approaches with extreme caution. This is especially so given:
(a)the lack of any cogent explanation provided by the Applicant for the non-provision of these materials to date;
(b)the lack of any contemporaneous materials which refer to or otherwise evidence these written loan agreements (eg the earliest email provided by the Applicant attaching them is from May 2017);
(c)the evidence of George and Tony Sleiman to the effect that, notwithstanding they were directors of companies that were parties to these supposed agreements, they did not keep copies of the documents;
(d)the inconsistencies between the loan amounts set out in the supposed written agreements and the amounts referred to in the statutory declarations relied on by the Applicant;
(e)the inconsistencies between the explanations provided by the Applicant for not providing these loan agreements earlier; and
(f)the inability to test the evidence of Ms Michael (a witness to a number of the purported loan agreements).
In all of the circumstances, the emergence of these documents on the eve of the hearing without even the semblance of a coherent, plausible explanation as to why they had not been previously provided in a dispute that has continued for 3 to 4 years, means these documents can be afforded little, if any, weight.
Concluding Remarks
It is worth again reflecting on the requirement that the Applicant proactively demonstrate that the assessments in question were excessive.
In this case the Applicant has not come close to doing so.
The various bank statements, the depreciation schedules referred to, the St George Bank Loan Application and the NRMA forms are four sets of documents that in a variety of ways previously outlined contradict some of the critical evidence given by all 3 witnesses who appeared at the Tribunal.
In addition, as indicated previously, the provenance of the supposed loan agreements remains shrouded in mystery and the explanations for their late surfacing are very thin and the evidence seeking to explain, particularly the account given by Mr Peter Sleiman, totally lacks credibility.
In any event, even if taken at face value the loan documents do not in any way match the actual events that occurred either before or after the loan documents were signed.
In particular:
·the loan agreements speak of amounts having already been advanced but no monies had in fact been advanced at that time;
·the amounts lent according to the various agreements do not match the amounts the witnesses assert in their respective Statutory Declarations were lent;
·the loan agreements specified that interest was required to be paid but none was in fact ever paid;
·repayments were called for by each of the loan agreements but it appears that no such repayments were in fact ever made.
The Tribunal recognises that it is not uncommon that agreements of this nature are not always followed to the letter. If, for example, interest had not been paid even though it was called for by the agreement, it might be explained as a variation that was somehow agreed to between the parties even if only verbally. If that was the only difference one might be willing to accept that the agreement nonetheless broadly reflects the reality even if there is no independent evidence to support that variation.
However, in this case, it is not simply one discrepancy between the loan agreements and the contemporaneous evidence but rather a myriad of discrepancies as listed above. These discrepancies bring the whole of the loan agreements and their content into question.
Having regard to that and to the very serious doubt which I have about these loan agreements and their provenance, I give very little weight to these agreements.
The Tribunal concludes that the Applicant has failed to discharge its onus of proof in relation to the default assessments raised.
ISSUE 2 Whether the Applicant is allowed certain deductions in respect of the relevant years for amounts withdrawn from its Bank Accounts and other bank accounts controlled by it?
Having regard to the material provided to this Tribunal and the evidence given at the hearing, the Applicant has failed to explain, to any reasonable extent, what the exact nature of the Applicant’s business was.
In such circumstances, the Applicant has failed to establish that any of the amounts claimed as deductions were deductible under section 8.1 of the Income Tax Assessment Act 1997 (Cth) as it has not been established to the satisfaction of this Tribunal that such amounts were incurred in gaining or producing assessable income or in carrying on business for the purposes of gaining or producing assessable income.
Further, the Tribunal cannot be satisfied that such expenses were not outgoings of a capital nature or of a private or domestic nature or were not incurred in relation to gaining or producing exempt income.
ISSUE 3 Whether the Applicant has discharged its burden of establishing that it is not liable:
· to pay an administrative penalty at a base penalty rate of 75% on the assessed shortfall pursuant to s 284-75(3) of Schedule 1 of the TAA 1953 for the Relevant Income Years; and
· to pay an administrative penalty at a base penalty rate increased by 20% on the assessed shortfall pursuant to s 284-220(1)(e) of Schedule 1 of the TAA 1953 for the years ended 30 June 2009 and 30 June 2010?
In this case the Applicant failed to lodge its required income tax returns for each of the years ended 30 June 2008, 2009 and 2010.
Quite clearly, the Applicant knew or at the very least ought to have known on any reasonable basis that it should have lodged income tax returns for those two years.
To suggest otherwise would suggest that based on its knowledge of the circumstances it could reasonably conclude that its legitimate claimable deductions exceeded its assessable income for each of those 2 years. Looking at the current state of the documentation it is absolutely impossible to understand how the Applicant could on any reasonable basis have come to such a conclusion.
Consequently, the Applicant has failed to give a return by the due date and it is liable to an administrative penalty under s 284-75(3).
Under s 284-90(1) Item 7 in the Table indicates that a penalty of 75% is applicable.
Apart from the assertion that the Applicant was of the view that the deductions exceeded the assessable income (an assertion which I have already indicated I find impossible to accept) there is nothing to suggest that the 75% should be reduced.
In the circumstances, this Tribunal concludes that the 75% penalty which was imposed by the Respondent is appropriate having regard to the Applicant’s deliberate and inexplicable behaviour in not lodging the relevant returns.
The Respondent has also sought to increase the penalty by a further 20% for the 2009 and 2010 years which it has authority to do as a result of s 284-220(1)(e) of Schedule 1 of the TAA 1953.
The Applicant asserts that the 20% uplift should be remitted under s 298-20(1) as it represents an additional penalty against the Applicant “for what, in substance, is one single course of conduct”.
With respect, this is tantamount to asserting that an armed robber who holds up a bank once a year for each of three years is engaging in just one single course of conduct and should therefore be treated more leniently.
As you might guess I find this argument unconvincing.
Even if the non-lodgement of tax returns can be described as a single course of conduct, it required three different and conscious decisions not to lodge tax returns and that is why the Respondent is given the capacity to impose the additional penalty.
There is no basis for remission in this case.
CONCLUSION
The decision under review is affirmed.
I certify that the preceding 178 paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President
.....................[sgd]...................................................
Associate
Dated: 29 June 2017
Date(s) of hearing: 22 May 2017, 23 May 2017 and 6 June 2017 Counsel for the Applicant: Mr S Shepherd and Mr K Lord Solicitors for the Applicant: Mr F David, David Legal Counsel for the Respondent: Mr G O'Mahoney Solicitors for the Respondent: E Whan, Australian Government Solicitor
Key Legal Topics
Areas of Law
-
Tax Law
-
Administrative Law
-
Statutory Interpretation
Legal Concepts
-
Appeal
-
Procedural Fairness
-
Standing
-
Statutory Construction
-
Costs
-
Judicial Review
0
9
0