The Gambler and Commissioner of Taxation

[2013] AATA 243

[2013] AATA  243

Division	TAXATION APPEALS DIVISION
File Number(s)	2012/0085-0086
Re	The Gambler
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Deputy President S E Frost
Date	23 April 2013
Place	Sydney

Subject to any necessary adjustments in light of the observations at [25] of the reasons that follow, the objection decisions are affirmed.

........................................................................

Deputy President S E Frost

CATCHWORDS

TAXATION – Income Tax – Assessable income – whether unexplained deposits formed part of assessable income – whether unexplained deposits were the proceeds of gambling - whether amended income tax assessments excessive under s 14ZZK of the Taxation Administration Act 1953 – burden of proving assessments are excessive – objection decisions affirmed

LEGISLATION

Taxation Administration Act 1953: s 14ZZK

CASES

Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81

Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92

REASONS FOR DECISION

Deputy President S E Frost

INTRODUCTION

1. Over the space of four days in August 2010, the Commissioner issued notices to the taxpayer which required him to pay almost $1.15 million in income tax and penalties.  There were two notices of amended assessment of income tax (one for each of the 2007 and 2008 income years) and two notices of assessment of shortfall penalty, also relating to those years.  He was given three and a half weeks to pay.

2. The amended assessments were based on “numerous unexplained deposits that were made to several of [the taxpayer’s] bank accounts”.[1]  They followed an extensive audit of the taxpayer’s income tax affairs, during which the taxpayer claimed that the deposits were from “windfall gambling gains”.[2]  The Commissioner accepted that the taxpayer was a regular gambler but did not consider that fact to be “relevant to the determination of [the taxpayer’s] assessable income”.[3]

   [1] T2-4

   [2] T2-4

   [3] T2-5

3. The taxpayer’s objections against the assessments were disallowed.  He has applied to the Tribunal for review of those objection decisions.

4. The main issue before the Tribunal is whether the taxpayer can demonstrate that the deposits are attributable to his gambling activities, with the consequence that they do not form part of his assessable income for the relevant years.

   FACTUAL BACKGROUND

5. The taxpayer was born in Vietnam in 1959 and arrived in Australia in 1991.

6. From about 1995 to 2006, the taxpayer had a number of business interests in Australia.  They included a sewing business (from around the end of 1995 until 2005), a chicken business (from around 2001 until 2006), a shop from which he sold phones, DVDs and records and at which he appears to have also operated what his counsel described as an “alternative remittance provider” business[4] (from 2000 to 2006), a pawn shop which he opened in 2003 and which was run by his then de facto partner, and a building business.

   [4] Transcript 3 December 2012, P-49, line 26

7. The taxpayer has enjoyed, at best, modest financial returns from each of these ventures.  In fact, based on evidence he gave to the District Court of New South Wales in a trial in 2012, none of his ventures (with the possible exception of the sewing business in its early days) appear to have generated, at any time, returns greater than several hundred dollars per week, and sometimes significantly less than that.[5]

   [5] Exhibit R3, Tab 1, p. 435ff

   The taxpayer’s gambling activities

8. The taxpayer says his fortunes changed in late 2006 when he travelled to Vietnam, where he and a friend discovered a system for winning at baccarat.  It took the taxpayer and his friend about two months of research before they started using this system to gamble at casinos in Vietnam and Cambodia. The taxpayer says that by using this system he can win at baccarat 95 per cent of the time[6]     and that over a period of about six months in late 2006 and early 2007 (which apparently includes the two months spent researching the system), he and his friend won more than $US4 million at casinos in Vietnam and Cambodia.[7]

   [6] Transcript 3 December 2012, P-48, line 12

   [7] Transcript 3 December 2012, P-48, lines 43-46

9. From that time (late 2006/early 2007) until October or November 2010, the taxpayer says that he regularly gambled using this system.  Baccarat was, he says, the “main game” that he played when he gambled, but he also played the poker machines when he felt that he could win on them.[8]  He played baccarat at The Star casino in Sydney, and played the poker machines at The Star, as well as at a licensed club near where he lived.

   [8] Transcript 3 December 2012, P-52, lines 11-18

10. During the 2007 financial year, the taxpayer says that he won “a lot of money” at The Star:

    I was afraid that casino not even let me play.  So me and my wife start getting money, less than 10,000 each time.  I remember I could win about one to two million that year but, yes.  I remember once my ex-partner told me that according to this money, every minute we making $24.

    …

    Some day I won, like, more than $10,000.  I – there’s a time when I could get $25,000 but I was afraid every time I do that, I have to submit my ID.  So usually me and my wife only get money out, less than $10,000 at a time.  And I was afraid that casino might think I was too good and gambling and they didn’t even let me play, that’s why I only take small money at a time.

11. His counsel asked him how much he won at The Star during the 2008 financial year and he answered:

    I can’t remember but I remember my friend told me, why do I always get cash?  Why I didn’t get cheque.  So I was listening to my friend and took the cheque and when I show my friend the cheque, he told me that this cheque didn’t say that it’s a winning cheque.[10]

    [10] Transcript 3 December 2012, P-53, lines 26-29 (as rendered by the interpreter)

12. Mr Graeme Stevens, the Regulatory Affairs Manager of The Star, explained to the Tribunal that a “winning cheque”, or a “winner’s cheque”, is a cheque, issued on request to a patron, but only for an amount that The Star is satisfied represents genuine winnings of the patron on a given day.[11]  He explained that many patrons of The Star (including the taxpayer) hold a membership card which enables the casino to track their gaming activities.  Assuming that the member hands over the card when buying or cashing chips, and also when playing at a gaming table, the casino will be able to track whether the member has won or lost money from the gaming activity.  So, for example, if the patron purchased $10,000 worth of chips from the cashier, or “cage”, played at a table and then came back to the cage later with $15,000 worth of chips, and asked for a “winner’s cheque”, the casino would issue a winner’s cheque for $5,000 (not $15,000).  However, if the same patron purchased $10,000 in chips, played some baccarat but lost $5,000, and came back later asking for a winner’s cheque for the remaining $5,000, the request would be refused.  If the patron in this second example insisted on receiving a cheque rather than cash, the casino would issue a “gaming cheque” (recorded as a “GCHQ”) rather than a “winner’s cheque” (“WCHQ”).[12]

    [11] Transcript 3 December 2012, P-34, lines 12-17

    [12] Transcript 3 December 2012, P-38, lines 26-43

13. Mr Stevens also explained that the taxpayer holds the “black”, or highest, level of membership of The Star.  Membership levels are based on what the casino calls a patron’s “theoretical win”, a figure calculated by reference to the frequency of the patron’s attendance at the casino, how long they play at the casino, and what their average wagers are.  Clearly, based on The Star’s acceptance of the taxpayer into the “black” membership level, it regarded him as a regular, high-level gambler.

14. The Star’s assessment of the taxpayer is borne out by its records (“Patron Wager Transaction History – Lifetime”[13]) of the gaming activities as documented in relation to the taxpayer’s membership card.  For example, for the 2008 financial year, there is activity recorded on the taxpayer’s membership card as follows[14]:

    [13] Exhibit R1, T9-197 to 234 (for the period 1 July 2007 to 20 March 2010)

    [14] Exhibit R1, T9-222 to 234

Month	Number of days on which activity is recorded
July 2007	15
August 2007	12
September 2007	24
October 2007	27
November 2007	27
December 2007	3
January 2008	6
February 2008	10
March 2008	29
April 2008	25
May 2008	27
June 2008	23

1. The taxpayer’s total “wager” in that financial year was over $2.4 million (although, because of the way the casino records its figures, there is certainly some degree of overstatement in that figure, owing to the “churn” that arises when the taxpayer gambles his interim “winnings”, particularly on the poker machines).  Nevertheless, and despite that overstatement (which is impossible to quantify), I find that the taxpayer gambled at the casino on a total of 228 days during the 2008 financial year, and that he gambled very significant amounts of money in doing so.

2. Another document provided by The Star, titled “Player Activity Inquiry”,[15] discloses that, according to the casino, the taxpayer suffered overall losses on his gambling activity for the calendar years 2005, 2006 and 2007 (of $25,657, $43,733 and $168,791 respectively).  On the other hand, in the calendar year 2008 (up to November, when that particular recording system was superseded), the taxpayer won a net $464,156 from the casino.

   [15] Exhibit R1, T9-236

3. The Star also provided a “Patron Transaction Report”[16] which includes a record of “Patron Pay Outs” during the period 17 June 2007 to 22 November 2008.  During that period there were 41 Patron Pay Out Transactions to the taxpayer, all of them by cheque (presumably cash payouts, if any, are not included in this report).  Relevantly for the periods under review here, the total payout amounts are as follows[17]:

   [16] Exhibit R1, T9-240 to 241

   [17] Only those cheques recorded as “ISSD” (issued) are included

Financial year	Gaming cheque amounts ($) (GCHQ)	Winner’s cheque amounts ($) (WCHQ)
2007[18]	0	36,500
2008	61,000	187,000

[18] Only payout amounts from 17 June 2007 to 30 June 2007 included in the report

1. Cash payouts at the cage for amounts in excess of $10,000 at a time are recorded in the “Patron Threshold Transactions – Lifetime”,[19] but those provided to the Tribunal cover the period 28 November 2008 to 10 November 2010 and therefore do not assist as they fall outside of the income years under review.

   [19] Exhibit A1, 11 pages

2. Mr Stevens said that he could only think of “a couple of examples”[20] of patrons of The Star who had experienced the same level of net winnings as the taxpayer  (a comment based on the records that Mr Stevens had looked at, rather than any specific knowledge of the taxpayer or his gambling activities). 

   The Star’s records, while very extensive, are not comprehensive so far as the periods under review are concerned.  Nevertheless, they paint a picture of significant gambling activity by the taxpayer, and they certainly provide more information than the taxpayer himself was able to provide from any records that he may have kept.

   [20] Transcript 3 December 2012, P-30, line 41; he later said “two” (P-31, line 27)

   HAS THE TAXPAYER PROVED THAT THE ASSESSMENTS ARE EXCESSIVE?

3. To discharge the burden he bears under s 14ZZK of the Taxation Administration Act 1953 (TAA) of proving that the assessments made by the Commissioner are excessive, the taxpayer must satisfy me, on the balance of probabilities, not only that the assessments are greater than they should be, but by how much: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621; Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 at 99.

4. By contrast, there is no requirement imposed on the Commissioner to show that the assessments he has made can be sustained or supported by evidence: Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89.

5. The proposition that the taxpayer has put forward is that all of the unexplained deposits are attributable to gambling winnings.  That proposition is accompanied by an almost total lack of records kept by the taxpayer as to the frequency or the magnitude of his gambling activity.

6. This proposition is also not supported by the records obtained from The Star.  Although these records show that the taxpayer has gambled on a consistent basis, and at a high level, they also show that his rate of success (at least by reference to the transactions recorded on his membership card) is nowhere near the level that he claims it to be, or the level it would need to be if the assessments were to be undermined.

7. The taxpayer’s proposition is also underpinned by the inherently improbable notion that he and his friend discovered a system for winning at baccarat up to 95 per cent of the time.  He claims that their system is based on mathematical science,[21] but it seems to me that one needs more than mathematical science to turn the sow’s ear of complete randomness into the silk purse of virtual certainty.

   [21] Exhibit R3, Tab 1, p. 571

8. On the material before me I am far from satisfied that the assessments are excessive, as asserted by the taxpayer (subject to one qualification).  The qualification relates to the “winner’s cheque amounts” received by the taxpayer during the 2008 financial year (see [16] above).  The Commissioner’s reasons for the objection decision[22] note that the Commissioner took into account “4 cheques in 2007-08 totalling $71,000” in making the amended assessment for that year.  However, the proper figure according to The Star’s records is $187,000.  Furthermore, there is a discrepancy between the four cheques apparently taken into account by the Commissioner[23] and The Star’s records of the 13 winner’s cheques issued[24] because the former list does, but the latter does not, include a cheque for $19,000.  The Commissioner may need to make a consequential adjustment to the assessment for the 2008 income year.

   [22] Exhibit R1, T2-4

   [23] Exhibit R1, T23-440 and 441

   [24] Exhibit R1, T9-240 and 241

9. Otherwise the assessments are affirmed.

   ADMINISTRATIVE PENALTY

10. The taxpayer did not attack the administrative penalty other than to submit that there was no occasion to impose penalty because there was no shortfall.

11. As I have rejected the taxpayer’s primary submission, the objection decisions in relation to penalty will also be affirmed.

I certify that the preceding 28 (twent-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost

...........................[sgd].............................................

Associate

Dated  23 April 2013

Date(s) of hearing	3, 4 and 19 December 2012
Solicitors for the Applicant	Trivo Lawyers
Counsel for the Respondent	Mr Ben Kasep
Solicitors for the Respondent	ATO Legal Services

[9] Transcript 3 December 2012, P-53, lines 1-5 (as rendered by the interpreter)