QTWG and Commissioner of Taxation (Taxation)
[2019] AATA 2428
•24 July 2019
QTWG and Commissioner of Taxation (Taxation) [2019] AATA 2428 (24 July 2019)
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2015/2587
TAXATION AND COMMERCIAL DIVISION )
Re: QTWG
Applicant
And: Commissioner of Taxation
Respondent
TRIBUNAL: Deputy President S A Forgie
DATE OF CORRIGENDUM: 12 September 2019
PLACE: Melbourne
CORRIGENDUM TO DECISION [2019] AATA 2428
The Tribunal amends its decision of 24 July 2019 as follows:
any reference to the following:
“(1)remit that part of the objection decision dated 30 March 2015 in so far as it applies to assessments issued in respect of the 2007 and 2008 income years to the Commissioner to:
(a)exclude from the assessment for the 2007 income year the value assigned in the asset betterment calculation to the Mobile Caravan Reg O…;
(b)add to the assessment for the 2007 income year the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U…7 and the 1986 Mercedes Tipper Reg U…1;
(c)make a compensatory adjustment for the 2008 income year regarding the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U…7 and the 1986 Mercedes Tipper Reg U…1;
(d)exclude from the 2008 income year the value assigned in the asset betterment calculation the sum of $300,000.00 that was presented to QTWG in a cheque that was subsequently dishonoured; and”
is substituted by a reference to the following:
“(1)remit that part of the objection decision dated 30 March 2015 in so far as it applies to assessments issued in respect of the 2007, 2008 and 2009 income years to the Commissioner to:
(a)exclude from the assessment for the relevant years the value assigned in the asset betterment calculation to the Mobile Caravan Reg O…;
(b)add to the assessment for the 2007 income year the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U…7 and the 1986 Mercedes Tipper Reg U…1;
(d)exclude from the 2008 income year the value assigned in the asset betterment calculation the sum of $300,000.00 that was presented to QTWG in a cheque that was subsequently dishonoured; and
(e)exclude from the 2009 income year the value assigned in the asset betterment calculation the sum of $270,000.00 that was presented to QTWG in a cheque that was subsequently dishonoured; and”
[sgd]
S A FORGIE
Deputy President
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2015/2587
Re:QTWG
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President S A Forgie
Date:24 July 2019
Place:Melbourne
The Tribunal:
(1)remits that part of the objection decision dated 30 March 2015 in so far as it applies to the 2007 and 2008 income years to the Commissioner to:
(a)exclude from the assessment for the 2007 income year the value assigned in the asset betterment calculation to the Mobile Caravan Reg O…;
(b)add to the assessment for the 2007 income year the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U…7 and the 1986 Mercedes Tipper Reg U…1;
(c)make a compensatory adjustment for the 2008 income year regarding the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U…7 and the 1986 Mercedes Tipper Reg U…1;
(d)exclude from the 2008 income year the value assigned in the asset betterment calculation the sum of $300,000.00 that was presented to QTWG in a cheque that was subsequently dishonoured; and
(2)otherwise affirms the objection decisions relating to:
(a)assessments for the 2004, 2005 and 2006 income years and default assessments for the 2007, 2008, 2009 and 2010 income years; and
(b)administrative penalty assessments for each of the 2004 to 2010 income years.
..................[sgd]....................................................
Deputy President S A Forgie
Catchwords
TAXATION – application for review of an objection decision – whether Commissioner had power to amend assessments – whether assessments excessive – whether assessment of administrative penalty amounts excessive – whether applicant has discharged burden – decision remitted in part and otherwise affirmed
Legislation
Administration and Probate Act 1958
Administrative Appeals Tribunal Act 1975
Bankruptcy Act 1966
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Industry Research and Development Act 1986
Taxation Administration Act 1953
Tax Laws Amendment (2010 Measures No. 1) Act 2010
Tax Laws Amendment (Transfer of Provisions) Act 2010
Cases
Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) [2011] FCA 1090; (2011) 196 FCR 457
Bai v Commissioner of Taxation [2015] FCA 973
Commissioner of Taxation v White (No 2) [2010] FCA 942; (2010) 117 ALD 335; [2010] ATC 20-205
Confidential and Commissioner of Taxation [2012] AATA 178; (2012) 88 ATR 222; 2012 ATC 1-044
Davis v Commissioner of Taxation [2000] FCA 44; (2000) 2000 ATC 4,201; 44 ATR 140
Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088
Federal Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753; [2012] ATC 2-333; (2012) 89 ATR 357
Federal Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74; (2011) 193 FCR 149; 82 ATR 680
Galea v Commissioner of Taxation [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301; 296 ALR 497; 91 ATR 1; [2013] ATC 20-377
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Hart v Commissioner of Taxation [2003] FCAFC 105; (2003) 131 FCR 203; 53 ATR 371
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4,546; 22 ATR 148
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; 32 ALJR 395
Kajewski v Federal Commissioner of Taxation [2003] FCA 258; [2003] ATC 4375
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; 243 CLR 361; 85 ALJR 533; 276 ALR 375
Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 510
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464 at 270-271; 465-466
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
Minister for Immigration and Citizenship v SZIAI [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123
Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139
Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz [1992] FCA 71; (1992) 34 FCR 348; 110 ALR 367; 26 ALD 663
Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402; 11 ATD 108
Pearson v Deputy Commissioner of Taxation [2009] FCA 558; (2009) 74 ATR 437
Picton Finance Limited v Commissioner of Taxation [2013] AATA 116 at [102]-[107]
Re Dixon ATF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Suburban Property Owner v Commissioner of Taxation [2012] AATA 394
Taxation [2006] AATA 130; (2006) 62 ATR 1001; 2006 ATC 2092
Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63
Revlon Manufacturing Limited v Federal Commissioner of Taxation (1995) 63 FCR 535; 134 ALR 23; 32 ATR 48
Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; (1996) 67 FCR 243; 96 ATC 4550; 33 ATR 97
RACV Sales and Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 57 AAR 268; (2012) 129 ALD 32
Scott v Scott [1913] AC 417; [1911-1913] All ER 1
Vu v Commissioner of Taxation [2006] FCA 889; (2006) 63 ATR 341
Weyers & Anor v Federal Commissioner of Taxation [2006] FCA 818; [2006] ATC 4523; (2006) 63 ATR 268
Secondary Materials
Chambers 21st Century Dictionary, 1999, reprinted 2004
Macquarie Dictionary, 2009, Macquarie Dictionary Publishers Pty Ltd, Sydney
Practice Statement Law Administration: PSA LA 2011/19, Australian Taxation Office
Practice Statement Law Administration: PSA LA 2012/5, Australian Taxation Office
REASONS FOR DECISION
Deputy President S A Forgie
On 30 March 2015, the Commissioner of Taxation (Commissioner) disallowed in full objections made by QTWG[1] dated 29 October 2014. Those objections related to two groups of income tax assessments (assessments). The first group comprised amended assessments for the income years ended 30 June 2004 to 30 June 2006 (2004, 2005 and 2006 income years). The Commissioner made them under s 167(b) of the Income Tax Assessment Act 1936 (ITAA36), on the basis that he was not satisfied with the returns that QTWG had furnished, and under ss 170(1) and (2). He also made assessments under s 167(a) for the income years ended 30 June 2007 to 30 June 2010 (2007, 2008, 2009 and 2010 income years), for which QTWG had not furnished any returns. The assessments had been issued on 15 November 2013. In the course of making his objection decision, the Commissioner increased QTWG’s taxable income in the 2008 income year from $580,398.00 to $960,398.00.[2]
[1] When QTWG requested that the hearing of his application be in private, the Tribunal was required to hold it in private by virtue of s 14ZZE of the Taxation Administration Act 1953 (TAA). A private hearing does not lead automatically to the de-identification of the applicant. That is the effect of Scott v Scott [1913] AC 417; [1911-1913] All ER 1, which Senior Member Fice and I applied in the context of s 39T(4) of the Industry Research and Development Act 1986 (IRD Act) in RACV Sales and Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 57 AAR 268; (2012) 129 ALD 32 at [235]-[249]; 113-119. Unlike the IRD Act, the TAA requires de-identification of the applicant because s 14ZZJ modifies s 43 of the Administrative Appeals Tribunal Act 1975 by adding s 43(2D) for the purpose of the review of certain decisions made by the Commissioner. The effect of s 43(2D)(a) is that the Tribunal must not identify the applicant when it has not conducted a proceeding for the review of a decision in public.
[2] T documents; T1 at 20-21 and T38 at 617
The second group comprised penalty assessments and remission decisions. The Commissioner disallowed QTWG’s objection dated 29 October 2014 against administrative penalty assessments issued to QTWG on 25 January 2013 for the 2008 to 2010 years. On the same day, 29 October 2014, QTWG objected to shortfall interest charge (SIC) in the amended assessments for the 2004 to 2006 years issued to QTWG on 15 November 2013. The Commissioner disallowed his objection and declined to remit the SIC. The objection decisions made by the Commissioner are reviewable by the Tribunal but the Commissioner’s decisions imposing a general interest charge (GIC) and declining to remit that GIC are not.
With the exception of specific facts, which I will set out below, the Commissioner put QTWG to proof on each fact he relied on to discharge his burden of proof that the objection decisions should not have been made or should have been made differently as provided in s 14ZZK(b)(ii) of the Taxation Administration Act 1953 (TAA).
For the reasons I have given below, I have decided that QTWG has satisfied the burden of proof in establishing that two items should not have been included in the asset betterment calculations and that two were included in the incorrect income years. I have remitted the objection decisions made in relation to the assessments for the 2007 and 2008 income years to make the consequential amendments to those assessments. I have otherwise affirmed the objection decisions relating both to the assessments and default assessments and the administrative penalty assessments.
BACKGROUND
QTWG is 45 years of age. He was married in 2005 and has a family of school-aged children. QTWG identifies himself by reference to his ethnicity and regards himself as part of that ethnic community in Australia and as having close ties with it.
From approximately 18 years of age until he was 30, QTWG was employed first as an apprentice in a trade and later, when he had qualified, as a foreman. When he reached 30, he wanted a break from work and so resigned from his employment. That was in 2003 and he decided to travel overseas. QTWG met his wife while he was overseas and they married in 2005. At first, they lived with QTWG’s parents, Mr and Mrs WG, and his siblings, William and Taylor, at an address I will call “65 Lake Drive, Cloud Hills”. As the house was large, that arrangement continued until approximately 2008 or 2010.
In April 2005, QTWG registered an Australian Business Name (ABN), which I will call “QTWG Contractors”, with the intention of starting a pest control business. He never did so and registration of the Business Name was cancelled in April 2008.[3] Later that year, in September, QTWG registered a company. I will call it “QTWG Contractors Pty Ltd”. It continues to be registered and he is its sole director and shareholder. Its registered office is located at an address 65 Lake Drive, Cloud Hills and that is also its principal place of business.[4]
[3] Current & Historical Organisation Extract of Australian Securities and Investment Commission (ASIC); Exhibit A; Annexure QTWG-3
[4] Current & Historical Organisation Extract of Australian Securities and Investment Commission (ASIC); Exhibit A; Annexure QTWG-1
Summary of relationships and property
I have prepared tables summarising various aspects that I have found to have been established on the evidence. They reflect the more detailed analysis of the evidence that is set out in Attachment A to these reasons. The material in that Attachment is no less important and is part of my reasons. The tables attempt to give an overview of the facts as I have found them rather than the detail.
I begin with the properties of which I find that QTWG is, or has been, the registered proprietor. The table also sets out those persons, to whom I will refer in the course of these reasons and their relationship, whether personal, business or professional, with QTWG. Consistently with the obligations imposed on the Tribunal by ss 14ZZE and 14ZZJ of the TAA once QTWG had requested that the hearing be in private,[5] each person and property is identified by a pseudonym as is QTWG. The evidence on which I have made these findings is set out in Attachment A to these reasons and takes the form of QTWG’s oral and written evidence and that of each of the people identified in the table except for his mother and his brother, Taylor, who did not give evidence.
[5] The parties have been given a Legend identifying the properties and persons for whom I have used pseudonyms.
PSEUDONYM
RELATIONSHIP/PROPERTY
Raisley
Accountant of QTWG, Mr and Mrs WG and Christopher and Dorothy
Samuel
Friend of QTWG
Richard
Dorothy’s brother and friend of QTWG
John Vallon
Solicitor who has acted for QTWG and whom QTWG regards as a family friend
Mrs Vallon
John Vallon’s wife and property developer
Dorothy
Wife of Christopher, sister in law of Mr WG and Aunt of QTWG
Christopher
Husband of Dorothy, brother of Mr WG and Uncle of QTWG
QTWG
Applicant
William
Brother of QTWG
Taylor
Brother of QTWG
Mr WG
QTWG’s father
Mrs WG
QTWG’s mother
11 Star Crescent, Cloud Hills
Investment property owned by Christopher and Dorothy and on which they carried out renovations in July and December 2007
12 Laureate Street, Cloud Hills
House owned by one of QTWG’s brothers. From approximately 2008, the family home of QTWG, his wife and children
30 Daffodil Grove, Cloud Hills
Vacant land purchased by QTWG in June 1996
QTWG began building a house for himself and his family across 30 and 32 Daffodil Grove, Cloud Hills in 2008
32 Daffodil Grove, Cloud Hills
Vacant land purchased by QTWG in September 2000 and transfer registered in March 2001
65 Lake Drive, Cloud Hills
Purchased and title transferred to Mr and Mrs WG’s son, William in July 1997
Family home of Mr and Mrs WG and their sons and, from approximately June 2005 until 2008 or 2010, also the home of QTWG’s wife and their children
Registered office and principal place of business of QTWG Contractors from April 2005 to April 2008. QTWG Contractors Pty Ltd was registered on 22 September 2008.
98 Lake Drive, Cloud Hills
In 1997, Mr WG purchased the property and the title was transferred from the vendor to Mr WG’s son, William
William transferred the title to QTWG in 2008
89 Milky Way, Cloud Hills
Purchased by QTWG in January 2007 and he and his wife and children lived in it until it was sold in approximately 2008[6]
55 Wave Crescent, Solitude Bay
Purchased and transferred in May 1995 to QTWG, William and Taylor as joint tenants
In May 2006, subdivided into three lots. QTWG became the registered proprietor of Lot 1
[6] The precise date of sale is not clear to me but, given evidence by Christopher, Dorothy, Richard and QTWG, it would seem to point to a sale in 2008.
Loans to QTWG
Attachment A also sets out evidence relating to loans that QTWG and others have said have been made to him. In the following table, I set out those loans together with a note of the purposes for which they were said to have been made. I have also included the amount in QTWG’s bank accounts following any deposit I have referred to.
Date
Lender
(Relationship to QTWG)Amount
Purpose of loan
Deposits in QTWG’s accounts at or about same time
Deposit
(Balance)
NAB…05320/02/04
Samuel
(Friend)$30,000
None stated
NAB…053: $30,000
$30,027.79
15/03/05
Samuel
$30,000
Loan or gambling winnings
NAB…053: $30,000
$32,799.77
09/05/05
Samuel
$10,000
Loan or gambling winnings
NAB…053: $10,000
$42,991.09
20/10/05
Samuel
$100,000
Loan or gambling winnings
NAB…053: $100,062
$104,332.77
18/01/06
Mr Vallon
and/or Mrs Vallon$100,000
Financial assistance
NAB…053: $100,000
$100,780.50
May 2006
Land at 55 Wave Crescent, Solitude Bay jointly owned by QTWG, William and Taylor subdivided and QTWG became the registered owner of Lot 1
13/12/06
Mr Vallon
$150,000
None stated
HSBC…412: $150,000
$152,004.71
January 07
QTWG purchased 89 Milky Way, Cloud Hills as a home for him and his family.
24/12/07
Christopher
and/or Dorothy$35,000
Building supplies or to deposit in home loan account
NAB…245; $39,894
During 2008, QTWG began building a house in the middle of 30 and 32 Daffodil Grove, Cloud Hills.
14/04/08
Richard
(QTWG’s friend and Aunt’s brother)$120,000
None stated
NAB…053: $120,000
$121,384.52
06/06/08
Mr or Mrs Vallon
$300,000
None stated
NAB…053: $300,000
(cheque dishonoured)$432,833.78
($133,183.08)01/08/09
Mr or Mrs Vallon
$100,000
NAB…053: $100,000
$235,784.79
15/08/08
Mr or Mrs Vallon
$270,000
NAB…053: $270,000
(cheque dishonoured)$506,159.15
($236,533,51)08/09/08
Christopher or
Dorothy$80,000
NAB…053: $80,000
$239,422.83
22/09/08
Transfer of 65 Lake Drive, Cloud Hills from William to QTWG
QTWG sold 89 Milky Way, Cloud Hills at some time during 2008 and they moved to a house owned by QTWG’s brother at 12 Laureate Street, Cloud Hills
Mr and Mrs Vallon have lodged income tax returns declaring that they have, with the exception of Mr Vallon in respect of two income years, incurred a loss in each of them.[7] In the following table, I have set out the total amounts each lent, or attempted to lend, QTWG against the taxable income or loss each declared:
[7] ST documents; ST5-ST14 at 55-372
Income year
Amount
Declared taxable income
Mr John Vallon
Mrs Vallon
2005
None
-$9,398
-$10,271
2006
$100,000
$46,651
-$35,956
2007
$150,000
-$26,335
-$69,164
2008
$300,000
(attempted loan)$3,586
-$14,543
2009
$100,000
$270,000
(attempted loan)-$8,796
-$118,009
QTWG’s bank accounts
On the basis of the evidence of the accounts included in the T documents, I find that QTWG had the following bank accounts held for varying periods of time:
Institution
Type of Account
Account Number
Years Held
National Australia Bank
Common Fund Trading (later called National at call common fund A1 and then Cash Manager)
NAB…053
2003-2011
National Australia Bank
Term Deposit
NAB…595
2005-2006
National Australia Bank
Smart Access
NAB…151
2006-2010
HSBC
Online Savings Account
HSBC…412
2006-2011
National Australia Bank
Home Loan
NAB…245
2007-2011
In the following table, I set out findings I have made regarding the transfer of amounts among the bank accounts held by QTWG. I have done so by reference to the deposits of the amounts identified by QTWG as loans and set out in the previous table. In doing so, I have reflected every amount identified by QTWG as a loan but have not attempted to reflect every payment or deposit into and every withdrawal from QTWG’s various accounts. Rather, I have attempted to reflect the broad state of QTWG’s accounts at and around the time he received the amounts he describes as loans:
Date
Amount of loan
Amount trans-ferred to NAB…053
[Balance in NAB…053]Transfer from NAB…053 to, or other deposit in, NAB…151
[Balance in NAB…151]
* Withdrawn same dayTransfer from NAB…053 to NAB…595
(Term Deposit)
[Balance]Other with-
drawal from NAB…053
HSBC…412
NAB…245 Home Loan
2004 income year
20/02/04
$30,000
$30,000
[$30,027.79]30/04/04
[$287.38]
$30,000
(cash)2005 income year
15/03/05
$30,000
$30,000
[$32,799.77]22/04/05
Earliest record
[$140,317.22]09/05/05
$10,000
$10,000
[$42,991.09]18/05/05
[$12,991.09]
$30,000
03/06/05
[$3,104.29]
$10,000
2006 income year
21/07/05
[$141,874.17]
20/10/05
$100,000
$100,062
[$104,332.77]21/11/05
[144,503.71]
22/11/05
[$487.55]
$104,000
[$248,503.71]18/01/06
$100,000
$100,000
[$100,780.50]16/02/06
[$99,947.11]
$1,000
*$1,000
[$0]01/03/06
[$79,301.04]
$21,000
*$20,000
[$1,000]22/03/06
[$69,774.93]
$9,556.11
*$9,556.11
[$1,000]24/03/06
[$58,544.93]
$11,200
[$12,200]
$7,200 and $4,000 withdrawn 27 & 31/03/06
[$1,000.01]29/05/06
[$52,041.91]
$7,000
*$7,000
[$1,000.01]2007 income year
30/10/06
$4,000
*$2,000
[$3,000]$2,000
(opening deposit)13/12/06
$150,000
Nil
[$581.66]$150,000
[$152,004.71]29/12/06
$259,432.42
(From NAB…151)
[$264,751.70]Closed
Transferred to NAB…15103/01/07
QTWG’s purchase of 89 Milky Way, Cloud Hills funded from NAB…151 and 245 and $56,000 from NAB…053
$140,161.99
[$131,589.71]Purchase price $565,000 and Stamp Duty of $29,560
$402,150.51
(home loan including loan and transaction costs)24/04/07
-$149,316.68
(withdrawal transmitted overseas)
[$3,865.51]2008 income year
25/09/07
[$1,337.20]
$4,521
(instalment)05/11/07
[$1,349.68]
$30,990
(payment)04/12/07
[$1,356.22]
$31,386
(payment)24/12/07
$35,000
[$1,356.22]
$39,894
(payment)14/04/08
$120,000
$120,000
[$121,384.52]21/04/08
William transferred 98 Lake Drive, Cloud Hills to QTWG
06/06/08
Cheque for $300,000
$300,000
[$432,833.78]16/06/08
Cheque for $300,000 dis-honoured
- $300,000
[$133,183.08]30/06/08
[[$7,901.14]
2009 income year
01/08/08
$100,000
$100,000
[$235,784.79]$2,186.25
(payment)15/08/08
Cheque for $270,000
[$506,159.15]
18/08/08
Cheque for $270,000 dis-honoured
[$236,533.51]
08/09/08
$80,000
$80,000
[balance after $78,720 withdrawn: $239,422.83]$78,720
*$78,720
[$21,421.20]$3,356.5
(payment)01/10/08
[$230,595.11]
$10,934
*$10,934
[$19,936.95]$2,541.00
(payment)17/10/08
$8,000 withdrawn
[$8.966.95]31/10/08
[$221,714.59]
$10,810
*$10,810
[$7,481.95]05/11/08
$550.00
(payment)23/12/08
$14,547.50
(payment)09/01/09
[$57.15]
30/06/09
[236,092.68]
[$225.94]
2010 income year
11/09/09
Approx. $13,000 withdrawn
[$225,906.71]$1,500 fortnightly deposit
17$18/09/09
Approx. $50,000 withdrawn
[$176,293.25]01/10/09 to 31/12/09
Various withdrawals
[$2,324.29]$1,500 fortnightly deposit
01/01/10 to 30/06/10
Debit
[-$1,564.16]Various withdrawals
[$7,080.67][$226.18]
$1,500 fortnightly deposit
Taxation returns
QTWG lodged the following taxation returns:
Date lodged
Income year
Taxable Income Returned
Description of income returned
20 May 2008
2004
$3,966
Gross Interest
4 December 2006
2005
$6,944.00 less deductions in the amount of $250: $6,694.00.
Gross Interest
4 December 2006
2006
$11,745.00
Gross Interest
No returns lodged
2007-2010
-
-
Commissioner’s audit of QTWG’s affairs using asset betterment test
The Australian Taxation Office (ATO) conducted an audit of QTWG’s affairs in the income years from 2004 to 2011 using the asset betterment method.[8] In the course of that audit, the ATO identified five properties of which QTWG was the registered proprietor and about which it made various findings.
[8] T documents; T1 at 5 and T38 at 617
Date
Property
Dealings with property
Consideration
ATO’s position
11 July 1997
(Transfer)15 July 1997
(Registration)65 Lake Drive,
Cloud HillsTransfer from unrelated third parties to William of 65 Lake Drive, Cloud Hills registered by Office of Titles Victoria (Titles Office).
$173,000.00
Stamped with $6,580.00.[9]Initially considered William to hold beneficial interest for QTWG.
21 April 2008
(Transfer)5 May 2008
(Registration)
98 Lake Drive,
Cloud HillsTransfer to QTWG from William.
Gift of natural love and affection. Stamped with $18,460[10] assessed on $380,000.00.
ATO accepted the William did not hold property beneficially for QTWG and reduced QTWG’s Total Assets by $173,000 as at 30 June 2003.
Included as an asset for 2008 year and following at $380,000.[11]On or about 12 June 1996
30 Daffodil Grove,
Cloud HillsSold to QTWG.
Sale price of $152,500.00.
On or about 9 September 2000
32 Daffodil Grove, Cloud Hills
Sold to QTWG.
Sale price $291,000.00.
1 March 2001
Transfer registered in name of QTWG.
On or about 30 May 1995
55 Wave Crescent, Solitude Bay
Transfer to QTWG, William and Taylor as joint tenants.
$67,500.00[12]
On or about 8 May 2006
The property was subdivided into 3 Lots.[13]
The partition agreement.[14]
27 July 2006
QTWG became the registered proprietor of Lot 1.
13 January 2007
89 Milky Way
Cloud HillsQTWG became the registered proprietor.[15]
$565,000
[9] Shown on Transfer of Land; T documents; T31 at 293
[10] Shown on Transfer of Land; T documents; T24 at 242
[11] T documents; T38 at 617-618
[12] T documents; T19 at 191
[13] T documents; T19 at 191-196
[14] T documents; T13 at 118-119
[15] T documents; T11 at 113-116
The ATO also identified the following bank accounts and treated their balances as at 30 June in each year as QTWG’s assets:[16]
[16] T documents; T16 at 134
Institution
Account Holder
Type of Account
Account Number
Years Held
National Australia Bank
QTWG
Common Fund Trading (later called National at call common fund A1 and then Cash Manager)
NAB…053
2004-2011
National Australia Bank
QTWG
Term Deposit
NAB…595
2005-2006
National Australia Bank
QTWG
Smart Access
NAB…151
2006-2010
HSBC
QTWG
Online Savings Account
HSBC…412
2006-2011
National Australia Bank
QTWG
Home Loan
NAB…245
2007-2011
During cross-examination, QTWG agreed with Mr Ure of counsel for the Commissioner that QTWG Contractors Pty Ltd held a Business Transaction Account with the Commonwealth Bank numbered CBA…392 (CBA…392). QTWG agreed that he operated that account and that, in all, he had six bank accounts in Australia. He believed that he did not have any more.[17] QTWG Contractors Pty Ltd has never lodged an income tax return or a Business Activity Statement.
[17] Transcript at 2-22
The ATO determined that QTWG owned the following motor vehicles and trailers:
Vehicle
Registered in QTWG’s name
Value
Cost determination
1980 Mobile Caravan Reg O…
VicRoads stamp illegible. Seller signed on 21/02/2000 and buyer signed on 12/04/2000.[18]
$10,000
Estimated by Red book value/internet search
1996 Mercedes Tipper Reg U…7
13 October 2006[19]
$15,000
Estimated by Red book value/internet search
1986 Mercedes Tipper Reg U…1
27 January 2007[20]
$15,000
Estimated by Red book value/internet search
2008 Box Trailer Reg S…39
4 April 2008[21]
$ 500
Estimated by Red book value/internet search
2008 Box Trailer Reg S…37
4 April 2008[22]
$ 500
Estimated by Red book value/internet search
2008 Box Trailer Reg S…36
31 March 2008[23]
$ 500
Estimated by Red book value/internet search
2000 Dubnier Boat Trailer Reg N…2
25 October 2001[24]
$ 500
Estimated by Red book value/internet search
[18] Further Supplementary T documents (FST documents); FST2 at 3
[19] FST documents; FST2 at 4-7
[20] FST documents; FST2 at 9-11
[21] FST documents; FST2 at 15
[22] FST documents; FST2 at 19
[23] FST documents; FST2 at 23
[24] FST documents; FST2 at 27
Assessments and amended assessments
In summary, the Commissioner issued the following assessments and amended assessments:
Income Year
Original Taxable Income $
Amended Taxable Income $
Additional Tax Payable $
Penalty False and Misleading Statement $
Penalty – Failure to Lodge $
Failure to Lodge on Time Penalty $
GIC/SIC $
Total Amount Payable $
2004
3,966
33,966
6,871.29
5,153.45
n/a
n/a
7,665.40
19,690.14
2005
6,694
49,195
11,668.42
10,501.55
n/a
n/a
10,442.75
32,612,72
2006
11,745
212,919
87,939.56
79,145.60
n/a
n/a
64,725.00
231,810.16
2007
n/a
177,654
62,959.11
n/a
47,219.30
550.00
54,126.25
164,854.66
2008
n/a
580,398
249,485.07
n/a
224,536.55
n/a
184,226.38
658,248.00
2009
n/a
483,044
201,615.46
n/a
181,453.90
n/a
112,108.12
495,177.48
2010
n/a
26,845
2,179.42
n/a
1,961.45
n/a
851.61
4,922.48
Totals
22,405
1,564,021
622,718.33
94,800.60
455,171.20
550.00
434,145.51
1,607,385.64
Penalty assessments and charges
As the Commissioner made assessments of administrative penalties under Division 284, QTWG was able to object to it under Part IVC of the TAA.[25] The Commissioner issued assessments on the following bases:
[25] TAA; Schedule 1 at 298-30(2)
(1)2004 to 2006 income years
(a)The Commissioner issued penalty assessments under s 284-75(1) of Schedule 1 of TAA on the following basis:
(i)neither exception provided for in ss 284-75(5) or 284-75(6);
(ii)the base penalty under s 284-90 is 75% of the relevant tax shortfall amount because QTWG intentionally disregarded the taxation laws; and
(iii)in relation to the 2005 and 2006 income years, the base penalty amount should be increased by 20% of the income tax shortfalls under s 284-220(1)(c).
(2)2007 to 2010 income years
(a)The Commissioner issued penalty assessments under s 284-75(3) of Schedule 1 of TAA on the following basis:
(i)the base penalty under s 284-90 is 75% of the relevant tax shortfall amount because QTWG intentionally disregarded the taxation laws by failing to give a return in those years;
(ii)in relation to the 2008 and 2010 income years, the base penalty amount should be increased by 20% of the income tax shortfalls under s 284-220(1)(e); and
(iii)there is no basis for any reduction under s 284-225(1).
The Commissioner also decided that there were no circumstances warranting either the remission of the penalties, or part of them, under s 298-20 of Schedule 1 of TAA or, under s 280-160, of the SIC on the additional amount of income tax assessed.
THE ISSUES
The issues in this case centred on the following:
(1)Did the Commissioner have power to amend the assessments of QTWG’s taxable income in respect of the 2004, 2005 and 2006 income years?
(2)If he did have power to amend, were the assessments for the 2004, 2005 and 2006 income years excessive?
(3)Were all or any of the Commissioner’s assessments for the 2007 to 2010 income years excessive?
(4)Were all or any of the Commissioner’s assessments of shortfall penalty in respect of the 2004, 2005 and 2006 income years excessive?
(5)Were any, and if so which, of the Commissioner’s assessments of penalty for failing to provide a document in respect of the 2007 to 2010 income years excessive?
(6)Should the Commissioner’s penalty and SIC remission decisions have been made differently?
THE APPLICANT’S SUBMISSIONS
In summary, QTWG’s case has four components. The first is that QTWG did not have any income earning activities in the first four years under review. The second is that the business that he conducted in the following three years was apparently awash with money but had very, very slim profit margins, if any. In addition, QTWG had a rental property that he owned outright but land tax and real estate agent’s fees consumed 46% of the gross rental earnings. The generosity of his family and friends is the third component in QTWG’s case. Five people have been prepared to lend him money and one transferred a property at 89 Milky Way, Cloud Hills to him. The loans and transfer of that property to him was the fourth component of QTWG’s case.
BURDEN OF PROOF AND ITS PRACTICAL IMPLICATIONS
The Administrative Appeals Tribunal Act 1975 (AAT Act) applies in relation to the review of reviewable objection decisions such as those made by the Commissioner.[26] Section 25(3)(c) of the AAT Act permits an enactment providing for applications to be made to the Tribunal to “… specify conditions subject to which applications may be made.” During the relevant period, s 14ZZK of the TAA provided, in so far as it is relevant in this case:
“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
(b)the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or
(ii)-(iii)…”
[26] In the case of the penalty assessments, this follows from the fact that s 298-30(2) of Schedule 1 of the TAA provides that an entity dissatisfied with an assessment of an administrative penalty under Division 284 may object to that assessment in accordance with Part IVC of TAA. The Commissioner’s decision on the objection is an objection decision and the entity may apply to the Tribunal for its review: TAA; s 14ZZ(a)(i). In the case of assessments, including amended assessments by virtue of s 173 of ITAA36, s 175A of the same legislation provides that a taxpayer may object to the assessment. Section 280-170 is the relevant provision permitting an entity to object against a decision not to remit an amount of SIC it is liable to pay on an additional amount of income tax.
What the burden means
Putting aside proceedings under Part IVC of the TAA on a review or appeal relating to an assessment, the amount and all particulars shown on an assessment are correct.[27] That is the starting point and the burden placed on the applicant is to show that the assessment is excessive. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in Gauci v Federal Commissioner of Taxation[28] (Gauci):
“ The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”[29]
[27] ITAA36; s 177(1) and, in relation to assessments of administrative penalties under Division 284, see s 298-30(3) of Schedule 1 of TAA.
[28] (1975) 135 CLR 81; Barwick CJ and Jacobs J; Mason J dissenting
[29] (1975) 135 CLR 81 at 89 and approved by Brennan J in Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 624; 346-347; 1375; 170; 4,093
His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:
“… There is nothing inherently unfair in a provision which places the onus on the taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge.”[30]
[30] (1975) 135 CLR 81 at 89 At the time, s 190 of ITAA36 provided: “
Standard of proof unaltered: balance of probabilities
Section 14ZZK does not alter the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.
How a taxpayer may satisfy the burden
The case of McCormack v Federal Commissioner of Taxation[31] illustrates the nature of a taxpayer’s task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of ITAA36 as it was then in force. Gibbs J explained Mrs McCormack’s task:
“… The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.”[32]
[31] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
[32] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111 at [11]; 303; 597; 443; 622; 4,121
If all of the material facts were known and the amount of a taxpayer’s taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.[33]
[33] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J
It is open to the taxpayer to attack the Commissioner’s power to make an assessment[34] or the calculation of the amount of an assessment. If the taxpayer chooses to attack the calculation of the amount of the assessment:
“… mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment …, the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. …”[35]
[34] McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464 at 270-271; 465-466 per Dixon CJ, McTiernan and Webb JJ
[35] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 623; 345; 1374; 169; 4092 per Brennan J
Therefore, merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer’s burden of proof under s 14ZZK(b)(i) in relation to an assessment for the burden is to prove that “the assessment is excessive”. The point was made in Federal Commissioner of Taxation v Dalco[36] (Dalco):
“… A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. …”[37]
[36] [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 90 ATC 4088; Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ
[37] [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 20 ATR 1370; (1990) 64 ALJR 166; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J with whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed
A taxpayer and the Commissioner may agree to confine the extent of their disagreement. Brennan J explained this in Dalco:
“ The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection.”[38]
[38] [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 90 ATC 4088 at 624; 346; 1375; 4093
In making the assessment in Dalco, the Commissioner had relied on s 167(b) of ITAA36 as he had not been satisfied with the return furnished by Mr Dalco and could make an assessment of the amount upon which, in his judgment, income tax ought to be levied. That amount then became Mr Dalco’s taxable income. The Commissioner had relied on the same provision in Gashi v Federal Commissioner of Taxation.[39] The Court explained a taxpayer’s task when faced with an assessment made under s 167:
[39] [2013] FCAFC 30; (2013) 209 FCR 301; 296 ALR 497; 91 ATR 1; [2013] ATC 20-377; Bennett, Edmonds and Gordon JJ
“ A taxpayer who seeks to establish that a s 167 assessment based on the asset betterment method of calculation is excessive must positively prove his or her “actual taxable income” and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer: Dalco at 623-5 and Trautwein at 88. The taxpayer must show that the unexplained accumulated wealth was from non-income sources. The manner in which a taxpayer discharges that burden is not defined or specified – it varies with the circumstances: Dalco at 624.
So, for example, in Ma v Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 at 230, Burchett J said that, in seeking to establish that an assessment under s 167 was excessive, that burden may be discharged:
... [I]f a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. ...
Justice Burchett identified a number of steps – identification of sources of income, explanation of a taxpayer’s activities and an explanation of the source or sources of a taxpayer’s assets. The steps identified by Burchett J are not surprising. In addressing a s 167 assessment based upon an asset betterment statement, a taxpayer must account for an unexplained increase in assets. The taxpayer must explain the source or sources of those assets and then identify whether that source, or those sources, are taxable. Put another way, if the disclosed ‘actual’ taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive. And, of course, that unexplained increase in assets cannot be viewed in isolation – it must also take into account the expenditure during that period.
Consistent with that view, even if a taxpayer was able to prove that an item in the asset betterment statement was wrong or should not have been included, but did not adequately explain the source or sources for the otherwise unexplained increase in wealth, the taxpayer would not discharge the onus under s 14ZZO of the TAA.”[40]
No burden of proof on Commissioner and no obligation to put forward material establishing a particular view
[40] [2013] FCAFC 30; (2013) 209 FCR 301; 296 ALR 497; 91 ATR 1; [2013] ATC 20-377 at [63]-[66]; 315; 510-511; 16; 14,671
At [25]-[26] above, I have referred to passages from the judgment of Mason J in Gauci, in which he set out the consequences of a taxpayer’s carrying the burden of proof. I refer also the case of Galea v Commissioner of Taxation,[41] in which Hill J said:
“ To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. As is clear from Dalco, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant’s assessable income was at least a particular figure. The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by s 190(b) of the Act to show, that the assessment is excessive. The Commissioner’s failure to establish a positive case, if that is what he sought to do, leaves the tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case.”[42]
[41] [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
[42] [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108 at [34]; 5,067; 1116 See also Vu v Commissioner of Taxation [2006] FCA 889; (2006) 63 ATR 341 at [9]; 344 per Finn J
The factual circumstances in Richard Walter Pty Ltd v Commissioner of Taxation[43] were somewhat akin to those in the case I must consider here in that the Commissioner took the position that loan or trust arrangements claimed by the taxpayer were shams. On that basis, the Commissioner assessed the amounts said to be the subject of those loan or trust arrangements to be income. The Judge at first instance had not accepted the evidence of the taxpayer’s financial controller, and only witness, and took the view that there had never been any intention to repay the relevant payments claimed to be loans. Therefore, they were not loans. That left the taxpayer in the position of showing that the payments were something else that did not have the character of loans. There was no onus on the Commissioner to establish the true character of the payments. The Commissioner had taken the position that the loans were shams. Even then:
“… if it had been necessary to determine whether the so-called loan transactions were shams, the onus could not have been on the Commissioner to show what the real transaction was, of which the payments formed part. Once sham is alleged by the Commissioner, he may then come under some factual obligation to identify the real transaction for which it is contended that the apparent transaction is but a disguise: Coppleson v Federal Commissioner of Taxation (1981) 52 FLR 95. But as that case itself illustrates, that is in the overall context of the statutory imposition of the burden of proof on the taxpayer and does not place upon the Commissioner an onus of satisfying the Court that there was a sham.
The onus not being upon the Commissioner to show a sham, so too the onus can not be on the Commissioner to show what the genuine transaction was which is said to have been obscured by that sham.
As I have already sought to demonstrate, it was not necessary for his Honour to determine the matter by reference to sham in the sense of holding that the so-called loans were but a disguise for some other transaction. It was sufficient for his Honour to hold that the payments to Richard Walter were not loans. Once that finding had been made the question would then arise whether Richard Walter had satisfied the onus upon it of showing that the payments were not income.”[44]
[43] [1996] FCA 454; (1996) 67 FCR 243; 96 ATC 4550; 33 ATR 97; Lockhart and Hill JJ; Lehane J dissenting
[44] [1996] FCA 454; (1996) 67 FCR 243; 96 ATC 4550; 33 ATR 97 at 259; 4,563; 111-112
I would add that the imposition of the burden of proof upon the taxpayer removes any obligation on the Tribunal of the sort identified in Minister for Immigration and Citizenship v SZIAI[45] (SZIAI). That was an obligation to make an obvious inquiry about a critical fact, when that inquiry could easily be made.[46] Section 14ZZK of the TAA clearly places the responsibility for that entirely in the hands of the individual and removes it from the Commissioner and so, on review, from this Tribunal. Nothing else changes, though. The Tribunal’s task on review continues to be to reach the correct or preferable decision. The rules of procedural fairness continue to apply if the Commissioner should choose to obtain further information.
Effect of burden when Commissioner amends assessment after being of opinion there has been fraud or evasion
[45] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123; French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ
[46] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123 at at [25]; 436; 21; 1129 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ and at [52]; 441-442; 27; 1133 per Heydon J to like effect on the facts.
Section 170 of ITAA36 provides that the Commissioner may amend an assessment in the circumstances set out in the table that forms part of the section. Subject to qualifications which do not apply in QTWG’s case, the general rule is that the Commissioner may amend an assessment of an individual for a year of income within two years after the day on which the Commissioner gives notice of the assessment to the individual.[47] That general rule applies in Items 1 to 4 set out in s 170(1) of ITAA36. There is no time limit, however, if Item 5 applies. Item 5 provides that “The Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion.”
[47] ITAA36; s 170(1), Item 1
The way in which the onus works was explained by described by Rares J in Bai v Commissioner of Taxation:[48]
“ The taxpayer had to satisfy the Tribunal, on a review of an objection decision, that the Commissioner’s opinion that there had been fraud or evasion was excessive, that is, she had the onus of proving that the Commissioner’s opinion was objectively wrong in order to discharge her onus of negating the precondition for the exercise of his power to amend her assessment under item 5 of s 170(1) of the 1936 Act. If she had done so, then the whole amended 2005 assessment would have been set aside and the legal efficacy of the original assessment restored.
However, if the taxpayer did not establish that the Commissioner was wrong to have formed the opinion that she had not made a full and true disclosure, she could still challenge the quantification of her assessable income, and consequently her substantive liability, by satisfying the Tribunal that the Commissioner’s assessment complained of was excessive.”[49]
[48] [2015] FCA 973
[49] [2015] FCA 973 at [34]-[35]
On appeal to the Full Court of the Federal Court where it was heard with appeals by three other appellants, Perram and Davies JJ, with whom Siopis J agreed on this aspect, considered the amendment power, albeit in the context of Mrs Binetter’s appeal and not that of Ms Bai. In Binetter v Federal Commissioner of Taxation,[50] their Honours’ concluded:
“ In cases where the amendment power depends on the formation of an opinion by the Commissioner of fraud or evasion, the difference between merits review by the Tribunal and an appeal to the Court is that the Tribunal re-considers whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, whereas the Court will only interfere with the Commissioner’s exercise of the amendment power if the Commissioner did not form the requisite opinion or the Commissioner’s opinion that there was fraud or evasion is vitiated by some error of law: s 43 of the AAT Act; Shell Co of Australia v Federal Commissioner of Taxation [1930] UKPCHCA 1; (1930) 44 CLR 530 at 544-5; Jolly v Federal Commissioner of Taxation [1935] HCA 21; (1935) 53 CLR 206 at 212-4; Avon Downs Pty Ltd v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 at 360. Although the Tribunal re-examines whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, and is able to substitute its opinion for that of the Commissioner, the issue for the Tribunal is whether the taxpayer has discharged the onus of showing that the opinion that there was fraud or evasion should not have been formed, and therefore, that the statutory condition for the power to amend is not satisfied. Unless the taxpayer discharges that onus, the assessments are not shown to be excessive and the effect of s 14ZZK is that the Tribunal must affirm the amended assessments, such assessments having been made by the Commissioner in compliance with the statutory requirements: McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303; Millar v Commissioner of Taxation [2015] FCA 1104; (2015) 67 AAR 490. In Millar Griffiths J correctly held that on a merits review before the Tribunal, the onus of proof imposed by s 14ZZK places on the taxpayer the burden of disproving fraud or evasion.”[51]
[50] [2016] FCAFC 163; (2016) 249 FCR 534; (2016) 104 ATR 145; Siopis, Perram and Davies JJ
[51] [2016] FCAFC 163; (2016) 249 FCR 534; (2016) 104 ATR 145 at [93]; 552; 161
Assessing and weighing evidence
Evidence must be relevant and probative of the issues it addresses. Findings of fact must be made on those issues and those findings underpin my decision, for my decision must be based on them and not on mere suspicion or speculation.[52] Whether evidence is relevant and probative, will be determined in light of the issue and the character of the evidence. As an example, evidence from third parties might be relevant and probative if they were to corroborate statements made by an applicant to a medical expert regarding his ailments even if they could not otherwise be regarded in that light.[53]
[52] Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85; (1980) 44 FLR 41; 31 ALR 666; 4 ALD 139 at [24]; 67-68; 690; 160 as per Deane J
[53] See, for example, Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 510; Levine J. Order varied on appeal but only in relation to the assessment of damages: Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419; Beazley; Giles and Santow JJ
A. Source of evidence
Relevant and probative evidence must be weighed and considered both on its own and in the context of all the evidence that is relevant and probative on a particular issue before findings of fact can be made on that issue. The weight that is accorded to evidence may be influenced by the source from which it comes. Where a witness has an interest in the outcome of a proceeding because, for example, he or she is a party to the proceeding or the controlling mind of a company that is a party, regard may be had to the words from the judgment of Fullagar J in Pascoe v Federal Commissioner of Taxation[54] when he said:
“Where a person’s purpose or object or other state of mind in relation to a
given transaction is in issue, the statements of that person in the witness box
provide, in a sense, the ‘best’ evidence, but, for obvious reasons, they must,
as Cussen, J., observed in Cox v. Smail … (1912) VLR 274 at 283, ‘be tested most closely, and received with the greatest caution.’ In that case Cussen, J., after pointing out that states of mind in relation to acts done were generally complex, elaborately analysed the factors to be considered in determining whether an assignment of property by a bankrupt to a creditor had been made ‘with a view to’ giving that creditor a preference. …”.[55]
[54] (1956) 30 ALJR 402; 11 ATD 108
[55] (1956) 30 ALJR 402; 11 ATD 108 at 403; 111-112
In Federal Commissioner of Taxation v SNF (Australia) Pty Ltd,[56] the Full Court of the Federal Court described this passage as doubting whether Fullagar J:
“… advanced anything more than the caution - customarily applied by trial judges – that the evidence of witnesses who have an interest in the outcome of litigation needs to be approached critically.”[57]
[56] [2011] FCAFC 74; (2011) 193 FCR 149; 82 ATR 680; Ryan, Jessup and Perram JJ
[57] [2011] FCAFC 74; (2011) 193 FCR 149; 82 ATR 680 at [82]; 176; 707
Evidence of this sort was also addressed by Hill J who decided both Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation[58] (Imperial Bottleshops) and Davis v Commissioner of Taxation[59] (Davis). In Imperial Bottleshops, his Honour said:
“ A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be ‘tested most closely, and received with the greatest caution’: Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as ‘prima facie unacceptable’, cf McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J; 9 ATR 610; 23 ALR 583.”[60]
[58] (1991) 91 ATC 4,546; 22 ATR 148; Hill J
[59] [2000] FCA 44; (2000) 2000 ATC 4,201; 44 ATR 140; Hill J
[60] (1991) 91 ATC 4,546; 22 ATR 14 at 4,552; 155
In Davis, Hill J applied these principles in evaluating evidence relating to whether an exemption for sales tax applied. It would apply if the goods – a yacht in that case – were mainly for long term leasing to another person in circumstances in which that other person would use it mainly in providing regular and scheduled sight-seeing trips. Hill J said:
“ The words ‘for use’ require an investigation into the use to which the yacht is to be put by the exemption user. While, no doubt, that requires an investigation of purpose, and direct evidence of purpose may be given, the best evidence of purpose will, ordinarily, be found in the use to which the yacht is in fact put. As Fullagar J said in Pascoe v FC of T (1956) 11 ATD 108; (1956) 30 ALJR 402, in considering evidence of ‘purpose’ in the context of section 26(a) of the Income Tax Assessment Act 1936 evidence of the object to be pursued, that is to say the state of mind of the person claiming the exemption, will necessarily be the subject of careful scrutiny.”[61]
[61] [2000] FCA 44; (2000) 2000 ATC 4,201; 44 ATR 140 at [47]; 4,210; 150
B. The rule in Jones v Dunkel
The rule in Jones v Dunkel[62] was explained by Heydon, Crennan and Bell JJ in Kuhl v Zurich Financial Services Australia Ltd,[63] explained that:
“63 The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue. …
64 The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. But the conclusion by the trial judge that the plaintiff – a party-witness – deliberately withheld evidence reflected a stronger reaction. It operated as a finding that there had been an admission. It could be inferred that the evidence was withheld, in breach of the witness’s duty to tell the whole truth in answer to the question, because the plaintiff was conscious that success in the litigation would be rendered impossible or less likely if the material withheld were revealed. …”[64]
[62] [1959] HCA 8; (1959) 101 CLR 298; 32 ALJR 395; Kitto, Menzies and Windeyer JJ; Dixon CJ and Taylor J dissenting
[63] [2011] HCA 11; 243 CLR 361; 85 ALJR 533; 276 ALR 375; French CJ, Gummow, Heydon, Crennan and Bell JJ
[64] [2011] HCA 11; 243 CLR 361; 85 ALJR 533; 276 ALR 375 at [63]-[64]; 384-385; 548; 393-394
Senior Member Fice analysed the rule in Jones v Dunkel in Confidential and Commissioner of Taxation[65] where he explained the circumstances in which the rule was formulated:
[65] [2012] AATA 178; (2012) 88 ATR 222; 2012 ATC 1-044
“23. Jones and Dunkel was a negligence case, where two trucks collided which caused the death of one of the drivers. The plaintiff was the wife of the driver killed in the accident and she brought an action in negligence against the driver who survived. The defendant driver was not called to give evidence and the Trial Judge gave directions to the Jury about the failure of the defendant to give evidence. The plurality found that the directions given by the Trial Judge were incomplete and Windeyer J, at 320, said that the Trial Judge should have given directions in accordance with the general principles stated in Wigmore on Evidence (3rd ed. (1940)) Volume 2, s.285, p.162 as follows:
‘The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which made some other hypothesis a more natural one than the party’s fear of exposure. But the propriety of such an inference in general is not doubted.’
Windeyer J, at 321, then referred to the decision of R. v Burdett (1820) 4 B. & Ald. 95 [106 E.R. 873] where Abbott CJ said:
‘No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected.” (2) And Best J. said: “Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just.’
24. The first thing to note is that there must be sufficient evidence adduced by the party which has the onus of proving its case to warrant a reasonable inference being drawn from that evidence in the absence of any explanation or contradiction. Where there is sufficient evidence to draw a reasonable inference from the party which bears the onus of proving its case, and the other party has in its power to rebut that inference or conclusion being drawn by evidence but chooses not to lead that evidence despite the witness being available to give evidence, if no explanation is provided for failure to call that witness, then a rational inference may be drawn that the evidence would not help that party’s case.”[66]
[66] [2012] AATA 178; (2012) 88 ATR 222; 2012 ATC 1-044 at [23]-[24]; 232-233; 436-437
I respectfully agree with Senior Member Fice’s analysis of the application of the rule in Jones v Dunkel. On my understanding of the rule in Jones v Dunkel, that inference can only be drawn once three things have been established. The first is that it is possible, on the evidence produced, to draw “… a reasonable and just conclusion against …” the person seeking to prove the particular issue. In a merits review case of this sort, a “reasonable and just conclusion” would include a finding of fact that will not advance the interests of one party or the other. The second is that, “… the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends to be untrue, and the accused offers no explanation or contradiction. …”. When the case is that put forward in the context of merits review, the “accused” is the particular person whose interests will not be advanced by that finding of fact. The third matter is that the existence of the fact in issue is highly probable but its existence need not be established by irrefutable (or irrefragable) proof. It is enough that the party seeking to refute the fact has it in his or her power to rebut it by evidence.
CONSIDERATION
Has QTWG shown that the amount of money for which taxation has been assessed exceeds his actual taxation liability?
This case is concerned with QTWG’s personal liability to pay income tax and not with that of the business he ran under the name of QTWG Contractors or through the corporate structure of QTWG Contractors Pty Ltd. That said, QTWG has pointed to his business activities and the payments he received and the expenses he incurred as one element in establishing his income in the relevant years. He has done so without the benefit of a complete set of receipts for the expenses he has said that he incurred and without a complete set of invoices he rendered for the work he has said that he has undertaken and for which he has been paid. Quite apart from receipts and invoices, QTWG has not produced business records of any sort related to his business. The receipts he has produced show that he has paid for goods and services in cash.
It is not unlawful for him to do this and, if he chooses, he is quite entitled to operate his business on a cash basis. When it comes to his obligations under Australia’s taxation laws, however, he exposes himself to a very high risk that he will not be able to establish what his business receives by way of payment for the services it provides and the expenses it incurs in providing those services and maintaining the equipment and infrastructure to do so. He faces the same risk in relation to identifying the income he derives from that business and when he does not produce records that identify that income. I accept that QTWG has attempted to estimate his income and expenses from his business but, in the absence of any sort of record-keeping on which to base his estimates, he does not provide a basis on which I am satisfied that the amount of money on which the Commissioner has levied taxation exceeds the amount of income he actually received.
I accept that the Commissioner has not included in the asset betterment calculations any amount that has been deposited in one or other of QTWG’s accounts and that matches an amount for which QTWG has issued an invoice. Where amounts were paid by cheques but those cheques were dishonoured, he has not included those amounts. I have recorded them in the table at [10] and [13] above.
I will begin with the amounts that QTWG describes as loans to explain, at least in part, his accumulated wealth over a seven year period. The essential characteristics of a loan were considered by Edmonds J in Federal Commissioner of Taxation v Rawson Finances Pty Ltd:[67]
“ The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B: … Absent that obligation, the transfer of the money from A to B is something else – a gift, a payment by direction, a payment or repayment of an anterior obligation – but it is not a loan. The obligation of repayment is not proved by subsequent payment of the same amount, let alone a different amount, from B to A; that may be explicable by reference to another obligation or circumstance having nothing to do with the original payment from A to B. Rather, the obligation of repayment is proved by the terms of the contract under which the money was transferred from A to B.”[68]
[67] [2012] FCA 753; [2012] ATC 2-333; (2012) 89 ATR 357
[68] [2012] FCA 753; [2012] ATC 2-333; (2012) 89 ATR 357 at [20]; 13,852; 364 (citations omitted)
In analysing the evidence in the case before him, Edmonds J looked to the evidence for any obligation to repay the moneys said to be loans, whether, and particularly if the amount is substantial, the loan was secured by way of charge, lien, set-off or security, and the borrower’s capacity to repay the loan. Apart from QTWGs’ evidence and that of some of those said to have lent him sums of varying amounts, there is no objective evidence of this sort.[69] In considering the evidence of all of them, I have applied the principles in Imperial Bottleshops as set out at [43] above and those of Hill J in Davis set out at [44] above.
[69] [2012] FCA 753; [2012] ATC 2-333; (2012) 89 ATR 357 at [24]; 13,853; 365
In the case of the amounts said to have been lent by Mr and/or Mrs Vallon, I am not satisfied that they were made as loans. There are three reasons for that. The first is the absence of any evidence of liquid assets, or of assets that have been liquidated, that would enable them to lend sums totalling $350,000 over the three years of income of 2006, 2007 and 2009. The second is that their income, as declared in their taxation returns, does not support their having the income to support their making loans of that size and on the conditions said by QTWG to be without interest and with an undefined period within which to repay them. Mrs Vallon’s declared occupation as a property developer is the third reason. Payment for services of the sort offered by QTWG and his business as an earthmover is more consistent with the nature of the payments made to QTWG than with either Mrs Vallon or her husband loaning him substantial amounts of money. Although I make nothing of it in light of my three reasons, I note that neither Mr nor Mrs Vallon was called to give evidence to offer an explanation contrary to what appears on the face of the documentary evidence that I have.
Reference was made by various witnesses to the practice of lending money to family and friends. In the context of friends, for example, Samuel said that he was in the habit of loaning and giving large amounts of money to my family and friends. He did so without any documentation or without any specific agreement as to repayment. In the case of QTWG, he said that he lent him a total of $170,000 over approximately a 20 month period between February 2004 and 20 October 2005. Samuel’s statements to that effect must be balanced against his failure to disclose the loans as debts when, on 13 April 2011, he failed to disclose them in the Statement of Affairs he completed following his bankruptcy. He was not obliged to disclose them as loans but, if they were loans, they had the character of debts that formed part of his bankrupt estate. He was obliged to disclose them. There may be many reasons why Samuel did not disclose them. At least one of them might be consistent with the amounts being loans that he would recoup at a later time. That, however, is idle and unsupported speculation in the face of a document that Samuel signed as correct after being advised of the penalties for making a false statement and in light of there being no evidence to suggest that he has approached QTWG since his bankruptcy for repayment of the amounts he states were loans. As the evidence stands, I am not satisfied that QTWG has established that the payments made to him by Samuel are anything other than income as the Commissioner included in his assessments.
Richard, who is the brother in law of QTWG’s uncle, Christopher, spoke of its being a difficult thing for others in the room to understand their cultural background. In their culture, Richard said, people assist each other and that assistance is given on the understanding of loyalty. Usually, a short term loan is made and the money is given back. In the case of QTWG and the $120,000 that Richard has lent him, repayment has not occurred to date. QTWG’s father spoke in similar terms but focused on the family.
Very respectfully, I note that many people lend other people money and do so for various altruistic reasons. Those reasons may, or may not, be cultural but one reason is no less valid than another. Whatever the reason, the recipient of the money cannot be surprised if the Australian Taxation Office looks at that money in the hands of the recipient. If, as the Commissioner has done here, the money is assessed as income, the problem that faces the recipient of money is to establish that it is a loan. QTWG may, as he has in this case, say that lending money in this way is consistent with his culture and that of those who have lent it to him but his culture is only one aspect that is relevant in determining the character of the money.
In the case of Richard, I find that he has not made any efforts to seek repayment of the sum of $120,000 he is said to have given QTWG on 14 April 2008. That was almost nine years before the hearing. Given his position in the family as the brother of the wife of QTWG’s uncle and accepting that the WG family is close knit, it would be surprising if Richard did not know that QTWG was building a house even if he did not know he was said to be borrowing from others. It is difficult to understand that Richard would stand by without querying when he was to receive his money.
The same is true for Christopher and Dorothy and the money they gave QTWG. QTWG insists that all are loans but the balances in NAB…245 (the home loan account) and NAB…053 count against that. The sum of $35,000 would seem to have been paid immediately into NAB…245 on 24 December 2007 when there was a modest amount of approximately $1,356 in NAB…053. QTWG had previously made two lump sum payments of slightly lesser months on 5 November 2007 and 4 December 2007 into NAB…245. That fact does not make sense of why QTWG would borrow money to pay a lump sum into the home loan account. Paying a lump sum from a home loan account is usually a wise thing to do but borrowing to do so does not make the same sense. There is also no sense in borrowing money when one appears to have enough on the face of things. That is the position that QTWG seems to have been in when he says he was lent $100,000 by Mr Vallon and a further $80,000 by either Christopher or Dorothy. The balances in the accounts are shown in the table at [13] above. On the evidence I have been given, I do not accept that QTWG has established that the amounts he has said are loans are in fact loans. I am not satisfied that they are anything other than income.
The source of two of the three payments that QWTG made into his home loan account, NAB…245 in November and December 2007 is unexplained. They are the payments of $30,990 made on 5 November 2007 and $31,386 made on 4 December 2007. The payment of $39,894 made on 24 December 2007 into NAB…245 is only four or five thousand in excess of the amount of $35,000 he was given by Christopher on the same day. The amount Christopher gave him would seem to be the main source of the funds he paid into his home loan account on that occasion. I have already made findings about the amount of $35,000. In the absence of any evidence regarding the source of the other two payments, I am not satisfied that they are anything other than income as the Commissioner has identified in his assessment. I note that the source of one payment made into NAB…245 on 1 August 2008 and amounting to $2,186.25 can be identified as paid to QWTG Contractors Pty Ltd by a paving company. That would clearly be income in the hands of QWTG.
In the table at [13] above, the movement of money from account to account can be traced but where that money originated from is often more difficult. When I look at the transactions overall, I agree with Mr Ure’s submission that QTWG effectively treated QTWG Contractors Pty Ltd as his alter ego. He has kept no records from which I can make any attempt to identify with any degree of comprehensiveness the various sources of monies paid into his various accounts or the destinations of those monies withdrawn from them.
I now move to the property situated at 98 Lake Drive, Cloud Hills that has been transferred to him by William. QTWG may say, as he does, that members of his family work for other members – as he has done for his family – and expects not to be paid for that work. That may be so and families do live under the one roof as QWTG has lived with his wife and children under the roof of his father, whom he says has fed and sheltered them. What is in issue is whether the property that has been transferred to QTWG by his brother, William is income in the hands of QTWG. The Commissioner has found that it is as he is entitled to do in light of ss 21 and 21A of ITAA36 when he comes to the view that they have been transferred to him in consideration of his services or as a non-cash benefit.
The loan from Richard was explored with QTWG in cross-examination. When asked whether Richard was in property development at about the time that he lent the money, QTWG replied that he did not know. He believed that Richard was a real estate agent and did not know that he was developing a property at the time. Richard might have told him but he could not recall.
QTWG said that he was “pretty sure” that he had used the sum of $120,000 borrowed from Richard to purchase building materials. His attention was drawn to his trading account, NAB…053 where it showed a deposit of $120,000 credited to the account on 14 April 2008. Other smaller amounts are added until 6 June 2008 when a deposit of $3000,000 was added to the account. That entry was reversed when Mr Vallon’s cheque for $300,000 was dishonoured.[207] At that time, the balance of the account remaining was $133,183.08. A further amount of $100,000 was deposited on 1 August 2008 and another, which was made out by Mr Vallon and subsequently dishonoured, for $270,000 on 15 August 2008.[208] The balance of NAB…053 was $236,533.51 after the dishonour. Putting aside a deposit of $80,000 on 8 September 2008[209] and a transfer to NAB…151 of $78,720 on the same day, only two withdrawals were made from the account in the period up to 30 June 2009. Those amounts were for $10,934.88 on 1 October 2008 and $10,810.80 on 31 October 2008.[210]
[207] T documents; T33 at 319
[208] T documents; T33 at 321
[209] See further at [200] below
[210] T documents; T33 at 322-328
Mr Ure suggested to QTWG that he had not used the loan from Richard in April 2008 to purchase building materials for 30 and 32 Daffodil Grove, Cloud Hills. QTWG drew his attention to withdrawals amounting to something over $60,000 made from the account in September 2009. Mr Ure pointed out that the withdrawals had been made a year and five months after he had been lent the money by Richard and suggested that, at the time, he already had enough to fund the construction of the house. QTWG replied that he had not had enough funds and the exchange between him and Mr Ure continued:
“… I needed – I needed more money, I saw a chance to ask for the money and I did.
How did you identify the chance to ask for the money? --- Well, he was doing well, he had – he was living well so clearly he had the funds to help me out.
But you didn’t know anything about his property development? --- No.”[211]
[211] Transcript at 53
Richard made a statement and gave evidence regarding the sum of $120,000.[212] QTWG is two or three years older than Richard but he is Richard’s nephew by marriage. Between 2007 and 2008, Richard said, he was involved in property development as an owner builder. He did not operate through a corporate body. At the time, he had access to funds from a loan he had negotiated and he also had settlement monies once he sold the property. QTWG approached him for a loan to assist him in building at 30 and 32 Daffodil Grove, Cloud Hills. The money would be repaid from funds that QTWG would receive from the sale of his property at 89 Milky Way, Cloud Hills, QTWG told him. He drew the cheque on 2 April 2008 on the account held with the ANZ Bank in his name and that of his wife. Richard did not think that there had been any document to record the loan. Given their family ties and their ties with their community, they did not expect that they would need to. Although 89 Milky Way, Cloud Hills has been sold, QTWG had told him that the ATO had taken the proceeds.[213] Although disappointed, he expects that QTWG will repay him when he can. In giving evidence, Richard said that he has only ever known QTWG to work in the tipping business.
[212] Exhibit B
[213] In cross-examination, QTWG said that he had sold 89 Milky Way, Cloud Hills to pay off his debts but then all the trouble started with the ATO and his accounts had been garnisheed and he could not pay a thing. He moved from 89 Milky Way, Cloud Hills to his brother’s house at 12 Laureate Street, Cloud Hills: Transcript at 33.
In cross-examination, Richard insisted that he lent the sum of $120,000 and that it was not a payment made as part of some business transaction. In the 2008 income year, Richard’s tax returns reported his taxable income as $65,986.[214] Richard agreed that this was so and that, in the years between 2004 and 2008, his taxable income ranged from $55,000 to $65,000 or so. Although the loan of $120,000 was about double his taxable income in any year, Richard said that, based on the sale of a property he had developed, it was probably not such a stretch to lend QTWG $120,000.
[214] ST documents; ST19 at 494
Richard agreed that it could potentially be the case that he had also lent his sister, Dorothy, $242,000 in the same years. If he did not draw the funds from the settlement monies, he would have obtained a loan from a bank. He could not recall. As for requiring interest to be paid, he definitely had not required that QTWG pay him interest. Richard said:
“… It’s a difficult thing for you to understand with the culture background, and I can appreciate that, but in saying that, with the way we assist one another, and I know you’ll bring on the factor of loyalty point of view, but on a short-term basis, in particular with … [QTWG], which was the case, which has dragged on, unfortunately, it was all basically short-term loan, get the money back. And unfortunately, not the case with … [QTWG] at this point in time.”[215]
[215] Transcript at 88
A portion of the money had to come from the proceeds of his property development, Richard said, because a bank would not have lent him that amount on his salary.[216]
[216] Transcript at 88
D.Box trailers
QTWG registered three box trailers in the 2008 income year. He said that he had built them and had sent two overseas. The third he uses to transport equipment.[217]
2009 income year
[217] Transcript at 56
A.Business
QTWG decided to incorporate a company and applied for its registration on 22 September 2008. He called it QTWG Contractors Pty Ltd.[218] From that time, he issued invoices in the name of the company but did not otherwise change the way the business was run. He never formally transferred the business from his own name to that of the company and did nothing to fulfil his duties as an officer of the company. QTWG stated that he was unaware that the company might incur taxation obligations separately from him. Until approximately 12 March 2009, QTWG continued to treat the money paid on the company’s invoices was his own money and he paid its expenses from his own money. On or about 12 March 2009, QTWG opened a bank account with the Commonwealth Bank of Australia in the name of QTWG Contractors Pty Ltd. That is account CBA…392.[219] From that point on, he used that account as his general account.[220]
[218] Exhibit A at [22] and Annexure QTWG-6
[219] T documents; T35 at 579
[220] Exhibit A at [26]
QTWG produced all the receipts and invoices for expenses that he could find. The expenses shown in those invoices totalled $69,059.53 inclusive of GST.[221] QTWG described those invoices as not being complete; “… there’s a heap of other stuff that I can’t get. There’s a lot of other stuff that I can’t get. There’s a lot of other stuff, yes.”[222] QTWG could not estimate how many invoices were missing. On his estimate of having engaged a driver for 63 days at a daily rate of $150 in the 2009 income year,[223] QTWG paid $9,450 to his drivers. Registration of the two trucks amounted to $4,000. QTWG also estimated that he had paid between $150 and $200 for fuel for each eight hour day and, on average another $20 per hour in use for miscellaneous costs such as maintenance, tyres and repairs. QTWG estimated that his net earnings after expenses in the 2009 income year were $43,659.00 made up by adding (126 days x $281 daily profit for the first truck) and (63 days x $131 daily profit for the second truck).[224]
[221] Exhibit A at [39]
[222] Transcript at 54
[223] Exhibit A at [42(c)] and [45]
[224] Exhibit A at [45]
All receipts for expenses showed that the goods were paid for in cash. They included a number of receipts for the purchase of fuel at Mobil. The highest amount paid was $1,376.05[225] with amounts over $200 appearing regularly. The vehicles for which the fuel was purchased are not identified. QTWG estimated the cost of fuel needed to operate each of his trucks for an eight hour day averaged $175.[226]
[225] Exhibit A at QTWG-9 at 258
[226] Exhibit A at [43]
Looking at the period from 1 July 2008 to 8 September 2008, the invoices produced by QTWG reveal cash receipts of $19,135.03. In the period from 1 July 2008 to 7 September 2008, no funds were credited to NAB…151. From 8 September 2018 to 31 October 2008, a total of $ 100,464 was transferred from NAB…053 to NAB…151. In that same period, cheques totalling $ 108,464 were drawn from NAB…151. Where cheques were drawn on NAB…151 for the same amount as that deposited, they were drawn on the same day as the deposit. They appear in the following table:
8 September 2008
$78,720
-$78,720Transfer from NAB…053[227]
Cheque drawn[228]1 October 2010
$10,934.88
-$10,934.88Transfer from NAB…053[229]
Cheque drawn[230]17 October 2008
-$8,000
Cheque drawn[231]
31 October 2008
$10,810.80
-$10,810.80Transfer from NAB…053[232]
Cheque drawn[233][227] T documents; T33 at 322
[228] T documents; T33 at 393
[229] T documents; T33 at 323
[230] T documents; T33 at 394
[231] T documents; T33 at 394
[232] T documents; T33 at 323
[233] T documents; T33 at 394
In that same period, QTWG continued to make scheduled repayments of NAB home loan account NAB…245. He also deposited amounts in NAB…245 that were over and above the amounts needed to make those scheduled repayments. Those amounts totalled $23,181.25 and were deposited on the following days and in the following manner:
Date
Total
Nature of deposit in NAB…245
1 August 2008
$2,186.25
Cheques[234]
8 September 2008
$3,356.50
Cash and/or cheques deposit [235]
1 October 2008
$2,541.00
Cash and/or cheques deposit [236]
5 November 2008
$550.00
Cheques[237]
23 December 2008
$14,547.50
Cheques[238]
[234] T documents; T33 at 413
[235] T documents; T33 at 413
[236] T documents; T33 at 413
[237] T documents; T33 at 413
[238] T documents; T33 at 414
A cheque for $80,000 was deposited in a bank account (NAB…053) in QTWG’s name on 8 September 2008. Immediately before the deposit, the balance of the account was $238,142.83. A cheque for $78,720 was withdrawn on the same day leaving a balance of $239,422.83.[239] Three further withdrawals were made in the 2009 income year and they are referred to at [13] and [198] above. The expenses, for which QTWG, had invoices in that same period are referred to at [198] above.
[239] T documents; T33 at 322
QTWG agreed that a cheque dated 27 July 2008 for the sum of $2,186.25 was deposited in NAB…245 on 1 August 2008.[240] The cheque had been drawn by a paving company and made out to QTWG Contractors but the word “Contractors” has been crossed out and the name “… [Q]…” written above it. QTWG said that he deposited the cheque in NAB…245, which his home loan account, without adding the name “Q”. He had deposited other cheques in that account without doing that. Although it was not put to QTWG, I note that the invoice that would seem to relate to the payment for they are for the same amount and the body invoiced is that on whose account the cheque was drawn, bears a date of 20/06/04. Its number is shown as Invoice No. 20062008.[241] The invoice is for tipping fees relating to 26.5 hours at a rate of $82.50 per hour. A sum of $198.75 was shown as the amount of GST.
[240] Transcript at 61 and T documents; T33 at 413
[241] Exhibit A; Annexure QTWG-9. The Invoice No. takes a slightly different form from the other invoices annexed to QTWG’s witness statement. If the format of the other invoices that have been produced were followed, it would have reflected the date of the invoice and have been shown as “20062004”. The difference may be as a result of a typographical error either in the date or in the invoice number. A handwritten note at the top of the invoice reads “27 July 2008”.
QTWG’s attention was drawn to a cheque for $3,304 by another client. The cheque was dated 20 February 2009 and relates to an invoice numbered 10112008 and dated 10 November 2008. The invoice stated that the sum was made up of 33 hours of time on site at a rate of $88 per hour. A sum of $264 was included as GST. The sum of $3,304 was deposited in CBA…392, which was the business transaction account for QTWG Contractors Pty Ltd.[242] That account also shows a deposit of a cheque for $704 on 27 May 2008. This cheque is dated 19 May 2009 in payment of an invoice dated 19 May 2009. That invoice is numbered 19052009. It is for 8 hours of tipping at $88 per hour and includes an amount of $64 as GST.
[242] T documents; T35 at 579
Annexure QTWG-9 to QTWG’s statement contains other invoices for work done by QTWG Contractors but the amounts shown on their faces do not match deposits made in QTWG’s bank account or the account of QTWG Contractors. When Mr Ure suggested to QTWG that they could not be matched because he had been paid in cash, QTWG responded that he had never received cash in his life and refused to receive cash. He rejected the possibility that the cheques had been made out to his wife and banked in her name. He could not remember having had a cheque made out to his wife and did not think it had happened.[243] When it was put to him that a cheque for $4,224 had been made out to his wife, he said that he did not know why it would have been. He did not know what to say about it. That amount and the drawer of the cheque matched the details shown on invoice numbered 07012009 on QTWG Contractors letterhead.[244]
[243] Transcript at 62
[244] Transcript at 62-63 and Exhibit A at Annexure QTWG-9
In the 2009 income year, QTWG produced invoices for expenses totalling $69,059.53 inclusive of GST. He said in his statement that that was the total of the expenses “… for that year for which … [he] could find receipts …”.[245] All were paid in cash.[246] One invoice dated 4 December 2009 issued by a tool company shows an Air Staple Gun and “staple 12.9MM x 12MM long 800 series 10000 box paslode”. QTWG explained that this was a nail gun. When asked how it fitted in with earthmoving, he replied: “It doesn’t.”[247] When it was put to him that his answer meant that it was not a business expense, he replied: “Well, kind of.”[248] He denied that he was running a construction business as well as an earthmoving business but said that “this stuff here was purchased when I was building my house.”[249] He said that the wet and dry vacuum bought from the tool company was used to clean his trucks as was the paint brush, which he used to clean their vents.[250]
[245] Exhibit A at [39]
[246] Transcript at 63
[247] Transcript at 64
[248] Transcript at 64
[249] Transcript at 64
[250] Transcript at 64-65
None of the amounts shown on invoices produced by QTWG matches the amounts deposited in this period but there are cheques made out to QTWG Contractors in the 2009 year of income. Including cheques I have just referred to, those cheques and, where identified, the accounts into which they were paid are:
Date
Total
Banked
27 July 2008
2,186.25
NAB…245[251]
20 February 2009
3,304.00
CBA…392[252]
26 February 2009
4,224.00
26 February 2009
3,426.50
Not identified
19 May 2009
704.00
CBA…392
10 June 2009
4,620.00
Not identified
17 June 2009
1,386.00
Not identified
Total
$19,850.75
[251] T documents; T33 at 413
[252] T documents; T35 at 579
B. Real property
QTWG said in his statement that he estimated that the warehouse at 55 Wave Crescent, Solitude Bay, was rented out from about July 2008 after it had been lying vacant for some time.[253] He estimated that the rental agent’s fees and land tax payable on the warehouse consumed 46% of his rental income.[254] The fees and the land tax amounted to, he guessed, $13,000 per year and were paid from an annual income of $28,000. QTWG did not produce any documents regarding either the rent he received or the expenses he incurred in relation to 55 Wave Crescent, Solitude Bay.[255] He said that his rental agent did not provide rental statements to him but would send him a cheque endorsed with its own letterhead.[256]
[253] Exhibit A at [48] and Transcript at 48
[254] Transcript at 57
[255] Transcript at 57
[256] Transcript at 56-57
C.Loans
During cross-examination, Mr Ure asked QTWG about the money he had been given by Mr Vallon and the dishonoured cheques, one of which he had given on 1 August 2008 and so in the 2009 year. Mr Ure suggested that, by the time the 2009 income year arrived, Mr Vallon was likely to ask him for some form of documentation relating to the loans. QTWG rejected that idea. In summary, he said that it was logical that the money given to him by Mr Vallon was a loan and not a payment for work done. What work could he do, he asked, that would earn him the amount of money Mr Vallon had given to him. One just had to look at the properties owned by Mr Vallon at the time to realise that there was not enough earthmoving involved to earn QTWG the sort of money paid to him by Mr Vallon. He did not know that Mr Vallon’s wife was involved in property development.[257]
[257] Transcript at 59
QTWG agreed with Mr Ure that he had borrowed the sum of $80,000 from his uncle and aunt in the 2009 income year. He had done so because he needed a lot of money to purchase materials to start building his house. He did not want to borrow money from a bank and pay interest on the loan. In any event, he generally disliked banks and thought it best to see if his family and close friends in his community could lend him some money. The deposit of $80,000.00 is shown as a deposit in NAB…053 on 8 September 2008.[258] At the beginning of that income year, he had almost $134,298.24 in that account and, at the end of that year, the account balance was $236,092.68.[259] The Commissioner asserts that QTWG had ample assets at the time to fund the construction of his house but, when regard is had to the house that QTWG actually built,[260] I do not think that, even ten years ago in the 2009 income year, that funds approaching a quarter of a million dollars would have been sufficient.
[258] T documents; T33 at 322
[259] T documents; T33 at 321 and 328
[260] Exhibit 5
On 15 August 2008, John Vallon and Mrs Vallon gave him a further $270,000 in the form of a cheque but the cheque was subsequently dishonoured. QTWG agreed in cross‑examination that there are no loan documents in place supporting the loans. His explanation for their absence was that Mr Vallon was a family friend. He had known Mr Vallon all of his, QTWG’s, life.
In a letter dated 27 November 2015, Mr Vallon confirmed that he had paid various amounts to QTWG. He described QTWG as “… a long-standing loyal client of my law firm …”. Mr Vallon wrote:
“In or about January, 2006 … QTWG informed me that he needed some financial assistance and requested that I lend him $100,000. Given our mutual trusted relationship I acceded to that request and advanced the requested money to him on or about 18 January, 2006.
The loan was made simply on the basis of a handshake. There was no formal agreement entered into and no interest would be claimed. We did not fix a time for repayment as the purpose of the loan was to provide financial assistance – but repayment was expected by me and understood by … [QTWG] to be made within a reasonable time.
A further loan of $150,000 was made on or about 13th of December, 2006 on the same terms as the initial loan.
A final (third) loan of $100,000 was made on or about 1 August, 2008 on the same terms as the initial loan. The third loan was drawn out of my wife’s account but my wife had nothing to do with the loan and was not a party to it. In fact, over the years we (my wife and I) had developed the practice of simply treating that account (from which the third loan funds were drawn) as my account, notwithstanding it was in her name. Whenever I needed her signature I would request it and she would supply it.
In total $350,000 in loans were made to … [QTWG] as explained above.”[261]
[261] Exhibit 3
Mr Vallon also wrote about two further cheques that he had given QTWG. He said that they:
“… were meant to be loans but did not eventuate as follows:
1.$300,000 from a cheque written from my account on or about 6 June, 2008; and
2.$270,000 from a cheque written from my account on or about 15 August, 2008.
In both instances, the two cheques were intended to be made as loans on the same terms as the initial loan and in both instances the cheques bounced because funds I anticipated from other sources did not eventuate.
As it turned out, that is fortuitous because to date, none of the loans have been repaid. I have previously provided you with the banking details that support the abovementioned information.”[262]
[262] Exhibit 3
In cross-examination, QTWG said that he told Mr Vallon that he needed the money because he wanted to build a home of his own. At the time, he acknowledged, he had more than $248,000 in a term deposit. When asked whether the sum of $100,000 could represent payment for services or some business, he questioned what work he could do for Mr Vallon that would warrant the payment of $100,000. He agreed that Mrs Vallon is involved in property development but, when asked whether that had anything to do with the money paid to him, replied “I don’t know.”[263]
[263] Transcript at 34
In the years of income between 2005 and 2008, Mr Vallon and Mrs Vallon submitted separate returns. The taxable income each declared in those years, together with the expenses Mrs Vallon claimed in respect of her business activities, is shown in the following table next to the loans Mr Vallon identified in his letter dated 27 November 2015:
Year of income
Loan identified in Mr Vallon’s letter
Mr John Vallon
Declared taxable income
Mrs Vallon
Taxable income declared
Main salary and wage occupation description
2005
None
-$9,398[264]
-$10,271[265]
Property Development[266]
2006
$100,000 (loan)
$46,651[267]
-$35,956[268]
Property Development[269]
2007
$150,000 (loan)
-$26,335[270]
-$69,164[271]
Property Development[272]
2008
$300,000 (attempted loan)
Cheque drawn on Mr Vallon’s account dishonoured$3,586[273]
-$14,543[274]
Property Development[275]
2009
$100,000 (loan)
$270,000 (attempted loan)
Cheque drawn on Mr Vallon’s account dishonoured-$8,796[276]
-$118,009[277]
[264] ST documents; ST5 at 59
[265] ST documents; ST10 at 222
[266] ST documents; ST10 at 234
[267] ST documents; ST6 at 87
[268] ST documents; ST11 at 250
[269] ST documents; ST11 at 262
[270] ST documents; ST7 at 119
[271] ST documents; ST12 at 278
[272] ST documents; ST12 at 287
[273] ST documents; ST8 at 154
[274] ST documents; ST13 at 310
[275] ST documents; ST13 at 307
[276] ST documents; ST9 at 189
[277] ST documents; ST14 at 344
Dorothy also stated that she and her husband had lent QTWG the sum of $80,000 on 8 September 2008. That was the day she had signed a cheque. Again, she attached a copy of a Duplicate Statement from her bank showing a funds transfer of $80,000 into her account on 8 September 2008 and a withdrawal by cheque for $80,000.[278] Before the transfer of funds into the account, the account balance had been $121.11. It returned to that figure after the withdrawal of the $80,000.[279]
[278] Exhibit D at Annexure D-1
[279] Exhibit D at Annexure D-1
2010 income year
QTWG did not lodge an income tax year for the 2010 income year. At audit, the Commissioner formed a judgment that QTWG’s taxable income for that year was $26,845.00.[280] In his objection, QTWG stated that his correct taxable income was less than $6,000.00, being the tax free threshold. When he prepared his witness statement for these proceedings, QTWG estimated that the net profit made from his two trucks in the 2010 income year was $43,659. He estimated that on the same basis as he did for the 2009 income year and I have set that out at [196] above. In addition, he estimated that he earned approximately $28,000 each year from the rental of 55 Wave Crescent, Solitude Bay less expenses such as agents’ fees and land tax amounting to approximately $13,000 each year. As mentioned previously, he has no records relating to the property.
[280] T documents; T17 at 183
QTWG said that the money he received in respect of the invoices issued by QTWG Contractors was paid into CBA…392. QTWG Contractors Pty Ltd, in whose name the account was opened, does have an ABN but, neither it nor QTWG is registered for GST. In re-examination, QTWG said that he started depositing payments into the company bank account, rather than his personal account, because, on the basis of what others had told him, he thought that it was a better way to do it.
The entries in CBA…392 show the following deposits in the 2010 income year:
Date
Total
Banked[281]
15 July 2009
$9,386.00
CBA…392
7 September 2009
$2,502.50
CBA…392
26 November 2009
$4,119.50
CBA…392
2 December 2009
$1,925.00
CBA…392
10 December 2009
$462.00
CBA…392
25 January 2010
$4,697.00
CBA…392
15 February 2010
$5,689.00
CBA…392
8 March 2010
$1,463.00
Not identified
12 March 2010
$8,828.00
CBA…392
26 March 2010
$5,000.00
CBA…392[282]
12 April 2010
$1,298.00
CBA…392
23 April 2010
$15,613.52
CBA…392
3 May 2010
$2,478.12
CBA…392
10 May 2010
$2,478.12
CBA…392
3 June 2010
$10,094.00
CBA…392
22 June 2010
$2,598.77
CBA…392
Total
$78,632.53
[281] T documents; T35 at 580-585
[282] Cheque subsequently returned: T documents; T35 at 583
The total debits in the 2010 income year were $80,814. Account CBA…392 was $343.28 in credit at the end of the year.[283]
[283] T documents; T35 at 580-585
As for expenses, QTWG said that all expenses were paid in cash but he could not estimate how much they had been. He found receipts for expenses totalling $27,720.82 inclusive of GST.[284] Each is a receipt for a cash payment. QTWG also estimated that he used his first truck for 126 days of the year and his second truck for 63 days. His estimate of the expenses of doing that were $150 a day for a driver if the second truck were used, $160 operating costs per eight hour day (averaged over time and including maintenance, tyres and repairs) and between $150 and $200 per day for fuel. Taking the minimum amount of those expenses and the figures of 126 days when he drove the truck and 63 when he engaged a driver, his expenses would amount in the 2010 income year to $39,060[285] when he drove it and $28,980[286] when he hired a driver. That is a total of $68,040 in out of pocket expenses.
[284] Exhibit A at [40]
[285] 126 days x $310
[286] 63 days x $460
Apart from those relating to the purchase of fuel, the expenses referred to in the previous paragraph do not appear to be reflected in the invoices QTWG has annexed to his witness statement at QTWG-10 in relation to the 2010 income year. Many of the receipts are from Bunnings which, as a matter of common knowledge, does not offer a service centre for motor vehicles of any kind. They are largely illegible. Those that are legible relate to equipment purchased by QTWG Contractors but of a sort that would seem largely unsuited for truck maintenance e.g. an Air Nailer Bradder 65MM … Hitachi, a Bit Drill TCT Masonry SDS+ Bosch and a Saw Circular … Makita. Putting aside the purchase of fuel and road tolls and registration, the amounts shown on those invoices add up to approximately $8,000. Added to QTWG’s estimate of expenses for his two trucks, that means his total expenses incurred under the name of QTWG Contractors was in the order of $76,000.
When Mr Ure put to him that the withdrawals from CBA…392 were insufficient to pay for the expenses reflected in the expenses shown at QTWG-10 to his statement, QTWG said that he would have borrowed from his parents.[287]
[287] Transcript at 67
During the 2010 income year, there were a number of relatively small amounts from, in the main, Australian Government Families, credited to NAB…053. There was also one large deposit by cheque of $25,000 on 18 December 2009.[288] Starting on 11 September 2009, the account shows a number of large withdrawals. Among them, and allowing for three that were reversed in February and March 2010, there are approximately 18 amounts of $1,500 transferred to NAB…245 as loan instalments. The other withdrawals are not identified. Allowing for the amounts credited and those withdrawn, the balance of NAB…053 went from $236,092.68 on 1 July 2009 to a debit of $7,080.67 on 30 June 2010. If I ignore the relatively small deposits and having regard only to the starting balance and the deposit of $25,000, that would mean that QTWG withdrew $168,173.35 in the 2010 income year. Of that sum, approximately $27,000 can be identified as paid for loan instalments to NAB…245.
[288] T documents; T33 at 333
Accountant
I will call QTWG’s accountant “Raisley”. He made a statement regarding events relating to the Commissioner’s amended assessments issued to his client and the course of the objection process. Until he received the amended assessments, Raisley said in giving evidence, he was not aware of any business activities, including a tipping business, carried on by his client.[289] Raisley is also the accountant engaged by Mr WG, Mrs WG, Dorothy and Christopher but has not been engaged by Richard.
[289] Transcript at 91
In respect of each of income years 2004 to 2010, Raisley signed a statement that he did:
“1. Certify this document and any attached documents, have been prepared in accordance with the information supplied by the individual identified in this request and in the attached documents.
2.State that I have received a declaration from the individual identified in this request and in the attached documents, stating that the information provided in each document is true and correct.
3.State that I am authorised by the individual identified in this request and in the attached documents, to submit this objection request to the Commissioner.”[290]
[290] T documents; T22 at 206 in relation to the 2004 income year
Raisley believed that he would have the necessary declaration from QTWG regarding the truth and accuracy of the information provided in each document but did not produce it. He believed that QTWG had given his firm written authority to proceed but did not produce that authority. He said that he used some pro forma objections that he had used on previous occasions for members of QTWG’s family. Those pro forma notices were based on notices previously prepared by a tax lawyer known to Raisley. Essentially, they covered all potential grounds for objection. Raisley said that he turned to those pro forma objections because, around October 2014, he had stil been unable to find all of the information that he was seeking and was becoming increasingly concerned that the ATO would commence recovery action.
The objection lodged in respect of the 2007 income year stated that “The Taxpayer’s correct taxable income for the year of income was less than the tax free threshold.”[291] Raisley agreed that he had not made this statement on the basis of instructions or a declaration given to him by QTWG. He did not agree that it was a false statement, though. It was a statement based on his firm’s assessment. They did not have the evidence and so could not come up with an opinion as to what QTWG’s income would actually be.[292] QTWG never told his firm that his income was below the tax free threshold, Raisley said.[293] Raisley adopted the same method in relation to the objections lodged in respect of the 2008, 2009 and 2010 income years.[294] Raisley saw the objection as leading to an internal review by the ATO followed by discussions between it and him. He never felt that he had to correct his statement about income being below the tax free threshold because:
“… Look, I think you try and leave yourself open as to what the possible figure could end up being, so you’ve just – you’ve come up with, like, a figure and you work with that. I mean, if you’ve got nothing to work with, what do you do? Tell me what would you put in there?”[295]
[291] T documents; T22 at 219
[292] Transcript at 95
[293] Transcript at 97
[294] Transcript at 95
[295] Transcript at 96
The objection lodged for the 2006 income year states that “The Taxpayer’s correct taxable income for the year of income was $11,745.00.”[296] Raisley said in cross-examination that they:
“… based this on what was lodged on the tax return that we lodged. That’s how we established this $11,745 income, that’s what actually was lodged in that particular year.
You established the income by reading his tax returns? --- No, that’s by what records we had at the time when they were lodged.
Did you review those records before you lodged the objection? --- Yes, we did, we just checked what we had on our system.”[297]
[296] T documents; T22 at 214
[297] Transcript at 95
Dorothy
Dorothy said that she was aware that QTWG has always been working with something to do with trucks, or driving trucks, and tipping. She was not aware that he had been involved in any other work activities or money-making activities in the 2004 to 2010 income years. Dorothy was aware that, at one time, QTWG was building a house at Daffodil Grove, Cloud Hills. She was also aware that he owned another house at 89 Milky Way, Cloud Hills and her husband told her that QTWG was planning to sell it.
Dorothy and her husband, Christopher, undertook some renovations to a property they owned at 11 Star Crescent, Cloud Hills. Dorothy agreed that she had probably written a number of cheques between July and December 2007 paying for renovations on that property. In December 2007, her husband, Christopher, lent QTWG the sum of $35,000. A cheque for that amount was drawn on a cheque account held by Christopher and Dorothy at Westpac (Westpac…21). The cheque was dated 24 December 2007 and was described in Westpac’s records as “Loan to … [QTWG]”.[298] Dorothy said in cross-examination that the loan had nothing to do with the renovations that she was undertaking about this time. It was not correct to suggest that she paid QTWG money because she had business dealings with him. None of the other amounts that she paid to him was connected with her renovations. None of the other payments made to those sharing QTWG’s surname were made to people involved in her renovations. She said that she lent money to QTWG “Because he’s family.” and not because of any business she had with him.[299]
[298] Transcript at 101 and see ST documents; ST29 at 705
[299] Transcript at 103 and see also 102-103
Christopher
Christopher, Dorothy’s husband, said that he was not aware of any business or profit‑making activities undertaken by QTWG. He acknowledged that he had lent QTWG $35,000 on 24 December 2007 and a further $80,000 on 8 July 2008. Christopher said:
“The cheques that I gave my nephew were strictly for the build to do his house – for the house, along, and I was promised by him that he will return my money when he sells … [89 Milky Way, Cloud Hills]. That was only a loan and nothing else.”[300]
[300] Transcript at 105
Christopher said that he would be disappointed if QTWG had not used the loans for building his house at 30 and 32 Daffodil Grove, Cloud Hills. He acknowledged that, at the time he made the payments to QTWG, he probably would have been undertaking work on his own investment property but denied that there was any connection between the payments and the renovations. QTWG did not work for even a day on the investment property renovations, Christopher said. He continued:
“… They’re loans – to put it shortly, it’s our tradition, if you do trust someone – of course I’m not talking about someone from outside but close in family, you do that to help. And you do that without interest at all. So you trust, you loan the money, and you hope that they keep their word. And that’s how we do things, when we can.”[301]
He would not do that for anybody in need of financial assistance, though; only for his family.
[301] Transcript at 107
Mr WG
In giving evidence, Mr WG said that his son, QTWG, had asked him for money to start a business. In particular, he wanted to buy trucks and asked for $10,000, $15,000 or $5,000 at one time or another. Mr WG did not know what business his son intended to start or of any business his son was undertaking in the 2004 to 2010 years of income. His son did not work with him in the building industry although he worked with him in building a house and in renovating a property he, Mr WG, owned.
| I certify that the preceding two hundred and thirty two (232) paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie |
[sgd]........................................................................
Associate
Dated: 24 July 2019
| Heard: | 8, 9 and 10 February 2017 |
| Counsel for the Applicant: | Mr Michael Hines |
| Solicitor for the Applicant: | Mr Ben Elbaum, |
Counsel for the Respondent: | Mr Sam Ure |
| Solicitor for the Respondent: | Mr Vincent Tavolaro, Australian Government Solicitor |
Upon every such reference or appeal -
(a) the taxpayer shall be limited to the grounds stated in his objection; and (b) the burden of proving that the assessment is excessive shall lie upon the taxpayer.”
“121. A taxpayer makes a false or misleading statement in a return within s 223(1)(a)(i) if a return which the taxpayer furnishes to the Commissioner in obedience to s 161(1) contains a statement that is erroneous or incorrect: no element of deceitful or dishonest conduct on the part of the taxpayer or anyone else needs to be established. This is the position where the return containing the false statement is prepared by the taxpayer's agent and the taxpayer is not aware of the falsity. …”: [2003] FCA 258; [2003] ATC 4375 at [121]; 4,402
7
29
9