Siew Yung and Commissioner of Taxation
[2012] AATA 872
•11 December 2012
[2012] AATA 872
Division TAXATION APPEALS DIVISION File Number(s)
2011/0142, 2011/0143, 2011/0144, 2011/0145
Re
Siew Yung
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Mr F. D. O'Loughlin, Senior Member
Date 11 December 2012 Place Melbourne Tribunal affirms the decision under review.
.................[sgd].......................................................
Mr F. D. O'Loughlin, Senior Member
TAXATION – deposits to bank accounts assessed as taxable income whether taxpayer’s burden of proof discharged– whether taxpayer can rely on estimate of taxable income – decision affirmed.
Legislation
Taxation Administration Act 1953 section 14ZZK
Cases
Allard v F. C. of T. (1992) 24 ATR 493
F. C. of T. v SNF (Australia) Pty Ltd [2011] FCAFC 74
Davis v F. C. of T. (2000) 171 ALR 654
F. C. of T. v Dalco (1990) 168 CLR 614
Galea v F. C. of T. 90 ATC 5060
Gauci v F. C. of T. (1975) 135 CLR 81
George v F.C. of T. (1952) 86 CLR 183Imperial Bottleshops Pty Ltd & Egerton v F. C. of T. 91 ATC 4546
McAndrew v F. C. of T. (1951) 98 CLR 263
Ma v F. C. of T. (1992) 37 FCR 225
Moreau v F. C. of T. (1926) 39 CLR 65Pascoe v F. C. of T. (1956) 30 ALJR 402
Tisdall v Webber [2011] FCAFC 76
Trautwein v F. C. of T. (1936) 56 CLR 63
Vu v F. C. of T. [2006] FCA 889
REASONS FOR DECISION
Mr F. D. O'Loughlin, Senior Member
11 December 2012
During the 2005 through 2008 years of income, the Applicant’s bank accounts were credited with amounts that led to the Commissioner raising income tax liabilities by way of amended assessments and, where assessments had not already been made, original assessments.
The Applicant lodged income tax returns for the 2005 and 2008 income years, which reported taxable income. Tax returns were not lodged for the 2006 and 2007 income years.
During an examination of the Applicant’s affairs for the 2005 through 2008 years the Commissioner identified numerous deposits to the Applicant’s bank accounts. At the conclusion of that review the Commissioner made amended assessments for the 2005 and 2008 income years and original assessments for the 2006 and 2007 income years, including substantial proportions of the amounts deposited to the Applicant’s bank accounts as taxable income. The respective details for each year are set out in Table 1 below.
Table 1
Year
Taxable income returned
Deposits to the Applicant’s bank account identified by the Commissioner
Amount of bank account deposits treated as taxable income
Taxable income in amended or original assessment
2005
$12,231
$18,950
$17,227
$29,458
2006
No return lodged
$122,500
$111,363
$111,363
2007
No return lodged
$242,500
$220,455
$220,455
2008
$7,800
$192,500
$167,200
$175,000
The Applicant is the life partner of a man who conducted a labour hire business, first in his own right (using the business name Alintonlam) and then through a company called Alinton Contracting Services Pty Ltd (the businesses), supplying labour principally to farm and rural businesses.
The Applicant claims that the vast majority of the amounts credited to her bank accounts did not belong to her. She claims that these amounts were money received:
(a)to hold for her life partner;
(b)to purchase airline tickets for her life partner and one of his business associates;
(c)for the purpose of making payments to workers and contractors in her partner’s businesses,
(d)to pay to overseas relatives of those workers;
(e)to hold for her relatives visiting Australia; and/or
(f)gifts to her following the birth of her child.
The Applicant admits that modest amounts were received by her as salary or wages for the work she undertook for her life partner’s businesses.
Apart from the money held for visiting relatives, there isn’t any independent corroboration of the money that was credited to the Applicant’s bank accounts, which she claims does not belong to her. Further, the income the Applicant admits to is only an estimate.
Both parties describe the fundamental question in this matter as what is the taxable income … for the four years in question?
The issue for determination is whether the Applicant has discharged the burden of proof required to demonstrate that the assessments and amended assessments are excessive. Accordingly, it is necessary to examine the burden of proof and related authorities.
THE BURDEN OF PROOF
The burden of proof imposed by s 14ZZK of the Taxation Administration Act1953 (C’th) requires a taxpayer to establish that his or her assessment is excessive. In this context, excessive means the amount of the assessment exceeds what it should be.[1] What this means is that a taxpayer must establish the claim he or she asserts.[2] It is not enough to show that the Commissioner made an error[3] or that an assessment may be wrong.[4] Taxpayers must go further and show what the correct position should be,[5] or what correction should be made to make the assessment right or more nearly right,[6] or the amount that should be assessed for tax,[7] or show that he or she has been assessed to a liability which the Income Tax Assessment Act 1997 (C’th) and Income Tax Assessment Act 1936 (C’th) (the Assessment Acts) do not impose.[8]
[1] F. C. of T. v Dalco (1990) 168 CLR 614 at 621 per Brennan J with whom Mason CJ and Dawson, Gaudron and McHugh JJ agreed and 631 per Toohey J., McAndrew v F. C. of T. (1951) 98 CLR 263.
[2]Trautwein v F. C. of T. (1936) 56 CLR 63 at 87 per Latham CJ, Moreau v F. C. of T. (1926) 39 CLR 65 at 70 per Isaacs J.
[3]Trautwein above at 87 per Latham CJ, Dalco above at 621 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
[4]Trautwein above at 112 per Dixon and Evatt JJ, Dalco above at 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed and at 631 and 633 per Toohey J.
[5]Trautwein above at 87 per Latham CJ.
[6]Trautwein above at 88 per Latham CJ.
[7]Trautwein above at 103/4 per Starke J., Dalco above at 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
[8]Trautwein above at 111 per Dixon and Evatt JJ., Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed and 626 per Deane J and 631 per Toohey J, George v F.C. of T. (1952) 86 CLR 183 at 201 per Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ.
There is no onus on the Commissioner under the Assessment Acts and there is no requirement that an assessment be supported by evidence.[9] It is not necessary for the Commissioner to show that a taxpayer’s assessable income was at least a particular figure or that a particular amount is assessable. And if the Commissioner chooses to make such an assertion and fails to prove it, that failure does not bear upon whether the taxpayer has discharged the statutory burden of proving an assessment is excessive.[10]
[9]Gauci v F. C. of T. (1975) 135 CLR 81 at 89 per Mason J (in the minority but not on this point, see Dalco above per Brennan J at 624).
[10]Vu v F. C. of T. [2006] FCA 889 at [9] per Finn J., Galea v F. C. of T. 90 ATC 5060 at 5067 per Hill J.
The manner in which a taxpayer’s burden might be discharged varies with the circumstances. If a dispute concerns assessability of an identified amount, then a taxpayer may show that the assessment is excessive by demonstrating that that amount is not assessable without any examination of the balance of the assessment.[11] This might be shown by demonstrating that the amount was derived by someone else.[12] If a dispute is not so confined then any shortfall in proof of the amount by which an assessment is excessive is problematic for a taxpayer.[13] In these circumstances, a taxpayer needs to prove the actual amount that should be assessed.
[11]Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
[12]Dalco above at 626 per Deane J.
[13]Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
There is limited support in the authorities for using estimates in satisfying the requisite burden of proof. See Ma v F. C. of T.[14] and Allard v F. C. of T.[15], which pick up on some of the remarks of Brennan J in Dalco.
[14](1992) 37 FCR 225 per Burchett J.
[15](1992) 24 ATR 493 per Hill J.
Ma concerned assessments raised based on credits to bank accounts which the Applicant therein claimed were moneys withdrawn at earlier dates and redeposited. On the question of demonstrating that an assessment is excessive, Burchett J reflected on the reasoning in Dalco, to the effect that a taxpayer does not necessarily succeed by showing the Commissioner made an error or by showing that monies assessed are in truth not income; and that the manner in which the burden of proof may be discharged varies with the circumstances. His Honour observed that Dalco was a narrowly argued case where receipts were not contested, only their character was. Implicit in what his Honour said is that the decisions in Dalco need to be read recognising the factual context in which they were written. His Honour continued:
If the taxpayer has shown by evidence that the only receipts which could possibly be income were the amounts paid into the bank account, and that many of those amounts represented the same capital re-invested after previous withdrawals, he has shown that an assessment based upon the counting of income of all the payments (save certain, which the arguments set on one side) must be excessive. The question, then, is whether he has proved sufficient to entitle him to the setting aside of the amended assessments and their replacement by assessments in the amounts of the original assessments, assuming assessments had earlier issued on his returns, or to entitle him only to the setting aside of the amended assessment and a referral back to the Commissioner, or to some other decision.
Furthermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider the credit, not only the applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support the accountant’s generalisations about double-counting rather than to hit upon a precise figure, was to fall into error of law.[16]
[16]At p.232-233.
In Allard v F. C. of T.[17], Hill J noted:
(a)the observations of Brennan J in Dalco to the effect that merely showing an error on the part of the Commissioner is not sufficient for a taxpayer to succeed;[18]
(b)that mathematical precision is not demanded[19]
(c)that in Dalco, Brennan J continued to the effect that the manner in which the burden of proof can be discharged varied depending upon the circumstances;[20]
(d)that in Ma, Burchett J held that there could be circumstances where assessments could be based on estimates based upon inexact evidence that would justify finding that an assessment is excessive.[21]
[17](1992) 24 ATR 493.
[18](1992) 24 ATR 493 at p 498.
[19](1992) 24 ATR 493 at p 499.
[20](1992) 24 ATR 493 at p 499.
[21](1992) 24 ATR 493 at p 499.
It will be noted that his Honour did not draw a line up to which estimates will be permitted and beyond which they will not be.
Accordingly, his Honour’s decision concerning use of estimates should not be regarded as authority for use of estimates beyond circumstances broadly equivalent to those in which he indicated they were permissible. In Allard, there was documentary and independent witness evidence in addition to the Applicant’s evidence upon which Hill J could rely to calculate the taxable amounts. To the extent his Honour would permit discharging the burden of proof by reference to estimates, that permission was given in the context of the presence of independent and unchallenged evidence which was consistent with the estimates.
There are two further principles connected to the burden of proof principles outlined above that have a particular relevance in this proceeding.
(a)The first concerns self-serving evidence. The evidence of witnesses who have interests that turn on whether that evidence is accepted, typically parties to an application in the Tribunal, needs to be approached critically,[22] and will necessarily be the subject of careful scrutiny.[23] Similar principles ought be applied to the evidence of those who have close relationships with parties to a proceeding, such as a domestic or life partner. In Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation[24] (“Imperial Bottleshops”), where business expenditures were said to have been incurred, Hill J expanded on the caution required and said:
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation (1978-9) 143 CLR 284 at 302 per Gibbs J.[25]
Importantly, in Imperial Bottleshops, there was substantial, corroborating evidence from two employees of a supplier to the taxpayer and six current or former employees of the taxpayer. In addition, the statement of wealth did not show unexplained accumulations of assets that were inconsistent with the taxation position asserted by the taxpayer. The corroborating evidence, together with a rational reason for an absence of records, allowed Hill J to form a view that the taxpayer should be believed.[26]
(b)The second concerns the limited circumstances in which inferences can be drawn. They can be drawn from observed facts. Mere assumptions, guesswork and speculation are not accommodated in the process of arriving at conclusions.[27] There must be a body of evidence that might reasonably sustain a relevant finding of fact or permit the Tribunal to draw an inference.[28]
[22]See F. C. of T. v SNF (Australia) Pty Ltd [2011] FCAFC 74 at [81] and [82] per Ryan, Jessup and Perram JJ and their explanation of the remarks of Fullagar J in Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 at 403.
[23]See Davis v F. C. of T. (2000) 171 ALR 654 at [47] per Hill J.
[24]Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation 91 ATC 4546.
[25]At 4552.
[26]Imperial Bottleshops at 4554-4555.
[27]See Tisdall v Webber [2011] FCAFC 76 at [128] per Buchanan J, with whom Tracey J agreed.
[28]See Tisdall, above, at [127] per Buchanan J, with whom Tracey J agreed.
THE CONTENTIONS
The Applicant contends that monies deposited into her accounts were :
(a)salary or wages;
(b)amounts to hold for her life partner;
(c)amounts to purchase airline tickets for her life partner and one of his business associates;
(d)amounts received from either her life partner or his businesses, to be held by her and to be paid to workers in those businesses and to contractors who supply workers engaged in those businesses;
(e)amounts received by way of gift upon the birth of her first child;
(f)amounts collected by the Applicant from workers in the businesses whom she was assisting by collecting amounts to be sent overseas and making the banking arrangements to have money sent to people overseas for distribution there; and
(g)amounts forwarded to the Applicant by overseas relatives who were visiting Australia and who did not have bank accounts here. These amounts, totalling $42,000, are accepted as not being the Applicant’s income.
The Applicant claims to have demonstrated that the deposits representing amounts to be paid to workers, contractors and overseas relatives of workers; amounts held on account of visiting relatives; and the gifts after the birth of one of her children have been explained. The Applicant claims that the only remaining amounts are the earnings she admits to by way of salary or wages. The Applicant relies on the Ma and Allard decisions and contends that it is permissible to demonstrate that the assessments and amended assessments are excessive by reference to estimates.
The Commissioner contends to the contrary, that:
(a)this is not a case where an amount is in dispute and where determination of the assessability or deductibility of that amount will determine the matter;
(b)it is not a case of chiselling away at the amount assessed;
(c)this case requires the Applicant to demonstrate what her taxable income is;
(d)estimates are not sufficient; and
(e)even if it could be demonstrated with sufficient evidence that all of the amounts claimed to be received for payment to workers and contractors and workers’ relatives overseas were so received, the Applicant still has not proven what her taxable income was for the years in question. The salary or wages is an estimate only.
RESOLUTION OF THE COMPETING CONTENTIONS
As noted at [3] above, the Applicant is the life partner of a man who conducted a labour hire business, first in his own right and then through a company, supplying labour principally to farm and rural businesses.
The businesses entailed providing workers, significantly workers either from Asia or with families in Asia, to work on farm properties. There was a significant turnover in the businesses. For example, in the 2005 year, gross income of Alinton Contracting Services Pty Ltd was $211,658 and the expenses were $196,846. Business Activity Statements show that sales and purchases in the 2006 year were $2,001,255 and $1,795,751 respectively; in the 2007 year sales and purchases were $3,108,203 and $2,653,680 respectively; and in the 2008 year sales and purchases were $3,015,938 and $2,918,365 respectively. The amounts deposited in the Applicant’s bank account represented a minor proportion of the gross revenues of the business.
The Applicant’s evidence was that:
(a)her life partner was required to move around farms and from time to time required her to pay workers or contractors;
(b)from time to time workers provided money to her to be sent to relatives overseas;
(c)she maintained an exercise book in which she recorded the amounts that she owed, and, when paid, either crossed out the entries or tore the pages from the book; and
(d)the wages the Applicant says she received were what she (possibly with her partner) roughly estimated.
AUSTRAC reports show that between 29 September 2005 and 11 June 2008, the Applicant transferred funds totalling approximately $268,765 overseas. Clearly money was sent overseas. What it was sent for and whose money it was, is not clear on the evidence apart from the Applicant’s assertions. There isn’t any corroborative evidence from any worker who may have provided money to the Applicant to send overseas. The evidence of the Applicant’s sister, who was said to have received money for distribution to overseas relatives of workers in Australia, does not mention the distribution of that money.
While deployment of funds is not necessarily an indicator of the character of those funds deployed, on occasion, proof of the deployment of funds could explain the character of a receipt of money before the deployment occurred.
If the Applicant could demonstrate that the funds she sent overseas were distributed to people related to workers in the businesses, then to that extent, receipts of money may well be explained.
The evidence led, however, does not prove the distribution overseas as asserted. As noted above, corroborating evidence is missing and one witness who was claimed to be a person who did at least some of this distribution, and whose evidence was available, did not address the distribution of the money overseas.
Similarly, if the Applicant could demonstrate that funds were paid to workers and contractors for the businesses, then to the extent of the payments of these amounts, receipts may well be explained. The evidence led is that of the Applicant and her life partner, together with two letters from sub-contractors which had been prepared by the Applicant. No evidence was led from contractors or workers and the explanations offered in relation to their absence relate to only two of the people claimed to be recipients of money from the Applicant.
The Applicant did not provide any evidence of the gifts from friends and family, other than her own assertions.
The Applicant and her life partner’s evidence was substantially a review of bank statements, some years after the period to which they related; and their recollections of what the amounts credited to the Applicant’s accounts related to.
The salary or wages the Applicant admits to were rough estimates only. This is sufficient to dispose of the matter. The estimates in this matter are estimates made in circumstances beyond the circumstances where Courts have permitted estimates to be made.
Apart from the $42,000, accepted as not being income because the money was provided by relatives visiting Australia, the evidence led in relation to the amounts deposited into the Applicant’s accounts is not sufficient to satisfy the burden of proof to show the assessments and amended assessments to be excessive, where it is necessary to show what the proper assessable income is. More particularly:
(a)there is an absence of documentary evidence;
(b)there is an absence of corroborating evidence generally, and specifically from one witness who did provide evidence and who could have been expected to have supported the Applicant’s evidence; and
(c)substantially all of the evidence led is affected to some degree by what might be described as the Pascoe Principle,[29] as the evidence led is that of the Applicant and her relatives and of independent people whose evidence had been prepared by the Applicant;
[29] Pascoe v F. C. of T. (1956) 30 ALJR 402 at 403 per Fullagar J.
While it is undoubtedly true that some of the amounts, which were included in the calculations and which led to the assessments and amended assessments, are not income, the rules require the Applicant to go further than that and demonstrate what her assessable income was. Alternatively, the applicant is required to lead sufficient evidence that would justify a finding that an assessment is excessive and the extent to which it is so. The Applicant has failed to do either.
The Tribunal affirms the decision under review.
I certify that the preceding 35 (thirty -five) paragraphs are a true copy of the reasons for the decision herein of Mr F. D. O’Loughlin, Senior Member. .........[sgd]...............................................................
S. Herath, Associate
Dated 11 December 2012
Date(s) of hearing 10 October 2011, 26 & 27 March 2012 Date final submissions received 11 May 2012 Counsel for the Applicant Mr Nasos Kaskani Counsel for the Respondent Mr Peter Nicholas Solicitors for the Respondent Mr Wayne Stewart, Australian Taxation Office Legal Services Branch
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