Rusanova and Commissioner of Taxation (Taxation)

[2023] AATA 2782

Rusanova and Commissioner of Taxation (Taxation) [2023] AATA 2782 (1 September 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2021/1732-40

Re:Liudmila Rusanova

APPLICANT

AndCommissioner of Taxation

RESPONDENT

File Number(s):      2021/1742-47

Re:Maxim Rusanov

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President I R Molloy

Date:1 September 2023

Place:Brisbane

The objection decisions under review are affirmed.

................................[SGD]..................................

Deputy President I R Molloy

CATCHWORDS

TAXATION – income tax- failure to lodge tax returns - administrative penalties - tax related liabilities – decision under review affirmed-default assessments

LEGISLATION

Income Tax Assessment Act 1936 (Cth)

Taxation Administration Act 1997 (Cth)

Taxation Administration Act 1953 (Cth)

CASES

Goshi v Commissioner of Taxation (2013) 209 FCR 301

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Trautwein v Commissioner of Taxation (1936) 56 CLR 63
Bosanac v Federal Commissioner of Taxation [2019] HCA 41
Bosanac v Federal Commissioner of Taxation (2019) FCR 169
Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19
Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148

REASONS FOR DECISION

1 September 2023

1. On 10 August 2017 the respondent (Commissioner) issued default assessments to the applicants under s 167 of the Income Tax Assessment Act 1936 (Cth) (1936 Act).

2. The assessments were in respect of the following income years:

   (a)in respect of Maxim Rusanov, the income years ending 30 June 2011, 2012, 2013, 2014 and 2016;

   (b)in respect of Liudmila Rusanova, the income years ending 30 June 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016.

3. The applicants had not lodged tax returns for any of the above years. The assessments were based almost entirely on entries in the applicants’ bank accounts which the respondent considered income.

4. Interest income was also identified for Ms Rusanova for the years ending 30 June 2008 to 30 June 2016 totalling $67,638.

5. The respondent also determined that the applicants:

   were liable to administrative penalties for failing to lodge documents required to determine their tax-related liabilities; and

   were liable to a 20% increase in penalties for the relevant years.

6. The applicants objected to the default assessments, together with the assessments for administrative penalties.  Some of the objections were allowed in part.

7. Maxim Rusanov has applied to the Tribunal seeking review of the objection decisions for each of the years ending 30 June 2011 to 30 June 2016.  

8. Liudmila Rusanova has applied for review of the objection decisions for the years ending 30 June 2010 to 30 June 2016.

9. In the course of the proceedings the applicants were represented by solicitors and counsel. At the hearing, however, they were not legally represented.

10. At the hearing the applicants were represented Mr Arthor Volonski. Mr Volonski has no legal or accounting qualifications. He said he has been a migration agent. He was fluent in English and in Russian.

11. Mr Volonski was assisted, except on the last hearing day, by Mr Graeme Gillard. Mr Gillard is an accountant. He provided evidence in the proceedings as referred to below.

    Issues

12. In respect of each applicant the issues are whether he or she has discharged the burden of establishing in respect of a relevant income year that:

    (a)the assessment, made under s 167 of the 1936 Act, is excessive by establishing the amount of his or her actual taxable income for that year;

    the administrative penalty imposed is excessive; and

    the administrative penalty should be remitted in full or in part pursuant to s 298-20 of Schedule 1 to the Taxation Administration Act 1997 (Cth) (TAA).

13. The applicants are from Russia. They are married having met whilst living in Australia. There was no issue concerning either applicant’s residency for Australian tax purposes.

    Actual taxable income
    
    

    14.A taxpayer who seeks to establish that a default assessment made under s 167 of the 1936 Act is excessive must establish his or her actual taxable income.[1] If the taxpayer’s actual taxable income is less than the amount assessed, the assessment under s 167 of the 1936 Act would be excessive within the terms of s 14ZZK of the TAA.

    [1] Gashi v Commissioner of Taxation (2013) 209 FCR 301 [63]; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, 621 and 631; Trautwein v Commissioner of Taxation (1936) 56 CLR 63, 87; Bosanac v Federal Commissioner of Taxation [2019] HCA 41 [30]; Bosanac v Federal Commissioner of Taxation (2019) 249 FCR 169 [57].

14. This is not a case, in respect of any of the relevant years, in which the issues have been confined, for example, to certain transactions or a class of transactions, so that either of the applicants is relieved of the burden that generally falls upon a taxpayer challenging an assessment under s 167 of the 1936 Act.

15. The Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment.[2] There is no burden on the Commissioner to show that the s 167 assessments were correctly made.

    [2] Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19 [25].

16. Evidence of witnesses who have an interest in the outcome of litigation needs to be approached critically.[3] That is not to say that a taxpayer’s uncorroborated evidence is to be regarded as prima facie unacceptable,[4] but where a taxpayer cannot recall the nature or source of transactions, the taxpayer may not be able to discharge the burden.

    [3] Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149 [82].

    [4] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148 [31].

17. As the High Court said in Trautwein v Commissioner of Taxation:[5]

    ’…the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself [in making a correct assessment] by the simple and relatively unskilled method of losing either his memory or his books’.

    [5] (1936) 56 CLR 63 [87].

18. Evidence was given by Graeme Gillard, Boris Varvulev, Maxim Rusanov, Liudmila Rusanova and Vladimir Rusanov.

19. Three of the witnesses, Boris Varvulev, Liudmila Rusanova and Vladimir Rusanov, gave audio evidence from Russia. Mr Varvulev spoke fairly good English, but had the occasional assistance of a Russian/English interpreter. Liudmila Rusanova and Vladimir Rusanov each gave evidence through an interpreter.

20. Mr Gillard and Maxim Rusanov gave evidence in person. I assessed Mr Rusanov as having good English skills, but for the purpose of giving evidence, he was more comfortable using the Russian interpreter.

21. Mr Gillard, as I have said, is an accountant. He provided a written statement. He also gave oral evidence.

22. Mr Gillard was not the applicants’ accountant in any of the relevant years. He obtained some schedules of transactions prepared by the applicants’ previous accountants or lawyers. Maxim Rusanov said the schedules were produced by his lawyers from information he provided to them.

23. The schedules included a consolidated transaction list; a list of transactions said to have the character of income; a list of deductions relating to rental income; a list of internal transfers between the applicants’ accounts; a list of family gifts; a schedule of loans; and a schedule of capital transactions in respect of a company Vistion Pty Ltd.

24. Mr Gillard used the schedules, the bank statements relied on by the respondent, and what he was told by Maxim Rusanov, to prepare what he described as the applicants’ indicative tax returns for the relevant years.

25. He was not given any documents by the applicants. He did not have any base documents supplied by the previous accountants. He was not sure whether the former accountants had any base documents. 

26. Mr Gillard’s indicative tax returns do not disclose the applicant’s actual taxable income in any particular year. Each of the returns includes an amount generally described as ‘unknown deposits’ which he has included as income.

27. The sources and nature of this ‘income’ are unknown. Mr Gillard did not have any documents in relation to these amounts, and applicants, particularly Maxim Rusanov, were unable to shed any light on what these deposits were.

28. In respect of deposits, which were not included as income, Mr Gillard relied on what was included in the schedules supplemented by what Maxim Rusanov told him.

29. Mr Gillard did his best to prepare the applicants’ indicative tax returns. Unfortunately they do not go near to establishing either applicant’s actual taxable income for any of the relevant years.

30. Mr Varvulev provided an affidavit. He said he has known Maxim Rusanov for many years. Mr Varvulev previously lived in Australia. He said he has not been to Australia since about 2010 to 2014. He said he has no family or business interests in Australia.

31. Mr Varvulev said he and Maxim Rusanov regularly lent each other money. He referred to several loans to Maxim Rusanov. He could not remember how he was requested to make the loans. There were no loan documents. No contemporary documentary exchanges, such as emails or texts were disclosed.

32. There were no agreed terms to the loans. Mr Varvulev said they were interest-free, but it was agreed, he said, that the loans would be repaid. The reason given for the loans was that Maxim Rusanov needed money. Mr Varvulev said in re-examination he could not remember whether Maxim Rusanov told him he needed the money for gambling.

33. Mr Varvulev was taken to CBA bank statements annexed to his affidavit. They revealed various transfers to Maxim Rusanov including a series of transfers, each for $20,000, over about a week.

34. There was also a document indicating that Maxim Rusanov transferred a Porsche Cayenne to Mr Varvulev in Russia. This was said to be as repayment of money Mr Varvulev had lent to Maxim Rusanov. Mr Varvulev denied he had bought the vehicle from Maxim Rusanov. 

35. There are some unusual features to Mr Varvulev’s evidence. There is no documentation to evidence any sort of loan agreement. There was, as I have said, no agreement for payment of interest. There was no time fixed for repayment of the loans.

36. Whilst Mr Varvulev said that Maxim Rusanov needed money, and despite the loans being interest-free, there are instances of Maxim Rusanov, round the same time as loans were being advanced, ’repaying’ amounts in excess of what he had been lent.

37. I find it implausible that the payments from Mr Varvulev to Maxim Rusanov were all truly loans.

38. Mr Varvulev’s evidence was not satisfactory. I thought he deliberately kept his dealings with Mr Rusanov vague. At times he was dismissive of the questions. I am not at all satisfied I was given the true story concerning their dealings.

39. Maxim Rusanov provided a brief written statement and was cross-examined. 

40. Mr Rusanov explained that he was in hospital earlier this year. He was also involved in an accident about a week before the hearing for which he provided a medical certificate and other documentation.

41. Mr Rusanov said he was taking medication which could affect his thinking. Maxim Rusanov’s cross-examination was broken-up over a couple of days including to accommodate other witnesses. I did not consider he had any difficulty understanding and responding to questions.

42. Maxim Rusanov said he did not lodge tax returns because he did not consider he had any taxable income. He now concedes that was incorrect.

43. Apart from Mr Varvulev, there were allegedly other lenders, whose loans appear in the bank statements. No statements were produced from any of these other lenders. No loan agreement or other documentation concerning these alleged loans was produced.

44. Maxim Rusanov has been a director of several Australian companies, Vistion Pty Ltd, Sprint Design Group Pty Ltd, Maxmil Pty Ltd and MRM Australia Pty Ltd. None of the companies lodged tax returns in the relevant years. Mr Rusanov concedes they should have lodged returns. There was no evidence that they have yet done so.

45. None of the books or records of any of the companies have been disclosed. Part of the applicants’ case is that deposits to their benefit were repayments of company loans. No documentation or any detail of these loans was revealed.

46. Maxim Rusanov said one of the companies, Vistion Pty Ltd (which I understand changed its name to Deadliest Catch Pty Ltd) was a seafood wholesaler. It sold produce which his father-in-law’s company supplied. A company associated with his father-in-law was Sea Lion LLC.

47. Mr Rusanov said that in 2010 to 2016 he was trying to develop his father-in-law’s business. He invested money in Vistion. His father-in-law, he said, gave him and his wife money to live on. It was truly gifts, he said, totalling approximately $1,636,000, between 2012 and 2014, It was their choice how they used the money. Mr Rusanov said he used the money, or at least some of it, to develop the business.

48. It is curious that, although Maxim Rusanov’s father-in-law was gifting large sums of money to his son-in-law and/or daughter, there are no contemporaneous records of any sort to substantiate the nature of these payments. There is not a single text or email even notifying that money has been remitted, or acknowledging its receipt.

49. It is implausible that no communications of this sort existed. The respondent has sought supporting evidence in respect of the applicants’ claims including as to the alleged gifts. I can only assume that such evidence would be unhelpful to the applicants’ case.

50. Liudmila Rusanova was not able to shed much light on matters. She provided a short written statement almost identical to her husband’s statement. She indicated in evidence that in respect of financial matters she deferred to her husband Maxim Rusanov.

51. Mrs Rusanova acknowledged she may have been a director of some Australian companies, but that was dealt with by her husband. She did not know whether one of her father’s companies had business dealings with Deadliest Catch Pty Ltd.

52. Mrs Rusanova was not aware if she had lent money to any Australian companies. She did not do anything of that sort.  She did not know anything of her father’s businesses including the company Sea Lion.

53. It was accepted by the applicants that Mrs Rusanova had income in the relevant years including rental income. She also claimed deductions in respect of rental properties. However no sufficient evidence was produced to establish either her income in any of the relevant years or deductions in those years.

54. Vladimir Rusanov is Liudmila Rusanova’s father and Maxim Rusanov’s father-in-law. It was pointed out that Vladimir had suffered a heart attack on 24 May 2022 and has suffered from a number of other severe illnesses. These were said to have affected his cognitive ability, memory, and mood.

55. As the applicants submitted, however, Vladimir Rusanov, managed quite well when giving evidence. At the end he said he had enjoyed the discussion.

56. Some time was spent with Vladimir Rusanov, and more so with Maxim Rusanov, on the source or sources of the money Vladimir had transferred to the applicants. The actual sources of the funds, whether from personal wealth or from a company, was not clear. I should also mention that some of these transfers came from outside Russia, such as from South Korea.

57. The applicants contend they received financial gifts from Vladimir Rusanova totalling $1,636,202. Vladimir Rusanov, by an affidavit of 3 August 2022, indicated that between early 2010 and late 2014 he and his wife sent financial gifts to Liudmila and Maxim totalling approximately $2.5 million.

58. It is clear Vladimir Rusanov had access to significant amounts of money which he transferred to his daughter and/or son-in-law during the relevant years. What remains uncertain is the nature of all these transfers. They have been categorised by the applicants as gifts.

59. But in at least some of the relevant years Maxim Rusanov says he was trying to assist his father-in-law’s business. It seems unlikely that Maxim would go unrewarded for his efforts.

60. It is a curious feature, in respect of the transfers, that no emails or texts are available to indicate the nature the transfers, how they were initiated, or even to acknowledge receipt.

61. I am not satisfied that these transfers were not remuneration for services provided or made in connection with business activities.

62. Absent any reliable evidence of the sources or nature of these transfers, there is no proper basis to make any findings as to whether the deposits constitute part of the applicants’ taxable income or not.

63. The applicants have been selective in their evidence. I refer, for example, to the absence of evidence concerning the companies of which they were directors.

64. Neither applicant has provided acceptable explanations as to the full extent of their wealth in any of the years under consideration.

65. I am not at all satisfied, in respect of any of the years in question, that either applicant has proved that he or she has no other undisclosed income.

66. I am not satisfied, for example, they have excluded the possibility of other income which has not found its way into the known bank accounts.

67. Neither of the applicants has established, in respect of any of the relevant years, the amount upon which income tax ought to be levied.

68. Accordingly, neither of them has discharged his or her burden of proving that the s 167 assessments are excessive in respect of either of them in any of the relevant years.

    Administrative penalties/remission
    
    

    70.The applicants did not lodge taxation returns for the relevant years prior to the respondent’s default assessments.

    71.The respondent assessed administrative penalties for each of the relevant years for failing to provide a document, pursuant to s 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA).

    72.The respondent considered, pursuant to s284-75(3), that timely lodgement of tax returns was necessary to determine the applicants’ tax-related liability accurately, and the Commissioner determined the tax-related liability without the assistance of the returns.

    73.Pursuant to s 284-90, item 7, the base penalty amount under s 284-75(3) is set as 75% of the tax- related liability.

69. The base penalty amount is increased by 20% where a base penalty amount worked out was for this type of penalty previously.

70. In these circumstances, an uplift pursuant to s 284-220(1)(c) was applied, in respect of Maxim Rusanov, for each of the relevant years subsequent to 2011, that is, for the income years ending 30 June 2012 to 2016.

71. In respect of Liudmila Rusanova, the uplift was in respect of each of the relevant income years  to 2016 on the basis that she had a previous administrative penalty worked out albeit for an income year which was not the subject of these proceedings.

72. There was no submission that there should be any different penalties. I do not consider any different administrative penalties should be imposed.

73. The applicants made no submissions as to remission of the administrative penalties in full or in part. They have failed to establish any grounds for remission in full or in part.

    Conclusion
    
    

74. The objection decisions should be affirmed.

I certify that the preceding 79 (seventy-nine) paragraphs are a true copy of the reasons for the decision herein of Deputy President I. R. Molloy

................................[SGD]........................................

Associate

Dated: 1 September 2023

Dates of hearing:

Last written submissions:

7-10 August 2023

18 August 2023

Advocate/s for the Applicant:

Mr Arthor Volonski
Mr Graeme Gillard

Counsel for the Respondent:

Ms Carolyn Conway

Solicitor for the Respondent:

Ms Laura Anderson
McInnes Wilson Lawyers