QQRK and Commissioner of Taxation (Taxation)
[2023] AATA 3493
•27 October 2023
QQRK and Commissioner of Taxation (Taxation) [2023] AATA 3493 (27 October 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/5899 – 2019/5904
2019/5911 – 2019/5916
Re:QQRK
APPLICANT
WHKY
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe and Nick Gaudion, Member
Date:27 October 2023
Place:Sydney
1. With respect to the application made by QQRK:
a.The objection decisions under review are affirmed
2. With respect to the application made by WHKY:
a.The objection decisions under review are varied with respect to the rate of base penalty imposed in the 2013-2016 years of income so that WHKY is liable to base penalty amount at the rate of 50%;
b.The objection decisions are otherwise affirmed.
.................................SGD.......................................
Deputy President Bernard J McCabe
a.
Catchwords
Section 14ZZK(b) of the Taxation Administration Act 1953 – Onus – substantiation – gambling – betting – winnings – losses – record-keeping – assessment of evidence – substantive liability – administrative penalty – intentional disregard – recklessness – Austrac
Legislation
Taxation Administration Act 1953 (Cth)
Corporations Act 2001 (Cth)Cases
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234
Russell v Federal Commissioner of Taxation [2009] 1224; 74 ATR 466Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
REASONS FOR DECISION
Deputy President Bernard J McCabe
Member Nick Gaudion27 October 2023
The applicants in this case, QQRK and WHKY, are brothers. The Commissioner of Taxation said both brothers significantly understated their taxable income in the years ended 30 June 2011 through to 30 June 2016.
The Commissioner also determined QQRK had not properly accounted for GST over part of that period in connection with a concrete pumping business that he operated before it was taken over by WHKY in 2013.
After conducting extensive audits that combed through the applicants’ financial affairs, the Commissioner issued:
·amended assessments in respect of the years ended 30 June 2011 through to 30 June 2016 in respect of QQRK together with shortfall penalty assessments for the same years;
·amended assessments of GST net amounts for the tax periods from 1 July 2011 through 31 March 2013 in respect of QQRK together with penalty assessments;
·default assessments in respect of the 2011 and 2012 years of income for WHKY together with penalty assessments for those years on the basis WHKY failed to provide a document; and
·amended assessments in the 2013-2016 years of income for WHKY together with shortfall penalty assessments in respect of those years.
The Commissioner surmised the applicants were making more than they admitted from the concrete pumping business. Alternatively, he alluded to the possibility the brothers had other unidentified sources of income. In any event, the Commissioner said their affairs did not add up.
QQRK and WHKY both claim large amounts of cash passing through their hands in the relevant years were attributable to their (mostly successful) individual records as prolific gamblers or to loans given and received in connection with their gambling. QQRK and WHKY also denied the concrete pumping business was nearly as busy or profitable as the Commissioner apparently assumed. They offer alternative estimates of their taxable income (and the turnover of the concrete pumping business) in their statement of facts, issues and contentions which they say can be sustained on the evidence. While they concede (or do not contest) some amounts should have been reported as income, they say the Commissioner’s assessments are wrong.
QQRK indicated in written opening submissions that he no longer contested the objection decision with respect to the GST liability and the attendant administrative penalties. That meant the hearing and the submissions which followed it focused on the unexplained income issues for both taxpayers.
A note about the applicants’ burden of proof
Section 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (the Administration Act) makes clear the taxpayer bears the onus of establishing the assessment is excessive or otherwise incorrect and what the assessment should have been. It is not enough to prove the Commissioner was wrong. The Commissioner is guessing, so it would be unsurprising if his estimate of a taxpayer’s income was off. The taxpayer must go further and positively establish their taxable income to the satisfaction of the Tribunal. As a practical matter, that means establishing the assessment was excessive - and by how much.
Sometimes the Commissioner will make a concession so the Tribunal can focus on one transaction or class of transactions at the hearing. Where there has been a clear concession that specifies which transactions are in dispute, the Tribunal need only reach a view about the disputed transaction(s). But where the Commissioner has not made a concession which allows the dispute to be so confined, the taxpayer is obliged to go further and establish the correct amount of taxable income. That means the taxpayer must establish on the balance of probabilities the correct amount of assessable income they derived from all sources and any deductions which together constitute the taxable income.
As a model litigant, the Commissioner is expected to make concessions where possible, and certainly where there is no real dispute over particular transactions or deductions. The parties should not waste the Tribunal’s time (and their own resources) by arguing over transactions or deductions that are not genuinely in dispute. But even where the Commissioner makes concessions about individual transactions or deductions or classes of transactions or deductions, it will remain incumbent on the taxpayer to provide evidence which positively establishes each of the integers of taxable income. It does not inevitably follow that the Tribunal is permitted to reduce the assessment by the amounts associated with a concession if there remains doubt over other components.
In cases which focus on hitherto unexplained movements of cash through the applicant’s hands or accounts, the applicant must provide a reasonable explanation that persuades the Tribunal on the balance of probabilities about what was going on with those transactions. Of course, that explanation must be grounded in probative evidence that is capable of persuading.
The sworn evidence of a taxpayer certainly qualifies as evidence, although it is a matter for judgment in each case whether that evidence is sufficient to persuade without corroboration. The Tribunal will look carefully at self-serving testimony that is not corroborated in circumstances where one would ordinarily expect records or other documentation or testimony from another witness to be available, or where the taxpayer’s testimony is unusual or unlikely on its face or inconsistent with other probative evidence. The Tribunal might also prefer corroboration where the taxpayer’s evidence has been impeached in some respect. Ultimately, though, common sense must prevail: on the balance of probabilities, is the Tribunal persuaded by the applicant’s explanation having regard to the evidence, or not?
The evidence of QQRK
QQRK gave evidence at the hearing and provided statements dated 21 October 2020 (exhibit 1) and 2 December 2021 (exhibit 2). He is the older brother of WHKY. QQRK talked in his statements and at the hearing about his life in the period between 2003 and 2010. He said he lived a modest existence. He said he had minimal expenses and mostly lived rent-free at his parents’ family home with his siblings, including WHKY, although he also referred to staying rent-free at the home of another brother at some points. The mother of QQRK and WHKY, the matriarch of the family, would do the cooking and attend to the needs of her husband and adult children (transcript at p 39).
QQRK has worked in a variety of roles in the construction industry since 1997. He had undertaken an apprenticeship but also worked as a labourer, electrician and tiler (transcript at p 43). He began to operate the concrete pumping business in 2003. The business was not large. He said he was a sole trader with a single truck that he would drive to building sites around Sydney (exhibit 1 at [6]). He had an ABN and the bank account for sales was a Commonwealth Bank account. He says that account was not used exclusively for the business (exhibit 1 at [17 – 19]).
During cross-examination, QQRK recalled he typically worked in the concrete pumping business four or five days a week. He said it was hard physical work that caused health problems. (We note he mentioned two hernia operations: transcript at p 41.) In his statement, he said (at [20]) he brought WHKY into the business to help out. In 2012, he said he began to step back from the business. WHKY began to play a more active role at that point. WHKY took over the business in April 2013. There was no formal agreement or documentation recording the transfer of control. QQRK said he was unemployed between 2013 and 2015 (at [7]) although he said he would occasionally do unpaid jobs for his brother as a favour: at [21]; transcript at pp 41-42.
That brings me to the gambling. QQRK said he started gambling regularly in 2001 (transcript at p 73). He initially focused on making small bets on rugby league matches and American basketball games: exhibit 1 at [22]. He said he would attend the TAB during his lunchbreak or in the afternoons and evenings after work. He spoke of gambling increasingly large sums of money over time. He said he might win thousands of dollars or even $100,000 in a single day from his betting, and he was gambling between two and five days each week. While he agreed he lost money on occasions, his evidence suggested he came out significantly ahead over time. He said that was because “I was pretty good at what I was doing” (transcript at p 45).
In exhibit 1, QQRK spoke of amassing sizeable winnings during the period prior to 2010. He said he began to branch out and bet on other sports, including soccer, tennis, American football, ice hockey and boxing matches. He said he did not ordinarily need to provide any identification in connection with his bets at the TAB in those days unless the transaction exceeded $10,000. QQRK said he would take his winnings in cash or by cheque, or in the form of a voucher. He said he did not keep a paper record or maintain a spreadsheet recording his winnings during this period. He reasoned that he was an amateur gambler and did not see why he would ever need to justify or explain his winnings.
Starting around 2010, QQRK said he changed his gambling habits. He was going to the casino as well as the TAB during this period. He was playing poker, baccarat, roulette and blackjack (exhibit 1 at [23]). He said he would also make two or three trips to Crown Casino each year between 2011 and 2016. Each trip might last for up to ten days and he would gamble extensively (at [31]). He said he also started to keep betting slips and other records of his winnings. He said he did that partly so he could show off winning tickets to his friends (at [24]), but also because he became aware it might after all be important to have some records to explain the source of his money. In cross-examination, he said it was desirable to have proof “[i]n case I ever got pulled over leaving the TAB with big amounts of money, proof of where the money has come from” (transcript at p 45.) He said he would stash winning betting slips in a bag at his home. Many of those slips were made available to the Commissioner to substantiate QQRK’s claim that he was a successful gambler, although he mentioned some of them were also provided to the New South Wales Crime Commission (transcript at p 47). (We do not draw any adverse inference from his involvement with the Crime Commission, although we will have more to say below about aspects of the court orders which resulted from that otherwise unexplained entanglement.)
This casual approach to record-keeping was not restricted to QQRK’s gambling. During cross-examination, he was questioned about his record-keeping practices when he was operating the concrete pumping business. He referred to keeping receipts in relation to fuel purchases in the ashtray in the truck, and other receipts would be collected “[a]t home, somewhere at home in a folder” (transcript at p 117). He said he would occasionally gather the receipts and provide them to his accountant. When pressed to identify the accountant, he was unable to recollect the name or how often they met (transcript at p 118).
We note QQRK provided an expert report prepared by a forensic accountant, Ms Conoulty. The main report was reproduced at tab 672 of the Tribunal book (exhibit 21); it followed up on an earlier report that was provided in the form of a letter. The report analysed TAB betting slips provided by QQRK and concluded QQRK did win significant amounts over an extended period.
While QQRK had a casual approach to record-keeping in relation to his wins, he claimed to have a clear recollection of what happened to the actual winnings – although he conceded he did not remember telling the unidentified accountant about the proceeds of his gambling (transcript at p 11). QQRK said he would keep his gambling winnings at the family home (exhibit 1 at [25]). In this oral evidence, he said he hid bundles of cash at various locations around the house or in a small safe (transcript at pp 48-50). He did not keep a record of those amounts but he insisted in his oral evidence that he knew how much was there on any given occasion “to the dollar”. (He pointed out in his oral evidence that he was “pretty good with numbers”: transcript at p 50). He recalled there might be up to $600,000 in cash in the house on any given occasion during this period. He said he would draw down and add to the cash reserves as he gambled.
In exhibit 1, QQRK included (at [34]) a table summarising his casino winnings over the course of 2011-2016. QQRK explained he visited Crown casino for several days at a time on several separate trips each year. He said he would make a deposit into his Crown account when he arrived because he did not want to carry large amounts of cash while he gambled. He would draw on the account as he needed funds to gamble, and he would pay his winnings into the account as they accrued (exhibit 1 at [32]). During cross-examination, he was asked questions about the records provided by Crown that related to some of the same visits. His attention was drawn to a visit that Crown records say occurred in October 2015 (transcript at pp 67). The Crown records reproduced in the Tribunal book at p 1896 suggest QQRK made a loss of $338,000 on that visit. Yet exhibit 1 includes a table at [34] which does not record a win or a loss on casino gambling that month – as if the visit did not occur.
QQRK clarified that the table in his statement only referred to wins or losses incurred through the casino from gaming activity in the ordinary course. He said the table did not record QQRK’s winnings and losses from private poker games that were hosted at (but not conducted by) Crown casino during the ‘Aussie Millions’ week in January each year, and from private games that might be hosted at the casino at other times (transcript at pp 69-70). He said he generally came out in front when all the winnings and losses were calculated in the wake of those trips. Confusingly, he said he did not mention the $338,000 loss from the casino in October 2015 in his statement because, after taking into account the wins on the private games, “I didn’t end up losing that trip” (transcript at p 71). But if the table in paragraph [34] purported to tally all the wins and losses from all gaming on that occasion, it is unclear why an amount is not recorded in relation to the trip.
Even if we accept QQRK’s account of his track record in these private games, that evidence does call into question the completeness and reliability of the evidence contained in the tables. Mr McLure SC, counsel for QQRK, interrupted the cross-examination at this point to acknowledge there was plainly an erroneous entry in the statement in relation to October 2015 (transcript at p 72). Those anomalies are troubling to the extent they call the reliability of the figure into question.
QQRK said he also regularly hosted private poker games involving friends and acquaintances. There was a good deal of evidence in exhibit 1 and at the hearing when QQRK was questioned about these events. In his statement, he said he began hosting the games at home, and in the homes of friends, in about 2005 (exhibit 1 at [28]). Interestingly, the statement was vague about the timeframe over which the games were held. While they apparently started in 2005, the statement does not make clear whether they continued at the same rate and in the same format in the same places over the income years under review.
In any event, QQRK explained (exhibit 1 at [37]):
I hosted private poker cash games at my home about once a month each year, and a few times a month around Christmas time (December and January). I mostly hosted Texas hold ‘em poker games but would also host Omaha hold ‘em poker and Manilla [sic] hold ‘em poker games. There was usually between 8 to 9 players at the poker games, including myself. The buy-ins were anywhere between $5,000 to $50,000 and players would often walk away with hundreds of thousands of dollars in winnings.
This evidence was generally corroborated by WHKY(transcript at p 220-221). Yet QQRK’s evidence about the games evolved at the hearing. In his oral evidence, QQRK suggested he was engaged in these events as a host “two days a week at one stage” (transcript at p 74) notwithstanding what he said in his statement (quoted above from exhibit 1 at [37]). He agreed the events “were occurring for a substantial period of time”, by which we understood him to mean he regularly hosted games during the period under review (transcript at 74-76). He also suggested the events moved around. Upon further questioning, he confirmed he was gambling in private poker games on three or four nights each week during the period under review. He hosted games himself on up to two days per week and attended games hosted by other gamblers who were known to him on the other days (transcript at p 84). QQRK was able to gamble at events he hosted (transcript at p 84).
Hosting a poker game carried certain responsibilities, we were told. The host was apparently expected to provide catered food and drinks (although there was also mention of sending out for McDonalds if a particular gambler’s tastes ran to fast food or coffee), massages, cigarettes and other perquisites that appealed to the invited guests (transcript at p 85). A game might run for up to two days (transcript at p 84). As QQRK explained, there were a number of staff required to run these elaborate events (transcript at pp 92-93):
Yes, someone’s doing drinks, someone’s cleaning the ashtrays, some of these games could go for one and a half days, two days. So pretty intense, you know? They click their finger, they want a drink, the drink has to be there straight away. They want cigarettes, someone has to go to the servo and buy them cigarettes. They want a coffee from McDonald’s, someone has to drive down. So there’s workers there that need to get paid as well.
The host also engaged professional dealers. We were told there were always at least two dealers at every event because they needed to change regularly. QQRK said the dealers typically worked for tips provided by the individual gamblers according to custom (transcript at p 84-85, 90).
QQRK insisted – and the Commissioner hitherto conceded – QQRK was not a professional gambler during the period under review. Yet in exhibit 1, QQRK explained (at [7]) that he was not otherwise employed between April 2013 and March 2015. He said he lived off the proceeds of his gambling activities. QQRK’s description of the games he hosted raised a question over whether he might be a professional gambling promoter, if not a professional gambler (since he also participated in the games he hosted). The evidence about the way in which QQRK received payments for hosting was particularly interesting in this regard. He explained the host received a “kickback from every pot” or a “rake” (transcript p 84 - 85) rather than some sort of hosting fee paid directly by the gambler or a time charge like that which might be levied on gamblers in a casino (transcript at p 85). He insisted the amounts paid to the house in the ‘rake’ were intended to cover all the expenses associated with conducting the game (transcript at p 85). Mr McLure objected to the questions about the ‘rakes’ because he said the Commissioner’s case had not been framed on the basis that QQRK was a professional gambler or promoter who derived assessable income from the games: transcript at p 87. We allowed the question because it arose out of evidence QQRK had already given.
When pressed to explain how much money he derived from the ‘rake’, QQRK explained (transcript at p 91):
Just enough to pay - cover all the expenses and all the bills, and whatever needs to be paid. It’s not - it’s not a set fee, it’s just - everyone knows someone’s hosting a game, you’re spending all this money, it’s enough to cover everything or make sure all the expenses are paid for the night, so no one’s out of pocket that’s running a game.
Mr Coffey, who appeared for the Commissioner, pressed for clarification. The following exchange ensued (transcript at p 91):
Mr Coffey: Okay?
QQRK: No one’s going to run all these games all night, all this food and everything, and be out of pocket. So the players cover it. They know that it’s the right thing to do.
Mr Coffey: Let’s just be - to be clear about it, you’ve got to cover things like your dealers, your massages, your food, your cigarettes, all those things. Let’s, just for argument’s sake, that comes up to $2,500 or $5,000; is there any other money that you are making, as the host? Are you making - receiving money for the purposes of actually being the host?
QQRK: No.
QQRK has not produced (and apparently has not retained) any records of the costs incurred in conducting the games. At this stage, he can only provide a general indication. Nor does he have any records confirming the size of the rake he received on any given occasion. It follows his explanation cannot be verified or corroborated. We are left with evidence that he received and expended an unquantified amount in connection with his hosting activities, and an assertion that there was rarely, if ever, a surplus. He makes that claim even though:
·the monies coming in were calculated with reference to the size of the pot, which meant the quantum of the rake varied in each game; and
·the costs going out were fixed having regard to the services provided or which might be required at the whim of a gambler in a game of uncertain duration.
The evidence does not affirmatively establish QQRK was a professional gambler or gambling promoter, but it underlines the uncertainty over the quantum and sources of money flowing through his hands.
We were told the host of these events was expected to act as a kind of banker. As QQRK explained in cross-examination (transcript at p 75):
…when we run poker games, for example, when you’re doing buy ins you don’t actually pull out the money out of your pocket and put it on the table. So you get chips, everyone starts with 10,000 – I’ll just explain it for the people who don’t know how the poker games are run. So everyone starts off maybe for example, with 10,000 or 20,000 depends on the game, and you lose that buy in, whoever the host is, you’ll still owe the host another $10,000, they’ll write the 10,000 down, that you owe 10,000. End of the night do a tally, [X]’s up $20,000, [Y]’s down 70,000, this guy – and everyone settles at the end, its after the next game, or the game after. For example, [Y]’s down 60,000 and he’s got 20,000 on him, he owes 50,000. And if I’m up, for example, he’ll say “Look, can you cover me? I’ll give it to you next game or in the week”. And it’s very simple, just like that.
When QQRK was asked whether there were any limits to the financial accommodation he provided to gamblers in games that he hosted, the following exchange ensued (at p 83):
Mr Coffey: Did you ever decline covering people, offering people money on a loan?
QQRK: Of course, some players have a limit. They come to the game and you know they’re good for 20, 30,000, you’re not going to give them chips for 150,000 if you know they can’t cover it. Certain players, different players have different limits.
The following exchange (transcript at p 84) shed some further light on the dynamics of the games and the relationships between the host and the gamblers:
Deputy President: Did you ever have cause to say to someone who turned up to [play] the following week after having lost money the week before, if they hadn’t repaid that money would you say “No, no, you’re not coming into this one until you’ve paid the last one”?
QQRK: Correct. The other players won’t play with them, unless the boss covers that person for example. Because the host is the guarantee, he’s like the banker. So you’re going to his game, if that player doesn’t pay the person that’s hosting the game has to cover that bill. So if he wants to cover him the following week for another 20,000 or 30,000, he’s got a good relationship with that player, that’s up to the host. Because the host is making the money, they get kickbacks from every pot and time charge, whatever, however they charge, so they’re making money from it.
These post-game transactions are said to explain many of the large deposits and withdrawals in QQRK’s bank statements during the years under review. The financial transactions did not only relate to the games in which QQRK was the host and therefore the banker. He made clear he might extend credit to his friends and fellow gamblers even when he was not the host (transcript at pp 74-75) although he was more accommodating when he was the host (transcript at p 83). None of these loans were documented, and QQRK said he did not request security, charge interest or make repayment arrangements (statement at [43]).
QQRK was cross-examined in some detail about his relationship with an associate who was a party to many of the entries showing deposits. We shall refer to him as Smith. At [40] in exhibit 1, QQRK said he first met Smith at a casino where they gambled together. QQRK and Smith thereafter began to gamble at private poker games that Smith hosted at an apartment in the city and other locations. Smith was also a frequent guest at events hosted by QQRK. QQRK said he won sizeable amounts from games that Smith hosted.
QQRK provided further information about the relationship in cross-examination. As it turns out, he knew surprisingly little about Smith. QQRK said he could not remember when they first met. He did not know what Smith did for a living. QQRK said they only knew each other through the poker scene (transcript at pp 74-75). He had Smith’s phone number in the past, but he has not kept it because he no longer sees Smith (transcript at p 76). That evidence is perplexing given QQRK said he routinely loaned large amounts to Smith when QQRK hosted games, or as one gambler to another. QQRK explained (transcript at p 75):
Depends on the games, how much he had to pay, he’d say [QQRK] can you cover me? I’ll pay you tomorrow, I’ll pay you in a week. We were playing poker three or four days a week for a long time, we became friends, you know, the trust was there. The amounts changed over various weeks and months, vice versa, he’ll cover me, I’ll cover him if we needed to, and a lot of the players used to do that.
When asked how much Smith might borrow at any given time, QQRK said it varied: it could be anywhere between $50,000 and $150,000, although the vagueness of QQRK’s answer invited the inference that it could be even more (transcript at p 75). QQRK was asked whether he kept a record of amounts that were loaned. He said he did keep a paper record (although he also kept a record in his head and occasionally on his phone (transcript at p 79)). He said the paper records were always disposed of once the debt was repaid (transcript at p 75).
In cross-examination, QQRK accepted Smith deposited a total of $641,200 into QQRK’s bank account in the year ended 30 June 2016. QQRK said those amounts were repayments of loans when QQRK had accommodated Smith, or they were Smith paying out winnings to QQRK from a game where Smith was the host (transcript at p 78-79). Interestingly, QQRK added that he also received monies in cash from Smith, and in the form of casino chips (transcript at p 79).
The applicant’s evidence about the transactions involving Smith is thin. QQRK does not have a clear recollection of the details of any individual transaction, and the transactions themselves are not otherwise documented. QQRK did not appear to know much about Smith even as QQRK extended him credit and became financially exposed. QQRK did not even have Smith’s email address and did not appear to know Smith’s home address. It is possible this is the way seasoned gamblers behave towards each other, but the evidence is sufficiently unusual (and central to QQRK’s case) that it was obviously desirable to hear from Smith. Yet QQRK said he did not recall having any contact with Smith nor did QQRK attempt to contact him while the audit proceeded or in the lead-up to these proceedings (transcript at pp 79-80). While in the witness box, QQRK produced his phone to check if he still had Smith’s number, but he did not. There was no reasonable excuse proffered for the failure to obtain evidence from Smith.
The same observation can be made about another potential witness who had participated in several games and came to owe QQRK money that was paid into one of his accounts. That individual was said to be an old friend of QQRK’s father. QQRK said it was agreed the individual could pay off the gambling debt over time “because he was a friend. He couldn’t pay it in one hit” (transcript at p 82). There is no record of this arrangement notwithstanding it involved an apparent departure from QQRK’s usual practice of not setting repayment terms. When asked about why the individual had not been asked to provide a statement, QQRK said he had not spoken to the man for years and no longer had his phone number. While the individual was described as a friend of QQRK’s father, QQRK suggested (transcript at p 82) his father had lost contact with the individual as well:
…because we had a fall out over this money, like because it took a long time for him to pay it, and I just covered him. So we just lost contact, I couldn’t get through to him, even if I tried I don’t have his number.
Another associate who was connected with regular deposits into QQRK’s accounts, Mr A, did provide a statement (exhibit 3 at tab 222 pp5185ff) and gave evidence at the hearing. Mr A is involved in building and construction. He used a number of corporate vehicles to run his business over time. There are deposits recorded in the name of those companies into the bank account of QQRK. Mr A said QQRK was a lifelong friend. In his statement, Mr A said the financial transactions between them were all gambling-related. Mr A said he regularly attended games hosted by QQRK and Mr A occasionally hosted his own games that QQRK would attend. Mr A’s account in exhibit 3 of what happened in the wake of those games generally comports with QQRK’ explanation of what transpired:
6It was not uncommon for people to loan money to one another at those games. This would often happen when someone lost their buy-in amount and asked for a stake.
7I recall that I had borrowed money from [QQRK] on several occasions during those games. When [QQRK] lent me money, he never charged any interest or asked for any security.
8I often repaid the amounts I borrowed from [QQRK] by making out a cheque. The payer on those cheques was either [of Mr A’s companies] - I deposited money from my savings into the bank accounts held by [those companies] from time to time to cover the amounts repaid to [QQRK] from those companies. As the arrangements were informal, I never kept records of the loans.
9I made repayments to [QQRK] whenever I was able, and this would sometimes be shortly after a poker game. However, I did not always repay the amounts I borrowed within a short period. I kept a mental tally of the amounts I had borrowed, and this tally would sometimes accumulate to a large sum (between $100,000 to $200,000) before I repaid [QQRK]. I did this because there was a chance that I could repay [QQRK] at the next poker game if I had won a large sum of money.
We note exhibit 3 included a table at [11] summarising deposits connected with Mr A that were made into QQRK’s accounts throughout the period 2011 through 2016. He denied the deposits had any connection with QQRK’s concrete pumping business. Mr A explained:
Having seen that list, I recall that all those payments were repayments I made to [QQRK] in respect of money I borrowed during private poker games. I know this because [Mr A’s companies]… did not make any payments to [QQRK] for a business-related purpose. That is, [QQRK’s] concrete pumping business never did any work for [Mr A’s companies] and those companies never paid [QQRK] for any concrete pumping services. The only amounts paid to [QQRK] were for the repayment of my loans.
We pause to note Mr A conceded in cross-examination that QQRK’s concrete pumping services had been engaged on one of Mr A’s company’s projects in the past. (QQRK had suggested as much in his evidence.) Mr A could not remember when that occurred. He thought it might have been in 2008, although it could have been later. His answer when asked about that interaction was nonetheless oddly emphatic. He insisted (transcript at p 162):
But I didn’t call him to come. That time I can - that time we had a contractor there and he couldn’t come up with the (indistinct) and they called [QQRK] to help to bring the pump. I didn’t pay [QQRK]; they paid him, the other contractor. So I didn’t call him, I didn’t pay him, but they work on my site a couple of time. But I didn’t pay them.
It is also strange that payments to settle personal gambling debts referred to in the table in Mr A’s statement were paid from company accounts. Mr A was questioned about that and his answers in cross-examination were ultimately confusing. After it was pointed out he was not a corporate officer of the companies in question at the time the payments were made from corporate accounts, he explained he nonetheless kept control of the cheque books and had access to the bank accounts (transcript at pp 159-161). He was unable to point to any company records in which those payments of personal expenses were recorded or attributed. We would expect such records to exist although we acknowledge they may be difficult to access in circumstances where the companies (or two of them, at any rate) have long since been deregistered. Even so, there is no suggestion in the evidence that the payments were recorded in company accounts. That is itself unusual given the company’s obligation to keep books and records in accordance with s 286 of the Corporations Act 2001 (Cth). In any event, Mr A painted a picture of haphazard internal accounting, controls and processes in those entities. Mr A said in his statement (at [8]) that he would deposit money from his savings into the company bank accounts. We infer those deposits were intended to cover the cheques he was drawing to pay personal expenses. That is conduct that would alarm any competent director, accountant or corporate lawyer, but that was his evidence. Yet in cross-examination, the following exchange (transcript at p 159) muddied the waters somewhat:
Mr Coffey: Just to be clear, when you say, “My savings”, who do you mean by my savings? Are you saying it’s your personal savings or are you saying there was bank accounts for the companies that you had the savings?
Mr A: My business savings.
Mr A subsequently clarified (transcript at p 159) the reference to ‘savings’ meant cash he had on hand. That revelation prompted the following, largely unenlightening, exchange (at transcript p 160):
Mr Coffey: Okay. Why did you not give the cash directly to [QQRK], why did you draw a cheque to pay the money?
Mr A: Because the money is not like – that cheque is not happened at that time, the cheques have been over few period of gambling time. You know, and then when I’d give him the cheque sometimes – like, I recall sometimes he need cheque, or he needed money, at that time I didn’t have cash. I give a cheque; we give it to a third party where they cash it take 3 per cent and we pay [QQRK] on the spot because he needs to continue gambling. So I used to use the cheque as - through another party, they used to cash it on a - like they take 3 per cent. Mr Coffey: Who are these people that you took 3 per cent? I just didn’t understand that I’m sorry?
Mr A: They take cash it for you, you know, you write a cheque to them, they cash it and they give you money on the spot but they charge you 3 per cent. Just on an estimate, you know, like, you know. They always around where we play asking “You want to cash a cheque” or something, and sometimes we desperate for cash so we cash with them. That’s why when you tell me give him cash, you know what I mean, sometime you don’t have that $100, $80 cash, you know. So when it become that much money I went - I used to just write a cheque, give it to someone, cash it and give to [QQRK].
It is difficult to know what to make of the evidence of Mr A. On its face, it corroborated the evidence of QQRK, at least in the sense it confirmed QQRK’s claims that the highlighted deposits were all connected with the repayment of gambling debts. But Mr A was relying on his recollection and was unable to corroborate his assertion about the deposits – deposits that were sourced from company accounts in respect of personal expenses, if Mr A is to be believed.
We do not have any difficulty with the proposition that Mr A and QQRK gambled together and that Mr A may have borrowed money from QQRK in connection with gambling debts which had to be repaid. That the payments should be made from company accounts is certainly unorthodox, probably inappropriate, and potentially unlawful, but that does not in and of itself make the story unlikely. Yet we are satisfied we should still treat the evidence of Mr A with caution – at least insofar as he purported to explain the provenance of the specific deposits referred to in the table in his statement. He was not an entirely satisfactory witness. We were troubled by the fact there plainly was some engagement between QQRK’s business and Mr A’s companies despite claims to the contrary. Mr A initially denied any work-related interaction before the other evidence was put to him in cross-examination – at which point Mr A downplayed the contact in an oddly emphatic way. His answers in cross-examination when questioned about the use of company cheques to settle personal debts when he plainly had cash to hand were full of bluster. That prevarication may have been prompted by the witness’s appreciation of the irregularity of his behaviour with respect to the companies. Irrespective of his motivation when giving evidence, his answers did not satisfactorily explain what transpired.
While QQRK did not record or document his gambling-related loans, he did refer in cross-examination to other loans he made from time to time that were not connected to gambling. He said the loans were made out of his gambling winnings (transcript at p 94). He said he might make a written note of advances but he did not have copies of those records and did not recollect the amounts or the time frame over which the loans were made. He did recollect the loans were all made to “close people. I wasn’t lending it to a stranger down the street, they were very close people” (transcript at p 95).
The relationship between QQRK and Mr K is an example. QQRK provided a statement from Mr K, who was not ultimately required for cross-examination. Mr K’s evidence in his statement is relatively narrow in its compass. Mr K also runs a building and construction business, and he is also a gambler. He is a friend of QQRK. They have known each other for years. While they are both involved in the construction game, Mr K was adamant that he did not do any business with QQRK while QQRK operated the concrete pumping enterprise (statement at [4]). Mr K recalled he approached QQRK for a loan in mid-2012. Mr K said he needed help with living expenses after losing money at the casino. Mr K recalled (exhibit 6 at [5]) QQRK:
…provided me with that sum in cash within a few days of me having approached him. There was no written agreement, no interest, or repayment basis. [QQRK] only asked that I repay him when I could.
Mr K said he was unable to pay the debt immediately. He subsequently arranged for his father to repay the entire amount in one transaction. His father wrote a cheque in the amount of $30,000 on 19 December 2012. The payment was deposited into one of QQRK’s accounts (transcript p 105). Mr K confirmed the deposit related to the debt. It was not a payment for services rendered through QQRK’s concrete pumping business, or otherwise (at [7]).
The Commissioner did not require Mr K for cross-examination. We have no reason to reject his evidence, and we accept it as far as it goes.
QQRK was questioned in cross-examination about deposits made into his accounts by other individuals, including Mr S (mentioned in paragraph [49] of exhibit 1) and Mr W (mentioned in paragraph [51] of the same statement) who were not called to give evidence. QQRK said he loaned Mr S and Mr W large amounts to cover their gambling debts. In the case of Mr S, the money was loaned in cash that would be delivered, perhaps inevitably, in a bag (transcript at p 104). QQRK had a surprisingly poor memory of both these individuals and the transactions when asked questions about them in cross-examination. The following exchange in relation to Mr S (at transcript p 101-102) is illustrative of the quality of QQRK’s recollection that bordered on evasive:
Mr Coffey: [Mr S]. That gentleman, who is he to you?
QQRK: Just a friend.
Mr Coffey: How did you come to be friends with him?
QQRK: From casinos and gambling together over the years.
Mr Coffey: Do you know, can you pinpoint a year in which you first met him?
QQRK: No, a long time ago.
Mr Coffey: Okay. When did you last speak to him?
QQRK: A long time ago.
Mr Coffey: Okay. What’s a long time ago? Are you able to pinpoint a period in time in which you spoke to him?
QQRK: Over five, six, seven years ago.
Mr Coffey: If you commenced these proceedings in the tribunal in September 2019, 5 roughly, was it before the proceedings were commenced and after the objection had happened, or was it - whereabouts, can we try and pinpoint to a period?
QQRK: Way before.
Mr Coffey: When you knew him or at least when you were conversing with him, what did he do for work?
QQRK: Not sure to be honest with you.
Mr Coffey: So in this paragraph 49 you say, in the second sentence,
I met [Mr S] at the casino in Sydney and have known him for more than 10 years.
It’s the case that you knew the gentleman for more than 10 years, but you didn’t know what type of work he was involved in?
QQRK: No.
Mr Coffey: Did he know what type of work you were involved in; did you tell him?
QQRK: We just - we knew each other from the gambling scene, that’s about it. Just spreads from the gambling.
Mr Coffey: Your evidence is that you lent him $350,000 in cash. What was the purpose of giving him $350,000, what would he need it for?
QQRK: Gambling.
Mr Coffey: So to pay off people that he had borrowed money for or owed money to because he lost?
QQRK: I’m not sure.
Mr Coffey: I’m sorry?
QQRK: He asked for it, I’m not sure what he’d done with the money, if he gambled it, if he paid debts with it, I’m not sure. I didn’t really ask questions.
Mr Coffey: So just to be clear when he asked you to borrow the $350,000, do you recall where you were or how that contact or communication happened with him?
QQRK: To be honest with you I can’t remember that far back, where it was.
Mr Coffey: Do you know if he asked you in person, face to face, or over the telephone?
QQRK: I don’t recall.
In a similar vein, the following exchange occurred later in the cross-examination (transcript at p 103):
Mr Coffey: So your evidence, if I understand it correct, is that at some point the gentleman asked you to borrow an amount of money which consisted of $350,000, and you gave it to him. But do I understand your evidence correctly to be that you don’t recall today what the purpose of the loan was for or he did not tell you and you did not ask?
QQRK: I can’t remember that far back what it was, to be honest with you. If it was at the casino, if it was to pay debt, I can’t remember, we’re going back 10 years.
Mr Coffey: But you accept the $350,000 is a substantial amount of money to lend to a person that you know through gambling?
QQRK: Yes, well we became very close gambling together all the time.
Mr Coffey: Very close, thought but you didn’t have a relationship or a friendship where you spoke about things such as any other occupation that he might have?
QQRK: I mean you see each other at the casino every day, playing poker together every day.
Mr Coffey: What nationality is he, background?
QQRK: Lebanese.
Mr Coffey: Okay, do you know where he lives? Or lived at the time that you lent the money?
QQRK: At the time where he lived?
Mr Coffey: Yes, or about late August 2011?
QQRK: I really can’t remember.
Mr Coffey: Since September 2019 have you made any attempts to contact this gentlemen in order to obtain a statement or an affidavit for these proceedings?
QQRK: No, I lost contact with him a long time ago.
Mr Coffey: You say you lost contact but does that mean that you didn’t have his phone 35 number to call him?
QQRK: Yes, I don’t have his phone number, I lost contact.
Mr Coffey: Did you make any inquiries with other friends or acquaintances or associates that you have in order to attempt to identify him, to obtain a statement from him for the purposes of giving evidence about why he borrowed the $350,000 off you?
QQRK: No.
QQRK’s evidence on this question is unsatisfactory, and it informs our unfavourable assessment of his evidence more generally. His answers to these questions were at once evasive but revealing. We do not accept his recollection of the significant loan he claims to have advanced in cash is so poor that he could not remember important details of what occurred, even allowing for the passage of time and the fact that – at least on QQRK’s account – he routinely dealt in large sums. (We note his boast earlier in cross-examination that he would keep track of deposits he held in his home “to the cent” and that he “was pretty good with numbers” (transcript at p 50). It was an improbable story in any event. It is inherently unlikely he would loan such a large amount of money in cash to someone he knew so little about – particularly a gambler who already had significant debts to others who were obviously pressing for payment – without:
·asking why the borrower needed the money;
·obtaining any security; or
·keeping any records.
QQRK invited us to infer that was just the way he and his gambling associates rolled. At a minimum, we would have expected QQRK to call corroborating evidence from Mr S before we could credit a story that seems so unlikely on its face. QQRK did not do so and did not provide a satisfactory explanation for that failure.
The evidence in relation to Mr W was also unsatisfactory. In cross-examination, QQRK said he knew Mr W through gambling with him. A company associated with Mr W made a series of large deposits into QQRK’s accounts. When asked (transcript at p 107) about the reason for the deposits, he said:
It could have been for a poker - poker loss. Money lent in the casino when we’re gambling. Or it could have been money that I’ve lent him from my bank account when I’ve transferred it to him and he’s transferred it back. It could be either one of those.
QQRK did not exhibit a clear recollection of his dealings with Mr W. Once again it was unclear whether he genuinely did not remember what transpired – which does not reflect well on his capacity as an historian, given the amounts involved - or if he was just being evasive. He accepted he might have loaned the monies to Mr W in cash, but QQRK claimed he could not remember when or why that occurred, although he said he assumed it was to cover poker losses (transcript at p 108). QQRK did not appear to think it was odd that the funds were repaid by Mr W from a corporate account, and QQRK did not see the need to document the loan, obtain security, or confirm the terms of repayment. Once again, we would have thought such an unlikely story would be corroborated by calling Mr W, but no satisfactory explanation was provided for the failure to do so.
Statements were provided from three other individuals after QQRK’s cross-examination had concluded. They should have been filed earlier in the proceedings. The first (unsigned) statement (exhibit 17) was from Mr G, a cousin of QQRK. The statement recalled the individual borrowed $60,000 from QQRK in mid-2013 to cover a gambling debt incurred at one of QQRK’s poker games. The statement confirms the amount was repaid when $60,000 was deposited into QQRK’s bank account. The second (unsigned) statement (exhibit 18) was provided by another cousin, Mr Y. Mr Y confirmed he borrowed $61,500 in cash from QQRK in March 2015 to cover the cost of home renovations. The loan was repaid when Mr Y deposited the full amount into QQRK’s bank on or about 24 June 2015.
The Commissioner did not ask to cross-examine Mr G or Mr Y but that might have as much to do with the fact the material was filed so late in the proceedings that meaningful cross-examination may have been difficult. Mr Coffey pointed out in written closing submissions that neither statement was signed or supported by objective evidence such as contracts, or bank statements that recorded payments. He said we should give these late-breaking statements limited weight. We agree that is appropriate given the circumstances in which the material was produced.
QQRK also tendered a signed statement by Mr MD (exhibit 16), a chartered accountant who had gambled with QQRK. The statement was also tendered after QQRK concluded his evidence. The statement confirmed the individual had attended poker games that QQRK attended (although not events hosted by QQRK) on a number of occasions where the buy-in varied from $10,000 to $100,000. Mr MD recalled giving QQRK a cheque for $26,000 on or about 9 May 2016. Mr MD said (at [4]):
…[he did] not remember the precise circumstances that led to me giving [QQRK] that cheque, however, the only reason for me paying [QQRK] money would have been to repay him for covering a gambling debt I incurred at one of the poker games.
Perhaps understandably, the Commissioner did not ask to cross-examine Mr MD given the evidence was produced so late in the day: cross-examination at short notice might yield little benefit, yet seeking an adjournment to undertake further enquiries would be costly. The story is not inherently unbelievable as far as it goes, but it is not precise and does not significantly advance QQRK’s case.
There were several other individuals identified as making deposits into QQRK’s accounts. They were not called to give evidence nor were statements obtained. QQRK said during cross-examination that the deposits were repayments of loans. His evidence in relation to each of those individuals was thin. He explained his failure to call most of these individuals or obtain statements on the fact they were poker acquaintances and he no longer played poker (transcript at p 111). We do not go so far as to draw an adverse inference from the failure to call these individuals, but the evidence provided by QQRK about them and the provenance of the transactions in question is of limited weight given our concerns about QQRK’s credit.
We should mention one further matter because it reflects on our assessment of QQRK’s evidence and explains why we think his evidence must be treated with caution. QQRK was asked about some of his other assets – in particular, about the cars he owned at various points. In exhibit 2, QQRK recorded a modest collection of assets (at [4]-[6]). He expressly denied owning any other assets during the years under review that were valued at more than $10,000 (at [7]). He went on to add (at [8]):
I did not own any assets that exceeded $10,000 in value that I would consider to be luxury assets. For instance, I did not own any luxury cars or boats. I did not live the kind of more expensive lifestyle I would want to live if I earned the income in the amended assessments or the objection decision issued by the Commissioner of Taxation.
QQRK was evasive in response to questions about his assets during cross-examination. For example, he denied being able to remember what car he was driving in 2013. When pressed, he replied (transcript at p 119):
You asked me what vehicle I was driving, I said I can’t remember what car it was at the time. If it was a Holden, if it was a Merc, if it was a BMW, I can’t remember.
He later clarified that he had never owned a Mercedes or a BMW, although he had driven BMWs owned by family members. (He said it was common for family members to access each other’s cars (transcript at p 129.)) He said he mostly owned Hiluxes or “little cheap cars” like a Pulsar or a Honda Civic. But it transpired he also owned an Audi R8. The Audi was mentioned in Supreme Court orders made following interactions with the New South Wales Crime Commission. QQRK had been required to dispose of assets including the Audi in settlement of a debt (a copy of the orders was included in the Tribunal book at tab 191). He said the Audi was his favourite car, although he seemed to have trouble remembering its colour (“Blue, I think. Like a blue colour”) and he thought it was manual (transcript at p 130).
Mr McLure objected to the questions about QQRK’s vehicles because he said the Commissioner should not be focusing on assets when the real focus of the inquiry was on the payments received into his bank accounts. We mention QQRK’s evidence in relation to the Audi because of the unforthcoming way in which he answered the questions. That hesitation over detail – about the colour of his favourite car, for example – was a feature of his evidence. He professed early on that he had a good head for figures, but he did not demonstrate a good grasp of detail. He repeatedly responded to questions about transactions and events and relationships by claiming not to remember.
Conclusions in relation to QQRK’s substantive liability
We have already explained the Commissioner is not required to prove his case. He is free to point to shortcomings in the proof offered by a taxpayer. If the taxpayer is to discharge his onus, he must point to evidence which provides a probable and reasonable explanation of his taxable income.
QQRK was not a satisfactory witness for reasons we have already explained. He had, at best, an inconsistent recollection of detail and was often evasive when pressed in cross-examination. When confronted with evidence that was inconsistent with his statement – for example, the evidence about winnings he derived from trips to Crown casino – he sought to clarify that evidence in a way that was conveniently difficult to check. Another example of inconsistency can be found in his claim that he did not own any luxury cars. That claim ignored his ownership of an Audi R8, the very definition of a luxury car. Those inconsistencies were troubling in circumstances where QQRK was telling the Tribunal a story about gambling and financial transactions that were, at a minimum, unusual.
Taken at its highest, QQRK’s evidence suggests he was a prolific gambler with a lengthy track record of gambling increasingly large amounts prior to the period under review. (That conclusion is supported by the analysis contained in the ‘Conoulty’ expert report at tab 672 of the Tribunal book). We have no reason to doubt he had access to cash in the form of winnings at the outset of the period under review. It is unclear whether he had access to cash from other sources as well, although we were not invited to make any findings about that. In any event, monies were available to fund gambling activities that involved making large bets in various venues throughout the period under review. QQRK said he tended to win more than he lost, a conclusion which is generally consistent with the expert report of Ms Conoulty. But even if we accept he was a skilled and lucky gambler, there must be some doubt over the extent to which he consistently won. We can also accept he hosted poker games at his home and elsewhere on a regular basis. Those games attracted friends and associates who also bet large sums of money. As host, we can accept QQRK provided financial accommodation to other gamblers who were required to settle bets following games, and he also occasionally helped friends with loans for gambling debts and for other purposes. We can even accept the short-term credit extended to some other gamblers at games he hosted might have been undocumented, that no interest was paid, and security was not required. We have more trouble accepting that was the routine followed in every case. Some of the other loans (if that is what they were) were made in circumstances where one would expect more care to be taken in recording the arrangements.
It follows we accept QQRK has provided an explanation in respect of amounts flowing into his accounts. But it is unclear whether it is a sufficiently complete and satisfactory explanation of his taxable income in circumstances where the extent of his winnings is unclear. We have also identified concerns over the explanations relating to provenance of deposits into his accounts, including those supposedly made by Mr S and Mr W. Given our concerns about the evidence of QQRK, we are not prepared to accept his assertions about other deposits he attributed to individuals who did not provide statements. Those gaps mean QQRK has not adequately explained his taxable income. In those circumstances, he has failed to discharge his onus.
Penalties in respect of QQRK
Having confirmed there is a tax shortfall, it is necessary to address the question of penalties. The Commissioner issued assessments imposing administrative penalties pursuant to Division 284 of Schedule One to the Administration Act. The Commissioner found QQRK made false statements in his returns which were filed after the Commissioner contacted him about late lodgement. The Commissioner concluded the absence of adequate records in support of the returned amounts suggested intentional disregard, which meant a penalty of 75% was appropriate.
An applicant in these circumstances bears the onus of showing there was no intentional disregard. QQRK did not do that. While written closing submissions suggest he was, at worst, guilty of a want of reasonable care or even recklessness, the evidence of his approach does not admit of that conclusion. He did not keep adequate records while he ran the concrete pumping business. He may have had a tax agent in connection with the business enterprise but he was unable to identify that individual when asked questions in cross-examination. Once he left the business, he did not appear to keep any records or engage with his taxation obligations at all: in other words, he was wholly indifferent to the taxation consequences of his activities. He certainly did not provide evidence capable of satisfying us he was merely naïve, careless or even reckless. It follows there is no satisfactory basis for us deciding a different rate of penalty was appropriate.
We are also unable to identify anything in the taxpayer’s circumstances or otherwise suggesting it would be appropriate to remit the penalties either wholly or in part pursuant to section 298-20(1) of Schedule One to the Administration Act. Lastly, we were not made aware of any satisfactory basis for concluding the 20% uplift in the penalty imposed in the 2012-2016 years should be remitted.
Conclusion with respect to QQRK
The objection decisions under review are affirmed.
WHKY
We turn next to the affairs of WHKY, the younger brother of QQRK. We have already pointed out WHKY failed to file returns in respect of the 2011 and 2012 years of income, so the Commissioner issued default assessments which included penalty assessments. WHKY did file returns in respect of the 2013-2016 years of income but the Commissioner issued amended assessments that reflected a shortfall in those years together with penalty assessments.
We return to the evidence proffered on behalf of WHKY. We have already noted his testimony must be approached with caution. Even so, we are satisfied the evidence as a whole (including his testimony and the documents and the other witness accounts) establishes WHKY gambled prolifically and with some success during the relevant periods. We also accept his early gambling was funded out of savings and gifts and other monies before the relevant years of income. We also accept he provided financial accommodation to other gamblers and loans to at least one acquaintance, and that repayments of those advances might have passed through his accounts.
We can accept WHKY has established the objection decisions are wrong, at least to some extent. But that is not enough for WHKY to succeed in the review. He is also obliged to identify the correct (or more nearly correct) amount of taxable income in the years under review. We are not satisfied he has done so in circumstances where:
(a)the extent of his winnings throughout the years under review is unclear given his own evidence exaggerated his winnings and evidence of losing bets did not appear to be taken into account, especially in Ms Conoulty’s reports. Those gaps in the information available to her significantly limits the weight and value of the reports;
(b)there is uncertainty about amounts of income generated by the business in the 2013-2016 years of income given many of the records have been lost.
Penalties in respect of WHKY
Having concluded there was a tax shortfall in the relevant years of income, we turn to the question of penalties.
The Commissioner assessed penalties pursuant to s 284-75(3) of Schedule One to the Administration Act in respect of the 2011 and 2012 years of income. That sub-section provides for an administrative penalty calculated as percentage of the shortfall in circumstances where the taxpayer fails to provide a return or other document which is necessary for the Commissioner to make an assessment. WHKY did not furnish returns in the 2011 and 2012 years of income and the Commissioner proceeded to issue assessments, so the shortfall penalty of 75% is applicable. The Commissioner says a further 20% is payable in respect of the 2012 year of income by reason of the ‘uplift’ provided for in s 284.220(1)(e). We are not aware of any basis for disputing the imposition of the administrative penalties.
The Commissioner also imposed administrative penalties in respect of the 2013-2016 years of income pursuant to s 284-75(1) of Schedule One to the Administration Act. The penalties were imposed at the rate of 75%. That was said to be appropriate because the shortfall arose because of a false or misleading statement that was itself the product of the taxpayer’s intentional disregard of obligations: s 284.90(1). There was also a 20% uplift imposed in respect of the 2014-2016 years of income.
WHKY’s case did not focus on the penalties issue. In written submissions, his counsel pointed out ‘intentional disregard’ required awareness of the laws and obligations that were being disregarded: Russell v Federal Commissioner of Taxation [2009] FCA 1224; 74 ATR 466 at [180]-[182] per Logan J. The Commissioner suggested in written submissions (at [319]) that insight into the obligations he supposedly disregarded could be inferred from WHKY’s failure to keep business records and the way he operated his accounts. We note the submissions point out: “As a business owner, he should have been aware of his business obligations”. [Emphasis added] Saying that a taxpayer should be aware of their obligations suggests recklessness or even a want of reasonable care rather than intentional disregard.
We acknowledge the taxpayer is obliged to establish the finding as to penalties was wrong and that it should have been made differently. Given the lack of focus on evidence to that effect at the hearing, that is a challenge. As it happens, we are satisfied WHKY’s conduct suggests recklessness rather than intentional disregard. We reach that view in light of WHKY’s statements and oral evidence, and in light of his youth and inexperience. In contrast with his brother who was a more experienced and deliberate person, there was nothing in the evidence which suggested WHKY had any insight into the extent of his taxation obligations. In that sense, he was reckless and the base penalty amount should be adjusted to 50% of the shortfall to reflect that finding. We are not aware of any basis why the uplift should not be imposed.
That leaves only the question of remission. We acknowledge there is a broad discretion to remit all or part of a penalty that was otherwise properly imposed. The discretion is contained in s 298.20(1) of Schedule One to the Administration Act. The correct approach to the exercise of the discretion was discussed in the Full Court’s decision in Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50. In that case, Griffiths J explained (at [249]):
the question is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part. For example, a decision-maker might determine that it is appropriate to remit penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh…
We are conscious of WHKY’s age and inexperience – this is a young man that only left the family home comparatively recently, after all. Even so, we are not persuaded his circumstances are such that it would be appropriate to remit the penalties.
CONCLUSION WITH RESPECT TO WHKY
The objection decisions under review are varied with respect to the rate of base penalty imposed in the 2013-2016 years of income so that WHKY is liable to base penalty amount at the rate of 50%. The objection decisions are otherwise affirmed.
I certify that the preceding 143 (one hundred and forty -three) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe
...................................SGD.....................................
Associate
Dated: 27 October 2023
Date(s) of hearing: 21 November 2022 to 25 November 2022 Date final submissions received: 17 January 2023 Counsel for the Applicant: David McLure SC, Keni Josifoski Solicitors for the Applicant: Petar Jakimov Counsel for the Respondent: Ryan Coffey Solicitors for the Respondent: Australian Government Solicitors
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