Salser and Commissioner of Taxation (Taxation)

Salser and Commissioner of Taxation (Taxation) [2018] AATA 1311 (17 May 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2015/3481
Re:Salser Pty Ltd
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Egon Fice, Senior Member
Date:17 May 2018
Place:Melbourne

The Tribunal affirms the objection decision made by the Commissioner of Taxation on 12 June 2015.
[sgd]........................................................................
Egon Fice, Senior Member
TAXATION – undisclosed cash/cheque takings – not recorded in activity statements – understated GST – claimed GST credits – whether cash/cheque payments from taxable supplies –deductions claims – tax evasion – unfranked dividends – administrative penalties – onus of proof - grounds for reduction of penalties or partial remissions – applicant non-compliance – assessment of the honesty of witnesses – conduct of counsel – application for recusal of Tribunal member – apprehension of bias – procedural unfairness – decision affirmed
Legislation
A New Tax System (Goods and Services Tax) Act 1999; ss 9-5, 11-5, 11-20, 29-10, 93-10 & 105-55
Income Tax Assessment Act 1936; ss 109C, 109L & 170
Income Tax Assessment Act 1997; ss 4-15, 6-5, 8-1, 11-5, 11-20, 29-10, 900-80, 900-85 & 900-195
Taxation Administration Act 1953; ss 14ZZK, 284-75, 284-80 & 284-90
Cases
Concrete Pty Limited v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577
Ebner v the Official Trustee in Bankruptcy (2000) 205 CLR 337
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Ferguson v Cole (2002) 76 ALD 399
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 22 ATR 148
Johnson v Johnson (2000) 201 CLR 488
Jones v Dunkel (1959) 101 CLR 298
Kowalski v Repatriation Commission (2010) 51 AAR 505
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
McGovern and Anor v Ku-Ring-Gai Council and Anor (2008) 251 ALR 558
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd(in liquidation) and Others (1999) 160 ALR 588
Tisdall v Webber (2011) 193 FCR 260
Trawl Industries of Australia Pty Ltd v EFFEM Foods Pty Ltd (1992) 27 NSWLR 326
Webb v The Queen (1994) 181 CLR 41
Secondary Materials
Chambers 21^st Century Dictionary
Demeanor by Olin Guy Wellborn, the William C. Liedtke, Sr. Professor of Law and Associate Dean for Academic affairs, The University of Texas School of Law, published in 76 Cornell Law Review 1075, July 1991
Oral v Written Evidence: the Myth of the “Impressive Witness” by Loretta Re, B.A., LL.M., Dip. Ed., Published in December 1983, the Australian Law Journal, Vol. 57
REASONS FOR DECISION
Egon Fice, Senior Member
17 May 2018

Salser Pty Ltd (Salser) at all relevant times owned and operated a restaurant called Kanzaman at Bridge Road, Richmond. Mr Bilal Talj was the sole director of the company and he held half of its issued shares along with his wife, Mrs Mona Talj.
In a letter dated 19 February 2014 the Commissioner of Taxation (the Commissioner) informed Salser and Mr Talj that an audit of the company’s activity statements for the period 1 July 2009 to 31 December 2013; and the 2010, 2011, 2012 and 2013 income tax returns would be conducted.
For the period 1 July 2009 to 30 September 2013 Salser reported goods and services tax (GST) of $272,297 for taxable supplies made throughout the period (I assume the Australian Taxation Office’s (ATO) additions are correct - they were not disputed)).
On conclusion of the audit, the Commissioner determined that Salser failed to disclose business income totalling $710,710 for the period in question. The Commissioner concluded that the undisclosed business income was considered to be a taxable supply pursuant to s. 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). Furthermore, the Commissioner determined that banking statements examined for the stated period indicated those monies were deposited into the bank account of Mrs Talj rather than into Salser’s business account.
According to the Commissioner, that resulted in an understatement of GST payable by Salser of $64,612.
The Commissioner also determined that Salser had received cash/cheque payments for services provided during the audit period amounting to $117,318 for the 2010 income year; $212,434 for the 2011 income year; and $171,201 for the 2012 income year, a total of $500,953. The Commissioner also determined that Salser incorrectly claimed income tax deductions in the amount of $1,575 for the 2012 income year.
At audit, Salser contended that Mrs Talj drew income from the company and that those amounts should be treated as a director drawing a salary rather than unfranked dividends. The Commissioner determined that Mrs Talj deposited into her bank account $279,098 in the 2010 income year; $327,365 in the 2011 income year; and $543,920 in the 2012 income year. The Commissioner deemed those payments to be unfranked dividends in accordance with s. 109C(1) of the Income Tax Assessment Act 1936 (ITAA 36). However, he reduced those amounts by $30,000 for the 2010 income year and $40,000 for the 2011 and 2012 income years on the basis that Mrs Talj had reported those amounts as salary and wages. Accordingly, the amounts of $249,098, $287,365 and $503,920 were deemed to be unfranked dividends received by Mrs Talj from Salser.
On 5 November 2014 the Commissioner issued notices of assessments of net amount (GST) for the quarterly periods between 1 July 2009 and concluding on 30 June 2012. That assessment disclosed an amount of $50,255 payable by Salser. The Commissioner also issued a notice of amended assessment of net amount for the period 1 July 2012 to 30 September 2013 resulting in further GST payable in the amount of $14,515. The GST shortfall amount for penalty purposes was $64,770.
On 5 November 2014 the Commissioner also issued a notice of assessment of shortfall penalties (GST) for the period between 1 July 2009 and 30 September 2013 amounting to $32,385.
On 7 November 2014 the Commissioner issued amended notices of assessment for the 2010, 2011 and 2012 income years. Those amended assessments effectively increased the taxable income of Salser by $117,318 for the 2010 income year, $212,434 for the 2011 income year; and $171,201 for the 2012 income year. The income tax shortfall amount for penalty purposes was $150,758.40.
On 7 November 2014 the Commissioner also issued notices of assessment of shortfall penalty for the three income years in question. They amounted to $17,597.70, $31,865.10 and $25,916.40 respectively.
On or about 10 April 2015 Salser’s accountants, Imputo Accountants (Mr Michael Raffoul), lodged an objection to the Commissioner’s amended assessments including the administrative penalties. On 12 June 2015 the Commissioner provided to Salser a notice of objection decision stating that the objection had been disallowed in full.
On 10 July 2015 Mr Raffoul, then with Kingston & Knight Accountants, lodged an application with the Tribunal seeking review of the Commissioner’s objection decision. The reasons stated for the application were:
The ATO have [sic] used incorrect basis and assumption and can’t justify the decision using factual information but only assumptions.
Given the onus of proof provisions found in the Taxation Administration Act 1953 (the Administration Act), the stated ground, on its own, is invalid. The Commissioner is not required to justify his assessment. However, for present purposes, I will ignore that and attempt to explain the basis for the claim. Its history since lodgement with the Tribunal also needs some explanation for reasons which will become apparent presently.
The Tribunal first dealt with this matter on 10 August 2015 at a Directions Hearing. I made Directions that the Applicant and Respondent lodge with the Tribunal and serve on the other party a Statement of Facts, Issues and Contentions. At the parties’ request, I listed this matter for a Conciliation Conference in early November 2015. Salser failed to lodge with the Tribunal and serve on the Commissioner its Statement of Facts, Issues and Contentions within the time stated in my Directions made on 10 August 2015. Therefore, the matter was set down for a further Directions Hearing to determine why there was a failure to comply.
On 20 April 2016 Conference Registrar Leaver made further Directions regarding the lodgement and service of witness statements, reports, records and other documents on which Salser intended to rely at the hearing and an amended Statement of Facts, Issues and Contentions.
Initially, Salser conceded the issue regarding primary tax liability, proceeding only with the penalty claim. The matter was set down before me for hearing on 21 October 2016. On 20 October 2016 the Tribunal received an application for an adjournment of the hearing set down for the following day. That application was signed by Mr F John Morgan, counsel for Salser. In the application Mr Morgan stated he had met with representatives of the client for the first time on the previous day and began to doubt the wisdom of conceding the primary tax issue which, he claimed, had been done without prior legal advice. The adjournment was requested for a hearing date after 21 November 2016. Mr Morgan foreshadowed that Salser was likely would to withdraw its concession regarding primary taxes and to put that matter back in issue.
On 21 October 2016 I made the following Direction:
1. On or before 28 February 2017, the Applicant to lodge with the Tribunal and serve on the Respondent:
(a)a signed statement of the evidence to be given by each witness intended to be called at the hearing;
(b)all reports, records and any other documents on which the Applicant intends to rely at the hearing;
(c)an amended Statement of Issues, Facts and Contention; and
…
On 28 February 2017 Mr Raffoul sent an email to the Tribunal requesting an extension of time within which to comply with my Directions made on 21 October 2016. The Commissioner consented to that extension and the new date to comply with my Directions was 14 March 2017. I amended my earlier Direction on 7 March 2017. It remained in identical terms to my earlier Directions save for the amended date for compliance and the statement that the Applicant must lodge with the Tribunal and serve on the Respondent the documents previously stated. On 16 March 2017 Mr Morgan lodged on behalf of Salser a further Statement of Facts Issues and Contentions along with the list of the names of witnesses intending to give evidence. The following appeared on that document:
The Applicant Taxpayer will rely on the following witnesses (or some of them) who will give their evidence orally. There are no witness statements (at this stage).
On 21 April 2017 Mr Raffoul lodged a further application to extend time to comply with my Directions. He sought an extension of time to 5 May 2017. The Commissioner consented to that extension and on 28 April 2017 I made an Amended Direction giving effect to that extension. Amongst those Directions was the following:
On or before 5 May 2017 the Applicant must lodge with the Tribunal and serve on the respondent:
(a)a signed statement of the evidence to be given by each witness intended to be called that the hearing;… (emphasis added)
That date was extended by consent to 10 May 2017. Salser lodged with the Tribunal and served on the Respondent additional documents between that date and 14 May 2017. I then held a Telephone Directions Hearing on 15 May 2017 when I ordered that the hearing date be vacated and that the hearing be set down for 9 October 2017. I also informed Mr Morgan, who appeared on behalf Salser, that Salser’s witness statements must be lodged within one month prior to the commencement of the hearing. In a letter dated 4 October 2017 the Commissioner said the following to Mr Raffoul:
We refer to the Directions Hearing on 15 May 2017 in which Senior Member Fice stated that the Applicant was to file witness statements at least one month prior to the new hearing date. By email dated 16 May 2017 the Applicant’s counsel informed the Tribunal and the Commissioner that the Applicant confirmed its understanding that it must file, and serve, witness statements at least one month before the scheduled start of the hearing on Monday 9 October 2017.
…
The Commissioner is on record at previous hearings that witness statements are required. Further the Commissioner is also on record that he will not allow the Applicant to lead evidence from the witness stand.
Mr Morgan responded to that letter in an email of the same date stating:
I’m getting urgent instructions about the matters you raise.
I might say (without instructions) that your approach to the Applicant’s witnesses giving oral evidence is not very helpful, for a model litigant who’s been offered meetings with the witnesses for at least 5 months and says they understand the thrust of the evidence for at least the same period.
In his Further Amended Statement of Facts Issues and Contentions dated 6 October 2017 the Commissioner stated that on 18 September 2017 Salser provided signed witness statements of the following persons:
(a)Bilal Talj, undated;
(b)Mona Talj, undated;
(c)Julian Talj, undated;
(d)Michael Raffoul dated 4 September 2017;
(e)James Ridley dated 4 September 2017;
(f)Nikko Raschhofer dated 8 September 2017;
(g)Mihaly Fabian dated 7 September 2017; and
(h)Nikita Phillips dated 11 September 2017.
These documents were not lodged with the Tribunal at that time.
Four days prior to the hearing, on 3 October 2017, Salser provided to the Commissioner:
(a)a Further Amended Further Statement of Facts, Issues and Contentions (unsigned and undated);
(b)its list of witnesses which retained the statement regarding reliance upon oral evidence and that there were no witness statements at that stage;
(c)signed witness statements of those witnesses referred to above at [22] save for Mr Raffoul’s statement which was dated 28 September 2017 and which was different to his first statement. A further statement was also provided from Ms Nellie Kostadinova who was said to be Salser’s bookkeeper. Like the other witness statements, it stated that the witness intended to give her evidence orally; and
(d)four folders comprising the Applicant’s docket analysis.
In a letter dated 4 October 2017, the Commissioner referred to his letter of 15 September 2017 (incorrectly dated 22 July 2016) in which he informed Salser’s representative of the following:
On 15 May 2017, the AAT held the non-compliance meeting [hearing] with the parties in relation to the Applicant not filing witness statements and further material. The AAT stated at the non-compliance hearing that these witness statements were required to be lodged within a month of the hearing. While the Commissioner has received further material, we are yet to receive any witness statements.
The Commissioner is on record at previous hearings that witness statements are required. Further the Commissioner is also on record that he will not allow the Applicant to lead evidence from the witness stand.
…
In opening at the hearing, Mr C Sievers of counsel, who appeared on behalf of the Commissioner, referred to the detailed witness statement lodged on behalf of Mr Talj and stated that he wished to cross-examine him in the ordinary course. Mr Sievers also said that he saw no need for Mr Talj to adduce any oral evidence to supplement what he in fact had for six months. He made the same comments regarding the witness statement of Mrs Talj. Mr Sievers pointed out that the only statement Mrs Talj made in her witness statement was that she adopted the statement of her husband. Mr Sievers said that put the Commissioner in a position of not knowing what questions could be put to Mrs Talj. Putting the same questions as would be put to Mr Talj would be duplication and simply a waste of time. Accordingly, Mr Sievers said he did not propose to cross-examine Mrs Talj because he did not know what her evidence would be. The same applied to Mr Julian Talj whose witness statement was along the same lines. Mr Sievers made it clear that he objected to those witnesses being called to give oral evidence-in-chief.
To add to the problem, a number of documents, including witness statements prepared on behalf of Salser, while served on the Commissioner, had not been lodged with the Tribunal. The disregard for the Directions which the Tribunal made on a number of occasions can only be described as deliberate and inexcusable. I adjourned the matter briefly to enable me to read all of the witness statements which had apparently been served on the Commissioner.
Upon recommencement, Mr Sievers directed my attention to the lengthy witness statement made by Mr Talj of some 167 paragraphs and said that the Commissioner had no issue with that evidence save that he did not see any need for Mr Talj to give oral evidence to supplement what was already in his detailed witness statement. Mr Morgan objected to that stating:
For various reasons, like the one that I mentioned, but the other is for the tribunal to see the witness give some evidence, just in cross-examination personally to help discharge the taxpayer’s onus; in other words to help the tribunal assess the reliability of the witness.
I explained to Mr Morgan that I assessed a witness’ evidence by content and not by performance in the witness box. Mr Morgan claimed to be astounded. He said:
I’m astounded. Every human being has some capacity to judge veracity by not only content but by looking at demeanour of the witnesses.
I explained to Mr Morgan that I did not share his view and referred to a number of cases where the Court and other sources expressed the view that the demeanour of a witness in a witness box was of little or no value in assessing the accuracy of the evidence.
Doubts about the ability of judges to assess the honesty of a witness have been expressed by the High Court at least, and possibly earlier than, 1979. In McCormack v Commissioner of Taxation (1979) 143 CLR 284. Murphy J said, at 323:
In some cases a tribunal may conclude that a witness is, or is not, an honest witness. It is not required to do so. In civil cases such as this, it is generally undesirable to express such a finding in a proceeding which after all is to be decided on the balance of probabilities. Tribunals should not be encouraged to make findings that witnesses are honest or dishonest. In some cases, the evidence may point to such a conclusion. Even in these cases, assessment is often based on the demeanour of the witness and intuitive perception. The supposed special capacity of judges to decide the honesty of witnesses from demeanour and intuitive perception has never been established, and is, I suspect, grossly overrated.
In an article entitled Oral v Written Evidence: The Myth of the "Impressive Witness" by Loretta Re, B.A., LL.M., Dip. Ed., published in December 1983, The Australian Law Journal, Vol. 57, the author referred to a statement made by Lord Devlin where he said:
The great virtue of the English trial is usually said to be the opportunity it gives to the judge to tell from the demeanour of the witness whether or not he is telling the truth. I think that this is overrated.… I would adopt in their entirety (this being the highest form of judicial concurrence) the words of Mr. Justice MacKenna: "I question whether the respect given to our findings of fact based on the demeanour of the witness is always deserved. I doubt my own ability and sometimes that of other judges, to discern from a witness's demeanour, or the tone of his voice, whether he is telling the truth. He speaks hesitantly. Is that the mark of a cautious man, whose statements are for that reason to be respected or is he taking time to fabricate? Is the emphatic witness putting on an act to deceive me, or is he speaking from the fullness of his heart, knowing that he is right? Is he likely to be more truthful if he looks me straight in the face than if he casts his eyes on the ground perhaps from shyness or natural timidity? For my part I rely on these considerations as little as I can help."

Kirby P, as he then was, in Trawl Industries of Australia Pty Ltd v EFFEM Foods Pty Ltd (1992) 27 NSWLR 326 said, at 348:
The cases seem to treat as axiomatic the proposition that a trial judge can reliably assess the credibility of a witness simply on the basis of his or her demeanour in the witness box. But it should not be taken for granted. Indeed, recent scientific studies cast doubt on the correctness of this view:… One might well agree with Lord Atkin in Societe d’ Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") (1924) 20 L1 L Rep 140 at 152 that "an ounce of intrinsic merit or demerit in the evidence, that is to say, the comparison of evidence with known facts, is worth pounds of demeanour":…
When on the High Court, Kirby J expressed a similar view in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd(in liquidation) and Others (1999) 160 ALR 588 where he said, at 617:
There is a growing understanding, both by trial judges and appellate courts, of the fallibility of judicial evaluation of credibility from the appearance and demeanour of witnesses in the somewhat artificial and sometimes stressful circumstances of the courtroom. Scepticism about the supposed judicial capacity in deciding credibility from the appearance and demeanour of a witness is not new.… Nowadays, most judges are aware of the scientific studies which cast doubt on the correctness of this assumption.
In Johnson v Johnson (2000) 201 CLR 488, Kirby J said at 505-506:
In earlier times, great confidence was placed in the capacity of adjudicators to discern the truth on the basis of their impressions of witnesses. However, the trend of modern authority has cast doubts on that supposedly unique perceptiveness (96). That is why many adjudicators now rest their decisions, so far as they can, on indisputable facts, contemporary documents and the logic of the circumstances, rather than mere impressions. This is a desirable development (97).
Finally on this topic, I should refer to an article entitled Demeanor by Olin Guy Wellborn, the William C. Liedtke, Sr. Professor of Law and Associate Dean for Academic affairs, The University of Texas School of Law, published in 76 Cornell Law Review 1075, July 1991. He concluded, at page 1104-1105:
If ordinary people in fact possess the capacity to detect falsehood or error on the part of others by observing their nonverbal behaviour, then it should be possible, indeed easy, to demonstrate such a capacity under controlled conditions. Over the past twenty-five years, a large number of experiments involving thousands of subjects have searched for this capacity. With remarkable consistency, the experiments have shown that it simply does not exist. To the extent that people can detect lying or erroneous beliefs in another, they do so primarily by paying close attention to the content of what the other says, not by observing facial expression, posture, tone of voice, or other nonverbal behaviour.
When I ruled that witness statements provided by the various proposed witnesses would stand as their evidence-in-chief save for any explanations or corrections which needed to be made, Mr Morgan objected to that course being taken. He insisted on the witnesses providing oral evidence-in-chief. However, as Mr Sievers submitted, that course would provide uncertainty for the Commissioner as things may be said which were not in a witnesses’ statement and therefore he could not properly cross-examine on that material. I agreed, particularly because the Directions I made leading up to the hearing of this matter, after Mr Morgan became involved, plainly stated that any witness that Salser intended to call to give evidence was required to provide to the Commissioner a written statement of that evidence signed by the witness. My Directions were, effectively, ignored by Mr Morgan and Salser.
Mr Sievers also repeated his objection to the witness statements of Mrs Talj and

Julian Talj in particular, stating that those witnesses would not be cross-examined because there was nothing to cross-examine them on, but he did not object to their statements going into evidence. Mr Sievers did make complaints about Ms Kostantinova’s evidence. She was Salser’s bookkeeper and her statement simply said that she intended to give oral evidence about how she performed her bookkeeping duties. That was lodged in May 2017. He explained there was no reason why a proper statement could not have been supplied so that the Commissioner had a proper opportunity to cross-examine her. He also saw no purpose in cross-examining Ms Phillips, Mr Raschhofer or Mr Fabian.
As for Mr Raffoul, Mr Sievers pointed out that while his evidence appeared to be that of an expert, he was not independent nor was he expert. There was no attempt to follow the Tribunal’s guidelines for the admission of expert opinion evidence. Mr Sievers submitted that Mr Raffoul’s witness statement spoke for itself. He saw no purpose in Mr Raffoul giving additional evidence.
Mr Morgan objected to the submissions made by Mr Sievers on the admission of the witness statements and those witnesses being able to give oral evidence in addition to their statements. I explained to Mr Morgan that I could not understand how Mrs Talj could simply state that she adopted her husband’s evidence on all of the matters raised in his witness statement. That was because she would not have had first-hand knowledge of many of those matters. I explained that not only was such so-called evidence inappropriate because it was not evidence, but it was also likely to be misleading. Some of the statements made in Mr Talj’s witness statement are statements of opinion. To say, as Mrs Talj does in her witness statement, that she agrees with her husband, does not advance the matter. As for the bookkeeper’s witness statement, Mr Morgan submitted that it was in the same form as it was in May 2017 because he was hoping that she need not be called but he wished to reserve his position. I rejected that submission on the ground that Applicants to the Tribunal, particularly in taxation cases, were required to discharge an onus of proving that the assessment made by the Commissioner was excessive and, in doing so, prove the correct taxable income of the Applicant. Mr Morgan’s proposed course of action was clearly unacceptable and unfair to the Commissioner and it would defeat the very purpose of making Directions regarding the provision of signed witness statements in advance of the hearing. It would deny the Commissioner procedural fairness.
RECUSAL APPLICATION
Following the discussions I have referred to above about the admission of evidence and also the concerns I expressed about the way in which Mr Morgan proposed to run Salser’s case which was to examine table dockets produced for the restaurant in the relevant period, Mr Morgan requested that I recuse myself on the basis of an apprehension of bias. I declined that request because Mr Morgan was unable to explain to me why it would appear to be unlikely that I would decide the case on its merits.
A useful starting point for an analysis of the law regarding disqualification for apprehension of bias may be found in Webb v The Queen (1994) 181 CLR 41. In that case, Deane J explained that the doctrine of disqualification by reason of appearance of bias encompassed at least four distinct, although sometimes overlapping, main categories of case. His Honour said, at 74:
The first is disqualification by interest, that is to say, cases where some direct or indirect interest in the proceedings, whether pecuniary or otherwise, gives rise to a reasonable apprehension of prejudice, partiality or prejudgment. The second is disqualification by conduct, including published statements. That category consists of cases in which conduct, either in the course of, or outside, the proceedings, gives rise to such an apprehension of bias. The third category is disqualification by association. It will often overlap the first (28) and consists of cases where the apprehension of prejudgment or other bias results from some direct or indirect relationship, experience or contact with a person or persons interested in, or otherwise involved in, the proceedings. The fourth is disqualification by extraneous information. It will commonly overlap the third (29) and consists of cases where knowledge of some prejudicial but inadmissible fact or circumstance gives rise to the apprehension of bias.
It is clear enough from Mr Morgan’s submissions regarding apprehension of bias that they are based on the second of Justice Deane's categories of case. That is, the conduct of the hearing.
In Ebner v the Official Trustee in Bankruptcy (2000) 205 CLR 337 the High Court (Gleeson CJ, McHugh, Gummow and Hayne JJ) said, at 344 – 345:
[6] Where, in the absence of any suggestion of actual bias, a question arises as to the independence or impartiality of a judge (or other judicial officer or juror), as here, the governing principle is that, subject to qualifications relating to waiver (which is not presently relevant) or necessity (which may be relevant to the second appeal), a judge is disqualified if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide [41] . That principle gives effect to the requirement that justice should both be done and be seen to be done [42] , a requirement which reflects the fundamental importance of the principle that the tribunal be independent and impartial. It is convenient to refer to it as the apprehension of bias principle.
Gleeson CJ, McHugh, Gummow and Hayne JJ explained (at 345) that the apprehension of bias principle is an important principle because even the appearance of a departure from it is prohibited lest the integrity of the judicial system be undermined. They said:
… The question is one of possibility (real and not remote), not probability. …
They then explained the two steps to be taken in its application. They said:
[8] … First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.
McGovern and Anor v Ku-Ring-Gai Council and Anor (2008) 251 ALR 558 was a decision of the New South Wales Supreme Court – Court of Appeal (Speigelman CJ, Basten and Campbell JJA). Speigelman CJ pointed out that the Australian test for apprehension of bias, as expressed in terms of two mights, sets a low threshold with respect to a prejudgment case. He said that the identification of what constitutes a lack of impartiality or of prejudice in the mind of the decision‑maker involves an issue of some specificity. His Honour said, at 561:
[15] The test for pre-judgment in Australian law is, in my opinion, to the same effect as that identified by the Supreme Court of Canada in Old St Boniface Residents Association Inc v Winnipeg (City) [1990] 3 SCR 1170 where, in the terminology of the majority judgment: the decision-maker must be “capable of being persuaded” (at 1197c); pre-judgment is of such an “extent” that contrary representations “would be futile” (at 1197d–e); statements said to constitute pre-judgment must be an “expression of final opinion … which cannot be dislodged” (at 1197f); the position of the person must be “incapable of change” (at 1197g). The “incapable of persuasion” test was applied again in Save Richmond Farmland Society v Richmond (Township) [1990] 3 SCR 1213 at 1224g.
[16] A similar approach has been adopted in Australia on pre-judgment issues in Minister for Immigration and Multicultural Affairs v Jia Legeng (at 531 [71], 540 [105]) where, in the joint judgment of Gleeson CJ and Gummow J, their Honours referred to a test of whether the decision-maker “is open to persuasion”, or whether the “conclusion already formed [is] incapable of alteration, whatever evidence or arguments may be presented”: at (531 [72]).
Although on a different topic, the complaint which arose in the course of cross-examination of a witness in Concrete Pty Limited v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577 raised similar issues put in Salser’s opening statements. The High Court noted that in the course of the witness’ cross-examination, the primary judge commented on the paucity of the respondent's documentary evidence, indicating he thought that was unusual. The High Court noted that in assessing the logical connection between a matter complained of and any deviation from deciding the case on its merits, it was important to bear in mind the characteristics of modern litigation (609). Kirby and Crennan JJ referred to the High Court decision in Johnson v Johnson (2000) 201 CLR 488 where the Court said:
At the trial level, modern judges, responding to a need for more active case management, intervene in the conduct of cases to an extent that may surprise a person who came to court expecting a judge to remain, until the moment of pronouncement of judgment, as inscrutable as the Sphinx. In Vakauta v Kelly [28] Brennan, Deane and Gaudron JJ, referring both to trial and appellate proceedings, spoke of "the dialogue between Bench and Bar which is so helpful in the identification of real issues and real problems in a particular case" [29]. Judges, at trial or appellate level, who, in exchanges with counsel, express tentative views which reflect a certain tendency of mind, are not on that account alone to be taken to indicate prejudgment. Judges are not expected to wait until the end of a case before they start thinking about the issues, or to sit mute while evidence is advanced and arguments are presented. On the contrary, they will often form tentative opinions on matters in issue, and counsel are usually assisted by hearing those opinions, and being given an opportunity to deal with them.
In Ferguson v Cole (2002) 76 ALD 399 the Applicants alleged bias on the part of the Commissioner in the conduct of the Royal Commission inquiring into the Building and Construction Industry. The Applicants asserted that the Commissioner had unfairly and arbitrarily restricted cross-examination on behalf of the Applicants; that evidence had been gathered and used unfairly; and that witnesses were questioned unfairly. At the time of hearing the matter, Branson J did not have the Commissioner's report. Nevertheless, the Applicant sought to demonstrate that the conduct of the Commissioner and Counsel assisting the Commissioner during the course of the Royal Commission demonstrated actual bias towards them or gave rise to a reasonable apprehension of bias. Although specific instances of conduct were referred to, her Honour did not consider it necessary to repeat those in her decision. In her opinion, in the context of the conduct of the Royal Commission as a whole, she considered them to be of limited significance. She also said, at 421:
[81] It should, in my view, be stressed that it is not the role of this or any Court to oversee the day to day conduct of a Royal Commission so as to ensure, for example, that the openings of Counsel Assisting are complete and accurate, that evidence is fairly gathered and used, that individual witnesses are questioned fairly and that cross-examination is not restricted unfairly or arbitrarily. No inference should be drawn from this statement that I am satisfied that the criticisms made by the applicants of the specific instances of conduct referred to above are justified. Taken individually the criticisms are insufficiently significant to be relevant to the issues before this Court. Cumulatively, even if made out, they would be inadequate to establish that the applicants, or any of them, have or has been denied procedural fairness.
Finally, the Federal Court of Australia dealt with a similar allegation in Kowalski v Repatriation Commission (2010) 51 AAR 505. In that case, Mansfield J found there was no actual or apprehended bias as a consequence of the conduct of the Tribunal's hearing into that matter. That claim appears to have arisen out of the Tribunal’s refusal to accept relevant evidence adduced by the Applicant. Mansfield J was of the view that the documents annexed to the Applicant's affidavit were either received into evidence or were not relevant to the proceeding before the Tribunal, or the Appellant did not at any time seek to tender the documents.
What Mr Morgan was required to do to make a case for recusal was to articulate the logical connection between this matter and the events that occurred in the course of the hearing, which might cause an independent lay observer to apprehend that I would decide this case on reasons other than its merits.
As best I could follow Mr Morgan’s submissions, the first point was that in refusing to admit all of the evidence and concluding that there was no point in providing further oral evidence from the witnesses proposed to be called, I had adopted a frame of mind about Salser’s position.
The second point Mr Morgan appeared to be making was that in the course of his opening submissions, I had said to him that I was concerned about the methodology by which Salser intended to prove that the assessments made by the Commissioner were excessive and establish its correct taxable income. This was about reliance on accounts prepared by the accountants and the table dockets, some of which, but not all, could be produced but had not been produced at that stage. I attempted to explain to Mr Morgan that the difficulty he faced in the approach he was undertaking was that it did not squarely meet the Commissioner’s argument in his objection decision. That was because the Commissioner had made his decision based on the cash which appeared to have moved from Salser to Mrs Talj’s personal bank account. There was no issue about the fact that significant sums of money were transferred into Mrs Talj’s bank account and that money came from Salser. According to the Commissioner, not all of those monies were declared as assessable receipts in the hands of Salser. Therefore, even if an analysis of table dockets disclosed that Salser’s receipts from its restaurant operation were less than the sum of money transferred into Mrs Talj’s personal account over the income years in question, because the monies were said to have come from Salser, an explanation would need to be given as to the source and nature of those funds for Salser to succeed. Salser would need to establish, by evidence, that the unaccounted for monies in Mrs Talj’s bank accounts, which she said came from Salser, did not bear the character of Salser’s assessable income.
Therefore, it seemed to me that the course proposed by Mr Morgan did not address the fundamental question which needed to be addressed in this matter. Nevertheless, I made it clear to Mr Morgan that I was prepared to properly assess the evidence which he would put and to make a decision accordingly.
I also explained to Mr Morgan that in eliciting additional evidence from witnesses in the witness box in their evidence-in-chief, about which the Commissioner had no prior notice, would be procedurally unfair to the Commissioner. Mr Morgan submitted that my Directions referred to the evidence to be given by witnesses which did not necessarily mean all of the evidence which they were to give. I rejected that submission. I said:
As far as the evidence is concerned, my view is that my amended directions certainly made there, which refers to a signed statement of the evidence, is conclusive of that issue. It encompasses the evidence that’s to be given, all of it, because ‘the’ can’t mean anything else. It is not a reference to any particular part and I’ve already outlined what I think you can do with the material that’s in evidence. All of those witness statements, Mr Sievers, I believe certainly has agreed that they can go into evidence without objection. So those statements will go in. A lot of documents will also go into evidence; we will sort through that as we come to them, depending on how this case goes and where the relevant supplies, and there may be issues about relevance from time to time; I don’t know.…

Chambers 21^st Century Dictionary defines the in the following relevant way: 3 used before a singular noun: denoting all the members of a group or class. In the Directions which I made, the expression the evidence must necessarily mean all of the evidence which the particular witness intended to give. If it were any different, I would have qualified my Directions.
It appears Mr Morgan’s view was that the Commissioner knew what Salser’s position was and therefore he would not be surprised by that evidence. What Mr Morgan appeared not to have appreciated was that documents lodged with the Tribunal are not documents which are in evidence. Those documents upon which a party to the proceeding before the Tribunal wishes to put into evidence need to be tendered in the course of the hearing. Therefore, there was no reason why the entirety of the evidence to be given by all witnesses proposed to be called at the hearing should not have been clearly stated in their respective witness statements. That was the Direction I made on a number of occasions and which Salser failed to follow. I concluded by saying:
No I don’t think there are grounds for refusal [sic – recusal], and I’m sure that the applicant feels a bit miffed with some of the matters that have gone from me to you and otherwise, but that happens in all of these cases where it is arguable as to which way they should be run, and really he should not, and I don’t think a reasonable person would read into that material that’s gone here; it’s simply trying to establish where we are going, I think.
After a short adjournment, Mr Morgan returned to indicate that he had instructions to continue with the matter.
The issues which I must determine in this matter may be stated as follows:
(a)whether, between 1 July 2009 and 30 September 2013 Salser had undisclosed cash/cheque takings of $710,710 which were deposited into Mrs Talj’s personal bank account instead of its business bank account;
(b)whether the amounts referred to in (a) were not included in Salser’s business accounts and were not recorded in its Activity Statements lodged with the ATO;
(c)if the answer to (b) is in the affirmative, whether Salser had understated GST in the amount of $64,612 on the taxable supplies it made;
(d)whether Salser was entitled to claim GST credits in the amount of $158 in respect of a payment of $1732.90 to lawyers for the purchase of two properties;
(e)whether Salser had received cash and cheque payments from taxable supplies which were not reported in its income tax returns for the 2010, 2011 and 2012 income years;
(f)whether Salser had properly claimed deductions against its income for expenses necessarily incurred for the purpose of producing its assessable income;
(g)in respect of the 2010 and 2011 income years, whether the time to amend Salser’s assessment for those years in accordance with s. 170(1) of the ITAA 36 was properly extended on the basis that there had been evasion of tax;
(h)whether Salser’s assessments should be amended to increase its taxable income by $117,318, $212,434 and $172,776 for the 2010, 2011 and 2012 income years respectively;
(i)whether the amounts of $249,098, $287,365 and $503,920 for the 2010, 2011 and 2012 income years respectively should be deemed to be unfranked dividends paid by Salser to Mrs Talj pursuant to s. 109C(1) of ITAA 36;
(j)whether Salser was correctly assessed to administrative penalties on a GST shortfall amount and income tax shortfall amount; and
(k)whether there were any grounds for reduction of penalties or partial remissions of penalties.
ONUS OF PROOF
Section 14ZZK of the Administration Act provides the following:
On an application for review of the 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)    if the taxation decision concerned is a franking assessment – the assessment is incorrect; or
(iii)    in any other case – the taxation decision concerned should not have been made or should have been made differently.
The onus of proof provisions were previously found in s. 190 of ITAA 36. The High Court of Australia (Mason CJ, Brennan, Deane, Dawson, Toohey, Gordon and McHugh JJ) dealt with its operation in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614. Brennan J said, at 620 – 621:
The term “excessive” in s. 190(b) relates to the “amount” of the assessment which is mentioned in s. 177(1): McAndrew’s Case (32).
A taxpayer, who seeks to discharge the burden of proving that the amount shown in the notice of assessment is excessive, is limited by s. 190(a) to the grounds stated in an objection against the assessment. An objection must state “fully and in detail” the grounds on which a taxpayer relies (s. 185) and the Commissioner is required, after consideration of the objection, to “disallow it, or allow it either wholly or in part”: s. 186. But an objection and a Commissioner’s notice of decision on objection are not pleadings which so confine the issues as to preclude the Commissioner from putting the taxpayer to proof of the true amount of his taxable income. After all, the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.
As Mr Sievers correctly submitted, rather than Salser or Mrs Talj explaining the source of the monies deposited into her private bank accounts, it chose to conduct an examination of the restaurant’s issued table dockets over that period; those dockets setting out food and beverage orders for a particular table at a particular meal. That analysis was transcribed onto spreadsheets prepared by Salser’s accountants. The resultant, according to Salser, was the gross income from restaurant takings over the income years in question. Salser also contended that there were cash payments made from the takings of the restaurant for expenses related to its operation.
It was not in dispute that Salser, in the operation of the restaurant business, conducted a significant portion of that business by way of cash transactions. That portion varies depending upon whose view is accepted. Either way, it was probably between 25 and 30 per cent of total takings. Salser did not keep sales records by a mechanism such as a till tape or any manual method but sought to establish its total sales by reference to table dockets. It should immediately be apparent that an Applicant which conducts its business in the way Salser did over the income years in question has serious problems in establishing its true taxable income and hence its tax liability. The Federal Court of Australia (Hill J) made that clear in Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 22 ATR 148 where he said, at 155:
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’s 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, the borne in mind that the evidence of the 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.
Plainly, the above statement made by Hill J regarding deductions applies equally to income. His Honour also referred to the High Court of Australia decision in McCormack. In addition to stating what was said by Hill J in Imperial Bottleshops, Gibbs J said, at 302:
The taxpayer’s evidence must of course be considered on its merits, in the light of the circumstances of the case, without prepossession, favourable or unfavourable.… Of course the fact that the taxpayer did not give evidence, if unexplained, could be taken into account in deciding what inferences should be drawn from the evidence (Jones v. Dunkel (26)). And the fact that the taxpayer was disbelieved could, in appropriate circumstances, itself give rise to an inference adverse to the taxpayer’s Case (Steinberg v. Federal Commission of Taxation (27)).
SALSER’S CLAIMED TAXABLE INCOME CALCULATION
The evidence of Salser’s income was provided by way of a witness statement from both Mr and Mrs Talj and the oral evidence given by Mr Talj. I have already mentioned the difficulties Mr Sievers exposed regarding the purported evidence in Mrs Talj’s witness statement. Mrs Talj made formal statements regarding the fact that she and her husband operated a Lebanese restaurant called Kanzaman; and that both she and her husband were directors of Salser between 2 July 1999 and 7 July 2001 when she resigned as a director. She also testified that from 18 January 2017, their son, Julian, replaced her husband as a director. As for substantive evidence, the following is the entirety of what purports to be her evidence:
I read my husband: Bilal ‘s witness statement and endorse its contents as my own, also. I confirm that most of what he has said comes from a close collaboration with me.
It should be apparent from that statement why Mr Sievers complained about Mr Morgan’s attempts to have Mrs Talj give her evidence-in-chief orally. First, what is contained in her witness statement is not her evidence and secondly, it provides no scope whatsoever for cross-examination other than to repeat the cross-examination of Mr Talj. Regardless,

Mr Sievers did not object to her statement being admitted into evidence but with the submission that it could carry no weight. Respectfully, I agreed with Mr Sievers.
Mr Talj’s witness statement is a more fulsome document comprising 167 paragraphs.

Mr Talj attended and gave oral evidence at the hearing. In his witness statement, Mr Talj explained how payments were made by clients at the restaurant. He said they would pay either in cash or by electronic means (electronic funds transfer point of sale (EFTPOS)) and sometimes pay a tip by either means. He said that EFTPOS payments would generate a record of payment which bore a date whereas the table docket form was not always dated (in fact the table documents which I examined were not dated). The record of payment was usually stapled to the table docket. He said that tips paid by customers were pooled and then divided equally between the staff waiting on the tables. Cash tips and cash takings were used to pay staff their share of the tips.
In his witness statement Mr Talj accepted that Salser had the onus of establishing its sales for the purpose of determining its taxable income and net amount for GST purposes. There is one small problem with this statement which should be obvious. It is based on the assumption that Salser had no income from sources other than what was disclosed by the table dockets.
Mr Talj also said the following:
Fortunately Mona and I had kept every Table Docket from every day’s trading back 7 years (which I understood we were legally obliged to do or at least that this was prudent).
That statement proved to be incorrect. Attached to the Commissioner’s Further Amended Statement of Facts Issues and Contentions dated 6 October 2017 was a summary of evidence prepared on behalf of the Commissioner. The Commissioner examined spreadsheets prepared by Salser (presumably by Mr Raffoul on its behalf) which referred to information obtained from table dockets. That information included the docket number, cash, EFTPOS and Transaction Total.
The Commissioner assumed that the entries under the heading Docket Number were the numbers on order pads used by waiting staff at the Kanzaman restaurant when taking an order. In his statement of evidence Mr Talj said that Salser gave every paying customer and invoice (Table Docket). The Commissioner noted that each order pad appeared to have a distinct number followed by 50 order pages. He gave the example that order number 21 on pad 490451 would be shown as 490451-21. The entries on the spreadsheet under the heading Docket Number were not in numerical order and on some days one or more transactions were identified as having no docket. Additionally, some order pad numbers contained the same last three digits but a different first digit, which was apparently a recording error.
The spreadsheets were prepared on a monthly basis and the transactions sorted into numerical order. At the end of each month, the number of dockets for each order pad was totalled; the number of missing dockets for each order pad identified as a total and as a percentage of the total number of dockets; the total dockets for the month of the total number of missing dockets was calculated; and the number of no dockets entries were deducted giving a total number of missing documents for the month as a total and as a percentage of the total number of dockets.
The result of that review was as follows:
For January 2011, out of a total of 536 dockets, 178 dockets were missing. This represents 33.21% of the dockets.
For February 2011, out of a total of 550 dockets, 191 were missing. This represents 34.73% of dockets.
For March 2011, out of a total of 594 dockets, 153 were missing. This represents 25.76% of the dockets.
For the three month period, out of a total of 1680 dockets, 522 were missing. This represents 31.07% of the dockets.
To further complicate matters, Mr Talj said that Salser could not establish its taxable income and net amount for GST purposes by reference to its bank accounts. The reason for that was that not all cash takings were banked.
Mr Talj’s evidence was that Salser gave an invoice or a Table Docket to every paying customer. With respect to Mr Talj, that statement is self-serving and, given the analysis conducted by the Commissioner to which I have referred above, not corroborated by objective evidence. Not only must that statement be treated with extreme caution but, given the number of missing table dockets, it should not be treated as accurate. Mr Talj also said that the daily bundles of table documents were put into large boxes for each calendar year. Mr Talj then said that the process he outlined regarding the storage and retaining of table dockets was invariably the practice adopted. He said he could not remember a day with this was not done, but then went on to explain a few exemptions. It is plain from what Mr Talj has said in his witness statement, he is prone to overstate the facts.
Mr Talj’s oral evidence disclosed a number of deficiencies in what is set out in his witness statement. In his examination-in-chief Mr Morgan put to Mr Talj that the table dockets were used for no other purpose other than taking orders and giving invoices to customers. Mr Talj said:
No, it’s not. We use these pads also for taking notes and taking bookings on, you know, scribbling phone numbers. I sometimes also – Julian and I draw a plan on it or take that – put the numbers of tables – booking, booked tables on it to draw a plan about the seating arrangements. My wife would scribble phone numbers or write orders on them, you know, to order supplies and things. No, they’re just used as notepads as well, they’re not just for, you know, writing bills, if you like, or invoices.
While I accept that the evidence of Mr Talj in his witness statement does not state that table dockets were only used for the purpose of providing invoices to paying customers, the statements he made in his witness statement together with the absence of an explanation for missing table dockets invites that inference to be drawn. In addition, in his witness statement Mr Talj admitted that there was something wrong with the docket analysis initially, given the number of days when nil sales were recorded. On re-checking the table dockets, he said he found some of those dockets which were said to be missing on sales days, particularly for the 2009 calendar year. He cited the example of the first six days in September which were recorded as nil sales days, and he found six daily bundles in the remaining bundles of dockets in the box. To suggest that there was some orderly filing of table documents is an exaggeration.
Mr Talj said that his accountants, Kingston & Knight rechecked everything. That produced a number of invoices processed, initially, on the wrong day and it resolved many of the nil sales days issues. He also pointed out that there was a $30,000 overstatement due to a transcription error on 21 August 2011. He said a $301.50 entry had been entered as $30,150.
In cross-examination Mr Talj admitted that the restaurant did not have a cash register which recorded the sales. He said the cash register was a basic one. Mr Talj testified that credit card receipts were deposited in Salser’s bank account and some cash receipts went into its account but others did not. When asked what happened to that money, Mr Talj said that when the family went overseas they would take cash with them, $10,000 each as travel expenses and to buy things. Mr Talj also said that some cash was used to pay casual staff because they wanted to be paid by cash. He also said cash payments were used for repairs done to some of the equipment. That was followed by this exchange between Mr Sievers (incorrectly recorded on the transcript as Mr Morgan) and Mr Talj:
You wouldn’t keep $20,000 in the mattress and then go because you were going overseas, you’d bank that money into Mona’s bank account?--- Well, to be honest, she was the one, you know, doing all the – all the banking and taking care of the money, so some of it may well be in her account, some of it might – she might, you know, keep in the house.
What that evidence discloses is that Mrs Talj appeared to be in control of cash receipts from Salser’s restaurant business and yet she gave no evidence in her witness statement about how much cash the restaurant was taking and what became of that money. That was the principal concern expressed by the Commissioner. While Mr Morgan was vocal in his complaints about the Tribunal not permitting Mrs Talj to give oral evidence which was not already in her witness statement, it is clear that Mrs Talj had much to say about the cash receipts at the restaurant but was not prepared to put that into a witness statement. That was not for lack of opportunity. For that evidence to be led orally at the hearing without giving prior notice to the Commissioner of what was to be said, which is what Mr Morgan said the Tribunal should do, would have been patently unfair. Given that this application was lodged with the Tribunal on 10 July 2015, it cannot be said that Mrs Talj was deprived of the opportunity to fully explain the extent of the cash transactions and where the cash went. Essentially, this case is entirely about the cash taken by the restaurant and not recorded in its accounts. The only inference that I can draw from that is that Mrs Talj was not prepared to expose herself to cross-examination about the most significant issue in this case because that evidence would not assist Salser (see Jones v Dunkel (1959) 101 CLR 298).
In his cross-examination (incorrectly recorded in the transcript as evidence-in-chief) Mr Talj agreed that what he gave to the bookkeeper and Salser’s accountants were the bank statements which only accounted for credit card sales. Mr Talj was then led into agreeing that $200,000 of sales were not reported in the 2010 income year and that the figure in his (although I think he was referring to Salser’s) income tax return was incorrect. He agreed that would be the same for the 2011 and 2012 income years. He then agreed that the activity statements were completed by the bookkeeper and accountant on the basis of bank accounts.

Mr Talj also explained that table dockets were either in duplicate or triplicate. A duplicate copy would be issued to the kitchen to prepare the meal while the original would remain at the front desk. After the meal was prepared, the kitchen docket was discarded. If the client wished to take the table docket with them with an EFTPOS receipt attached, Mr Talj said that another docket was written with the same sale items and kept for Salser’s records. He agreed that docket would have a different number. Presumably, that may distort the missing dockets figure although I had no evidence about the degree of distortion that might occur. In fact, Mr Talj agreed that when Salser received payments by cash, no receipt other than the table docket remained. Mr Talj testified that Salser stopped using a till or electronic cash register in the first two or three years after commencement of its business. He said Salser never had till tapes except maybe for a year or two.
Mr Sievers took Mr Talj back to a hearing in October 2016 when he was asked, by the Tribunal, whether he kept till tapes. His response was:
No. The till we got maybe six or seven years ago was a digitalised one but every time a staff went to punch the items in, instead of say punching $10 they’d punch $100 – $10,000, there were always – always mistakes so we –
Mr Talj then agreed that Salser did use a till but said the drawer in the till was used as a cash drawer and for storing invoices. The transactions themselves were not punched into the machine.
Mr Sievers directed Mr Talj to some copies of table dockets, the first with no attachment said to be for the amount of $82.50; the second with an EFTPOS receipt attached in the amount of $63; and the next table docket in the amount of $45.50 with a receipt from Kanzaman for payment. That final receipt appears to have come from an electronic till. When Mr Sievers pointed out to Mr Talj that he said that Salser did not use till tapes, his response was:
Well may be that customer asked for a copy or – we don’t – we didn’t – you know, we don’t use that usually unless one of the waiters might’ve punched it in as cash, or Mona might’ve.
When it was put to Mr Talj that he did not really know and that he was not sure that till tapes were not used at the restaurant, he again repeated that he was sure that they were not. When it was put to him that that was not correct, he suggested that was one occasion but he did not think there would be a lot. Mr Sievers directed Mr Talj to the next document which was similar to the previous one but for the amount of $69. He agreed that it had a till tape receipt attached and that it was dated 1 March 2011. When Mr Sievers explained that those table dockets were selected at random but they nevertheless indicated a conflict with his evidence regarding the use of till tapes, Mr Talj refused to budge, stating: We didn’t use them.
When it was put to Mr Talj that his wife, Mona was always at the desk, Mr Talj agreed and said it was her who collected the money. When Mr Sievers then put it to Mr Talj that he did not really know, he answered: No, who was on, because I was mainly in the kitchen. He agreed that it was his wife who was the one managing the restaurant. However, he responded that he would know because his wife would tell him. It is unclear whether Mr Talj does not have a good command of the English language or whether he was simply being evasive. When Mr Sievers pressed the issue about whether Mr Talj knew whether till tapes were used or not, he said he did know. He then said:
They weren’t used; maybe on these, on a couple of occasions, depending on who asked for them or who, you know, punch them in.
The inconsistencies in that statement are patent. Despite that, Mr Talj denied that he had been less than truthful during the course of the audit and the entire proceeding.
When Mr Sievers took Mr Talj to the minutes of an audit meeting with officers of the ATO 7 March 2014 and referred him to paragraph 94 of his witness statement, Mr Talj was asked whether he referred to those minutes when preparing his witness statement. Mr Talj replied that he did not. Mr Sievers then asked him if he in fact wrote his witness statement and Mr Talj said: Well, I read it, I discussed it with Mr Morgan, and he, you know – he took down my – my statement. When asked why he would refer to the minutes of the meeting if he had not read them, Mr Talj said that this occurred when he was discussing the statement with Mr Morgan and he was asked what he recalled and what he did not recall. When asked if he was then shown the minutes, Mr Talj responded: No. When asked how he then knew that the minutes were true when he had not read them, Mr Talj simply repeated that he had not read the minutes.
Given the ethical issue which arose out of this questioning, I addressed Mr Morgan and sought an explanation from him as to how the statement came to be in Mr Talj’s witness statement when it was not in fact his evidence but rather evidence inserted by Mr Morgan. Mr Morgan responded that he had drafted the witness statement for Mr Talj and that Mr Talj had read that statement and agreed with him. Mr Morgan also said that paragraph 94 of Mr Talj’s witness statement had been the subject of many discussions with him and also his wife who Mr Talj consulted extensively. He assumed Mr Talj knew about it. With respect to Mr Morgan, his conduct in this regard is unacceptable and, as an experienced member of the Victorian Bar, he most certainly should have been aware that it was inappropriate to draft a statement for a witness assuming the accuracy of its contents. This admission by Mr Morgan casts serious doubts about the accuracy of Mr Talj’s witness statement in its entirety. It places me in the awkward position of having to attempt to discern information in that witness statement which is supported by other evidence and that which is not. I cannot simply accept that the witness statement is the evidence of Mr Talj. I must treat all of the evidence in Mr Talj’s witness statement with great caution.
Mr Sievers then referred Mr Talj to that part of the minutes of the audit on 7 March 2014 dealing with income. In particular, Mr Sievers referred to the customer paying for a meal either with the credit card or cash and then the statement that the amounts were not entered into a cash register. The statement went on to say that paper tickets (assumed to mean table dockets) were grouped daily and submitted to the bookkeeper who summarised those and entered them into QuickBooks, an accounting software package. Mr Sievers put to Mr Talj that was not correct. As for the amounts entered in the cash register, Mr Talj said they may have been on a couple of occasions but not normally. As for the table dockets being grouped daily and submitted to the bookkeeper, Mr Talj agreed that did not happen. When Mr Sievers put to Mr Talj that that was a false statement in the minutes, Mr Talj agreed. Although he agreed he had never raised that before, he suggested it must have been misunderstood, the reference to tickets being understood as an invoice and not a table docket. Mr Talj suggested that the use of the expression paper tickets was one perhaps used by his wife who would not understand the difference between a paper ticket and an invoice. Despite that confusion, Mr Talj made it clear that table dockets were never given to the bookkeeper.
Mr Sievers referred Mr Talj to a witness statement dated 3 May 2016, signed by him, which he lodged with the Tribunal. It is a single page document. Mr Sievers was concerned particularly with paragraph five of that statement in which Mr Talj stated:
All relevant taxation information was provided to the tax agent to enable completion of correct statements on a timely manner to ensure compliance with the deadlines. I expected to have exercised reasonable care because during each reporting period I provided the following:
· properly recorded matters relating to tax affairs; and
· provided honest, accurate and complete information to all questions asked by the tax agent
In the final paragraph of his statement, Mr Talj said he provided the witness statement in good faith and that the contents of it were a true and accurate account provided to the best of his recollection. Mr Sievers put to Mr Talj that the statement was not correct and that all relevant taxation information was not provided to the tax agent. Mr Sievers put to Mr Talj that the paper dockets (table dockets) were not given to the accountant. Mr Talj agreed. When it was suggested to Mr Talj that he then did not give his accountant all income records, his response was: I suppose not, no.
Mr Sievers also directed Mr Talj to paragraph six where he is purported to have said that the usual practice was that Salser submitted paper receipts to the bookkeeper who then summarised and entered the data in the Mind Your Own Business (MYOB) accounting package (the reason for change in the accounting software package was not explained). Mr Sievers pointed out that was the same as what was recorded in the minutes of meeting with the ATO officers on audit, that is, paper dockets were given to the bookkeeper. Mr Talj said that was not true. He said the reference to receipts should have been a reference to the invoices. That is despite neither the record of the meeting nor the witness statement of 3 May 2016 refers to invoices. When Mr Sievers suggested to Mr Talj that it was his statement and that he wrote it, he said it was his statement but Mr Morgan wrote the draft and he read over it. When it was pointed out to Mr Talj the Mr Morgan was not involved in the matter at that time, Mr Talj changed his evidence and suggested it was probably the accountant who wrote that statement at that time. Mr Talj said he did not ask any questions about it nor did he change any words on the statement after having read it. When asked whether his wife’s statement was in exactly the same form, Mr Talj said it could have been.
When it was put to Mr Talj that he did not care whether his witness statement of

3 May 2016 was true or not, Mr Talj responded by saying it was true that all of the invoices were given to the accountant. That is despite, as Mr Sievers pointed out, the statement not mentioning invoices.
A question was also raised about the evidence given regarding the payment of tips to the waiting staff. In his witness statement Mr Talj said if there was insufficient cash to distribute tips in full, Mrs Talj might have enough cash on hand to pay those tips. Mr Talj agreed, theoretically, that may have been Salser’s cash. He also agreed it might have been cash which properly belonged to Mrs Talj. Mr Talj’s written evidence was that Mrs Talj would have to go to an ATM on occasions and withdraw cash in order to make the payment. Mr Talj agreed that money was withdrawn, sometimes from Mrs Talj’s personal bank account and sometimes from Salser’s bank account. Mr Talj also agreed that he did not know where that cash came from on any particular day.
Mr Sievers then took Mr Talj to what he described as the table dockets analysis used to establish sales made by the restaurant. In his witness statement Mr Talj said that he and his wife kept every table docket from every day’s trading going back seven years. When asked why he did that, he said that his accountant told him he was required to keep all records. He said he understood that was a requirement because he needed to provide evidence of income should Salser be audited. Mr Talj agreed that the so-called table dockets analysis did not extend to the five quarterly periods following the 2012 income year. In his witness statement, Mr Talj said:
On the one hand, Table Dockets are the ‘gold standard’ in documentary evidence of Salser’s gross sales from its restaurant business.
When Mr Sievers asked Mr Talj, that although Mr Morgan had used the expression gold standard on a number of occasions, why he considered they were the gold standard, Mr Talj said that he did not use that expression. Plainly, Mr Morgan has impermissibly resorted to giving evidence via Mr Talj’s witness statement. There was no evidence regarding the so-called gold standard for evidence of sales in the restaurant industry. Furthermore, when it was put to Mr Talj that there was no way of knowing whether all of the relevant table documents had been produced, he agreed. Mr Talj also agreed that if there were missing dockets which recorded sales, that would increase the income figure. Mr Sievers said that in the 2009 income year, when, subsequent to declaring Salser’s income, Mr Talj found a number of dockets for missing days, that resulted in an income increase of some $50,000 for the year. Mr Talj’s response was that they were not missing, because they were accounted for. With respect to Mr Talj, it illustrates the very point that the Commissioner makes regarding the problem with using table dockets in the way in which Mr Morgan has directed the case should be run. The methodology is prone to serious shortcomings.
The unreliability of using table dockets in this type of analysis was further illustrated when Mr Talj was taken to the storage of table dockets. He said they were stored initially in suitcases. He said that he would staple the bill dockets together and put them in the suitcase. When the ATO asked for examples of the dockets, he then went back and what he described as sorted them out. He put them in bags based on a daily identification of the dockets. That is despite the fact that in his evidence he said table dockets themselves, typically did not have a date written on them and dates were only identified when there was attached to the docket and EFTPOS receipt which was dated.
After completing a first analysis of the table dockets, Mr Talj said that he became aware of the excessive number of nil sales days which resulted from that analysis. He accepted that there were too many such days and a recheck was conducted. Going back to the boxes where the table dockets were stored, Mr Talj said he found a number of missing documents particularly in the box containing the 2009 calendar year documents. He also had staff from Kingston & Knight search their office for missing data and that also produced amendments to the analysis.
When Mr Talj was questioned about the 2009 income year regarding the discovery of many additional documents relating to that year, Mr Talj said that 2009 documents were mixed with 2008 documents in the suitcase. Mr Talj referred to the calendar year and when Mr Sievers questioned him about that, Mr Talj then said that the documents went back as far as 2007. In other words the 2007 documents were mixed with 2008 and 2009 and also some 2010 documents.
When I pointed out to Mr Talj that following my inspection of a number of the table dockets, I noted that there were no dates on those documents, he explained that the use of the EFTPOS receipt was used to date the documents. When I asked Mr Talj whether those that did not show dates were usually cash transactions, his response was: That’s right. Mr Talj attempted to explain that when documents for a day were bundled, a date would be written on that bundle to identify it. However, he agreed that if a docket was removed from the bundle, it would no longer be possible to identify the date on which that table document came into existence.
Mr Sievers directed Mr Talj to spreadsheet summaries described as Global Summary of Sales after ‘rechecking’ the ‘Table Dockets Analysis’ – The effect on the “nil Sales Days’ (as filed on 11 May 2017). In particular his attention was directed to the column dealing with extra sales, which was a reference to dockets found subsequent to the first assessment, for the 2010 income year. The figure disclosed an additional $51,053.50 in sales. The column in which that appears, L, is described on the following page of that document as indicating there were 21 ‘Nil Sales’ days where, previously unprocessed invoices, were located and entered adding $51,053.50 in sales.
When Mr Talj was asked where he found the additional table dockets, he said they were in a suitcase. Mr Sievers directed Mr Talj to the 2011 income year where the extra sales figure shown on the spreadsheet was $21,098.50. These were also previously indicated as nil sales days. When asked where those additional table dockets were found, Mr Talj again said they were in the 2010/11 box. When asked why those invoices were left in the box if he was attempting to assess all the invoices or table dockets for the 2010/2011 income year, Mr Talj said: Because they were, you know, all over the place. Mr Talj was then taken to the summary for the 2012 income year where the extra sales is shown as $0. When asked if that meant that Mr Talj did not find a single missing docket in 2012 his response was: No. When pressed about that, Mr Talj said that he was not told about it, that is, I assume the accountants, did not mention that any were missing.
Mr Talj was then directed to the witness statement made by Ms Nikita Phillips, who described herself as an assistant auditor with Kingston & Knight. Ms Phillips said:
During this extensively long process, we as a team even found along the way that there were table dockets in the box that were outside of the years we were doing, which was not a big deal, these were just either left in the box that it originally came in, or it was sometimes put in a pile, separate from the other dockets. This was also implemented especially when dockets were found randomly in bags where they did not belong, but obviously due to the fade on the dockets, this was sometimes hard to ensure.
When it was put to Mr Talj that the table dockets were really all over the place, he said: Initially, yes. Mr Sievers then took Mr Talj through a number of entries at random, all of which disclosed errors or inconsistencies. Mr Talj was also taken to his witness statement where he referred to the ATO asking to see table documents for three sample months, May 2011, March 2012 and December 2012. Those table dockets were given to the ATO which calculated receipts in the amount of $66,045. The amount calculated by Salser’s accountants for the three months in question amount to $63,233.20. Mr Talj was not able to explain why there was a discrepancy. He was also referred to his witness statement where he indicated that after rechecking table dockets, Kingston & Knight was able to account for all but 35 table dockets. For 14 of those, he said the restaurant was closed due to public holidays and therefore only 22 remained. Mr Talj agreed there were missing table dockets and he also agreed that all he could do for those dockets was to make a guess.
In his witness statement Mr Talj explained the process undertaken by Kingston & Knight when performing the rechecking of table dockets. The statement claimed that Kingston & Knight had checked everything. Mr Talj was asked to provide a basis for that claim. Mr Talj said he did not write that paragraph. When it was put to him that he did not know what actually happened, he simply said that it was discussed with Kingston & Knight. He agreed he was not involved in rechecking.
Mr Sievers directed Mr Talj to a table set out in his witness statement. That table described the understated amount of Salser’s revenue, adjusted by using an analysis of table dockets. In the 2010 income year, the understated amount was $234,738. When Mr Talj was asked whether that money comprised cash receipts which were not disclosed, he agreed. He also agreed those receipts were not disclosed to the bookkeeper or accountant. Nor was it disclosed to the Commissioner. Mr Talj also agreed that the money likely went either into Mrs Talj’s bank account, was retained by Mrs Talj, or it was used to pay various expenses. He agreed not much went into the bank account.
Mr Talj also agreed that in 2011, the cash receipts unaccounted for amounted to $117,136 and in 2012, $20,961. When questioned whether the figure for the 2012 year was correct, Mr Talj maintained it was. That was because the figure for the previous two years was significantly higher. When Mr Sievers pointed out to Mr Talj that in the 2012 income year, Salser claimed $84,748 in cash expenses but only had an unreported cash income of $20,000, and that could not be correct, Mr Talj insisted that it was. When asked how the expenses were paid, he said he paid in cash. Mr Talj agreed that the expenses paid from the Salser account were recorded as expenses and that the $84,000 in cash expenses was not recorded and the payments did not come from the Salser account, but he nevertheless insisted that the money came from the restaurant. Plainly, as Mr Sievers submitted, that cannot be correct. When asked if he borrowed money to pay for the expenses, Mr Talj suggested he did borrow, maybe $40-50,000.

I find that the expenses claimed by Salser which it sought to deduct from its assessable income should be disallowed.
UNFRANKED DIVIDENDS
In some instances payments made by a private company, including loans and debt forgiveness, may be treated as dividends. Section 109C of ITAA 36 provides:
(1) A private company is taken to pay a dividend to an entity at the end of the private company’s year of income if the private company pays an amount to the entity during the year and either:
(a)the payment is made when the entity is a shareholder in the private company or associate of such a shareholder; or
(b)a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been a shareholder or associate at some time.
Note 1:…
Note 2: A private company is treated as making a payment to a shareholder or a shareholder’s associate if an interposed entity makes a payment to the shareholder or associate. See Subdivision E.
(2) The dividend is taken to equal the amount paid, subject to section 109Y.
Note: Section 109Y limits the total amount of dividends taken to have been paid by a private company under this Division to the company’s distributable surplus.
(3) In this Division, payment to an entity means:
(a)a payment to the extent that it is to the entity, on behalf of the entity or for the benefit of the entity; and
(b)a credit of an amount to the extent that it is:
(i)     to the entity; or
(ii)    on behalf of the entity; or
(iii)    for the benefit of the entity; and
(c)a transfer of property to the entity.
(3A) However, a loan to an entity is not a payment to the entity.
The audit of the accounts of Salser and Mrs Talj disclosed that Salser made payments of $279,098, $327,365 and $543,920 into Mrs Talj’s bank account in the respective years in question. At all relevant times, Mrs Talj was a shareholder of Salser. Those amounts were not in dispute. Additionally, the PAYG statements lodged on behalf of Mrs Talj indicated her being paid wages in the amount of $30,000, $40,000 and $40,000 in the respective income years. Although the PAYG summary for the 2011 year discloses the figure at $4,000, this is plainly a typographical error as the Audit Report shows the figure at $40,000. The total payments received by Mrs Talj as salary and wages during the audit period were reduced by the amount of salary and wages in the PAYG statements declared by Mrs Talj. Therefore, the Commissioner determined that Mrs Talj received $249,098 in the 2010 income year; $287,365 in the 2011 income year and $503,920 in the 2012 income year.
The interim audit report also disclosed Salser’s distributable surplus for the 2010 income year to be $312,083; $366,608 for the 2011 income year; and $589,207.89. This was calculated for the purposes of s. 109Y of ITAA 36. Therefore, each of those amounts paid in respect of the 2010, 2011 and 2012 income years should be treated as an unfranked dividend in the full amount, as they did not exceed the distributable surplus in each of those financial years.
Mr Morgan submitted that the Commissioner should not have applied the provisions in Division 7A of ITAA 36 because of the exceptions set out in s. 109L(1). Section 109L provides:
(1) The private company is not taken under section 109C or 109D to pay a dividend because of a payment or loan the private company makes to an entity, to the extent of that the payment or loan would be included in the entity’s assessable income apart from this Division (as it operates in conjunction with section 44).
(2) In addition, a private company is not taken under section 109C or 109D to pay a dividend because of a payment or loan that the private company made to an entity to the extent that a provision of this Act (other than this Division) has the effect that the payment or loan is not included in the entity’s assessable income even though it would otherwise be included.
Mr Sievers submitted that Salser had not put on any evidence to support the treatment of the claims as deductible remuneration paid to Mrs Talj or any member of the Talj family.
The difficulty I have with Salser’s submission is that there was no evidence that the payments made to any of the family members by Salser were loans. While a loan account was established and entries made in that account for moneys distributed to family members, there was no evidence of an obligation to repay those monies at any time even though they were treated as having been repaid by recording entries in the Wages & Salaries expense account. The entries recorded in that expense account provide no indication of any employee’s entitlement to salary or wages. The figures appear random and round number figures.
The MYOB General Ledger printout of Salser’s Talj Family Loan account, which is an asset account (or should be an asset account although it seems to be listed under liability accounts), began the 2012 income year with the debit balance of $754,818.95. That is the amount of money that was owed by the family to Salser at that time. On 30 June 2012 there is an entry described as EOY (End Of Year) Adjustment Journal 2012 – PPP in the amount of $744,295.66 credit, indicating a repayment by the family of that sum of money. The balance at the end of the financial year stood at $5,578.24DR. There was no evidence of money moving from the family into the company account at the end of June 2012. The description in the journal entry itself indicates it is merely an adjustment, suggesting strongly that no money moved. In fact the ANZ Business Classic Statement for Kanzaman as at the end of June 2012 discloses a balance of $3,544.85. Furthermore, there is no entry in the General Ledger Cash at Bank account for 30 June 2012 indicating a debit entry in the amount of some $700,000. If the loans granted to family members by the company were subsequently set off against wages owed to family members, I would expect to see those corresponding entries aggregating the amount of the adjustment in a wages expense account. I can find no such entries. The loan account and repayments of loans by setting them off against wages owed to family members by Salser is made by adjusting book entries. I am unable to reconcile the figures in the family loan account against wages and salaries expense for any particular financial year. It appears to be a sham.
Given the above evidence, I find there is no basis for the exercise of the exclusionary provision contained in s. 109L of ITAA 36 not to treat loans as dividends. In any event, those payments have been treated as the income of Mrs Talj in a proceeding by the Commissioner against her personally and not only is that assessment not before me on this application, I have no reason to doubt it.
GST ASSESSMENTS
Given the findings I have made regarding the assessment of income, it is inevitable that Salser cannot succeed in proving, on the balance of probabilities, that the GST assessments were excessive. I have explained the significant methodological flaws in the use of table dockets in establishing the true income of Salser. It follows that the consideration received by Salser from its business activities regarding taxable supplies for the 2010, 2011 and 2012 income years cannot be accepted.
In addition, there are also five quarterly tax period assessments following the 2012 income year which have to be accounted for. Salser has not put on any evidence regarding its creditable acquisitions in those quarters or its taxable supplies. Salser has relied on its analysis using table dockets for its assessment of taxable supplies and submits that the proportionate reduction should be applied to those following quarter assessments. Salser has not provided any tax invoices which are required to claim an input tax credit. Section 11-20 of the GST Act provides:
You are entitled to the input tax credit for any *creditable acquisition that you make.
The expression creditable acquisition is explained in s. 11-5 of the GST Act as follows:
You make a creditable acquisition if:
(a)you acquire anything solely or partly for a *creditable purpose; and
(b)the supply of the thing to you is a *taxable supply; and
(c)you provide, or are liable to provide,*consideration for the supply; and
(d)you are *registered, or *required to be registered.
The Commissioner submitted that Salser has not established that the GST assessments were excessive nor has it positively established what the actual or true assessments should have been. The problem of course lies with the very significant understatement of assessable income returned by Salser. A significant portion, possibly up to 30 per cent, of consideration received on making taxable supplies was not recorded or returned.
The Commissioner also submitted that Salser has not identified any acquisitions which it claims to be entitled to an input tax credit nor produced tax invoices as required by the GST Act for the purpose of attributing input tax credit to a particular tax period. At the relevant time, the GST Act made the following relevant provisions for attribution at s. 29-10:
(1)The input tax credit to which you are entitled for a *creditable acquisition is attributable to:
(a)the tax period in which you provide any of the *consideration for the acquisition; or
(b)if, before you provide any of the consideration, an *invoice is issued relating to the acquisition – the tax period in which the invoice is issued.
…
(3) If you do not hold a *tax invoice for a *creditable acquisition when you give to the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credits) on the acquisition would otherwise be attributable:
(a)the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b)the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
(4) If the *GST return for a tax period states a*net amount that does not take into account an input tax credit attributable to that tax period:
(c)the input tax credit is not attributable to that tax period; and
(d)the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.
In any event, as the Commissioner submitted, the time limits on refunds for the income years in question has passed. Section 105-55 of Schedule 1 of the GST Act provides:
(1)You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:
(a)within 4 years after:
(i) the end of tax period; or
(ii) the importation;
as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit; or
(b)within that period the Commissioner notifies you (in a notice of assessment or otherwise) that you are entitled to the refund, other payment or credit; or
(c)…
I should add that Mr Sievers, in his written closing submissions, said that the assessments for the tax periods ending 30 September 2009 to 30 September 2010 inclusive were made on the basis of a finding of evasion by the Commissioner. Given the significant cash transactions which were not recorded in the accounts of Salser, I find that the Commissioner was correct in doing so. Therefore, the exception to time limits found in

s. 93-10 of the GST Act may apply.
Salser relied effectively on the consequences which would be brought about if I accepted the table dockets analysis of receipts at the Kanzaman restaurant. Given my findings regarding Salser’s failure to prove that the income assessment was excessive, its contentions regarding a claim for input tax credits must also fail.
PENALTIES
Liability to an administrative penalty is provided for under Division 284 of the Administration Act. Section 284-75 relevantly provides:
(1) You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
I did not understand there to be any serious argument about whether or not the administrative penalty provision was enlivened. Section 284-80 of the Administration Act defines the expression shortfall amount as follows:
(1)You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than all more than it would otherwise have been.
The Table referred to in s. 284-80(1) of the Administration Act includes a tax related liability for an accounting period worked out on the basis of the statement made to the Commissioner resulting in a liability being less than it would have been had the statement not been false or misleading. Plainly, if the undisclosed cash had been disclosed to the Commissioner, Salser’s liability would be significantly increased.
The base penalty rate is the amount listed in the table under s. 284-90(1) of the Administration Act. The Commissioner contended that Salser’s behaviour was reckless and therefore a base penalty of 50 per cent applied. Item 2 under s. 284-90(1) provides for a 50 per cent of the shortfall amount by way of penalty. It states:
You have a *shortfall amount as a result of the statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Exercise Acts)
Mr Sievers submitted that in circumstances where a taxpayer dealt in large amounts of cash and did not keep records, utilised a bookkeeper and an accountant but not tell them about retention of large quantities of cash; then went ahead and signed off on tax returns and business activity statements knowing about the nondisclosure of the cash, that must be, at the very least, reckless.
Mr Morgan submitted that Salser had demonstrated that its net profit could be unchanged by not booking both cash income and cash expenses. He also submitted that although not disclosing income alone would require a 50 per cent reckless penalty, it was less clear that Salser had been reckless by failing to disclose off-setting cash expenses. Another way of putting it, according to Mr Morgan, was that if all of its submissions had been accepted, particularly those regarding cash expenses allowed against undeclared income, the nondisclosures would be relatively small.
The problem with those submissions is that I have found that Salser has failed to discharge its onus of proving that the assessments regarding income and GST net amount made by the Commissioner were excessive. Even if that were not the case, the conduct of Salser in dealing with cash receipts by not disclosing those receipts as income was clearly false and misleading. It was misleading because not only were significant receipts, possibly up to 30 per cent of the total receipts of Salser for each of those income years, not disclosed; I have no doubt that no expense claim was sought as a deduction for the very reason that it would have alerted the Commissioner to undisclosed cash receipts. Otherwise, how else could Salser justify claiming those deductions. It would need to disclose where the monies came from in order to meet that expenditure. As soon as that question was raised by the Commissioner, the undisclosed cash receipts would have come to light. As it was, it required an audit to bring those receipts to light. To now suggest, as does Mr Morgan, that the base penalty rate should be reduced because if cash expenditure were deducted from the undisclosed cash income, the shortfall would be significantly reduced, is illogical. In any event, I have also found that Salser has not discharged the onus of proving that the decision regarding the disallowance of cash expenditure as a deduction against assessable income should not have been made or should have been made differently.
I find, on the balance of probabilities, that Salser has not discharged its onus of proving that the penalties decision should not have been made or should have been made differently.
CONCLUSION
I have found that Salser has failed to discharge its onus of proving that the income tax assessments for the 2010, 2011 and 2012 income years were excessive. That is essentially because it failed to establish that the amounts deposited in Mrs Talj’s bank account in addition to any remuneration to which she was entitled was assessable income to Salser. It had not been disclosed in Salser’s income tax returns nor was it disclosed as remuneration paid to Mrs Talj.
I have also found that because Salser’s cash receipts, which were kept by Mrs Talj, were not recorded in its quarterly business activity statements, the GST assessments for the quarters in question, including those quarters in the 2013 income year, were understated. It follows that Salser has failed to prove, on the balance of probabilities, that those assessments were excessive.
Salser claimed that I should find that it incurred deductible expenditure in the income years in question which was funded by the undisclosed cash receipts from Salser’s operation of the Kanzaman restaurant. However, I have found that Salser has failed to discharge its onus of proof regarding those expenditures. That was because there was a question as to whether the expenditure was incurred by Salser and there was a lack of contemporary documentary evidence or evidence from suppliers regarding the provision of goods or services. Mr Talj’s self-serving statements regarding that significant expenditure needed support from some objective document or even oral evidence from suppliers.
Mr Morgan also raised with me the issue of the undisclosed cash receipts paid into Mrs Talj’s bank account being treated is deemed dividends under s. 109C of ITAA 36. The thrust of his submission was that those amounts should be treated as deductible remuneration as far as Salser was concerned. With respect to Mr Morgan, I disagree. Salser’s accounts record the wages paid to Mrs Talj in the income years in question. The monies paid into Mrs Talj’s bank account did not fall under what was described as the family wages system. Despite complaints about double taxation, I did not have any evidence that tax had been withheld on those monies and, given that they were not disclosed to the Commissioner, the reasonable inference is that it was not. I have found that they were properly described as unfranked dividend payments to Mrs Talj. Therefore they were not a deductible expense to Salser.
Finally, I found that the penalties assessed to Salser at 50 per cent of the shortfall amount on the ground that it was reckless in failing to disclose cash receipts from the restaurant business was correct. No argument was put to me regarding the remission of those penalties. In any event, in the circumstances which the evidence discloses, I would have declined such a submission.
I find that the objection decision made by the Commissioner on 12 June 2015 regarding the assessments and penalties I have referred to above was the correct decision. I affirm that decision.

202. I certify that the preceding 201 (two hundred and one) paragraphs are a true copy of the reasons for the decision herein of Senior Member Egon Fice

[sgd]........................................................................
Associate
Dated: 17 May 2018

Date(s) of hearing: 9, 10 and 11 October 2017

Applicant:

Counsel for the Applicant:

Advocates for the Applicant:

Salser Pty Ltd

Mr F John Morgan

Kingston & Knight Accountants

Counsel for the Respondent: Mr Chris Sievers

Solicitors for the Respondent: Commissioner of Taxation

[2018] AATA 1311

17 May 2018

Key Legal Topics

Areas of Law

Tax Law

Statutory Interpretation

Legal Concepts

Penalty

Remedies

Statutory Construction

Appeal

Date(s) of hearing:	9, 10 and 11 October 2017
Applicant: Counsel for the Applicant: Advocates for the Applicant:	Salser Pty Ltd Mr F John Morgan Kingston & Knight Accountants
Counsel for the Respondent:	Mr Chris Sievers
Solicitors for the Respondent:	Commissioner of Taxation