The Taxpayer and Commissioner of Taxation
[2005] AATA 622
•29 June 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 622
ADMINISTRATIVE APPEALS TRIBUNAL )
) No WT2001/1480-1492
TAXATION APPEALS DIVISION ) Re THE TAXPAYER Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Associate Professor G A Barton, Member Date29 June 2005
PlacePerth
Decision (a) The Tribunal affirms the objection decisions under review in respect of the applicant’s amended assessments for the years ended 30 June 1983 to 30 June 1987 inclusive; for the years ended 30 June 1989 to 30 June 1993 inclusive and for the years ended 30 June 1995 and 30 June 1996.
(b) The Tribunal sets aside the objection decision under review in respect of the applicant’s amended assessment for the year ended 30 June 1997 and directs that the respondent issue a further amended assessment to the applicant for the year ended 30 June 1997 on the basis that an amount of $5,000 for accounting fees was an allowable deduction to the applicant in that year.
................(sgd GA Barton).............
Member
CATCHWORDS
Income tax – amended assessments to income tax – default assessments of taxable income – burden of proving amended assessments excessive – respondent’s discretionary power to amend – full and true disclosure – avoidance of tax - evasion
Income Tax Assessment Act, 1936 ss 167, 166, 170(1), (2)(a)
Taxation Administration Act 1953 s 14ZZK (b)(i)
Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263
George v Federal Commissioner of Taxation (1952) 86 CLR 183
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Case V126, 88 ATC 784
McCauley v Federal Commissioner of Taxation 88 ATC 4605
Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614
Barripp v Commissioner of Taxation (NSW) (1941) 65 CLR 661
Denver Chemical Manufacturing Co. v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Evans v FCT 89 ATC 4540
Case x 61 90 ATC 448
REASONS FOR DECISION
29 June 2005 Assoc Prof G A Barton, Member 1. On 1 December 1999 the respondent issued amended assessments to income tax to the applicant, pursuant to the Income Tax Assessment Act 1936 (‘the Act’), for the years ended 30 June 1983 to 30 June 1987 inclusive; for the years ended 30 June 1989 to 30 June 1993 inclusive and for the years ended 30 June 1995 to 30 June 1997 inclusive (‘the amended assessments’) based on default assessments of his taxable income for those years made in accordance with s 167 of the Act. The applicant’s objections to the amended assessments were disallowed in full on 22 January 2001 and the applicant has applied for review of those decisions.
2. The applicant represented himself at the hearing. He tendered documentary exhibits A1 to A6 and he gave evidence. The applicant filed a statement of facts and contentions and a statement of issues, and he called Mr T J Pitsikis and Mr Steven Rukavina to testify on his behalf. He filed written closing submissions and a written summary of those submissions, on 14 July 2004.
3. Mr J Scholz of counsel and Mr D Carlson of the Australian Government Solicitor appeared for the respondent who tendered documentary exhibits R1 to R9 and filed a statement of facts and contentions, a statement of issues and a further statement of issues in accordance with the direction of the Tribunal of 4 May 2004. The respondent filed a written outline of submissions on 16 July 2004 and documents T1 to T182 were before the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. Mr Robert Bruce McPherson, Mr Richard William Kelly, Mr Philip Kevin O’Reilly, Mr Philip O’Hara and Mr Jack Ivankovich testified for the respondent.
4. It was undisputed between the parties that the applicant lodged income tax returns with the respondent for the years in contention and that he returned taxable income in the following amounts:
1983 - $4,001
1984 - $7,263
1985 - $17,420
1986 - $23,880
1987 - $44,366
1989 - $38,601
1990 - $60,303
1991 - $85,395
1992 - $65,307
1993 - $53,491
1995 - $49,794
1996 - $91,054
1997 - $21,124
The respondent issued assessments to income tax to the applicant on his returned taxable income for each of the years listed.
5.Section 167 of the Act provides that “[I]f:
(a) any person makes default in furnishing a return; or
(b) the Commissioner is not satisfied with the return furnished by any person; or
(c)the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.”
6. Following an investigation of the applicant’s affairs, the respondent was not satisfied, for the purpose of s 167(b) of the Act, with the returns furnished by the applicant for the years in contention and so, for those years, made assessments of the amounts upon which, in his judgment, income tax ought to be levied. By s 167 an amount so assessed was the taxable income of the applicant for the particular year in contention for the purpose of s 166 of the Act which provides:
“From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon”.
7. The respondent’s discretionary power to amend the applicant’s assessments to income tax for the years in contention is governed by s 170 of the Act.
8. The respondent made the amended assessments of the amount of the taxable income of the applicant, and of the income tax payable on it, for each of the years in contention, pursuant to ss 166 and 170(2) (a) of the Act using s 167 in aid of s 166; George v Federal Commissioner of Taxation (1952) 86 CLR 183 at pp. 203 and 204.
Agreed Facts
9. The respondent admitted, and the Tribunal finds, the facts in the applicant’s statement of facts and contentions set out in paras 10 to 35 of these reasons.
Year ended 30 June 1983
10. The applicant derived $650 in bank interest in 1983 when that amount was credited to his bank savings account with the National Australia Bank. He included $650 of bank interest in his assessable income in his return for 1983. The respondent issued an amended assessment for 1983 on the basis that undeclared taxable income of $5,200 was in the applicant’s savings account from 1 July 1982 to 30 June 1983 to earn $650 in interest. The amount of undeclared income was calculated as
$650
= $5,200
0.125
where 0.125 is the average bank interest rate of 12.5% for the year ended 30 June 1983 based on Reserve Bank of Australia (‘RBA’) interest rates.
Year ended 30 June 1984
11. The applicant derived $885 in bank interest in 1984 which he included in his assessable income in his return for that year.
12. The respondent issued an amended assessment for 1984 on the basis that undeclared taxable income of $2,000 was added to the applicant’s capital in bank to earn $885 in bank interest. The amount of undeclared income was calculated as:
$885
= $7,695
0.115
Less $5,695 (balance at 1 July 1983)
$2,000
where 0.115 is the average bank interest rate of 11.5% for the year ended 30 June 1984 based on RBA interest rates.
Year ended 30 June 1985
13. The applicant derived $3,486 in bank interest in 1985 which he included in his assessable income in his income tax return for that year.
14. The respondent issued an amended assessment for 1985 on the basis that undeclared assessable income of $20,000 was required to earn $3,486 in bank interest. The amount of undeclared income was calculated as:
$3,486
= $27,888
0.125
Less $ 7,080 (balance at 1 July 1984)
$20,808 (rounded down to $20,000)
where 0.125 is the average bank interest rate of 12.5% for the year ended 30 June 1985 based on RBA interest rates.
Year ended 30 June 1986
15. The applicant purchased 11,500 shares in Bell Group Ltd (‘Bell shares’) in 1986 at a cost of $74,300.
16. The respondent issued an amended assessment for 1986 on the basis that undeclared assessable income of $68,300 was required to purchase 11,500 Bell shares on 27 December 1985. The amount of undeclared income was calculated as:
$74,300 (cost of 11,500 Bell shares)
less
$ 6,000
$68,300.
17. The interest received and declared in the applicant’s 1986 return fell. The respondent inferred from this fact that the applicant had reduced his bank capital by $6,000 to purchase the Bell shares and so the respondent calculated the amount of undeclared income for 1986 as the cost of the Bell shares less $6,000.
Year ended 30 June 1987
18. During 1987 the applicant bought and sold various company shares as set out in the respondent’s calculation of undeclared income in para 19 below.
19. The respondent issued an amended assessment for 1987 on the basis that undeclared assessable income of $161,383 was required to purchase shares. The amount of undeclared income was calculated as follows:
Share
Date
Quantity
Cost
Sale
Gain/Loss
Fund Pool
Input Required
PAL Holdings
29-Aug-86
28,000
$4,035.00
-$4,035.00
$4,035.00
PAL Holdings
29-Aug-86
14,000
$2,020.00
-$6,055.00
$2,020.00
PAL Holdings
4-Sep-86
22,000
$5,343.50
$2,167.00
$5,343.50
PAL Holdings
5-Sep-86
10,000
$2,833.30
$1,390.00
$8,176.80
PAL Holdings
9-Sep-86
10,000
$2,344.80
$900.00
$10,521.60
PAL Holdings
15-Sep-86
20,000
$5,349.60
$5,172.00
PAL Holdings
7-Oct-86
20,000
$9,740.00
$4,400.00
$14,912.00
Plenty River
30-Oct-86
8,000
$4,117.00
$10,795.00
Bell Group
19-Nov-86
8,944
$49,192.00
$0.00
$38,397.00
Plenty River
28-Nov-86
6,000
$4,077.40
$1,052.00
$4,077.40
Plenty River
1-Dec-86
2,000
$1,441.90
$350.30
$5,519.30
JN Taylor
1-Dec-86
10,000
$80,185.00
$0.00
$74.665.70
Brierley
16-Jan-87
5,000
$25,555.00
$0.00
$25,555.00
Action Hldgs
Unknown
5,000
$5,142.00
$0.00
$5,142.00
Action Hldgs
10-Apr-87
1,500
$2,181.85
$646.20
$2,181.85
Bell Group
10-Apr-87
550
$6,219.30
$0.00
$4,037.45
Action Hldgs
13-Apr-87
3,500
$5,115.35
$1,507.80
$5,115.35
Bell Group
13-Apr-87
500
$5,626.50
$0.00
$511.15
JN Taylor
13-Apr-87
4,000
$30,283.00
$1,342.00
$30,283.00
JN Taylor
14-Apr-87
6,000
$50,257.00
$2,013.00
$80,540.00
Bell Group
14-Apr-87
8,450
$96,080.00
$0.00
$15,540.00
$169,903.30
Less estimated reduction in capital funds due to fall in returned interest
$8,520.00
$161,383.30
Year ended 30 June 1989
20. The applicant derived $10,441 in bank interest in 1989 which he included in his assessable income in his income tax return for that year. The applicant purchased 105 Alma Road, North Perth in 1989 for $153,000 inclusive of incidental costs.
21. The respondent issued an amended assessment for 1989 on the basis that undeclared assessable income of $67,000 was required to earn declared interest of $10,441 and undeclared income of $125,000 was required to purchase 105 Alma Road, North Perth.
Year ended 30 June 1990
22. The applicant derived $15,040 in bank interest in 1990 which he included in his assessable income in his income tax return for that year. In 1990 the applicant deposited a $9,000 salary increase and a lump sum of $8,500.
23. The respondent issued an amended assessment for 1990 on the basis that undeclared assessable income of $15,000 was required to earn the $15,040 of bank interest. The amount of undeclared income was calculated on the basis that a capital sum of $32,000, deposited at an interest rate of 15.5% would earn interest of $15,040 and so the amount of undeclared income was $32,000 less deposits of $17,000.
Year ended 30 June 1991
24. The applicant paid a deposit to purchase 136 Vincent Street, North Perth in 1991.
25. The respondent issued an amended assessment for 1991 on the basis that undeclared assessable income of $20,000 was paid as a deposit to purchase 136 Vincent Street, North Perth.
Year ended 30 June 1992
26. In 1992 the applicant made a gift of $10,000 to Ms M Stankiewicz.
27. The respondent issued an amended assessment for 1992 on the basis that undeclared assessable income of $10,000 was gifted to Ms M Stankiewicz.
Year ended 30 June 1993
28.In 1993 the applicant paid a tax bill of $7,100.
29. The respondent issued an amended assessment for 1993 on the basis that undeclared assessable income of $7,100 was required by the applicant to pay a taxation liability of $7,100.
Year ended 30 June 1995
30. In 1995 the applicant used $25,800 to purchase a Peugeot motor vehicle; $35,689 to pay stockbrokers Potter Warburg; $8,500 to pay a deposit on the purchase of 1/112 Seventh Avenue and $8,500 to pay a deposit on 62 Salisbury Street. In the same year the applicant deposited $190,471 in bank accounts and derived net rent of $11,940 which he did not include in assessable income in his income tax return.
31. The respondent issued an amended assessment for 1995 on the basis that each of the amounts mentioned in para 30 of these reasons constituted undeclared assessable income of the applicant in 1995.
Year ended 30 June 1996
32. In 1996 the applicant used $42,500 to purchase a Peugeot motor vehicle and he made a gift of $20,000 to Ms Stankiewicz. In the same year he deposited $30,000 in a bank account.
33. The respondent issued an amended assessment to income tax for 1996 on the basis that each of the amounts mentioned in para 32 of these reasons constituted undeclared assessable income of the applicant in 1996.
Year ended 30 June 1997
34. In 1997 the applicant paid an accountant, Mr G Spence, $2,500 for accounting services. In the same year the applicant claimed an allowable deduction of $5,000 for accounting fees.
35. The respondent issued an amended assessment to income tax for 1997 on the basis that undeclared assessable income of $2,500 was paid to Mr Spence and the claim for an allowable deduction of $5,000 for accounting fees be disallowed.
36. At the outset of these proceedings the respondent conceded that the amount of $5,000 for accounting fees was an allowable deduction in 1997.
37. By s 14ZZK(b)(i) of the Taxation Administration Act 1953 the applicant had the burden of proving, on the balance of the probabilities, that the amended assessments in contention are excessive. The term ‘excessive’ relates to the amount of taxable income assessed, McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 271. In order to discharge the onus in relation to an assessment, it was encumbent upon the applicant to show positively the amount by which the assessed taxable income was greater than his actual taxable income for that year, Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88; George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 201; McCauley v Federal Commissioner of Taxation 88 ATC 4605; Federal Commissioner of Taxation v Dalco (1989-1990) 168 CLR 614 at 624-625.
38. The applicant’s explanation in his statement of facts and contentions, as to how he derived the disputed amounts for the years in contention is as follows.
“Year ended 30 June 1983
$5,200 undeclared income required to earn $650 bank interest
…
8.The principal sum in the savings account upon which the bank interest of $650 accrued, was withdrawn from the applicant’s cheque account with the National Australia Bank (‘the cheque account’) and deposited into the applicant’s savings account during the income year ended 30 June 1983.
9.The funds in the applicant’s cheque account that were transferred to the savings account were accumulated by the applicant over time and prior to 1 July 1982.
10.The applicant’s accumulated wealth has been held at various times in cash, investments in shares, bank deposits and a mixture of those holdings. The applicant’s investment affairs were managed by A C Goode & Co Melbourne and Potter Warburg Securities Ltd. The funds accumulated by the applicant arose from:
(a)his accumulated savings which in or about the 1974 year amounted to approximately $12,000.00;
(b)his gambling winnings including:
(i)winnings from Parading Frost in 1974 in the sum of approximately $45,000.00;
(ii)winnings from various other horses including True Colours, Hoboken, Johny Toledo, Karamea Snow, Rocket Racer, Satinover, Sam Simeon and Common Touch in the sum of $120,000.00 between the period 1970 and 1983;
(c) his gains on various shares and options acquired and sold;
(d)proceeds from the sale of cars he purchased and sold in the 1970’s in the profit sum of approximately $15,000.00
(e) his savings from 1974 to 1983.
11.During 1983 a substantial portion of the applicant’s accumulated wealth held in the cheque account was withdrawn and held in cash, initially at the home of the applicant’s parents. In 1991 the cash funds held at the home of the applicant’s parents were placed in a Commonwealth Bank of Australia cash deposit box. The applicant continued to maintain a significant proportion of his accumulated wealth in cash, topping up the pool of cash from time to time from the proceeds of asset sales.
Year ended 30 June 1984
$2,000 undeclared income required to earn $885 bank interest
…
14.The interest of $885 comprised the amount credited to the applicant’s savings account on the account balance during the income year ended 30 June 1984 and interest received by the applicant on a deposit with Police and Nurses Credit Society that matured during the income year ended 30 June 1984.
15.The principal sum held by the applicant in the savings account comprised the account balance at 1 July 1983.
16.The funds in the savings account and the funds deposited with the Police and Nurses Credit Society were from the applicant’s capital accumulated over time and prior to 1 July 1982, and referred to at paragraph 10 above.
Year ended 30 June 1985
$20,000 undeclared income required to earn $3,486 bank interest
…
19.The bank interest of $3,486 was, in part, interest credited to the applicant’s savings account on the balance of funds in the account and, in part, interest received on a deposit with Police and Nurses Credit Society that matured during the income year ended 30 June 1985.
20.The funds in the savings account and the funds deposited with the Police and Nurses Credit Society were from the applicant’s capital accumulated over time and prior to 1 July 1982, and referred to in paragraph 10 above.
Year ended 30 June 1986
$68,300 undeclared income required to purchase “Bell shares”
…
23. The applicant withdrew the funds to purchase the “Bell Shares” from the cheque account. The funds held in the cheque account were:
(a)in part, the applicant’s pre 1983 income year accumulated wealth referred to in paragraph 10 above;
(b)in part, proceeds from post 1983 share sales, interest received and wages that had been returned as assessable income by the applicant.
Year ended 30 June 1987
$161,383 undeclared income required to purchase shares
…
25.The applicant withdrew the funds to purchase shares during the year ended 30 June 1987 from the cheque account. The funds held in the cheque account were capital accumulated over time and not unreturned income derived in the income year ended 30 June 1987.
Year ended 30 June 1989
$125,000 undeclared income required to purchase 105 Alma Road, North Perth
$67,000 undeclared income required to earn declared interest of $10,441
…
27.The funds used by the applicant to acquire the residence at 105 Alma Road, North Perth came from:-
(a) a loan of $30,000 from the National Australia Bank;
(b) a withdrawal of $95,000 from the cheque account.
28.The interest of $10,441 received and returned was credited on funds held in the applicant’s accounts with the National Australia Bank during the year ended 30 June 1989.
29.The funds held by the applicant in the National Australia Bank during the year ended 30 June 1989 comprised deposits from the applicant’s pre 1983 accumulated wealth referred to at paragraph 10 above and his post 1983 share sale proceeds, interest received and wages income derived and returned.
Year ended 30 June 1990
$15,000 undeclared income required to earn declared interest of $15,040
…
32.The interest of $15,040 received and returned by the applicant was credited on funds held in the applicant’s accounts with the National Australia Bank during the year ended 30 June 1990.
33.The funds in the applicant’s accounts with the National Australia Bank during the year ended 30 June 1990 comprised funds accumulated by the applicant over time from pre 1983 accumulated wealth referred to at paragraph 10 above, post 1983 share sales, interest received, wages income and a repayment of money previously loaned by the applicant to his father.
Year ended 30 June 1991
$20,000 undeclared income for he deposit to purchase 136 Vincent Street North Perth
35.The funds used by the applicant to acquire the residence at Vincent Street, North Perth was withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.
Year ended 30 June 1992
$10,000 undeclared income to make a gift
…
37.The cash funds the applicant gifted to Ms Stankiewicz were withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.
Year ended 30 June 1993
$7,100 undeclared income to pay tax bill
…
39.The funds used by the applicant to discharge the $7,100 taxation liability were withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.
Year ended 30 June 1995
$25,800 undeclared income to purchase a Peugeot motor vehicle
$190,471 undeclared income deposited to bank accounts
$35,689 undeclared income to pay stockbroker Potter Warburg
$8,500 undeclared income for deposit on purchase of 1/112 Seventh Avenue
$8,500 undeclared income for deposit on purchase of 62 Salisbury Street
$11,940 undeclared net rent
…
41.The funds deposited by the applicant into bank accounts and the funds used by the applicant to:
·purchase a Peugeot motor vehicle;
·pay stockbroker Potter Warburg;
·make deposits on the purchase of 1/112 Seventh Avenue and 62 Salisbury Street;
were withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.
42.The net rent of $11,940 was assessable income of the applicant that he had failed to return through oversight. The applicant has since paid the income tax payable on this taxable income. This amount is not in issue.
Year ended 30 June 1996
$42,500 undeclared income to purchase a Peugeot motor vehicle
$30,000 undeclared income to make deposits to a bank account
$20,000 undeclared income to make a gift
…
44.The funds deposited by the applicant into a bank account and the funds used by the applicant to:
§ purchase a Peugeot motor vehicle;
§ make a gift to Ms Stankiewicz;
were withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.
Year ended 30 June 1997
$2,500 undeclared income to pay accountant G Spence
…
46.The funds used by the applicant to pay Mr Spence were withdrawn from the portion of the applicant’s accumulated capital held by the applicant as cash in the cash deposit box referred to at paragraph 11 above.”
39. The applicant’s evidence in chief was that in the period between the mid 1970s to 1983 he was involved in several activities as a result of which he was able to accumulate assets (A1). In particular these activities included his employment at the Inglewood Swimming Pool and at the Perth Entertainment Centre, gambling, investment in shares and options and car sales (A1).
40. He testified that he left school at 16 and started his working life as an apprentice printer. He was a millionaire, at least on paper, by 1981 when he was 25. He testified in chief, and under cross-examination by the respondent, to a series of remarkable serendipities as the source of his wealth. These events, according to his evidence, occurred some 20 to 30 years ago and so he had little or no recollection of the details of his good fortune.
41. The applicant’s evidence is contained in paras 2 to 23 of his witness statement (A1) as follows:
“2. The savings and assets which I accumulated prior to 1975 amounted to approximately $12,000. Between 1975 to 1983, as a result of my association with Nick and George August, who were substantial racehorse owners, I was able to bet very successfully. I was also friendly with Terry Pitsikas. Gambling winnings that I had prior to 1983 involved several wins by a horse called Parading Frost to the sum of approximately $45,000. I also had winnings from several other horses which totalled the sum of approximately $120,000 between 1970-1983. Much of my horse race winnings were the result of information received from various horse owners and jockeys. Through my association with Mr Daniel Frawley, I met a number of racehorse owners, and I gained a lot of information through meetings at the Tattersalls Club. At the time it was common for racing identities to meet at the Romany Restaurant in Northbridge for dinner, and one picked up a lot of information from the people there.
3. During the 1970s I bought and sold several cars which yielded a profit of approximately $15,000. Mr Frawley had a car yard, where I sold three or more motor cars. I was also friendly with Mick Buffton, from whom I bought cars and later sold these through Mr Frawley’s dealership. These were sales on commission. I used my various gambling winnings and profits from car sales to purchase shares in Wigmores Limited. I made a substantial profit on these upon the Bell Group takeover.
4. At the time this tax audit commenced, I did not have any records of Bank statements for the early periods nor did the Bank keep statements that pre-dated the period of the audit. I was not obliged to retained (sic) such documents for that period of time. As I banked with the National Australia Bank, I was advised to approach Messrs A C Goode & Co when I decided to embark on further stock market activity. I relied on that firm’s advice regarding a number of the investments which I made. In about 1975 I had developed a relationship with Janine Gillings, and I thought we were going to get married. That did not eventuate. In any event, I borrowed money from National Australia Bank, in respect of which my father stood guarantor. I sent that money to A C Goode, and that was invested on my behalf in the stock market.
5. A C Goode & Co advised me to build up a widely based portfolio. Although they operated through a Perth office, I always used the Melbourne office, and most of my dealings were with Mr Arthur Goode himself. He has since died, as far as I am aware.
6. During 1983, I withdrew $500,000-$600,000 from savings I had accumulated of $1-$1.5 million and stored it in a piano at my parent’s home. The $500,000-$600,000 was then later deposited into a safe deposit box in 1991. The deposit box was lodged with the Commonwealth Bank of Australia. My parents were then going on holiday for an extended period, and I had some concern as to the safety of the funds if their house were to be broken into while they were away. When the ATO commenced these audit proceedings, I was forewarned that the ATO might attempt to seize the cash which I held with the Commonwealth Bank of Australia, and so I removed it and stored it elsewhere.
7. In the years prior to 1983, I opened and maintained two accounts with the National Australia Bank. These were a savings account (“the savings account”) and a cheque account (“the cheque account”). My investment affairs were managed by A C Goode & Co, Melbourne and Potter Warburg Securities Ltd. I principally dealt with Evan Kakulas
8. In the financial year ended 30 June 1984, my Police & Nurses Credit Society deposits matured. I had acquired these deposits from the Society at some time prior to 1 July 1982. Again, there are now no records of the transactions for the reasons mentioned in paragraph 4. The Police & Nurses Credit Society was also unable to provide supporting records. I have since been able to locate a Certificate of Investment from the Police Credit Society for an amount of $15,538.62. At the time my deposit matured I rolled over this amount, and I gave the balance of the deposit which had matured, of $20,000, to my friend, Susan Burnett, who was the mother of one of our children. I continued to support Susan for a while until about 1987 when she went to Sydney and took up residence there. Susan and I had parted company in December 1984. My daughter, who was born in 1975, suffered from cystic fibrosis. She has subsequently died.
9. As I have mentioned, my daughter was afflicted with cystic fibrosis. In addition, in 1981 my son was involved in a motor car accident, as a result of which he was severely handicapped. In deciding to put some of my funds in readily realisable form, and to store the cash in my parent’s piano, I had in mind to create a form of trust account for them, where the money was held separately, and would not be available to meet the claims of creditors, particularly as it seemed likely that I would land up in a family law dispute with Janine Gilling as the mother of my daughter. It was around the same time that I made some investment with Police & Nurses Credit Society. I was also concerned about my potential liability in the event of family law disputes with Susan Burnett before she moved to Sydney. The balance of my funds were kept with the Bank.
10. In the year ending 30 June 1985, I had accrued bank interest of $3,486. I had accumulated this interest from a deposit with the Police & Nurses Credit Society, as well as funds that I had saved from earlier years.
11. In the year ended 30 June 1986, I bought 11,500 Bell Group shares. I used wealth accumulated prior to 1983 as well as post 1983 share sales to purchase these shares. All the wealth used for the purchase was acquired prior to the 30 June 1986 financial year. I do not now have any documents or bank statements because of the effluxion of time.
12. In the year ended 30 June 1987, I purchased approximately $161,383.30 of shares. These purchases were spread over a 8 month period from September 1986 through to April 1987. Copies of the share purchase invoices are located in document T15 pages 174-192. I drew funds from my cheque account to purchase these shares. I had acquired the funds in this cheque account from capital accumulated prior to 30 June 1987.
13. In the months of July and August 1988, I entered into negotiations and ultimately purchased the residence at 105 Alma Road, North Perth. The funds that I used to purchase this property came from a $30,000 National Australia Bank loan and a withdrawal of $95,000 from my cheque account. The National Australia Bank loan was secured. This is supported by document T22 at page 220. The history of $95,000 drawn from my cheque account comprised funds that I had acquired prior to the 30 June 1989 financial year. I am presently not certain as to the exact amount which I paid to acquire the Alma Road property, because it was a long time ago and those records are no longer available to me.
14. During the financial year ended 30 June 1989, I received $10,441 of interest on my cheque account. This is supported by document T109 at p.1230. The interest was duly returned and received on funds that I had acquired prior to the financial year ended 30 June 1989. These funds had come from accumulated wealth prior to 1983 as well as post 1983 share sales.
15. In the financial year ended 30 June 1990 I received interest of $15,040 on my cheque account. This interest was duly returned and received on funds that I had in the account prior to 1983.
16. In the financial year ended 30 June 1991, I entered into negotiations and made a deposit to purchase 136 Vincent Street, North Perth. I withdrew $20,000 for this deposit from my accumulated savings in my cash deposit box. This deposit box was held with the Commonwealth Bank of Australia as mentioned in paragraph 6.
17. In the year ended 30 June 1992, I made a $10,000 gift to Ms M Stankiewicz. The funds I used for this gift were drawn from my cash deposit box held with the Commonwealth Bank of Australia as mentioned in paragraph 5. I had been approached by her father who was unwell, and was concerned for his daughter’s wellbeing. He asked me to assist her to purchase a unit, but did not want me to disclose to her his involvement in the matter. Accordingly, a unit was bought in her name and I helped her pay for that, in total for an amount between $50,000 to $100,000 although I no longer have any records of my actual contribution.
18. In the year ended 30 June 1993, I had a tax liability of $7,100. To discharge this liability, I drew $7,100 from my cash deposit box as mentioned in paragraph 5. In 1993 my daughter died as a result of cystic fibrosis. My son’s medical condition had not improved. I accordingly decided to purchase investment properties, and did that over the next couple of years.
19. In the year ended 30 June 1995, I purchased a Peugeot motor vehicle for my partner, Marianne Stankiewicz, deposited funds into a bank account, paid a stock broker service fee for Potter Warburg, made deposits for the purchases of 1/112 Seventh Avenue as well as 62 Salisbury Street and I also received rent from investment properties. I drew funds from my cash deposit box in order to pay for the purchase of the motor vehicle, stock broker fees and deposits on the properties as mentioned at paragraph 5. The net rent that I had received from investment properties, amounting to $11,950, was omitted from my tax return through oversight. However, I paid this bill as soon as it came to light. At this time my health was not good, and I was under investigation by the NCA. I decided to reduce the money which I had with the Bank, and generally to scale back in my activities.
20. During 1995 I was served with papers by the National Crime Authority. I went to consult a lawyer, who advised me that I should be very careful, because the NCA had caused considerable problems for a number of people, including John Elliott. I was aware of this from what I read in the newspapers. My partner at the time, Marianne Stankiewicz was subpoenaed at the same time. She had an association via Red Ticket with some people, and I was advised that the best representation would be through a Mr Defteros, who advised me to make my records available to him and his accountant colleague, Mr Spence. I handed over to them all my records but I have, despite protracted litigation over a period of years, been unable to recover my records either from Mr Defteros or from Mr Spence.
21. In the year ended 30 June 1996, I purchased a motor vehicle for myself and made a further gift to Ms M Stankiewicz. I also made several deposits into a bank account which totalled $30,000. The funds that I used to make the gift, purchase the motor vehicle and make the deposits into the bank account were withdrawn from my cash deposit box referred to in paragraph 5.
22. Before I transferred my documents with Mr Gerard Spence on the advice of Mr Defteros, I had used as my accountant and tax agent Mr Gordon Forster of ITP. He no longer has any of my records, because these were handed over, in their entirety to Mr Defteros and to Mr Spence.
23. In the year ended 30 June 1997, I received a bill from Mr Gerard Spence for accounting services. I was advised to retain Mr Spence to take care of my taxation, financial and investment affairs. I paid the outstanding bill with cash from my cash deposit box mentioned above. I also claimed a deduction for these fees, though the ATO disallowed this claim. I contend that the advice I obtained from Mr Spence constituted advice regarding tax related matters, which is properly deductible. I am presently engaged in litigation with Mr Defteros, regarding misappropriation of funds and related matters. I have attempted, through those proceedings, to obtain my original documents from Mr Defteros and from Mr Spence, but I have been unable to do so thus far.”
42. The applicant confirmed in cross-examination that the references in his evidence to amounts of money are references to historic or nominal amounts and not amounts indexed to values current when he made his statement. He also confirmed that his witness statement was prepared, on his instructions, by a solicitor specialising in taxation law.
43. In 1995 the applicant was served with a summons to appear before the National Crime Authority (“the NCA Matter”), a matter adverted to in para 20 of the applicant’s witness statement which is reproduced in para 41 of these reasons. The applicant instructed a firm of solicitors in the NCA matter and, on their advice, handed them all his records. At the time of making his witness statement in April 2003, he was engaged in litigation with the solicitors for, amongst other things, the return of his documents. He tendered an affidavit of Mr. Martin Lawrence Bennett, who acted on his behalf in that matter, to which is annexed a copy of a decision of His Honour Justice Roberts-Smith delivered on 14 February 2003 in chambers in the Supreme Court of Western Australia and a copy of the Bill of Costs for Taxation filed by the applicant’s solicitors in the NCA matter pursuant to the order of Justice Roberts-Smith of 9 July 2001 (A3). Entry 156 of the Bill of Costs refers to an examination of the applicant’s financial documents including correspondence with stockbrokers, share statements, cheque butts, authorities, National Australia Bank home loan material, written authority gifting $20,000 to Ms. Stankiewicz, Land Tax Assessment Notices and other personal financial documentation. At para 6 of his affidavit, Mr Bennett says, from his own knowledge, that the applicant’s solicitors in the NCA matter have failed to discover the financial documents referred to in entry 156 of the Bill of Costs or return them to the applicant (A3).
44. Mr. Terence John Pitsikis testified on behalf of the applicant. He has known the applicant since he was 6 years old. Mr. Pitsikis has been involved in gambling since the age of 14 or 15. He recalled the applicant as having a lot of money as early as 1973 / 1974 which he believed he had won through gambling. He described the applicant as careful with his gambling windfalls and not prone to celebrating a win.
45. Mr. Pitsikis stated that his uncle had been successfully involved in horse racing since the 1950’s and that through his uncle he and the applicant became involved in betting syndicates. He said that between 1974 to 1982 / 1983 it was reasonably common for people to drug horses or use batteries to enhance a horse’s performance. He stated that in the 1970s he and the applicant won substantial sums by backing a horse called ‘Parading Frost’ which won four consecutive races. He said that the amount the applicant won at one of these race meetings looked “like it was about $20,000”. He had been informed by a strapper shortly before it won for the first time, that Parading Frost was to be “juiced”.
46. Mr. Pitsikis stated further that the applicant frequented the Romany Restaurant in Perth where “people would give tips regarding horses”. He recalled that at this time the applicant was phoning bets and that he was friendly with Mr Danny Frawley who was a source of racing information. Mr Pitsikis and the applicant also backed a horse called “Sam Simeon” which had many consecutive wins.
47. Mr. Pitsikis referred, amongst other things, to the circumstances in which he recalled the applicant wrote out a cheque for $5000 to purchase Wigmore shares, although, as he stated, he had no idea how much the applicant actually put in the share market. He said that the applicant contacted him in 1978 to say that he was going to the bank. He recalled going to the applicant’s house where the applicant removed a calico bag from the piano containing $80,000 or $90,000. He walked the applicant to his car and drove him to a branch of the National Australia Bank where, to the best of his knowledge, the applicant exchanged the cash for a bank cheque which he posted to his broker.
48. Mr. Pitsikis continued that on occasions he had seen the applicant remove money from the piano and count it. He sometimes helped the applicant count the money, the largest amount being about half a million dollars at a time when the applicant and his partner had stopped living together. It was Mr. Pitsikis’ belief that the applicant had withdrawn the money from the bank because he feared that his partner may make a claim on it.
49. Mr. Pitsikis concluded his evidence by saying that in the early 1990s the applicant believed that it was getting too dangerous to leave money in the piano at his parents’ house because he was afraid of break ins and the money being stolen. He said that the applicant moved the money from the piano to the Commonwealth Bank in Forrest Place leaving a small amount, $50, 000 or $60,000, as spending money, an amount that he does not recall counting.
50. Exhibit A4 is a letter of 28 May 2004 to the applicant from Mr. Gordon Foster of the Income Tax Professionals (Northern Zone) in which he states that he first prepared a personal income tax return for the applicant for the year ended 30 June 1984. In his letter he recalls the applicant operating a partnership with a woman sharing income from binocular hire at the entertainment centre, sales of green lights and T shirts. He states further that he remembers having to ask the applicant to obtain the correct interest earned from his bank as it was a significant amount and that after the introduction of capital gains tax in September 1985, when asked about shares sales, the applicant replied that he had not traded in shares since the introduction of capital gains tax. Mr. Foster concludes his letter by saying that there is not a lot which he can add because the applicant’s taxation return copies, held at his office, were taken by the Federal Police some time ago but he does recall making a mental note that the applicant had substantial cash at the bank for someone as young as the applicant then was.
51. The applicant tendered the witness statement of 9 May 2001 of a retired businessman Mr. Daniel Maurice Frawley who had died by the time of the hearing (A5). Mr. Frawley states that he was a horse owner from 1960 to 1982 and that from approximately 1975 to 1982 he and the applicant met regularly on Saturdays at the Ascot and Belmont Park race courses. At para 23 Mr. Frawley states that:
“[A]s far as I am able, I would estimate that through [the applicant’s] dealings at the track and particularly through his bets on Common Touch, Captain Blood and Pure Steel, his winnings were in the vicinity of $100,000 in cash. This is over and above money that [the applicant] would have lost in betting at the races.”
52. At para 22, of his statement, Mr. Frawley expresses the opinion that the knowledge and experience the applicant obtained through his associations with members of the racing industry meant that he was very successful in picking winning horses.
53. At para 24 of his statement, Mr. Frawley states that he was the principal for two car dealerships and that the applicant sold three or four vehicles through those dealerships over a couple of years at a net profit of approximately $15,000.
54. Exhibit A6 is a letter of 18 May 1998 to the applicant from Mr. Peter Gammell, Managing Director of Australian Capital Equity (Entertainment) Pty Limited, terminating the applicant’s employment at the Perth Entertainments Centre by reason of redundancy effective 16 May 1998. It is stated in the letter that the applicant rejected an offer of alternative employment and that Mr. Gammell was prepared to act as a referee in support of any future job application made by the applicant.
55. When the hearing resumed on 21 July 2004 the applicant called the evidence of Mr Steven Rukavina who was employed at the Perth Entertainment Centre as the Merchandising Manager when the applicant was the Operations Manager. He testified that his job was to coordinate the servicing of all merchandise available at performances and if there was a shortfall in sales revenue he would liaise with the applicant and the merchandising company to resolve the issue because as a general rule the Perth Entertainment Centre was responsible for such a loss. He stated that in regard to the sale of T Shirts, the system for the sale of such items was such that it was not possible to sell at a price higher than that set by the merchandising company.
56. The respondent tendered the affidavit of Mr. JSK Fletcher (R1) to which was attached photocopies of relevant pages from the annual reports for Wigmores Ltd. for the years 1974 to 1983 and for the Bell Group Ltd. For the years 1984 and 1985, and photocopies of the share prices for Wigmores Ltd, as reported in The West Australian, for the years 1974 to 1983 and of the share prices for The Bell Group Ltd, as reported in The West Australian for the years 1984 to 1986.
57. The respondent called Mr. R. B. MacPherson whose witness statement is exhibit R2. He was the assistant company secretary and company secretary, of Wigmores Ltd., which became Bell Resources Ltd. on 1 January 1984, from 1976 to 1990. He testified that he was responsible for duties that included shareholders’ requirements, maintaining the share registers, the preparation and payment of dividends and assisting with the preparation of the annual reports and sending them out to shareholders. He stated that he had been shown lists of the company’s 20 largest shareholders of ordinary shares and that he did not recall the applicant having been a shareholder of Wigmores during the period from 1974 to 1984 when Wigmores was taken over by Bell Group Ltd.
58. The respondent called Mr R.W. Kelly whose witness statements are exhibits R3 and R4. Between 1956 and 1989 Mr Kelly worked for Wigmores Ltd and Wigmores Tractors Pty Ltd. He held a number of positions at Wigmores Ltd from 1956 to 1982 including trainee accountant, assistant company secretary, company secretary and finance director. He testified that in 1974 Wigmores Ltd had roughly 1500 shareholders and that he was familiar with the largest shareholders either by name or by having met the individual shareholders or officers of the corporate share holders. He stated that there were hardly any transactions in the preference shares and that he would have known of quite a few of the remaining shareholders, recognising their names from mail outs. He testified that he did not recall the applicant having been a shareholder of Wigmores during the period from 1973 to 1984 when Wigmores was taken over. The applicant testified and the Tribunal finds, that he was born on 30 December 1955. So the applicant was 19 years old on 30 December 1974 and approximately 28 by 1983. Mr Kelly testified that he did not recall meeting any substantial shareholder within that age range and that the share register was very stable over the period that he was company secretary.
59. Mr P K O’Reilly, a racecourse investigator and special constable for the WA Turf Club, testified, on behalf of the respondent, that the WA Turf Club maintains a business data base of the performance of race horses on the WA Turf Club Racing Information System. His duties require that he have access to the database and he produced computer printouts of, the details of the performances of the horse ‘Captain Blood’ for the period 24 June 1978 to 25 October 1980 and of the horse ‘Common Touch’ from 24 September 1997 to 26 July 2980 (R5).
60. The next witness for the respondent was Mr Philip O’Hara, an accountant who worked in the office of the respondent from February 1998 to November 2000 (R6). It was not disputed, and the Tribunal finds, that in 1998, while working as a graduate auditor on rotation in the Special Investigation Unit in the office of the respondent, Mr O’Hara completed a special audit into the applicant’s assessments to income tax for the years 1983 to 1998. That enquiry required an investigation of the applicant’s financial affairs prior to 1983. On the basis of his investigations Mr O’Hara prepared an audit report (T154) and a summary of findings (T152). Under cross-examination by the applicant, Mr O’Hara was asked what the outcome of his audit report was and he testified that he concluded that the applicant’s explanation of the source of the disputed funds was not credible and that the applicant was not a major shareholder of Wigmore Pty Ltd. He testified further that in the course of his investigations, the applicant had provided no evidence of the source of his assets nor had he, Mr O’Hara, been able to find any.
61. When the hearing resumed on 21 July 2004 the respondent called the evidence of Mr Jack Ivankovich, a retired betting supervisor with the WA Trotting Association, a position he held from 1983 to 30 June 2003. He was referred to a report of the Trotting Meeting of Saturday, 21 September 1974 in the West Australian Newspaper of Monday, 23 September 1974 (T3) in which it was reported that the horse ‘Parading Frost’ ran third in the Red Legs Stakes, race 8 at Gloucester Park and that the betting for Parading Frost in that race drifted from 66/1 to 100/1. He stated that he knew from experience that the drift in odds from 66/1 to 100/1 meant that there would have been very little or no betting on this horse before the race (R7). He stated that if $40 had been placed on Parading Frost in Race 8 at Gloucester Park on 21 September 1974 with a bookmaker for a win only, the punter would have lost his money. Whereas if it had been an ‘each way’ bet the punter would have received approximately $340 at 66/1 or $520 at 100/1. He continued that it would have been possible for a bet of $40 to have been laid in this way and for the price to have drifted the way it did but there would not have been much more support than that. If the horse had been drugged to improve performance he would have expected the price of the horse to firm because those people who were aware that the horse had been drugged would have backed it.
62. Mr Ivankovich then referred to a report of the Trotting Meeting of 28 September 1974 in the West Australian Newspaper of 30 September 1974(T3) in which it was reported that ‘Parading Frost’ ran first in the Premiers Stakes, race 5 at Gloucester Park and that the betting for Parading Frost in that race firmed from 25/1 to 16/1. He stated that a win of $40,000 on Parading Frost would have required a bet of $1,600 at odds of 25/1 and that it is unlikely that a bet of that magnitude would have been accepted by any one bookmaker and it would probably have been spread amongst 3 or 4 of them, the first bet causing the price to fall across the ring making it unlikely that all of the money would have been put on at 25/1.
63. Mr Ivankovich referred to a report of the Trotting Meeting on 5 October 1974 in the West Australian Newspaper of 7 October 1974 (T3) that Parading Frost ran first in the Flying Doctor Handicap, race 5 at Gloucester Park and that the betting in Parading Frost for that race drifted from 20/1 to 25/1. He stated that a win of $40,000 would have required a bet of $2250 at 20/1 or $1800 at 25/1 but he did not believe that such a bet would have been placed because of the drift of the odds. In re-examination by the respondent, Mr Ivankovich confirmed that he was a bookmaker’s clerk from 1953 to 1983 and that he was familiar with the way bookmakers worked and took bets.
64. The respondent tendered a document entitled ‘Consumer Price Index, All Groups, Weighted Average of Eight Capital cities – Index Numbers for quarters March 1973 to March 2004, which has been certified by the Acting Regional Director of the Australian Bureau of Statistics (R8) and a copy of ‘A Guide to the Consumer Price Index, 14th Series of the Australian Bureau of Statistics released on 19 December 2000 (R9).
65. By the time of the directions hearing in this matter of 4 May 2004 the applicant was no longer legally represented. At that hearing the respondent undertook to prepare the further statement of issues referred to in para 3 of these reasons to fully inform the applicant of the assets in question and the onus he bore of proving, on the balance of the probabilities, that the funds to acquire those assets were not derived from undisclosed income, McCauley v Federal Commissioner of Taxation 88 ATC 4605 at 4613.
66. The nature of the burden of proof carried by a taxpayer in the position of the applicant is well established. The respondent is not required to show that the amended assessments are correct but rather it is for the applicant to prove that they are incorrect because he is presumed to know his own financial affairs and the respondent is not generally in a position to establish them independently; Case V126 88 ATC 784 at 786 and the passage cited from F.C of T v Clarke (1927) 40 CLR 246 at 251.
67. In McCauley v Federal Commissioner of Taxation 88 ATC 4605, the taxpayer argued that the sole source of the amounts which the Commissioner treated as undisclosed income was betting wins. The taxpayer kept few records of his betting activities and none was available by the time of the hearing. At p.4613 Lockhart J said:
“The source of these funds is peculiarly within the knowledge of the taxpayer. It is true that the Commissioner must conduct his investigations properly and explore avenues of information available to him to fulfil his statutory duties of making assessments; but it is for the taxpayer to establish that the unexplained increment in his wealth is due to betting wins.”
68. As is apparent from his statement of facts and contentions and from his evidence, the applicant contended that the principal sources of funds for his disputed assets were horse racing windfalls and the capital gains he derived from their investment in various securities including a substantial profit from the sale of shares in Wigmore Ltd when it became Bell Resources Ltd. When pressed in cross-examination to explain some of the details of these transactions the applicant was not forthcoming. He attributed this, somewhat disingenuously, to the passage of time, the loss of relevant documents and the fact that he had none, or very little, knowledge of the investment decisions made by his brokers in Melbourne on his behalf. The applicant testified to a series of fortuitous transactions occurring within a short space of time by which he became a millionaire at age 25. It is not unreasonable to expect at least some of the circumstances of those remarkable events, if they occurred and despite the effluxion of time, to be indelibly impressed on the applicant’s memory. The evidence of Mr Pitsikis and the untested statement of Mr Frawley were similarly devoid of relevant corroborating detail.
69. When confronted by the evidence of Messrs MacPherson and Kelly who testified convincingly that he had not been a major shareholder of Wigmores Ltd., the applicant, in cross-examination, suggested that he held his Wigmore shares indirectly. At no stage in the proceedings did the applicant produce evidence that his interest in Wigmore Ltd had been indirect and this shift in ground further detracted from the credibility of his evidence. There was nothing in the evidence or the applicant’s cross-examination, of the other witnesses called by the respondent to cause the Tribunal to question their credibility.
70. After careful consideration of all the evidence the Tribunal rejects the applicant’s explanation of how he derived his accumulated wealth, referred to in his evidence and in para 10 of his Statement of Facts and Contentions, as not credible, and so finds that he has not discharged the onus of showing positively the amount by which the assessed taxable income for the years ended 30 June 1983 to 30 June 1987 inclusive, for the years ended 30 June 1989 to 30 June 1993 inclusive and for the years ended 30 June 1995 and 30 June 1996, was greater than his actual taxable income in those years.
71. By virtue of the concession referred to in para 36 of these reasons, the Tribunal finds that the applicant has shown that the assessed taxable income for the year ended 30 June 1997 exceeds his actual taxable income for that year by $5000.
72. The applicant contended that the amended assessments are invalid because they are beyond the power conferred on the respondent by s 170 of the Act.
73. The respondent’s general discretionary power to amend an assessment is set out in ss 170(1) of the Act as follows:
“SECTION 170 AMENDMENT OF ASSESSMENTS
170(1) The Commissioner may, subject to this section, at any time amend any assessment by making such alterations therein or additions thereto as he thinks necessary, notwithstanding that tax may have been paid in respect of the assessment.”
74. Section 170(2) which places time limits on the respondent’s general power to amend an assessment was amended twice during the years in contention.
75. Prior to the first amendment in 1986, ss 170(2) provided:
“170(2) [No full and true disclosure] Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and there has been an avoidance of tax, the Commissioner may –
(a)where he is of opinion that the avoidance of tax is due to fraud or evasion – at any time; and
(b)in any other case – within 6 years from the date upon which the tax became due and payable under the assessment,
amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct an error in calculation or a mistake of fact or to prevent avoidance of tax as the case may be.”
76.In 1986 ss 170(2) was amended to read:
“170(2) [No full and true disclosure] Where a taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and there has been an avoidance of tax, the Commissioner may –
(a)where he is of opinion that the avoidance of tax is due to fraud or evasion – at any time; and
(b)in any other case – within 6 years from the date upon which the tax became due and payable under the assessment,
amend the assessment by making such alterations therein or additions thereto as he thinks necessary to correct the assessment.”
By s 25(1) of the amending act no 46 of 1986 the amendment applied to:
(a)assessments (not being amended assessments) made on or after 1 July 1986 in respect of income of the year of income that commenced on 1 July 1985 or of any subsequent year of income; and
(b)the first and any subsequent amendment of such an assessment.
77.In 1990 ss 170(2) was further amended to read:
“170(2) [Avoidance of Tax] Subject to this section, where there has been an avoidance of tax, the Commissioner may:
(a)if the Commissioner is of the opinion that the avoidance of tax is due to fraud or evasion – at any time; and
(b)in any other case:
(i)where the taxpayer is a relevant entity within the meaning of Division 1B of Part VI and the assessment is deemed by section 166A to have been made – within 4 years from the date upon which the assessment is so deemed to have been made; or
(ii)otherwise – within 4 years from the date upon which the tax became due and payable under the assessment;
amend the assessment by making such alterations in it or additions to it as the Commissioner thinks necessary to correct the assessment.”
By s 31(1)(a) of the amending act no 20 of 1990 the amendment applied to assessments for the year of income ending 30 June 1990 and all subsequent years made on or after 17 January 1990.
78. So the amended assessments for the years ended 30 June 1983 to 30 June 1987 and for the year ended 30 June 1989 will be within the power to amend conferred on the respondent by s 170 if the applicant did not make a full and true disclosure of all the material facts necessary for his assessments for those years and there has been an avoidance of tax which in the opinion of the respondent was due to fraud or evasion.
79. It has been the contention of the applicant that the amounts treated as undisclosed income by the respondent in the amended assessments were correctly not disclosed because they are principally referable to non-assessable windfalls and subsequent gains in capital. The Tribunal has found that the evidence adduced by the applicant in this regard was not credible. Consistently with this finding, the Tribunal finds that the applicant did not make a full and true disclosure of all the material facts necessary for his assessments to income tax for the years in dispute because he deliberately did not disclose income in the relevant returns in circumstances where he had no credible reason for doing so see Barripp v Commissioner of Taxation (NSW) (1941) 65 CLR 661. In Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 at 313 Dixon J said the following about the meaning of ‘evasion’:
“It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede is conduct which if the result is to avoid tax would justify finding evasion”.
See also Evans v FCT 89 ATC 4540 at 4554 and Case X61 90 ATC 448.
80. So the Tribunal finds that the amended assessments for the years ended 30 June 1983 to 30 June 1987 and for the year ended 30 June 1989 are within the discretionary power conferred on the respondent by s 170 of the Act because material facts necessary for the applicant’s assessment were omitted from the relevant returns and there was an avoidance of tax due to evasion.
81. The amended assessments for the years ended 30 June 1990 to 30 June 1993 will be within the power conferred by s 170 if, for those years, there has been an avoidance of tax due to fraud or evasion. The Tribunal finds, for the reasons set out in para 79 of these reasons, that the amended assessments for 1990 to 1993 are within the power of amendment conferred on the respondent by s 170 of the Act.
82. As the amended assessments for the years ended 30 June 1995 to 30 June 1997 were made within 4 years from the date upon which the tax under the assessments for those years became due and payable, they are within the power conferred on the respondent by s 170 if there has been an avoidance of tax in those years. The Tribunal finds, for the reasons set out in para 79 of these reasons that the amended assessments for 1995 to 1997 are within the power of amendment conferred on the respondent by s 170 of the Act.
83. The Tribunal finds that there is no basis for remitting all or part of the additional taxes assessed in the amended assessments.
84. The Tribunal affirms the objection decisions under review in respect of the applicant’s amended assessments for the years ended 30 June 1983 to 30 June 1987 inclusive; for the years ended 30 June 1989 to 30 June 1993 inclusive and for the years ended 30 June 1995 and 30 June 1996.
85. The Tribunal sets aside the objection decision under review in respect of the applicant’s amended assessment for the year ended 30 June 1997 and directs that the respondent issue a further amended assessment to the applicant for the year ended 30 June 1997 on the basis that an amount of $5,000 for accounting fees was an allowable deduction to the applicant in that year.
I certify that the 85 preceding paragraphs are a true copy of the reasons for the decision herein of Associate Professor G A Barton, Member
Signed: .........................(sgd EM Jordan)............................
AssociateDate/s of Hearing 14 – 16 June 2004, 21 July 2004
Date of Decision 29 June 2005
Solicitor for the Applicant Self represented
Counsel for the Respondent Mr J A Scholz
Solicitor for the Respondent Mr D Carlson
Australian Government Solicitor
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Statutory Interpretation
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Taxable Income
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Assessments
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Discretionary Power
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Avoidance of Tax
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Evasion
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