TBLX and ZSCM and Commissioner of Taxation (Taxation) - [2023] AATA 2059

TBLX and ZSCM and Commissioner of Taxation (Taxation) [2023] AATA 2059 (4 July 2023)

ReviewNumber: 2021/1915, 2021/1916, 2021/1908, 2021/1909
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2021/1915-1916 and 2021/1908-1909
Re:ZSCM
APPLICANT

And:TBLX
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION

Tribunal:Senior Member D K Grigg
Date:4 July 2023
Place:SYDNEY

The Tribunal affirms the decision under review in matter numbers 2021/1908-1909 pursuant to s 43 of the Administrative Appeals Act 1975 (Cth),

The Tribunal dismissed the applications in matter numbers 2021/1915-1916 to section 42A of the Administrative Appeals Act 1975 (Cth).

The Tribunal DIRECTS that matter numbers 2021/1908-1909 be transferred to the Taxation & Commercial Division

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

Senior Member D K Grigg

CATCHWORDS

TAX – review under Part IVC of the Taxation Administration Act 1953 (Cth) – whether the Tribunal had jurisdiction to review a “nil assessment” – onus of proof – where little corroborating independent material to support the applicant’s claim – where applicant claimed corroborating material destroyed in fire – whether jurisdiction to review validity of assessments – whether deposits properly characterised as income – whether PAYG tax credits reviewable by the Tribunal under Part IVC - whether penalty assessment should be remitted - decision re TBLX affirmed – decision re ZSCM dismissed

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Income Tax Assessment Act 1997 (Cth)

Taxation Administration Act 1953 (Cth)

CASES

Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1

Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971

Bosanac v Commissioner of Taxation [2018] FCA 946

Collins v Dart [2022] VCC 1932

Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212

Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753

Creative Bottle Decorators v Commissioner of Taxation [2010] AATA 847; 80 ATR 793

Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15; 161 ALR 599

Esso Australia Resources Ltd v Plowman [1995] HCA 19; (1995) 183 CLR 10

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118

Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81

Harman v Secretary of State for the Home Department [1983] 1 AC 280

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Re Hillsea Pty Ltd [2019] NSWSC 1152

Hyder v Commissioner of Taxation [2023] FCAFC 29

Moore v Aubusson[2020] NSWSC 1466

Price v Commissioner of Taxation [2019] FCA 543

Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 276

Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; 67 FCR 243

Scott v. FC of T (1966) 117 CLR 514

The Commission of Taxation of the Commonwealth of Australia v Harris, G.O [1980] FCA 74; 30 ALR 10

Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63

Watson v Foxman (1995) 49 NSWLR 315

WLQC and Commissioner of Taxation (Taxation) [2018] AATA 14; 107 ATR 452

REASONS FOR DECISION

Senior Member D K Grigg

4 July 2023

Contents

INTRODUCTION

BACKGROUND

ISSUES FOR THE TRIBUNAL

TBLX

TRUST

LEGISLATIVE BACKGROUND

Notice of Amended Assessments

Objections to Assessments

Burden of Proof

Practical Burden – Lack of Documentation

Process of hearing

Witnesses

Preliminary Issues

Validity of Assessments
Respondent’s Conduct

Whether certain evidence admissible

Deposits from TWAA – loans or income?

Summary

Evidence

Undisputed Facts
TBLX
Incorporation of Company/Establishment of Trust
Cracks Emerge
The New Arrangement
Implementing the New Arrangement
Why did TBLX continue with the purchase
Loan from TWAA
TBLX’s Wife
Simon Oliver

Conclusion

Other Deposits

Freewater Accountants

Olivia Ooi

Marlene Adams

Issue 1 - Wages from the employer - $150,548

Issue 2 - Reimbursements of expenses from the employer - $68,293.58

Issue 3 - Sales of second-hand equipment - $50,000

Issue 4 – Loans from the employer – $42,000.00

Issue 5 - Deposit of sale of Weston property

Issue 6 - Other income

Issue 7 - Bank interest income

Issue 8 - Reimbursement of expenses

Issue 9 - Loans from TBLX-F

Issue 10 - Loans - $75,250.00

Issue 11 - Credit card payments - $3,951.46

Issue 12 - Kennards hire and return

Other deductions

Interest deductions

Conclusion

PENALTIES

Legislation

Consideration

Decision

Annexure A – Deposits into TBLX Accounts

Annexure B – Deposits into/from Trust Accounts

INTRODUCTION

In 2018 the Australian Taxation Office (“ATO”) conducted a covert audit, using a bank statement analysis, of the financial affairs of TBLX and ZSCM for the 2017 income year (“2017 Year”). At this time neither Applicant lodged income tax returns (“ITRs”) for 2017 financial year.
The Respondent notified the Applicants of the audit and the outcome on 25 June 2018.[1]
[1] TBLX T7-73 to T7-105; the Trust T3-18 to T3-39; TB878
Following the audit, the Respondent issued default notices of assessment (“NOA”).[2] The Commissioner determined that the Applicants’ income was (“TBLX NOA”) :[3]
[2] T8–106 ; TB 322
[3] T2, para 15

Description/income year ended 30 June 2017	Amount
Total deposits in the nature of income from bank analysis	$528,713
Less transfers to [the employer]	$119,346
Add Trust distributions	$449,169
Equals assessable income	$858,536
Less total deductions from bank analysis	$19,760
Taxable income determined by the Commissioner	$838,776

The Respondent concluded that TBLX’s present entitlement to a share of the net income of ZSCM, a unit trust, for the 2017 Income Year of $898,338, proportionately assessed based on his unit holding at $449,169.[4]
[4] TBLX T7-82 [31]; the Trust T3-30 [48]
The Respondent also issued a notice of assessment of penalty to TBLX, pursuant to section 284-75 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“TAA”) for failing to provide a document (namely an ITR) in the amount of $294,910.45 (“TBLX Penalty Assessment”).[5]
[5] TBLX T9-108 to T9-109; see too Applicants’ evidence [TBLX]-17-1, [TBLX]-23; TB 229
In relation to the Trust the Respondent raised an “alternative assessment” that the Trusts’ taxable income was stated to be $898,338 (“Trust NOA”).[6] A penalty notice was also issued against the Trust for failing to lodge an ITR in the amount of $330,111.45 (“Trust Penalty Assessment”).[7]
[6] The Trust T4-40 to T4-41
[7] The Trust T5-42 to T5-43
This matter involves an assessment of certain deposits in the Applicants bank accounts and whether they constitute income of the Applicants. To overcome the Respondents assessments, the Applicants must establish on the balance of probabilities that the deposits in question are not properly classified as income, and therefore not assessable. The Applicants seek to do this in a few ways, including by contending that the deposit amounts are loans, or reimbursements for expenditure incurred on another’s behalf.
The largest deposit under consideration totals $495,000. The Applicants contend that this sum was a loan and related to the purchase of a property.
A summary of the other deposit is as follows:

BACKGROUND

TBLX is a licensed electrician.
In the 2017 Year, a company (“Company”) and unit trust, ZSCM (“Trust”), was established by TBLX and another person who is referred to in this decision as “TWAA”.
On 21 March 2017 the Company, with TBLX as guarantor, applied for a residential investment loan of $1,500,000 for the purchase of a residential property (“Property”).[8] The Property was security for the loan.[9] The Property was purchased for $2,400,000.
[8] TB 691-692
[9] T6-59
The Company holds the Property on trust for the Trust.
On 4 August 2018 the Company went into liquidation.
On 6 August 2018 [ZSCM], from RSM Australia Partners, were appointed as liquidators of the Company.[10]
[10] 22-419-422, Historical ASIC search of the Company dated 30 August 2018; TB394, para 6
Because of the liquidation the Company was no longer the trustee of the Trust. Pursuant to section 57(1) of the Federal Court of Australia Act 1976 (Cth), the liquidators of ZSCM were then appointed as joint and several Receivers and Managers (the Receiver), without security, of the property, assets and undertaking of the Trust on 14 September 2018.[11]
[11] 05-008, Orders of Perram J dated 14 September 2018 in Federal Court proceedings NSD466/2018
On 17 May 2019, TBLX lodged an objection to the TBLX NOA and TBLX Penalty Assessment.[12]
[12] TBLX T10-110 to T10-114; TB905
On 5 September 2019 the Trust lodged an objection to the Trust NOA.[13] On the same date the Trust provided the ATO with an ITR, prepared by Mr Simon Oliver, the Trust’s accountant, which the Trust asserts would have been lodged in the absence of the default assessment.[14]
[13] The Trust T6-44 to T6-45; TB 252
[14] TB 250-265
On 28 January 2021 the Respondent:
19.1.disallowed TBLX’s objection against the TBLX NOA in part (“TBLX Decision”);[15]
19.2.disallowed TBLX’s objection against the TBLX Penalty Assessment for failing to provide a document in full (“TBLX Penalty Decision”);
(“TBLX Decisions”)
19.3.allowed the Trust’s objection in full;[16]
19.4.allowed the Trust’s objection to the Trust NOA against the Trust Penalty Assessment for failing to provide a document in full.
(‘Trust Decisions’)
[15] T22, 202, Reasons for decision dated 28 January 2021; TB 324-339
[16] The Trust T2-6 [3]; TB1053, 1007
In relation to the Trust Decisions, the ATO accepted the Trust purchased the Property for the sole benefit of providing TBLX with a home. The Respondent accepted the Property was not rented out. However, the Respondent was not satisfied that the deposits from TWAA-W and TBLX totalling $643,600 were “loans” and therefore, that amount remained as income of the Trust. The Commissioner then determined that the income be distributed in accordance with the Trust Deed to unit holders in accordance with their share entitlement.[17]
[17] TB 253
As a result of the Respondent’s TBLX Decision, the Commissioner determined TBLX’s taxable income was $697,638.19. The taxable income was comprised of assessable income of $836,744.19[18] (i.e., total of 50% of the net income of the Trust ($321,823) and the deposits totalling $514,921.19) less allowed deductions (of $119,346 for amounts transferred to [the employer][19] and interest and trade related expenditure of $19,760).[20]
[18] TBLX T2-17 Table
[19] TBLX T7-81 [27]
[20] TBLX T7-81 [28]- [29]
Amended NOAs were then issued to reflect the TBLX Decisions and Trust Decisions. TBLX received a refund of $53,469.90 from the reduction in penalty which had resulted in the reduction of his taxable income.[21] The Trust’s assessed income was amended to $0.[22] The Trust received a reduction of penalty to nil.[23]
[21] 13-221-230, Notice of amended assessment for the 2017 Income Year issued to TBLX dated 19 February 2021; Statement of Account issued to TBLX dated 19 February 2021.
[22] 11-215
[23] 12-219, of amended assessment for the 2017 Income Year issued to the Trust dated 16 February 2021; Statement of Account issued to the Trust dated 16 February 2021
On 26 March 2021:
23.1.TBLX filed an application for a review of the TBLX Decisions;[24] and
23.2.the Trust filed an application for a review of the Trust Decisions;[25]
by the Tribunal.

ISSUES FOR THE TRIBUNAL

[24] Exhibit 1, T Documents, T1, 1-8, Application for review of decision dated 26 March 2021; TB795

[25] TB1002

TBLX

It is not in dispute that the Tribunal has jurisdiction to review the TBLX Decisions pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”) and Part IVC of the TAA.[26]
[26] Section 14ZZ(1)(a)(i)
The parties agreed that the issue for determination by the Tribunal is whether TBLX has discharged the burden of proof that the amended NOA assessment issued in the 2017 Year was excessive by showing what the taxable income should be. This involves considering the nature of the $495,000 deposit and other deposits (see the Table set out in paragraph 3 above).
The Tribunal also has to consider whether the administrative penalty was incorrectly imposed and if so, whether the penalty should be remitted.

TRUST

The parties disagree as to the Tribunal’s jurisdiction to review the Trust Decisions.
The Trust’s accountants, Falcon Accounting Pty Ltd, prepared an ITR for the 2017 Year for the Trust in July 2019. It provides that the Trust earned income of $47 ($77 in interest less $30 worth of bank charges) and has total assets of $2,584,623.[27]
[27] T12-135-142
Following the Trust’s objection, the Respondent determined that there was no tax payable by the Trust and allowed the objection in full and remitted the penalty to nil. It was a “nil assessment”.
In WLQC and Commissioner of Taxation (Taxation) [2018] AATA 14; 107 ATR 452 Deputy President McCabe found that the Tribunal has no jurisdiction to entertain applications for review in respect of objection decisions which disclose a nil assessment. The applications in that matter were, as a result, dismissed under section 42A(4) of the AAT Act. Deputy President McCabe found:
[25]…There is no doubt the sub-section [section 175A(2), ITAA 1936[28]] limits the rights of objection; there is no reason to ignore the plain words of the sub-section when seeking to ascertain the scope of that limit.
[28] See paragraph 35 below.
Similarly in Creative Bottle Decoratorsv Commissioner of Taxation [2010] AATA 847; 80 ATR 793 Senior Member O’Loughlin (as he then was) found that an applicant:
[15]…is prevented from objecting to a nil assessment by s 175A(2) and/or the subject matter of the controversy has ceased to exist the Applicant has no further right to have the events that led to the present assessment position … reviewed.
The Tribunal finds it does not have jurisdiction to review the Trust Decision.

LEGISLATIVE BACKGROUND

Notice of Amended Assessments

Pursuant to section 166 of the Income Tax Assessment Act 1936 (Cth) (“ITAA 1936”) the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds, from ITRs and/or from any other information in the Commissioner's possession.
Section 167(a) of the ITAA 1936 provides that where a person makes a default in furnishing an ITR, the Respondent may make an assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

Objections to Assessments

Section 175A(1) of the ITAA 1936 sets out when a taxpayer can object to an assessment. It provides:
A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953 .
A taxpayer cannot object under subsection (1) against an assessment ascertaining that:
(a)the taxpayer has no taxable income; or
(b) the taxpayer has an amount of taxable income and no tax is payable.

(3) Subsection (2) does not prevent the taxpayer from objecting against an assessment if the taxpayer is seeking an increase in:
(a) the taxpayer's liability; or
(b) the total of the taxpayer's tax offset refunds.

Burden of Proof

Section 14ZZK(b)(i) of the TAA provides that the Applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been. The reason for this, as was recently explained by Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 (“Anglo American”), at [115], is that “the Commissioner, unlike a participant, is a stranger to transactions forming the taxable facts”.
The High Court in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 explained that where the Commissioner and taxpayer have not agreed on the assessment:[^1]
“… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment … unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail.”
[1] (1990) 168 CLR 614, at 624, citing Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, (44).
In Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 Latham CJ found as a general rule:
[2]. “…the taxpayer must… show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right.”
The Commissioner is under no obligation to tender evidence in support of its assessments, Mason J explained this in Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81:
[6]. “The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.”

Practical Burden – Lack of Documentation

TBLX has little in the way of corroborating evidence. Counsel for TBLX explained that the circumstances of this matter were that there was only a small number of contemporaneous business records because most of them were destroyed in bushfires in New South Wales in 2019.[29]
[29] Tr-4
The authorities cited below give guidance and highlight the difficulties faced by taxpayers in these circumstances.
In Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 276, Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records:
31. 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 [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.
(emphasis added)
In the Full Federal Court decision of Commissioner of TaxationvCassaniti [2018] FCAFC 212 (“Cassaniti”), the Court considered the issue of burden of proof and how a court or tribunal should determine whether that burden of proof has been discharged. One of the submissions made by the Commissioner in Cassaniti was that the taxpayer’s evidence “was insufficient” because she had failed to call any witnesses to corroborate her claims. Steward J found (at [88]) that:
“Contending that evidence was “insufficient” in the face of three sworn affidavits of the respondent, together with the exhibits attached thereto, and her answers in cross examination, may suggest that a taxpayer bears a special burden of proof. However, other than the necessity to scrutinise evidence given by the taxpayer him or herself with care, no such special burden exists.”
Steward J then set out five propositions which he derived from Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1:
[88] …
(1)first, where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end. As Hunt J said in Allied Pastoral:
…if the plaintiff succeeds… in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries…
(2)secondly, for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position;
(3)fourthly, there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated;
(4)fifthly, the tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful;
(5)finally, it would usually be prudent to corroborate the evidence of a taxpayer. It is also prudent to adduce contemporaneous objective evidence. But prudence should not be confused with the requirements of the law.

In Bosanac v Commissioner of Taxation [2018] FCA 946 Stewart J highlighted the difficulty a taxpayer will have in demonstrating excessiveness without records, or a reconstruction of those records. He said:[30]
[9] The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. Where a taxpayer fails to retain records which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness. This was the very problem which the applicant faced here.
[30] Upheld on appeal - Bosanac v Commissioner of Taxation (21 November 2019)[2019] HCA 41; 93 ALJR 1327; 374 ALR 425 (Nettle J), at [10]
Even if there are no records available, the evidence provided orally still has to be scrutinized: Cassaniti, at [88].
The issue of substantiation and proof in relation to purported loans, arose in the recent decision of Logan J in Anglo American. There are some similarities with this matter with respect to the paucity of contemporaneous and corroborating evidence. Anglo American was concerned, among other things, with whether a taxpayer failed to establish on the balance of probabilities that purported loans were made. It was the responsibility of the taxpayer to demonstrate on the balance of probabilities that there was a loan.[31]
[31] [2022] FCA 971, at [117]
The evidence before Logan J was oral and affidavit evidence of the taxpayer. In some instances, there were no substantiating loan documents. There were also inconsistencies in the evidence given and the taxpayer’s recollection. Although Logan J noted (at [123]) that the “absence of a document”, such as a loan agreement, “evidencing, in this instance a legal relationship occasioning the indebtedness claimed … is not fatal”, it does become problematic in circumstances where there are inconsistencies in the evidence which does exist.
The issue in the current matter is does the limited contemporaneous evidence support a finding that there was a loan or does it tell against it? Is the evidence that is available consistent?[32]
[32] [2022] FCA 971, at [149]

PROCESS OF HEARING

The Applicants were represented at the hearing by Mr Bevan of Counsel. The Respondent was represented by Mr Arnold of Counsel. The hearing was conducted via video conference.
Prior to the commencement of the hearing the Tribunal issued a direction that the parties prepare a Tribunal Book of relevant documents. Relevant documents were collated and provided by each party to the Tribunal as part of the Tribunal Book.
The hearing commenced on 1 February 2023.

Witnesses

All witnesses provided witness statements in additional to their oral evidence.
The following witnesses gave evidence on behalf of the Applicants:[33]
[33] TB3

Name	Statement/s	Paragraphs read into evidence[34]
TBLX[35]	Statutory Declaration – 6 October 2021	1-40; 71-86
Statutory Declaration – 29 June 2022	1-7
Exhibits TBLX1-TBLX31
M Family[36] (wife)	Statutory Declaration – 23 September 2021	1-16
TBLX-F[37] (Father)	Statutory Declaration – 1 October 2021	1-46
Statutory Declaration – 28 June 2022	1-4
TBLX-W[38] (Wife of TBLX)	Statutory Declaration – 18 August 2022	1-5
Statutory Declaration – 16 January 2023	1-15
Liquidator of [ZSCM][39]	Statutory Declaration – 27 September 2021	1-17
Statutory Declaration – 13 January 2023	1-26
Simon Oliver[40]	Statutory Declaration – 8 October 2021	1-18
Statutory Declaration – 30 June 2022	1 – 9
David Muir[41]	Statutory Declaration – 8 October 2021	1-11
Olivia Ooi[42]	Statutory Declaration – 16 September 2021	1-11
Marlene Adams[43]	Statutory Declaration – 8 October 2021	1-11
Terence Dwyer[44]	Statutory Declaration – 19 August 2022

[34] Counsel for the Applicants provided the Tribunal with a document called “Summary of each Applicant’s evidence”. At the hearing Counsel informed the Tribunal that the paragraphs noted in the document were not to be read into evidence; Tr-9.

[35] TB3, 350-367

[36] TB3, 368-369; TB392-393

[37] TB3, 370-390

[38] TB3, 391-393

[39] TB3, 394-401

[40] TB3, 402-405

[41] TB3, 406-407

[42] TB3, 408-409

[43] TB3, 410-411

[44] TB3, 412

No witnesses were called by the Respondent.

Preliminary Issues

Validity of Assessments

The Applicants complained that the default assessments were “fundamentally flawed” at an “administrative level” and at a “substantive tax law level”.[45]
[45] AS,5
Section 175 of the ITAA 36 provides that even where assessment has been made in non-compliance with the Act, the assessment is not rendered invalid.
There is no burden on the Respondent to prove their assessments are correct or error free.[46] Once issued, the burden falls solely on the applicant.
[46] Dalco, (1990) 168 CLR 614 at 624-626; Rigoli v Federal Commissioner of Taxation [2013] FCA 784; (2013) ATC 20-407 at [9]; Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1952) CLR 183 at 89 per Mason J.

Respondent’s Conduct

A large portion of the Applicants oral and written submissions was spent complaining about the Respondent’s conduct in relation to the issuance of the default assessment and throughout the objection process. In particular, the Applicant complained about the Respondent having issued alternative assessments.
The Respondent denies any wrongdoing,
In terms of allegations concerning the Respondent’s conduct, this hearing was not the venue to air these matters. The Tribunal has no jurisdiction in relation to them and they have no bearing on the outcome of the matter.
In terms of alternative assessments, there are numerous authorities which establish there is no bar to the Respondent assessing two parties with respect to the same income.[47] This proposition was most recently endorsed in by the Full Federal Court in Hyder v Commissioner of Taxation [2023] FCAFC 29, at [58]. This may happen in circumstances where the Respondent is uncertain as to which taxpayer is liable, It is up to the taxpayer to demonstrate whether it is liable or not and whether the assessment is excessive.[48]
[47] See Deputy Commissioner of Taxation v Richard Walter Pty Limited [1995] HCA 23; 183 CLR 168; Commissioner of Taxation v Stokes [1996] FCA 1128; 72 FCR 160
[48] For example, see Trustee of the Balmain Trust v Commissioner of Taxation [1998] FCA 423; 98 ATC 4433

Whether certain evidence admissible

As part of Federal Court Proceedings (discussed at paragraphs 147-148 below), TBLX was served with a Subpoena dated 24 August 2018 to produce certain documents, including any documents regarding the arrangements between TWAA, TWAA-W and/or TBLX which resulted in the transfer of $495,000 to the Company “(“Subpoena”).[49]
[49] TB2, [TBLX]18-1
On 5 September 2018, in response to the Subpoena, TBLX filed some documents in the Federal Court. One of the documents was called “Submission of TBLX” (“TBLX Subpoena Submission”).[50] The TBLX Subpoena Submission was in the form of a statement. It commences “I [TBLX]…am prepared to say on oath”. It provides that it “is my response to the Subpoena”. It is dated 5 September 2018 and identifies as belonging to TBLX. It is unsigned.
[50] TB242-249
TBLX’s solicitors had included the TBLX Subpoena Submission as part of TBLX’s materials for the purpose of this review as part of the Applicants’ Statement of Facts, Issues and Contentions,[51] and as part of the Tribunal Book.[52] The TBLX Subpoena Submissions were also referred to in TBLX’s affidavit.[53] The TBLX Subpoena Submissions were read into evidence and tendered.
[51] TB10, para 56. TBLX 18-1 is a copy of the Subpoena and TBLX 18-2 is TBLX’s response to the Subpoena which includes the TBLX Subpoena Submission,
[52] The TBLX Subpoena Submissions were referred to the Applicant’s Exhibit Bundle, TB29,
[53] Referred to as TBLX-1, TB350
On day one of this hearing TBLX was being cross-examined in relation to the TBLX Subpoena Submission. Part way through Mr Arnold’s cross examination of TBLX in relation to the TBLX Subpoena Submission, TBLX’s Counsel objected to any further cross-examination.
It was TBLX’s submission that the TBLX Subpoena Submission may be subject to an implied undertaking, otherwise known as a Harman undertaking. The “Harman” undertaking comes from a decision of the same name, Harman v Secretary of State for the Home Department [1983] 1 AC 280, and is an undertaking to not use documents produced through compulsory Court processes in a proceeding other than for the purpose of that proceeding. The Harman undertaking is applicable to documents produced on Subpoena.[54] The implied undertaking is taken to have been discharged once the material is adduced in evidence in Court proceedings: Esso Australia Resources Ltd v Plowman [1995] HCA 19; (1995) 183 CLR 10 at 32.
[54] Glencore Coal Pty Limited v Franks [2020] FCA 1801, at [1]; accepted on appeal Glencore Coal Pty Limited v Franks [2021] FCAFC 61; 284 FCR 622, at [18]
Rule 20.03 of the Federal Court Rules 2011 provides that any implied undertaking not to use a document other than in relation to the proceeding will not apply where a document has been read or referred to in open court in a way that discloses its contents.
Counsel for TBLX was concerned that the TBLX Subpoena Submission had been filed in the Federal Court Proceeding and was unsure of the provenance of the TBLX Subpoena Submission.
The Tribunal adjourned the hearing overnight to give the parties time to make inquiries and consider their position.
The hearing resumed on 2 February 2023.
The parties informed the Tribunal that it was not known whether the TBLX Subpoena Submission had been read or referred to in open court in a way that disclosed its contents.
The Respondent made an application for an adjournment. As a result of the potential for the Harman obligation, the Respondent wanted an opportunity to seek leave of the Federal Court to refer to the TBLX Subpoena Submissions in this matter.
Unless and until there is an application order for leave from the Federal Court the document cannot go into evidence and therefore cannot be the subject of cross examination. TBLX opposed the adjournment submitting that cross-examination of the other witnesses could proceed.
It is not necessary for the Tribunal to go into all the detail of the discussion that followed. Suffice it to say that the Tribunal decided cross-examination of the witness on the document in question could not continue until such time as the implied undertaking issue had been determined. The Tribunal determined, taking a cautious approach, that the preferable course was to discontinue any further cross-examination until such time as leave has been granted.
Although the Tribunal must provide a mechanism of review that is quick and economical, in accordance with the Tribunal’s statutory objectives,[55] administrative decisions also need to be conducted in a way which is procedurally fair to both parties.[56] It would have been procedurally unfair to have directed the Respondent to continue to cross-examine witnesses without being able to refer to or rely upon the TBLX Subpoena Submissions or the TBLX’s answers in relation to that document in cross-examination. This is especially so in circumstances where the Respondent said his case had been prepared in part on the basis of that document, which had been filed in this proceeding by TBLX.
[55] See section 2A, Administrative Appeals Tribunal Act 1975.
[56] Minister for Immigration and Multicultural Affairs v Bhardwaj (2002) 209 CLR 597 at 611 [40]; [2002] HCA 11; Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332, at [48]. In Kioa v. West(1985) 159 CLR 550, Mason J. said (at p 584) that the law in relation to administrative decisions:
The Tribunal agreed to adjourn the hearing and directed that no later than 10 February 2023 the Respondent must file with the Federal Court and serve on TBLX any application for leave for release from any implied undertaking in relation to the TBLX Subpoena Submission (pages 233 to 249 of the Tribunal Book) or inform the Tribunal that no application was being made.
The hearing resumed on 22 March 2023.
Prior to the recommencement of the hearing the parties had determined (through enquiries with the TBLX’s solicitor, Mr Sebastian Musso, who assisted TBLX in relation to the Subpoena) that the TBLX Subpoena Submissions were never lodged with the Federal Court. Mr Musso provided a statutory declaration stating that he does not recall filing, or ever being required to file, the unsigned TBLX Subpoena Submission.[57] Mr Musso also states he would not have filed an unsigned statement without express instructions from the client and has no recollection of every being provided with such instructions.
[57] Ex 3, paras 14-16; TB 1575-1576
The parties accept the TBLX Subpoena Submission was not subject to a Harman undertaking as it had not been filed in or tendered before the Federal Court.[58]
[58] Tr 74
TBLX then contended that the Respondent could still not refer to or cross-examine TBLX on the TBLX Subpoena Submissions on the grounds that it is subject to legal professional privilege.
To support the claim of legal professional privilege TBLX tendered an additional statement as well as a further statement from his father TBLX-F and from his former solicitor who had acted on his behalf in relation to the Subpoena.[59] A statement from TBLX’s current solicitor was also tendered.[60] These additional statements go to the issue of how TBLX Subpoena Submissions came into being, whether it was in fact an unsigned statement of TBLX, and whether legal professional privilege (presuming it attaches to the document) has been waived.
[59] Ex 3
[60] Ex 2
The parties agreed that the Tribunal would reserve its decision on whether the legal professional privilege claim was sustainable until the handing down the final decision on the substantive issues.
The issue concerns whether the TBLX Subpoena Submission[61] is subject to legal professional privilege and, if it is, whether that privilege has been waived.
[61] TB242-249
Dr Dwyer, solicitor for TBLX in this proceeding, states that the insertion of the document into the Tribunal Bundle was “inadvertent and under a mistaken belief that it had been produced to the Federal Court”.[62]
[62] Ex 2, para #
The TBLX Subpoena Submission[63] is purportedly an explanatory document to be read in conjunction with documents prepared in answer to the Subpoena.
[63] TB242-249
The TBLX Subpoena Submission[64] was not filed in the Federal Court, although was made available to the Respondent in the course of the preparation for this proceeding.
[64] TB242-249
For legal professional privilege to apply to a document, it must have been produced for the dominant purpose of obtaining legal advice or using it as an aid in the conduct of litigation.[65] The document was prepared for the purpose of the Federal Court Proceeding, If it attracts litigation privilege.[66]
[65] Grant v Downs (1976) 135 CLR 674 per Barwick CJ at 677; Esso Australia Resources Ltd v Federal Commissioner of Taxation (1999) 201 CLR 4
[66] Commissioner Australian Federal Police v Propend Finance Pty Ltd (1977) 141 ALR 545 at 548 Brennan CJ, 554-555 Dawson J, 576-577 Gaudron J, 583-585 McHugh J, 596-597 Gummow J and 610 Kirby J
Litigation privilege is a category of legal professional privilege intended to protect and facilitate the litigation process.[67]
[67] Southern Equities; Dingle v Commonwealth Development Bank of Australia (1989) 23 FCR 63; Mitsubishi Electric Australia Pty Ltd v Victorian Workcover Authority (2002) 4 VR 332; Pratt Holdings Pty Ltd v Commissioner of Taxation (2004) 136 FCR 357; Mitsubishi Electric at 336; Dingle at 242; Wheeler v Le Marchant (1881) 17 Ch D 675 at 685.
The Respondent accepted, for the purposes of responding to the legal professional privilege claim, that the TBLX Subpoena Submission was likely a communication to which privilege attaches.[68]
[68] Respondent’s Privilege Submissions, para 5
The difficulty in determining whether legal professional privilege has been waived arises as a result of a number of different factors. First, TBLX essentially has abandoned the document, or rather, has not adopted it.[69] In a statement filed addressing this issue he says as far as he was aware the TBLX Subpoena Submission was prepared by his father on his behalf because he was unable to provide instructions to a solicitor at the time. He says he did not read, approve or sign the witness statement and that it does not contain a completely full or precise account of the events and transactions referred to therein. He also says he did not discuss the terms of the TBLX Subpoena Submission with his father.
[69] Tr-76, 85
The Respondent contended that privilege had been waived.
TBLX says he never approved the TBLX Subpoena Submission. TBLX-F says the statement was not prepared with TBLX’s instructions. TBLX-F states “I drafted [the document] alone without prior consultation with [TBLX]”.[70] The TBLX Subpoena Submission was not produced at the request of TBLX’s lawyer.[71]
[70] TB1544, para 5
[71] TB1575, para 11-16
It was unnecessary for the Tribunal to refer to TBLX Subpoena Submission or to the evidence that was given in cross-examination regarding TBLX Subpoena Submission in coming to the correct and preferable decision.
In these circumstances the Tribunal has determined it is unnecessary for it to determine whether the TBLX Subpoena Submission[72] is a subject of legal professional privilege, and whether that privilege has been waived. The Tribunal is concerned about its lack of probative value.

DEPOSITS FROM TWAA – LOANS OR INCOME?

[72] TB242-249

Summary

The Respondent, through its NOAs, contends that the $495,000 deposits are properly characterised as income.
To demonstrate that the NOA are excessive, the Applicant says the $495,000 were not income but were loans.
To determine whether an amount has the character of income, the Full Federal Court in Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; 67 FCR 243 held that:
…it is necessary to look at that amount and determine its character in the hands of the taxpayer.
The amount of $495,000 was deposited into the Trust’s bank account by TWAA’s wife, as set out in Annexure B. This is not in dispute.
The question is whether this was a loan or income.

Evidence

Undisputed Facts

TBLX is a licenced electrician.
During the 2017 year, TBLX was employed by his employer. Previously, and herein referred to as “the employer” as an electrical contractor.
The employer was deregistered on 21 August 2019 after going into liquidation in June 2018.[73]
[73] 24-431-433
During the 2017 financial year:
104.1.TBLX had four bank accounts;[74]
104.2.TBLX received the deposits set out in Annexure A into his bank accounts;
104.3.The Company operated the Trust’s bank account;[75]
104.4.Deposits were made into the Trust’s bank accounts from TWAA’s wife and the employer (see Annexure B);[76]
104.5.Amounts were transferred from the Trust bank account to the employer (see Annexure B).[77]
[74] TBLX T17-182 to 197; Extract at T12-133 to T12-134; TBLX T7-97 to T7-102 ; TBLX T18-198; TBLX T7-97 to T7-99; TBLX T20-200; TBLX T7-97 to T7-99; TBLX T19-199; TBLX T7-97. See Respondent’s evidence bundle document 10 identifying the account as that of TBLX.
[75] Applicants’ evidence [TBLX]-4 and [TBLX]-12-1
[76] Applicants’ evidence [TBLX]-4 and [TBLX]-12-1
[77] T21-201
The Company’s bank account was closed on 24 November 2017.[78]
[78] TB 140
A person (who will be referred to in this decision as “TWAA”), who is not a party to this proceeding, was, at all relevant times, a director of TWAA Company Constructions Pty Ltd (“TWAA Company”) which was in the residential home construction business.[79]
[79] 23-423
In or around 2014 TWAA Company constructed a residential home in Canberra (referred to as the “Property”). A family, hereinafter referred to as the “M Family” purchased the Property for $2,400,000 in April 2015.[80]
[80] TB368, para 4

“Mrs M” of the M Family provided a statutory declaration on behalf of TBLX which was unchallenged. Mrs M’s evidence is that:[81]
108.1.shortly after taking possession of the Property the M Family discovered that there were many problems with the home. For example, the height of a balcony was not built to code, the pool had not been approved, the underfloor heating did not work, there were many issues with external drainages, and so on;[82]
108.2.the Property “was the worst built house in history”;
108.3.an independent building surveyor, Mr Tony Gray was engaged to conduct a detailed assessment of the Property.[83]
[81] TB 368 – 369
[82] TB, 368, para 5.
[83] TB, 368, para 6.
In June 2016 Mr Gray set out the extensive defects and repairs required to the Property in a building report.[84] Mr Gray reported that the rectification works would be ‘very costly’ and ‘time-consuming’.[85]
[84] TB2, [TBLX]7 – [TBLX]7-6; TB 169 – 194
[85] TB 177, para 26
In or around mid-2016 the M Family, complained to TWAA about the significant number of defects in the Property.[86]
[86] TB, 368, para 8 – 9.
Mrs M says:[87]
[87] TB 369, para 8 – 16.
111.1.at first TWAA would send workers to fix various issues, including TBLX, but they came to a point where TWAA said he was not paying for any more rectification works;
111.2.TBLX spent months and months fixing things before TWAA refused to assist any further;
111.3.the M Family told TWAA that if he did not buy the Property back they would take him to Court;
111.4.TBLX said to Mrs M words to the effect of “I am thinking of selling my house and buying this house from you and living in it while I fix it”;
111.5.Mrs M told TBLX words to the effect of “You are crazy, that is the dumbest thing you could do, do not get involved”.
111.6.the sale was initially meant to occur in October 2016;
111.7.the Property was sold to the Company in April 2017;
111.8.her understanding was that TBLX was to purchase the property with TWAA;
111.9.TBLX moved in as a tenant and paid rent until settlement.
The basis of Mrs M’s understanding of arrangements between TBLX, TWAA and the Company is not explained. She has no direct knowledge of the arrangements.[88]
[88] TB 369, para 14.

TBLX

In a written statement TBLX says:
113.1.he had known TWAA for 13 years;[89]
113.2.the Company and Trust was set up solely to purchase the Property;[90]
113.3.his arrangements with respect to the purchase of the property with TWAA were verbal and undocumented;[91]
113.4.the liquidator of the Trust has accepted the deposits were loans to TBLX to fund the Trust to purchase the Property;[92]
113.5.the money from TWAA’s wife was not paid to him for services rendered;[93]
113.6.the Trust conducted no income producing activity;[94]
[89] TB 351, para 14
[90] Statutory Declaration 29 June 2022, 2
[91] TB 351, Statutory Declaration 6 December 2022, para 13; TR 18
[92] TB1, TBLX SFIC, 106
[93] TB1, TBLX SFIC, 106; Statutory Declaration 29 June 2022, 4
[94] TB1, TBLX SFIC, 107; Statutory Declaration 29 June 2022, 3-7
In a second statutory declaration TBLX says:[95]

[95] TB364, Statutory Declaration

TBLX says his proposal was to move into the Property, live there while carrying out the “major undertaking”. At this time TBLX says he was working full-time with future proof earning approximately $240,000.[96] TBLX said he did the rectification work in his private time.[97]

The Joint Venture Proposal

[96] TB 195; TR 22 – 23

[97] TR 23

TBLX says that TWAA asked him if he would project manage the rectification work at the Property.
At the time TWAA made this request he was in Dubai. TWAA had been out of Australia since May 2016. TWAA arranged for TBLX to come to Dubai in July 2016 to discuss his proposal for the Property.[98]
[98] TB2, [TBLX]8-1 = [TBLX]8-3; TR 20 – 21
TBLX says:-[99]
118.1.TWAA told him he was concerned about losing his builder’s licence because of the M Family’s complaints.
118.2.He and TWAA determined the best way to protect TWAA’s building licence was to buy the Property back from the M Family and rectify it. The rectification work “was likely to be a major undertaking carrying considerable costs”.[100] During cross-examination TBLX agreed that initially TWAA wanted to engage TBLX as a contractor.[101]
118.3.He agreed to enter into a joint venture with TWAA (“JV”). The intention was that the JV would offer to buy Property, TBLX and TWAA would rectify the house at shared expense and then sell the Property equally sharing in the profits.
118.4.As a result of discussions with TWAA, TWAA Company’s accountants and the general manager of TWAA Company, it was agreed that the JV would be operated by a company acting as a trustee of a unit trust. The contents of these discussions were not particularised. It is not known who contributed to the cost of establishing the Company and the Trust.
[99] TB 352, Paras 17 – 21
[100] TB 352, para 19
[101] TR – 21

Incorporation of Company/Establishment of Trust

On 14 September 2016 the Company was incorporated.[102] TBLX became a director and an equal shareholder with TWAA in the Company.[103] The Trust was established as a unit trust on the same day the Company was incorporated.[104]
[102] TB2, [TBLX]2,
[103] Applicants’ evidence [TBLX]-2
[104] TBLXT4-28 to T4-53; TB2, [TBLX]2-6
The Company was the trustee of the Trust. TBLX and TWAA were unit holders in the Trust.[105] The Trust Deed provided that unit holders would receive the distribution of income from the trust in proportion to their unit holdings.[106]
[105] TBLXT4-28 to T4-53
[106] T4-28, Trust Deed, clause 42; TB 520-545
TBLX negotiated a purchase price of $2,400,000 with the M Family.[107] The Property was purchased by the Company. Settlement was due on 24 March 2017.
[107] TB 352, para 22 – 24

Cracks Emerge

TBLX says initially he was meant to move into the Property as a tenant of the M Family just while finances were settled. However, within a matter of weeks of coming to the original JV arrangement, TBLX says that TWAA was having difficulty contributing his share of the purchase price.[108]
[108] TB – 353, paragraph 26 – 27
What the difficulty was or the particulars of it, or how this difficulty was communicated to TBLX was not explained to the Tribunal.
Despite this difficulty at the beginning of the proposed JV, TBLX acted as if the JV would continue. TBLX ended up residing in the Property as a tenant of the M Family from 9 December 2016 to 7 May 2017.[109] TBLX continued with the settlement of the property purchase which was pushed out until May 2017. TBLX says the Company purchased the Property on trust for the Trust.[110]
[109] TB2, [TBLX]9-1 to [TBLX]9-3; TB 199 – 201
[110] TB will
TBLX says he arranged for his family home to be sold (although this did not occur until after settlement of the Property) in July 2017 in order to assist with the purchase of the Property.[111]
[111] TB2, [TBLX]-10; TB 202 – 210; TB 353, para 28
TBLX says TWAA was not contributing to the rectification costs and share of the mortgage cost. The rectification works were more extensive than TBLX had originally anticipated.[112] TBLX provided no evidence of what rectification works or costs he had already spent on the Property at this time. The more extensive works were not particularised.
[112] TB 353, 29
TBLX’s miscalculation of the extent of rectification works required is surprising given that he had already been working on the Property for months, (as deposed by Mrs M). It would be expected that he know the extent of the rectification works given the following:
127.1.He had read Mr Gray’s report which described the rectification works as “enormous and costly”;
127.2.the issue was so significant he was flown all the way to Dubai to discuss how to help TWAA with the problem;
127.3.the ramifications were so significant for TWAA that TBLX proposed a JV, which involved incorporating and establishing a company and trust, to solve the issue.
127.4.TBLX acknowledged at the hearing that he had been aware of problems since August 2016 and that he had seen Mr Gray’s report.[113]
[113] Tr-23

The New Arrangement

TBLX says as a result of TWAA’s financial difficulties, a new arrangement was agreed. In his statutory declaration TBLX states:[114]
[114] TB353, paras 30-33
These “difficulties”, and how TBLX became aware of them, were not particularised in any of the evidence given by the TBLX.[115] Despite the difficulties TBLX says he and TWAA agreed that TBLX would be sole shareholder and unitholder and that he would complete all the Property’s rectification work on his own. The Tribunal was not informed how this “verbal” arrangement came about given that TBLX said he was unable to contact TBLX.[116] If the new arrangement was negotiated and agreed via TWAA’s Company’s general manager, this is not particularised or explained in any detail in the evidence before the Tribunal. If, as TBLX declared, he agreed to enter the JV so that the M Family would not sue TWAA, why did he continue with the purchase of a significantly defective property when TWAA was no longer interested. Why was TWAA suddenly not interested in losing his business licence? This is not explained. The communications, whether they be oral, text messages, social media messages or emails, between TWAA, TBLX and/or TWAA Company’s general manager are not before the Tribunal. Nor is there any explanation for why that evidence is not before the Tribunal.
* [TWAA Company General Manager]
[115] TR – 29
[116] TR – 28

Implementing the New Arrangement

During cross-examination TBLX said he sent share and unit transfer forms (“the Transfer Forms”) to TWAA.[117] He said he could not recall if he sent emails to TWAA.[118] Later, he said the forms were sent by post. The following exchange occurred:[119]
[117] TR 28
[118] TR 29
[119] TR 39-42
And you say that you sent the required forms regarding the trusts and the company to [TWAA] for his signature - 20 October?
---Yes.
And that email is not in evidence is it?
---It wasn’t by email. I believe it was posted.
And that letter’s not in evidence is it?
---I think it may be - I think it might be in my chronology. Signed share transfers [TBLX]2-7 I believe it is. You would have to talk to the lawyers about that, sir.
Well, no. You’ve just said that you sent him a letter?
---No, no, no. He was given documentation. I handed over documentation to [TWAA Company general manager] to take … to Dubai. [TWAA Company general manager] went to Dubai to deal with a whole bunch of other business stuff and he was told that I needed that letter straight away. I needed those documents signed.
No. Just if I could direct you back to the last sentence of 31.
I sent the required forms regarding the trust and company to [TWAA] for his signature on 20 October 2016.
?
---Yes, I did.
By letter you say?
---I can’t recall whether it was by letter. I’m pretty sure it was handed to [TWAA Company general manager] to take. But it wasn’t elected.
I am asking you about on 20 October 2016 your evidence that you sent these forms to [TWAA]?
---Yes. They were sent for his signature. Yes.
By letter or by email by you?
---I don’t recall. It’s 20 October 2016.
And that email isn’t in evidence or that letter isn’t in evidence?
---I don’t believe it was an email. I am - I handed the documents to [TWAA Company general manager] to take to [TWAA]. That’s my recollection.
And you had Simon Oliver create those documents for you?
---Yes. I believe so.
And that request to Mr Oliver isn’t in evidence is it?
---It was in person - sorry, what do you mean in evidence? Like is there - what are you asking, sorry, sir?
Well, these forms weren’t created by you, were they?
---No, of course no.
No. So you had to get someone to create them for you?
---Yes.
But the details of that aren’t in evidence are they?
---They don’t appear to be. No.
And I put it to you it’s because those emails or correspondence disclose arrangements that you haven’t disclosed in your evidence here?
---I completely disagree with that.
TBLX’s evidence regarding when the Transfer Documents were returned to TBLX was confusing, vague or inconsistent evidence. The following exchange occurred:[120]
[120] TR 40-42
And so by December of 2016 you haven’t received the forms back from [TWAA]?
---No. They travelled with [TWAA Company general manager] to Dubai and I don’t believe [TWAA Company general manager] returned from Dubai until early January 2017 with the forms - - -
Yes, but - - -?
---Sorry?
by late 2016 you hadn’t received the forms back?
---No.
So you had no written agreement from [TWAA] that he was transferring control to you?
---Everything I did with [TWAA] was verbal gentlemen’s agreements. That’s how the building industry works, sir.
No. We’re talking about the written agreements you sent to him for his signature?
---Yes.
You hadn’t received these back by December 2016, had you?
---I don’t believe so. I think I have received them in January.
…
And so when you sent the forms to [TWAA] on 20 October 2016?
---They were sent - they were sent to the [TWAA Company] office which was run by [TWAA Company general manager],…….
But that’s not in evidence is it, sir?
---I’m not following your line of questioning, sorry. You’re asking me to give specifics on exactly what I did. I have told you that the documents were given to [TWAA Company general manager] and he took them to Dubai and brought them back with him. At this point I had very little to do with [TWAA]. I was dealing primarily with [general manager of TWAA Company].
You say at 31:
I sent the required forms regarding the trust and company to [TWAA] for his signature of 20 October 2016.
?
---Yes.

You don’t say there that you sent them to [TWAA Company]. Do you?
---But I don’t say - but I don’t say I didn’t either.

No. But you don’t say that you do, do you sir?
---Where are you asking me where I sent the documents, sorry? I’m getting a little bit - - -
Your evidence is that you sent the required forms regarding the trust and company to [TWAA] for his signature?
---Yes.

On 20 October 2016?
---Yes.

And your evidence now is they were sent to [TWAA Company general manager] to [TWAA Company] for [TWAA]?
---No. I am saying I don’t recall. You asked me if I emailed them or if I phone called them or if I sent them with [TWAA Company general manager]. I am saying I don’t recall. What I said - - -
But you - - -?
---was [TWAA Company general manager] returned them to me in early January.
After the letters and the correspondence were sent on 20 October 2016 you followed up with [TWAA]?
---I followed up constantly with [TWAA Company general manager] as [TWAA] was uncontactable.
The man that was going to provide the loans to you?
---Yes. Everything was spoken to through [TWAA Company general manager].
(emphasis added)

Mr Oliver, the accountant who established the Company and Trust, provided two statements, and gave evidence at the hearing. Mr Oliver says on 20 June 2017 at 9:56pm he emailed the share and unit transfer forms to TBLX and requested he have TWAA execute them and return them in order to reflect the change in shareholding.[121] TBLX agreed this was when Mr Oliver emailed the transfer documents.[122]
[121] TB2, page 42 ; Tr-179
[122] Tr-136
The transfer form for the unit purports to reflect a transfer of 100 units from TWAA to TBLX on 21 October 2016.[123] The transfer form for the transfer of shares was purportedly signed by TWAA on 20 June 2017. This is the same date that Mr Oliver says he sent the forms to TBLX.[124] At the hearing Mr Oliver told the Tribunal he had populated the transfer forms with the relevant details including the execution date.[125]
[123] TB2, page 45
[124] TB2, page 48
[125] TB 45-48 ; Tr-179
The email exchange between Mr Oliver and TBLX indicates that TBLX responded to Mr Oliver’s email on the same day it was received at 10:48pm.[126] The share transfer form executed by both TBLX and TWAA has a typed date of 20 June 2017.[127] This would tend to infer that TWAA signed the share transfer form on the date it was received by TBLX, on 20 June 2017. When this was put to TBLX he said, “I have no idea when he signed it”.[128]
[126] TB42
[127] TB 48
[128] Tr-136
Mr Oliver’s evidence contradicts TBLX’s evidence regarding when he says he gave the documents. Mr Oliver says he did not transfer them to TBLX until 8 months after TBLX says he gave the to TWAA.
Mr Oliver’s second statutory declaration reiterated a lot of what was said in the initial statement but with more direct/confirmatory language. For example, in the first statement Mr Oliver says, “it was not clear whether the intention was to retain or resell the property”. In the second statement he says, “I was told [the purpose of the trust] was to purchase the [property] for [TBLX] to live in and fix any faults”. There is no information regarding who informed him of this or corrected his lack of understanding in his initial statement. In the second statement Mr Oliver provides new information that mortgage and rates in relation to the property were paid by TBLX as were repairs and that there was no documentation provided therefore it was not included in the account preparation.[129]
[129] TB 404

Why did TBLX continue with the purchase

TBLX was questioned about why he would continue with the purchase of the Property in these circumstances:[130]
[130] Tr-42
When the person that is going to make loan funding available to you becomes totally unavailable you don’t decide to pull out of the project?
---No. I had no reason. I have been dealing with the man for many years. I watched him build many beautiful homes. I believe that he was a man of his word at that point. Yes.
Well, he’s reneged on his promises as of 20 October hasn’t he?
---He had - it’s not that he’s reneged. It’s I have no longer felt comfortable doing this project with him. I wanted to do it on my own.
Because he - you felt because he couldn’t make funding available?
---I felt that he couldn’t make $1.2 million which was the half price of the 2.4 available. Yes. I’d also - I was watching things in his company that were of concern to me. I wanted - it wasn’t about the money. It was I didn’t want to have - I wanted to do it on my own and do it properly. I wanted to make a profit for my family.
Well, I put it to you that you would have been sending multiple - I withdraw that. I put it to you that you would have been having multiple communications with [TWAA] at this time?
---I was attempting to and running into messages being passed through [TWAA Company general manager].
And you don’t give any evidence of that at 31, do you?
---No. I don’t at 31, sir.
(emphasis added)
TBLX did not elaborate on what things he was watching in TWAA Company that were causing him concern. There was also no satisfactory explanation given from TBLX as to why, when he had such concerns, he would loan money from TWAA.
TBLX denied having any direct communications with TWAA.[131]
[131] TR 43
It was put to TBLX that the only reason he would be willing to continue with the project is because there were some other arrangements with TWAA which he had not described. TBLX said he “completely disagreed with that”.[132]
[132] TR 43
It seems extremely risky financially to continue with the offer to the M Family, sell your family home, move in to the Property and be paying rent, when TBLX had not received executed Transfer Forms nor any money from TWAA. It begs the question whether some other sort of arrangement was in place in which TBLX was confident of payment. In TBLX’s own words, he was in “knee deep” by this time. The first deposit of the “loan” from TWAA’s wife was not made until 31 March 2017.
Since at least 14 September 2017 TBLX has been the sole director and shareholder of the Company and sole unit holder of the Trust.[133]
[133] TB2, [TBLX]2-4 – [TBLX]2-7; TB 216
Despite TWAA not contributing financially (as per the original terms of the JV), TBLX told the Tribunal he wanted to continue with the project and that he had given undertakings to the M Family that he would do so. Mrs M’s evidence did not make any mention of undertakings or that she would have required TBLX to continue with the purchase. In fact, Mrs M’s evidence was that she told him not to get involved. There is no mention of any “undertaking” having been given in any of TBLX written statements.[134] No explanation was given for why he needed to continue utilising the trust and company structure given that the JV was not proceeding either.
[134] TR 30

Loan from TWAA

Despite withdrawing from the JV, TBLX says that TWAA agreed to assist TBLX by giving him an interest free loan.[135]
[135] Tr-46; TB354, para 35
TBLX says TWAA agreed on or about 17 February 2017 to provide him with an interest free loan for $495,000.
Between 31 March 2017 to 5 April 2017 four payments of $100,000 and one payment of $95,000 were transferred from TWAA’s wife to the Trust’s bank account.[136] The transfers were noted in TBLX’s account as “TW”.
[136] TB2, [TBLX]12-1 to [TBLX]12-3
On 29 March 2018 the Respondent commenced proceeding in the Federal Court against TWAA for unpaid income tax assessments and penalties in the amount of $4,839,860.73 (“Federal Court proceedings”). As part of the Federal Court proceedings the Respondent sought a freezing order against the Property, and assets of TWAA, to secure the unpaid tax debt owed by TWAA. The Company was named as a sixth respondent to the Federal Court proceedings.[137] The Respondent sought a declaration that the Company held the Property on a resulting trust for TWAA to the extent that TWAA contributed $495,000 to the purchase price of the Property in accordance with TWAA’s unit holding in the Trust.[138]
[137] TB2, TBLX’s Exhibit Bundle - exhibited to TB1, TBLX’s SFIC. TBLX disputes that TWAA has any interest in the Property; TB2, [TBLX]3
[138] TB, page 34
TWAA was extradited back to Australia in January 2019 in relation to drug importation charges.[139]
[139] TB, page 5
Subsequently, through the administrator appointed, the Respondent agreed to the Property being released and sold.[140] The Property was sold for $2,650,000 in October 2018. The proceeds are held in escrow and have been held in escrow since settlement in December 2018.[141]
[140] TB 394, para 8
[141] TB 394, para 9; TB 396, para 11 – 12
In September 2019, the liquidators of ZSCM were appointed as the liquidators of TWAA Company.[142]
[142] 23-426
In August 2021 the wife of TWAA commenced proceedings in the District Court of New South Wales against, among others, the Company and TBLX, claiming she lent $495,000 to TBLX, through deposits made into the Trust’s account, which he agreed to repay within six months, and which remains unpaid.[143]
[143] 06-015
TBLX says the only income of the trust was $47 and relies on Trust Financial Statements prepared by his accountant.[144]
[144] 20-382

TBLX’s Wife

TBLX’s wife gave evidence that:
153.1.she was aware of a loan arrangement between TBLX and TWAA; and
153.2.to the best of her knowledge the loan arrangement was between TBLX and TWAA, not TWAA’s wife.
TBLX’s wife has no direct knowledge of any of the relevant matters and her evidence is based on what TBLX told her.[145] Her evidence is of little probative value.
[145] Tr-162

Simon Oliver

Mr Oliver has known TBLX for approximately 11 years and provided accountancy services to him between 2015 and 2018.[146]
[146] TB 402, para 1
At the hearing Mr Oliver confirmed that he attended to the formation of the Trust, prepared financial statements, and tax returns up to 2019
Mr Oliver’s evidence was that:
157.1.he was engaged by TBL X to assist with establishing the company and the trust to purchase the property;[147]
157.2.he was told that The Company and Trust was set up solely to purchase the Property; [148]
157.3.it was not clear whether the intention was to retain or resell the property; [149]
157.4.the company and the trust engaged in no other activities;[150]
157.5.As far as he could observe, the only money coming in were capital injections to affect the purchase of the Property;[151]
157.6.Only a small amount of bank interest was earned by the Trust in the 2017 Year.[152]
[147] TB 402, para 3
[148] TB 402, para 5
[149] TB 402, para 5
[150] Statutory Declaration 30/6/22, 2-3
[151] Statutory Declaration 30/6/22, 7
[152] Statutory Declaration 30/6/22, 9
Mr Oliver says he was not advised until May 2017 to prepare documentation to resign TWAA as a director and shareholder of the Company and to transfer TWAA’s units in the Trust. [153]
[153] TB 402, para 7 e
At the hearing Mr Oliver said he thought TWAA had contacted him to advise that he was selling the units and no longer participating in the transaction but that he could not recall whether this was via email or telephone.[154] He later said he was “pretty sure - look, I can’t swear hundred percent but I’m pretty sure I got the instructions from [TWAA] to resign himself as the director and transfer the shares and units to [TBLX]]”.[155]
[154] TR – 178
[155] TR 178 – 179, see also at Tr-181
Mr Oliver confirmed that he had populated the share transfer form and unit trust transfer form and added asserted typed date.
Mr Oliver confirmed he was not privy to any discussions between TBLX and TWAA.[156]
[156] TR – 180
Mr Oliver’s evidence concerning the $495,000 deposits was:[157]
Insofar as the objection related to the assessment of the 495,000 that was provided by Mrs TWAA to [ZSCM], did you prepare the objection based on your own first-hand knowledge of that transaction, or did you rely on what ZSCM told you?
---I prepared it based on the bank statements that I’d been provided by ZSCM and it clearly showed a deposit from [TWAA’s wife]. The other query I had was the deposit money that was paid, I think five or 10 per cent deposit for the property. I believed that came from TWAA’ legal advisers trust account, but I didn’t have an answer from anyone in relation to that. I was aware that - that TBLX was selling his - I think he had two properties in Weston Creek, and I think he’d sold one and the other one was being sold. It was my understanding that he didn’t have a spare $140,000 or whatever it was to pay that deposit, so I presumed that was paid by Mr TWAA. I reflected that money plus the 495 from [TWAA’s wife] being Mr TWAA’ wife, as a loan to - from them to [ZSCM]. That was the original draft of the accounts, which I believe to be correct. I had some contact with Mr TWAA in another matter. I’ve been his accountant for a long time with a short break but I was advised by, I think TBLX’s father was present with ZSCM, and I was advised to change those accounts, that that was actually a loan made by Mrs TWAA to TBLX, which differed from what my understanding of the transaction was, but I was being instructed by ZSCM.
So would it be correct to say that you had your own knowledge of the transaction based on the original instructions from TWAA at the time you acted on the transaction, that that was then qualified by later instructions you received from ZSCM as the liquidator of the corporate trustee?
---Yes
[157] Tr-182
Mr Oliver previously advised the Respondent of his knowledge and understanding of the trust’s activities on 5 September 2019.[158]
[158] TB 250 – 251
TWAA was having financial difficulties and uncontactable one week, and a matter of weeks later is sufficiently contactable to offer TBLX an interest free loan of $495,000. This is left unexplained. There are no details provided as to why no interest would be payable or when the loan would be repaid. If it did not have to be repaid it could not be a loan. So, what is it?
As mentioned earlier, there was confusing evidence regarding the Transfer Forms. First TBLX said he posted the documents then he said he gave them to the general manager of TWAA Company who was flying to Dubai to meet TWAA. There is also no evidence this flight had occurred. This evidence is also inconsistent with Mr Oliver’s evidence that he emailed documents to TBLX and that this was done much later than October 2016.
TBLX told the Tribunal that he flipped properties in his “spare time”.[159] However there is no evidence that he has sold any property in the last few years other than his family home.[160] There is no evidence of TBLX flipping properties.
[159] TR 32
[160] Tr 150
It is difficult to accept that this property was a “flippable” property. The M Family purchased the house for $2.4 million. That price was paid on the basis the property was in good condition. Given that there was extensive rectification works, and therefore expenses to be incurred in bringing the property up to good condition how could it be that this was a good investment for the purposes of making a profit? One can only assume that the value of the property once rectified of its defects would still only be $2.4 million. Give the purchase price TBLX paid for the Property, it was highly unlikely that any profit would be made. In fact it was more probable that TBLX would incur a loss. It was a commercially unrealistic proposition. Why would TBLX agree to a JV arrangement relation to this Property, and more importantly why would he continue with the purchase once TWAA no longer wish to proceed and after he had lost all “faith in [TWAA’s] ability to 50/50 this joint venture”[161]? There appears to be no commercial benefit to doing so.
[161] Tr-29
The following exchange occurred:[162]
[162] TR 35 – 36
So this isn’t a property that’s been purchased in a dilapidated state for a lesser amount is it?
---The [M Family] wanted back what they had spent on it. And I believe that the purchase price of $2.4 million was a fair enough price despite the damage on the property because it was something that I am used to repairing these things. I do this day-in, day-out. I flip houses. But you see I’m not - - -
But your evidence is that it’s going to - sorry, you go - - -?
---My evidence is that it’s going to cost considerable time and money?
Yes?
---Yes. And at that point - yes, absolutely.
So there is very limited prospects of you making a profit on this property is what I want to put to you?
---Well, then I put to you you don’t know what flipping houses is about, sir. You purchase a property at the current market value. You spend a year or two doing the works yourself. You invest some money into it and I would put it to you that that (audio malfunction).
…
The purchase property was quite high but I felt that it was fair to [the M Family] and I was expecting the project to take potentially two years for me to bring up to par. During that two years I’m not paying for my own labour. I am just paying for materials. The materials aren’t particularly expensive when you’re in the trades. It’s the labour that’s expensive. So I am able to - I genuinely believe 10 that the time that I would be able to flip that property over a two-year period from somewhere between 3.2 and $3.4 million by the time I had completed the works netting me possibly a million dollar profit.
Well, it wouldn’t be a million dollar profit. You purchased it for 2.4. If you have to spend $400,000 to bring it up to speed?
---I don’t know that I do have to spend $400,000 to bring it up to speed.
The property was ultimately sold for $2,6.

TBLX’s Father

TBLX’s Father, TBLX-F, was also called to give evidence.
TBLX-F says:[163]
[163] TB 385 – 388, Statutory Declaration 28/6/22, Statutory Declaration 1/10/21, TB372-375, see paras 18-45
171.1.TBLX told him the Property was a “fix and flip” proposal to help another builder whose licence was under threat; [164]
[164] Statutory Declaration 28/6/22, 3
171.2.The Trust never generated income and only received loans or capital;[165]
[165] Statutory Declaration 28/6/22, 4
171.3.The former general manager of TWAA Company, told him in April 2018 that:[166]
[166] Statutory Declaration, 28/6/228

TBLX-F’s evidence is of little probative value. His evidence is solely based on what he has been told by TBLX or the former general manager of TWAA Company who has not given any evidence before the Tribunal. TBLX-F says the general manager of TWAA Company will not give oral evidence because his wife was threatened by people he believes were member of a motorcycle gang that he should not say anything about TWAA. The general manager of TWAA Company may have told TBLX’s father that, but there is nothing to corroborate that his wife was threatened.

Liquidator of ZSCM

The liquidator of ZSCM’s evidence is that he had been “advised at numerous junctures that the $495,000 was a loan” from TWAA to TBLX.[167] The liquidator of ZSCM does not disclose in his statutory declaration where this advice came from, but in any event this is not information of which he has direct knowledge. At the hearing The liquidator of ZSCM acknowledged that he had not seen any records that disclose the loan arrangement between TBLX and TWAA.[168]
[167] TB 394 – 39, para 16.
[168] Tr-167
The liquidator of ZSCM acknowledge that the Trust’s financial statements were prepared on the basis that the $495,000 deposits was a loan.
The liquidator of ZSCM confirms that as liquidator of the company he had not discovered any distribution of income held by the Company to TBLX or any other person. The liquidator of ZSCM declared that the Trust’s business records did not evidence any invoices rendered to or monies received from any person for work done, or goods or services supplied to a person in respect of the use the Property or for its deployment as a business asset. He went on to say there are no records evidencing that the company, as trustee of the trust, was engaged in any activity of remediation of the Property.[169]
[169] TB 396, para 7 – 10; TB 397, para 19
The liquidator of ZSCM has “no knowledge” of the arrangements and no access to any records “which evidence arrangements for the loans”.[170]
[170] TB398, para 24.

Conclusion

The fact that money is transferred from one party to another does not, absent an obligation to repay the money, classify the transaction as a loan.[171]
[171] Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753, at [20]
There needs to be some objective indicia that a loan exists – such as confirmation of the period of the loan, what interest in payable and some kind of documentation in the form of an agreement or similar to validate the loan. For example, if there are no formal documents, one would expect email or text exchanges may have occurred between the parties, particularly parties that had known one another for some time.
The incorporation of the Trust and Company was undertaken through an accountant. To not have documented the loan therefore seems contrary to that behaviour. Why was the loan not documented in a similar way to the Trust?
In a recent Victorian decision of Collins v Dart [2022] VCC 1932 the Court had to determine whether a payment was a loan or gift. The Court had to grapple with this in circumstances where one of the parties was deceased and there was limited written evidence of the transaction. As here there was an absence of relevant contemporaneous written material. The Court noted (at [24]) that the absence of contemporaneous written material made it “harder to assess the truth of evidence given about alleged conversations”. The Court noted that it is not a case of simply accepting the evidence of the only witness available. Cosgrave J said:
[25]…Issues of credit assume particular significance when the live witness cannot be contradicted in the usual way. As a result, courts look for corroboration of oral evidence.
In Moore v Aubusson[2020] NSWSC 1466 Ward CJ in Equity explained that in relation to the weight that should be given to various forms of evidence in situations such as the one here:
[109] As to the assessment of the conflicting evidence, as the defendant notes, there must be “an actual persuasion of the occurrence of any conversation propounded by a claimant” (the defendant referring to John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94], per Hammerschlag J; and to the summary by Black J of the principles to which a Court should have regard in assessing the affidavit and oral evidence as set out in In the matter of Hillsea Pty Limited [2019] NSWSC 1152 at [16]- [22]). It is noted that these principles include the well-known observation by McLelland CJ in Eq as to the fallibility of human memory over the passage of time in Watson v Foxman (1995) 49 NSWLR 315 (Watson v Foxman) at 319; and that weight should be accorded so far as possible to “contemporary materials, objectively established facts and the apparent logic of events”.
(emphasis added)
In Re Hillsea Pty Ltd [2019] NSWSC 1152 Black J noted (at [16]) one should have regard to “the fallibility of human memory” when assessing affidavit and oral evidence. Black J quoted from Watson v Foxman (1995) 49 NSWLR 315 (at 319), where McLelland CJ in Eq observed that:
“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”
In Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at 129), Gleeson CJ, Gummow and Kirby JJ observed that:
[31]…in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances[49]. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.
(emphasis added)
In relation to contracts formed orally, Hammerschlag J said, inJohn Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]-[96]:
… the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences …
…
[The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding.”
(emphasis added)
Whether, on the objective facts, an arrangement is inherently probable, is a matter that should be emphasised in circumstances such as these where there is undocumented oral evidence.[172] It is also reasonable to take into account what a party stands to win or lose.[173]
[172] Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd(1999) 161 ALR 599 at [15].
[173] Helton v Allen [1940] HCA 20; 63 CLR 691, at 712.
We are not dealing with a deceased witness here, but with a witness, TWAA, who is “unavailable” due to his circumstances. The manager of TWAA Company could have been called to provide some contemporaneous evidence of discussions. The Tribunal has only been told that he was afraid to give evidence. An application for him to give evidence via a pseudonym could have been made and he could also have been summoned to appear to explain his fear to the Tribunal. There is no written note from him explaining the basis for his purported refusal to given evidence

Similarly, here, MYOB entries, are not conclusive evidence. The description in the entries themselves, are not automatically inputted, they have to be populated by someone. The evidence merely tells us that someone made these entries. It is not proof of the contents described therein. The Tribunal has no knowledge of when the MYOB entries were made or who made them.
There is no other corroborating material. TBLX says he lost all his business records in the NSW fires in December 2019. This is not disputed by the Respondent.[202] However, as the Respondent notes, what business records existed have not been identified. The Tribunal does not know where those records were maintained. There is no evidence of what records have been sought from third parties with relevant knowledge/information.
[202] Respondent’s Submissions, para 10
There is no evidence of any attempt by TBLX to reconstruct these records. There is no evidence of any attempt to summons relevant records from the bank or the employer over the course of the last two years.[203]
[203] Tr 138-139
There has been no attempt by TBLX to identify what the purchased materials were or for which project/job site they were purchased. TBLX says the director of the employer denied him access to his records.[204] There is no particularity or detail – When? Where? Why? How? No evidence of any other attempts to obtain these records is before the Tribunal. Evidence that he was denied access to records is inconsistent with the fact that on the last day of hearing the payslips were tendered and had apparently been obtained from The employer’s liquidator. No information or explanation from the employer’s liquidator was before the Tribunal. The Applicant could have requested the Tribunal issue summons to relevant parties to obtain records. No such request was ever made.
[204] TB360; Tr-140
TBLX could have attempted to collate:-

Business records – even if not complete
Particulars of or statements from clients or persons who were aware of the Applicant’s activities
Accounting records
Calendar entries (electronic or otherwise) to show jobs undertaken
Text messages
Client names
Addresses of worksites
Particulars of the materials purportedly purchased.

No explanation of any attempts made by TBLX to reconstruct these events was provided.
In the circumstances the Tribunal is not satisfied on the balance of probability that these deposits were reimbursements for expenses. This amount therefore remains as part of the TBLX’s assessable income.

Issue 3 - Sales of second-hand equipment - $50,000

TBLX says he sold the following pieces of equipment to the employer;
252.1.on 14 March 2017 he sold Dingo equipment for $20,000; and
252.2.on 15 March 2017 he sold P1 Mobile Office for $30,000.
TBLX says he sold the equipment because he needed cash to purchase the Property.
TBLX says they were cash sales.
TBLX again relies on screenshots from the employer’s MYOB file which he obtained from the employer’s administrator.[205] The Tribunal’s comments regarding the probative value of MYOB records is set out in paragraph 246 above.
[205] T13-156-157
TBLX says the MYOB records were relied upon by his accountant to prepare his ITR and that the taxable amount should be $2,600 after allowing for cost.[206] No purchase records or particulars of the costs incurred by TBLX when he purchased the assets were provided.
[206] TB1, TBLX SFIC, 122
There is no corroborating evidence.
The Tribunal also questions how it was that the employer could afford to purchase this equipment given TBLX’s assertion that the employer’s financial viability was in question. How it was that the employer was able to purchase $50,000 worth of equipment and, as is discussed in the next section, loan a further $42,000 to TBLX?
There is no evidence of any attempt by TBLX to reconstruct these records. There is no independent valuation evidence to support the sale prices of the equipment.
One week after purportedly selling the equipment to the employer, TBLX represented to his financier in a loan application dated 21 March 2017 that he was still the owner of the equipment. He also represented to the financier that the Dingo equipment was worth $5,000 more than the price paid by the employer.[207]
[207] TB715
When TBLX’s accountant lodged his ITR there no depreciation claimed for that equipment, nor any other reference to any expenses incurred related to that equipment.
In the circumstances the Tribunal is not satisfied on the balance of probability that these deposits were from the sale of equipment as alleged. This amount therefore remains as part of the TBLX’s assessable income.

Issue 4 – Loans from the employer – $42,000.00

TBLX says deposits of $42,000 are in fact loans from the director of the employer. The bank accounts indicate that the employer paid the following amounts totalling $42,000 (see Annexure A):

Date	Amount
13 January 2017	$10,000
9 June 2017	$22,000
10 June 2017	$10,000
Total	$42,000

TBLX says:[208]
264.1.the loans were not documented and were informal based on his friendship with the director;
264.2.there were no repayment terms such as timeframe or interest; and
264.3.rather than repay the loan amounts TBLX says he “acquitted those loans through work in kind”.
[208] T15-164
Some of this evidence is inconsistent with what is stated in TBLX’s Statement of Facts, Issues and Contentions (SFICs). In his SFICs it is stated that he has “never repaid these loans” and it is “incorrect” to say they had been paid off by an offsetting claim for work done by TBLX.[209] By contrast, in TBLX’s accountant’s letter to the Respondent on 6 March 2020 the accountant sent attached responses from TBLX to questions from the ATO. In response to the question regarding the $42,000 loans, TBLX stated:[210]
the loan agreements with [TWAA Company General Manager] and [the employer] were acquitted through work in kind
[209] TB1, TBLX SFIC, 124-127
[210] TB959
The Respondent contends that this means the payments were for services rendered by TBLX in the course of his employment which means they should form part of his assessable income. This is denied by TBLX.[211]
[211] Tr-145
Section 6-5 provides “ordinary income”, which is income according to ordinary concepts, forms part of a person’s assessable income.
Section 15.2 specifically provides that:
(1) Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums * provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force).
“Ordinary income” includes things like wages, salaries, commissions, and other payments made for services rendered, from personal exertion.
The concept has been discussed in numerous cases.[212]
[212] including by the High Court in FC of T v. Dixon Federal Commissioner of Taxation v Dixon [1952] HCA 65; 86 CLR 540 and Scott v. FC of T (1966) 117 CLR 514 (“Scott”).
In Scott v. FC of T (1966) 117 CLR 514 the High Court referred to the assessment of whether an amount constituted income depended upon the nature of the transaction. Windeyer J said:
[22] Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income.
In The Commission of Taxation of the Commonwealth of Australia v Harris, G.O [1980] FCA 74; 30 ALR 10, the Full Federal Court stated:
It is clear that the whole of the circumstances must be considered…
Whether or not a particular receipt is income depends upon its quality in the hands of the recipient …
The regularity and periodicity of the payment will be a relevant though generally not decisive consideration …
A generally decisive consideration is whether the receipt is the product in a real sense of any employment of, or services rendered by the recipient, or of any business, or, indeed, any revenue producing activity carried on by him …
(citations omitted)
Each case ultimately turns on its facts. As noted by the Full Federal Court in Allied Mills Industries Pty Ltd v Commissioner of Taxation [1989] FCA 135; 20 FCR 288, where a payment is made pursuant to an agreement, the whole circumstances surrounding the agreement must be examined.[213]
[213] 1989] FCA 135; 20 FCR 288, at [19] citing Federal Coke Co. Pty. Limited v Federal Commissioner of Taxation (1977) 34 FLR 375 per Bowen C.J. at 385.
Traditionally a loan agreement is set out in a legal written document which specifies terms and conditions such as repayment amounts and time, whether any interest is payable and so on.
There is evidence that $42,000 was deposited into TBLX’s account, but what evidence is there which characterises it as a loan. The employer was TBLX’s employer. There is no evidence other than TBLX’s say so that these deposits were loan amounts. There is no evidence from the employer, no records of any communication between TBLX and the employer regarding this agreement.
There were no loan terms, no interest payable, no repayments made. What constitutes ordinary income is a matter of fact and degree. In all the circumstances the Tribunal is not satisfied on the balance of probabilities that the amounts should not be included as part of TBLX’s assessable income.

Issue 5 - Deposit of sale of Weston property

On 13 April 2017 a cash deposit of $101,000 was credited to TBLX’s account (see Annexure A).
TBLX originally told the ATO that this was from proceeds of sale of a property he co-owned at Weston (“Weston Property”).[214]
[214] T15-165
The Contract of Sale for the Weston Property is dated 31 March 2017. A settlement adjustment sheet dated 20 July 2017 states the Weston Property was sold by TBLX and his wife, TBLX-W, for $500,000, with a settlement balance of $301,407.47.[215]
[215] T12-144 ; TB 204 all
None of the Weston Property sale documents refer to any deposit being made to TBLX personally or any deposit of that amount. The amount of $200,000 was paid to the Company as trustee for the Trust on 6 April 2017.
Since those initial representations TBLX says he now recalls the $101,000 was a bonus from the employer which should have withheld PAYG, and which should have been included on his group certificate as wage income.[216]
[216] TB1, TBLX SFIC, 128

Issue 6 - Other income

Deposits totalling $23,500 are now accepted by TBLX as assessable income. TBLX says they relate to cash payments for various jobs.[217]
[217] T12-131 ; TB1, TBLX SFIC, 129

Issue 7 - Bank interest income

Deposits relating to bank interest totalling $28.15 are now accepted by TBLX as assessable income.[218]
[218] T12-131 ; TB1, TBLX SFIC, 130

Issue 8 - Reimbursement of expenses

A deposit of $600 was made to TBLX’s account on 2 June 2017 (see Annexure A).
TBLX says this is a reimbursement of expenses from the employer.[219]
[219] T15-165
A review of TBLX bank accounts indicates that he received $600. The entries are described in TBLX’s bank accounts as “[TBLX] materials”.
TBLX relies on screenshots from the employer’s MYOB file which he obtained from the employer’s administrator.[220]
[220] T12-132
No further details are provided.
TBLX submits the MYOB records and bank statements were relied upon by his accountant to prepare his ITR.[221]
[221] TB1, TBLX SFIC, 131
The Tribunal’s comments regarding the probative value of MYOB records is set out in paragraphs 246 above.
There is insufficient evidence to support TBLX’s contention that the $600 deposit relates to a reimbursement of expenses.
In all the circumstances the Tribunal is not satisfied on the balance of probabilities that the amount should not be included as part of TBLX’s assessable income.

Issue 9 - Loans from TBLX-F

On 15 May 2017 $10,000 was deposited into TBLX’s account. A bank statement indicates that this was a cash deposit, The description provided is “Dad”.[222]
[222] T12-132
TBLX says his father gave him an emergency loan as he needed to pay a supplier urgently. According to TBLX he has not repaid the loan and there were no conditions attached.[223]
[223] T15-164
TBLX’s father confirms that he lent TBLX $10,000.
The Respondent has accepted that this amount is not to be included in TBLX’s assessable income.

Issue 10 - Loans - $75,250.00

There are deposits totalling $72,500 in TBLX’s accounts. TBLX says these amounts are loans from the employer and have been offset against the amounts he transferred to the employer totally $119,346.[224]
[224] T12-132
There is no contemporaneous evidence that these deposits constituted loans and, as referred to earlier, no explanation for how a person purportedly suffering financially, can loan this amount of money.
In all the circumstances the Tribunal is not satisfied on the balance of probabilities that the amounts should not be included as part of TBLX’s assessable income.

Issue 11 - Credit card payments - $3,951.46

Various amounts totalling $3,951.46 were deposited to TBLX’s credit card.
TBLX says these amounts are not income but repayments or reimbursements that were required to be undertaken to keep the company of his friend (the employer) viable.[225]
[225] T15-165
There is also no particularity or evidence about the employer’s viability which TBLX says was one of the prime reasons he incurred these expenses.
There is no indication that any purchases were made using this credit card during the 2017 Year. Nor are there any transfers from his bank account which correspond with these deposits.
This is insufficient evidence to determine whether these amounts are repayments or reimbursements. In all the circumstances the Tribunal is not satisfied on the balance of probabilities that the amounts should not be included as part of TBLX’s assessable income.

Issue 12 - Kennards hire and return

The Respondent originally thought there were two deposits made of two amounts of $1,896.01 totalling $3,792.02.
TBLX says the ATO made an error because a payment was made to Kennards of $1,896.01 on 23 May 2017 and a refund given back on the same day. The Respondent accepts that an error was made. The entries can be seen in the bank statements provided.[226]
[226] T12-133-134
The amount of $3,792.02 will not be included in the calculation of taxable income.

Other deductions

On 29 October 2019 TBLX’s accountant submitted an ITR for the 2017 Year. It has not been accepted by the Respondent. It included additionally claimed deductions as follows:[227]
[227] T12-124-130

Item	Amount
D1 – work related car expenses (cents per kilometre method)	$3,300.00
D3 – work related uniform, occupation specific or protective clothing, laundry and dry-cleaning expenses	$150.00
TOTAL	$3,450

No supporting documentation/information has been provided in relation to these claimed deductions.

Interest deductions

On 29 October 2019 TBLX’s accountant submitted an ITR for the 2017 Year. It included additionally claimed a $48 deduction for interest.[228]
[228] T12-124-130
No supporting documentation/information has been provided in relation to this claimed deduction.
The Respondent notes that interest expenses have already been allowed.

CONCLUSION

The Tribunal finds the Applicant has not discharged the burden of proof that the TBLX amended NOA was excessive.
TBLX’s evidence lacked particularity, and at times his evidence was inconsistent. The lack of particularity was not explained. There was very limited evidence of attempts made to reconstruct his records or obtain substitute documents and no evidence of any precautions taken to prevent the loss of his business records.
The Applicant has failed to discharge his onus of proof.

PENALTIES

Legislation

Administrative penalties can be imposed pursuant to section 284–75(3) of Schedule 1 to the TAA in the following circumstances:
284-75 Liability to penalty
(3)You are liable to an administrative penalty if:
(a)    you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b)    that document is necessary for the Commissioner to determine a * tax-related liability (other than one arising under the * Excise Acts) of yours accurately; and
(c)    the Commissioner determines the tax-related liability without the assistance of that document.
Note:    You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C.
The base administrative penalty is 75% of the relevant tax related liability.[229] The base penalty is increased by 20% if the taxpayer “took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated”.[230]
[229] Section 284–90, Schedule 1, TAA.
[230] Section 284-220(1), Schedule 1, TAA.
Pursuant to section 298–20 of Schedule 1 of the TAA the Commissioner has the power to remit all, or part of the penalty amount calculated.
The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration PSLA 2014/4 (“PS 2014/4”) explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) of the TAA and how that penalty is assessed including any remission.
Pursuant to paragraph 27 of PS 2014/4 a relevant matter for the remission of a penalty includes “a major objective of the penalty regime is to promote a consistent treatment by reference to specified rates of penalty” and that this objective could be compromised if penalties are omitted without just cause or as a matter of course.
Paragraph 28 of PS 2014/14 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:
·an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, their obligation
·an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge
·the amount of penalty imposed by law causes an unjust result
·there were credits available to offset the amount of the tax-related liability payable, or
·there was extraordinary cooperation during an examination.
The Commissioner has also issued a ruling, Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted (“TR 94/7”). TR94/7 provides relevantly:
The discretion to remit penalty otherwise attracted under a shortfall section should be exercised in only those exceptional cases where, having regard to all of the circumstances, the application of a particular shortfall section and/or the rate of penalty prescribed under that section would provide a clearly unreasonable or unjust result.

Consideration

Section 286-75(1A) of Schedule 1 to the TAA 53 provides:
(1A) However, you are not liable to an administrative penalty under subsection (1) if:
(a)     you engage a *registered tax agent or BAS agent; and
(b)    you give the registered tax agent or BAS agent all relevant taxation information to enable the agent to give a return, notice, statement or other document to the Commissioner in the *approved form by a particular day; and
(c)    the registered tax agent or BAS agent does not give the return, notice, statement or other document to the Commissioner in the approved form by that day; and
(d)    the failure to give the return, notice, statement or other document to the Commissioner did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a *taxation law; or
(ii) recklessness by the agent as to the operation of a taxation law.
(1B) If you wish to rely on subsection (1A), you bear an evidential burden in relation to paragraph (1A)(b).

The penalty notice states that TBLX was in breach of providing a document namely his income tax return for the 2017 Year before 21 November 2017. However, TBLX submits that he was not required to lodge his return for the 2017 year until 31 May 2018 because he had a registered accountant. The Respondent accepts the latest possible date for any taxpayer to lodge its returns in the 2017 income year was 31 May 2018.[231]
[231] Resp Subs, para 38; Tr-268
Even if TBLX had engaged a registered tax agent, he still had not lodged his ITR by 31 May 2018. TBLX’s accountant submitted an ITR for the 2017 Year on 29 October 2019. The NOAs were administered after 31 May 2018.
TBLX, in his evidence, did not seek to rely on the engagement of a tax agent, as an excuse. He referred to his failure to lodge on time as being unintentional, and due to his being distracted by the Federal Court Proceedings. He also raised the fact that at the time it was due his accountant had moved, and he had to engage a new firm to prepare his ITR, lodge his objections and so on.[232]
[232] TB 1, TBLX SFICS, 72
The Tribunal finds the penalty was appropriately imposed.
Should it be remitted in whole or part having regard to the taxpayer’s particular circumstances?[233]
[233] Sanctuary Lakes Pty Ltd v FC of T [2013] FCAFC 50; 212 FCR 483.
The Applicant has not made any submissions in this regard.
As a result, the Tribunal affirms the TBLX Penalty Decision.

DECISION

The TBLX Decisions under review are affirmed.
The Tribunal dismisses the applications in matter numbers 2021/1915-16 pursuant to section 42A of the Administrative Appeals Act 1975 (Cth).

I certify that the preceding 333 paragraphs are a true copy of the reasons for the decision herein of Senior Member D K Grigg

............................[SGD...........................

Associate

Dated: 4 July 2023

Date/s of hearing: Date reserved:	1 February 2023, 2 February 2023, 22 and 23 March 2023 12 April 2023
Counsel for the Applicant:	Mr Bevan
Solicitors for the Applicant:	Dwyer Lawyers
Counsel for the Respondent:	Mr Arnold
Respondent:	Australian Taxation Office

Annexure A – Deposits into TBLX Accounts

Annexure B – Deposits into/from Trust Accounts

"has now developed to a point where it may be accepted that there is a common law duty to act fairly, in the sense of according procedural fairness, in the making of administrative decisions which affect rights, interests and legitimate expectations, subject only to the clear manifestation of a contrary statutory intention."

In Haucher v. Minister for Immigration and Ethnic Affairs(1990) 64 ALJR 357 Deane J. said (at p 358; p 53 of ALR) that the law seemed to him:
"to be moving towards a conceptually more satisfying position where common law requirements of procedural fairness will, in the absence of a clear contrary legislative intent, be recognised as applying generally to governmental executive decision-making".