VTBL and Commissioner of Taxation (Taxation) - [2023] AATA 168

VTBL and Commissioner of Taxation (Taxation) [2023] AATA 168 (13 February 2023)
ReviewNumber:       2016/2809, 2016/2810, 2016/2811, 2017/7664
Division:                  TAXATION AND COMMERCIAL DIVISION
File Numbers:         2016/2809, 2016/2810, 2016/2811, 2017/7664
Re:VTBL
APPLICANT

AndCommissioner of Taxation
RESPONDENT

Decision
Tribunal:Deputy President Boyle
Date:13 February 2023
Place:Perth

Applications 2016/2809, 2016/2810, 2016/2811
The objection decision is varied in relation to the 2009, 2010 and 2011 default assessments to allow the objection to the inclusion of eight properties the subject of the proceedings in the default assessments.
The objection decision is varied in relation to the 2009, 2010 and 2011 default assessments to allow the objection to the inclusion of money passing through the NAB Flexi Account and the Bendigo Bank accounts ending in ----8627 and ----2227 as the Applicant’s income or the Applicant’s property in the default assessments.
The objection decision is varied in relation to the 2010 and 2011 default assessments to allow the objection to the 20 per cent uplift to the penalties under s 284-220 of the Taxation Administration Act 1953 (Cth).
The objection decision is varied to remit the penalty imposed in respect of the shortfall in the 2011 year caused by director’s fees being returned a year early.
Application 2017/7664
The objection decision in relation to the 2016 special assessment is varied to allow the objection to inclusion of 676 (Lot 3) Anketell Road, Anketell in the special assessment.
...[SGD].....................................................................
Deputy President Boyle
Catchwords
TAXATION – four applications for review of objection decisions – whether assessments excessive or otherwise incorrect – whether Applicant held properties on trust or for her own benefit – use of bank accounts – betterment principle – whether shortfall penalties correctly imposed – whether penalties should be remitted in whole or in part – whether 2009 and 2010 assessments validly issued under ITAA 1936 s 170(1) item 5 – whether Respondent had formed the opinion that there had been fraud of evasion – reviewable decisions varied
PRACTICE AND PROCEDURE – TAA s 14ZZK(b) – Applicant must prove assessment excessive or otherwise incorrect and what assessment should have been – evidence before the Tribunal – Applicant and Applicant’s de facto partner called to give evidence – credibility of evidence – Respondent sought that Tribunal make adverse inference in relation to failure to call witnesses – financial analysis provided by Applicant’s witness relied on source material – admissibility of unstamped deeds
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) s 43(1)
Corporations Act 2001 (Cth) pt 5.3A, ss 435A, 436A
Duties Act 2008 (WA) s 279
Income Tax Assessment Act 1936 (Cth) ss 96, 166, 167, 168, 170, 170(1), 170(1) item 5, 170(2), 227(3), 264
Income Tax Assessment Act 1997 (Cth) ss 6-5, 6-5(1), 104-10, 115-25, 960-100(3), pt 3-1
Property Law Act 1969 (WA) ss 9(1), 34
Stamp Act 1921 (WA) ss 16, item 8
Taxation Administration Act 1953 (Cth) ss 8AAG(5)(a), 8AAG(5)(b), 14ZZC, 14ZZE, 14ZZJ, 14ZZJ(2D), 14ZZK, 14ZZK(a), 14ZZK(b), 14ZZK(b)(i), 284-75, 284-75(1), 284-75(5), 284-90, 284-90(1), 284-220, 284-220(1), 284-220(1)(a), 284-220(1)(c), 353-10, sch 1
Transfer of Land Act 1893 (WA) ss 55(1), 63, div 3
Tax Laws Amendment (2010 Measures No. 1) Bill 2010 (Cth)
Cases
Acemont Pty Ltd v Sunlong Holdings Pty Ltd (2009) 77 ATR 647; [2009] WASC 249
Adamson v Hayes (1973) 130 CLR 276
Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation (1953) 88 CLR 23
Bailey and Commissioner of Taxation (Cth) (1977) 136 CLR 214
Barripp v Commissioner of Taxation (NSW) (1941) 6 ATD 69
Baumgartner v Baumgartner (1987) 164 CLR 137
Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534; [2016] FCAFC 163
Bosanac v Federal Commissioner of Taxation [2018] ATC 10-474; [2018] AATA 472
Bosanac and Federal Commissioner of Taxation [2019] AATA 1240
Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524
Commissioner of Taxation v Ross (2021) 174 ALD 77; [2021] FCA 766
Commissioner of Taxes (SA) v Executor & Trustee Agency Co of South Australia (1938) 63 CLR 108
Conlan v Registrar of Titles (2001) 24 WAR 299
Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Di Pietro v Official Trustee in Bankruptcy (1995) 59 FCR 470
Dixon v Commissioner of Taxation (2008) 167 FCR 287; [2008] FCAFC 54
Ebner v Federal Commissioner of Taxation (2006) 63 ATR 1073
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199
Gashi v Commissioner of Taxation (2012) 88 ATR 895; [2012] FCA 638
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30
George v Federal Commissioner of Taxation (1952) 86 CLR 183; [1952] ALR 961
George v Fletcher (Trustee) [2010] FCAFC 53
Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315; [2015] FCAFC 92
Hart v Federal Commissioner of Taxation (2003) 131 FCR 203
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Howes v Comcare [2016] FCA 1521
Jones v Dunkel (1959) 101 CLR 298
Keech v Sandford (1726) 25 ER 223
Kia Ora Gold Corp NL v Washer [1982] WAR 306
Knight v Knight (1840) 49 ER 58
Le v Commissioner of Taxation [2021] FCA 303
Leach v Comcare (2021) 285 FCR 326; [2021] FCAFC 134
Lewis v Condon (2013) 85 NSWLR 99
LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517
LLUN and Commissioner of Taxation [2017] AATA 3058
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Nguyen v Commissioner of Taxation (2018) 265 FCR 355; [2018] FCA 1420
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Rio Tinto Ltd v Federal Commissioner of Taxation (2004) 55 ATR 321
Rochefoucauld v Boustead (1897) 1 Ch 196
Commissioner of Taxation v Ross (2021) 174 ALD 77; [2021] FCA 766
Russell v Federal Commissioner of Taxation (2009) 74 ATR 466; [2009] FCA 1224

Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483; [2013] FCAFC 50
Scott v Federal Commissioner of Taxation (No 2)(1966) 40 ALJR 265
Shawinigan Ltd v Vokins & Co Ltd [1961] 1 WLR 1206
Shields and Commissioner of Taxation [1999] AATA 4
Stevenson v Federal Commissioner of Taxation (1991) 29 FCR 282

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319
Vestas - Australian Wind Technology Pty Limited and Comptroller-General of Customs (2017) 72 AAR 119; [2017] AATA 791
XQDX and Commissioner of Taxation (2021) 114 ATR 170; [2021] AATA 4070
Secondary Materials
Commissioner of Taxation, Income tax: am I carrying on a business of primary production? (TR 97/11, 4 June 1997)
Australian Taxation Office, Practice Statement Law Administration (PS LA 2012/5, 25 June 2020)
Explanatory Memorandum, Taxation Laws Amendment (Self Assessment) Bill 1992 (Cth) 89
REASONS FOR DECISION
Deputy President Boyle
13 February 2023
the applications

The Applicant has made four applications by which she seeks the review of objection decisions made by the Respondent. The hearing of these applications was, at the request of the Applicant under s 14ZZE of the Taxation Administration Act 1953 (Cth) (TAA), held in private.[1]
background
[1] Pursuant to s 14ZZJ(2D) of the TAA, the Tribunal is required to ensure that, as far as practicable, the reasons for decision are framed so as not to be likely to enable the identification of the Applicant. I have, accordingly, given the Applicant and her partner a pseudonym and, as far as is practicable, avoided the inclusion of information which would readily identify the Applicant. For this reason, some of the company and trust names cited in this decision are also anonymised.
Applications 2016/2809, 2016/2810 and 2016/2811
The following facts are taken from paras 6–31 of the Respondent’s Amended Statement of Facts, Issues and Contentions in matters 2016/2809–2016/2811 (Respondent’s 2016 SFIC) which are admitted by the Applicant.[2]
[2] Applicant’s Amended Substituted Statement of Facts, Issues and Contentions in applications 2016/2809–2016/2811 (Applicant’s 2016 SFIC) para 4.
2009 tax year
The Applicant lodged an income tax return for the year ended 30 June 2009, disclosing a taxable income of $44,067 on 8 March 2010.[3]
[3] Hearing Book (HB) HB/5201.
On 29 March 2010, the Respondent issued a notice of assessment of income tax to the Applicant in the amount of $4,024.78 based on a taxable income of $44,067 for the year ended 30 June 2009.[4] On 7 September 2010, the Respondent issued a notice of amended assessment allowing further non-refundable tax offsets,[5] again based on a taxable income of $44,067.
[4] T4; HB/5204.
[5] T5; HB/5208.
2010 tax year
On 11 August 2010, the Applicant lodged an income tax return for the year ended 30 June 2010 disclosing a taxable income of $37,536.[6]
[6] T6/46; HB/5219.
On 31 August 2010, the Respondent issued a notice of assessment of income tax based on a taxable income of $37,536 to the Applicant for the year ended 30 June 2010.[7]
[7] T7; HB/5221.
On 1 November 2011, the Respondent issued a notice of amended assessment of income tax to the Applicant for the year ended 30 June 2010 based on a taxable income to $41,007.[8]
[8] T8/52; omitted from HB.
2011 tax year
The Applicant lodged an income tax return for the year ended 30 June 2011 disclosing a taxable income of $25,905 on 23 April 2012.[9]
[9] T9; HB/5232.
On 3 May 2012, the Respondent issued a notice of assessment of income tax based on a taxable income of $25,905 to the Applicant for the year ended 30 June 2011.[10]
[10] T10.
On 11 April 2014, the Respondent issued a notice of amended assessment of income tax to the Applicant for the year ended 30 June 2011 based on a taxable income of $27,242.[11]
[11] T11; HB/5236.
Audit
By letter dated 4 May 2012,[12] the Respondent notified the Applicant that he was commencing a preliminary risk review of her tax affairs and the tax affairs of entities controlled by the Applicant, for the 2008−2010 income years.
[12] T12; 5240–1.
By letter dated 16 July 2012,[13] the Respondent notified the Applicant that he was proceeding with a comprehensive risk review of her tax affairs and of those of her controlled entities, for the years ended 30 June 2008, 30 June 2009, 30 June 2010 and 30 June 2011.
[13] T14; HB/5244–5.
By letter dated 24 January 2013,[14] the Respondent notified the Applicant that the comprehensive risk review had been finalised and that an audit would examine various tax risks identified in that review.
[14] T19; HB/5259.
Under cover of a letter dated 22 April 2013,[15] the Respondent issued to the Applicant two notices[16] under s 264 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), which required the Applicant to provide information and produce various documents as listed in the notices.
[15] T25; HB/5359–75.
[16] s 264 notice.
On or about 26 August 2013, the Applicant provided a partial response to the s 264 notices.[17]
[17] T29/247; HB/5412.
By letter dated 23 January 2015, the Respondent notified the Applicant that the audit had been completed and that amended assessments under s 167 of the ITAA 1936 would be issued to give effect to the findings of the audit.[18]
[18] T45; HB/6008–43.
Section 167 ITAA 1936 Default Assessments
On 23 January 2015, the Respondent issued a notice of amended assessment under s 167 of the ITAA 1936 to the Applicant for the year ended 30 June 2009 (2009 default assessment)[19] as follows:
(a)Amended taxable income: $3,774,815.00;
(b)amended assessed tax payable: $1,673,108.75;
(c)Medicare levy: $56,622.22; and
(d)shortfall interest charge: $723,393.20.
[19] T46; HB/6044–47.
On 23 January 2015, the Respondent issued an amended assessment under s 167 of the ITAA 1936 to the Applicant for the year ended 30 June 2010 (2010 default assessment)[20] as follows:
(a)Amended taxable income: $5,420,274.00;
(b)amended assessed tax payable: $2,409,397.30;
(c)Medicare levy: $81,304.11; and
(d)shortfall interest charge: $796,654.05.
[20] T47; HB/6048–51.
On 23 January 2015, the Respondent issued an amended assessment under s 167 of the ITAA 1936 to the Applicant for the year ended 30 June 2011 (2011 default assessment)[21] as follows:
(a)Amended taxable income: $4,097,663.00;
(b)amended assessed tax payable: $1,815,433.35;
(c)Medicare levy: $61,464.94; and
(d)shortfall interest charge: $320,355.45.
[21] T48; HB/6052–5.
The Respondent issued the 2009 default assessment, the 2010 default assessment and the 2011 default assessment having, according to the Respondent, formed the view that there had been an avoidance of tax in each year due to evasion.[22]
[22] T44; HB/5987–6007.
On 23 January 2015, the Respondent issued a notice of assessment of shortfall penalty to the Applicant (penalty assessment)[23] assessing the Applicant as being liable to shortfall penalties under s 284−75(1) of sch 1 to the TAA in the following amounts for the following years:
(a)Year ended 30 June 2009: $1,554,483.76.
(b)Year ended 30 June 2010: $2,242,469.61.
(c)Year ended 30 June 2011: $1,691,066.96.
[23] T49; HB/6056–7.
On 1 April 2015, the Applicant lodged an objection to each of the 2009, 2010 and 2011 default assessments and to the penalty assessments.[24] The relevant grounds of the objection were stated to be as follows:
[24] T50; HB/6058–72.
(a)The taxable income for each of the years was as declared in the Applicant’s income tax returns.
(b)The Respondent was not authorised to issue assessments under s 170 of the ITAA 1936 as the Respondent had acted tentatively, arbitrarily, in bad faith or otherwise contrary to law.
(c)The assessments were excessive because:
(i)The assessments included income from the proceeds of sale of property that was not beneficially owned by the Applicant.
(ii)The assessments included income from deposits into bank accounts where the deposits were not for the benefit of the Applicant.
(iii)The assessments included income from withdrawals from bank accounts where the withdrawals were not for the benefit of the Applicant.
(iv)The assessments included withdrawals from bank accounts which were not personal expenditure of the Applicant.
(v)The Respondent had incorrectly interpreted s 6-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
(vi)The Respondent failed to exercise his discretion to remit the penalties.
(d)In addressing the ground, “bad faith”:
(vii)In 2010 a delegate of the Respondent audited the Applicant and her related entities and accepted that parent lots of the properties sold, or the properties themselves, were for the benefit of entities other than the Applicant herself.
(viii)The Applicant attached a cover letter dated 10 May 2010 attaching an audit decision of a delegate of the Respondent. The delegate found that several of the parent lots of the properties were beneficially owned by entities other than the Applicant.
(ix)The assessments were therefore not issued in accordance with the Commissioner’s statutory power, or otherwise, were issued in bad faith and were not authorised by the ITAA 1936 s 170.
(e)The assessments were issued pursuant to an asset betterment test. They are therefore estimates of the Applicant’s assessable income for the years in question. The Respondent was required to make a genuine attempt to determine the Applicant’s taxable income, which he did not do. This amounted to the Respondent acting in bad faith.
(f)The Respondent had included properties in the net assets of the Applicant twice, by including both the parent lot and subdivided lot. Items contained in the asset betterment calculation[25] under the heading “other income” were duplicated, and should have been omitted from the assessments.
(g)The Respondent is not authorised to collect income tax twice in respect of the same source of income. The properties in question were beneficially owned by entities other than the Applicant.
(h)The Respondent was not entitled to issue amended assessments for the 2009 and 2010 years as the Respondent could not have formed a valid opinion that shortfalls resulted from fraud or evasion, or, in the alternative, the Respondent’s opinion was arbitrary, capricious, erroneous, unreasonable and void, based on a mistaken or inadequate understanding of the facts.
(i)The Respondent incorrectly interpreted the penalty provisions of the TAA.
(j)The Respondent should have remitted the administrative penalties because the Applicant believed, on reasonable grounds, that all of the income attributed to her was properly the income of other entities.
(k)The penalty is harsh in the circumstances and the Respondent should have exercised his discretion to remit that administrative penalty in whole or in part.
(l)If interest is payable, the Respondent should exercise the discretion to remit the interest in whole or in part.
[25] See HB/6039–42.
On 4 April 2016, the Respondent issued a notice of objection decision[26] to the Applicant in which he:
(a)partially allowed the objection to the 2009 default assessment, the 2010 default assessment and the 2011 default assessment; and
(b)partially allowed the objection to the penalty assessment.[27]
[26] T144; HB/6843–4.
[27] T144; HB/6843.
In his reasons for the objection decision,[28] the Respondent explained the partial allowance of certain of the objections as being based on the Respondent’s acceptance that 11 of the 21 properties which had been assessed as being beneficially owned by the Applicant, were held by her on trust for others.[29] Two of the 21 properties had been sold in 2008 and were not included in the calculation of the assessable incomes for the relevant years.
[28] HB/297–311.
[29] HB/301–2.
By the objection decision the Respondent amended:
(a)the Applicant's taxable income for the year ended 30 June 2009 to $2,487,475;
(b)the Applicant's taxable income for the year ended 30 June 2010 to $3,865,424;
(c)the Applicant's taxable income for the year ended 30 June 2011 to $4,065,513; and
(d)the shortfall penalty assessments in accordance with the reduction in the Applicant's taxable income in each of the years ended 30 June 2009, 30 June 2010 and 30 June 2011.
On 12 April 2016, the Respondent issued an amended assessment to the Applicant for the year ended 30 June 2009[30] giving effect to the objection decision as follows:
(a)Amended taxable income: $2,487,475.00;
(b)amended assessed tax payable: $1,093,805.75;
(c)amended Medicare levy: $37,312.12; and
(d)credit reduction in shortfall interest charge: $252,454.02.
[30] T145; HB/6845.
On 12 April 2016, the Respondent issued an amended assessment to the Applicant for the year ended 30 June 2010[31] giving effect to the objection decision as follows:
(a)Amended taxable income: $3,865,424.00;
(b)amended assessed tax payable: $1,709,714.80;
(c)amended Medicare levy: $57,981.36; and
(d)credit reduction in shortfall interest charge: $233,123.63.
[31] T146; HB6849.
On 12 April 2016, the Respondent issued an amended assessment to the Applicant for the year ended 30 June 2011[32] giving effect to the objection decision as follows:
(a)Amended taxable income: $4,065,513.00;
(b)amended assessed tax payable: $1,800,965.85;
(c)amended Medicare levy: $60,982.69; and
(d)credit reduction in shortfall interest charge: $2,584.69.
[32] T147; HB/6853.
On 5 April 2016, the Respondent entered the following credits to the Applicant's income tax account to give effect to the objection decision:
(a)Reduction to shortfall penalty for year ended 30 June 2009: $593,672.06;
(b)reduction to shortfall penalty for year ended 30 June 2010: $651,921.10; and
(c)reduction to shortfall penalty for year ended 30 June 2011: $15,313.11.

On 27 May 2016 the Applicant lodged the application for review of the objection decision with the Tribunal. I note that the application for review was therefore lodged within 60 days after the receipt of the objection decision by the Applicant as required by s 14ZZC of the TAA.
The issues for determination in applications 2016/2809, 2016/2810 and 2016/2811
The Applicant’s 2016 SFIC identified the substantive issues for determination to be as follows:
(a)Whether, in relation to each relevant tax year, the Applicant has discharged the burden under s 14ZZK(b) of the TAA to prove that the assessment is excessive and what the correct amount of the Applicant’s assessable income was.
(b)Whether, in respect of the sales of properties registered in the name of the Applicant in each relevant tax year, the Applicant held the properties beneficially for another entity such that the proceeds of sale of the properties are not to be included in the Applicant’s assessable income.
(c)Whether, in respect of bank accounts in the Applicant’s name, the amounts withdrawn and the variations in amounts held in the accounts in each relevant tax year should be treated as part of the Applicant’s assessable income.
(d)Whether transactions in and out of credit card accounts held by the Applicant in each relevant tax year should be treated as part of the Applicant’s assessable income.
(e)In respect of the assessments issued by the Respondent for the taxable years 2009 and 2010, whether the Applicant has discharged the onus of showing that the opinion that there had been evasion should not have been formed such that the statutory condition for the power to amend under s 170(1) item 5 of the ITAA 1936 is not satisfied.
(f)In respect of the administrative penalties imposed under s 284-75(1) of sch 1 to the TAA, whether the rate of 75 per cent was correctly applied and whether an increase in the base penalty rate of 20 per cent imposed under s 284-220(1) of sch 1 to the TAA was correctly applied.
The Respondent’s 2016 SFIC identified the issues for determination to be:
(a)whether the default assessments issued in respect of each of the tax years is excessive;
(b)whether the shortfall penalties, as adjusted by the objection decision, were correctly imposed and whether the penalties should be remitted in whole or in part; and
(c)whether the 2009 and the 2010 default assessments were validly issued under s 170(1) item 5 of the ITAA 1936.
By para 36 of the Respondent’s 2016 SFIC, the Respondent disputed that the matters identified by the Applicant as set out in [31(b), 31(c) and 31(d)] above are matters that arise for determination in these proceedings. The Respondent provided no explanation of why he contended that those issues identified by the Applicant are not to be determined in these proceedings. They were matters raised by the objection[33] and, in respect of the issues identified in [31(b)] and [31(c)], were noted in para 16 of the Respondent’s outline of submissions dated 4 February 2022 as still being pursued by the Applicant. Much of the evidence, both written and oral, related to these issues and a significant portion of the hearing was taken up in examining them. They were also extensively canvassed in the parties’ respective closing submissions. I assume that the point that the Respondent seeks to make in para 36 of his 2016 SFIC is that, in the final analysis, the Applicant must establish two things, firstly, that the 2009, 2010 and 2011 default assessments were excessive and, secondly, what the Applicant’s actual taxable income for those years was. While that is what the Applicant must achieve, determination of the issues identified by the Applicant will, in part at least, determine what the Applicant’s taxable income for the relevant years was and whether the default assessments were excessive. The determination of those issues is also relevant to whether the Respondent formed the opinion that there had been fraud or evasion in respect of the 2009 and 2010 returns made by the Applicant to enliven the Respondent’s power to issue amended assessments under s 170 of the ITAA 1936, which the Respondent identifies as an issue for determination (see [32(c)] above). In that regard, the Respondent’s Fraud or Evasion Opinion[34] identified the Respondent’s opinion of evasion as being based, amongst other things, on the variance between the Applicant’s declared income and the asset betterment calculation made by the Respondent in respect of the 2009, 2010 and 2011 tax years.[35] That asset betterment calculation by the Respondent was made on the basis that the properties in question were beneficially owned by the Applicant. Even more directly, the Respondent asserted that his opinion that the Applicant had engaged in evasion was also based on the Applicant’s failure to disclose “significant amounts of funds [that the Applicant] had derived when [the Applicant] disposed of numerous properties in both [sic] the 2009 to 2011 income years”.[36] That assertion is also obviously based on the Applicant being the beneficial owner of the properties in question.
[33] T50; HB/6058–72.
[34] T44; HB/5987–6008.
[35] T44; HB/5988–9
[36] T44; HB/5989.
During the course of the hearing various further issues arose. I address those further issues in dealing with the substantive issue in relation to which the further issues arose.
The ultimate issues for determination are those identified by the Respondent as set out in [32] above. Determination of those issues, however, requires consideration of the other issues identified by the Applicant, all of which were the subject of evidence and submissions by both parties.
Application 2017/7664
The following facts are taken from the Applicant’s and the Respondent’s respective SFICs in application 2017/7664.[37]
[37] Respectively, the Applicant’s 2017 SFIC and the Respondent’s 2017 SFIC.
Between November 2005 and December 2015, the Applicant was the registered proprietor of 676 (Lot 3) Anketell Road, Anketell.
The Applicant purchased Anketell Road for $1,400,000 in November 2005 and sold it on 9 December 2015 for $3,696,000 (GST inclusive). The Applicant purported to sign the contract for sale of Anketell Road in August 2015 as the trustee for the G Holdings Trust.
The 2016 special assessment
On 30 June 2016 the Respondent issued a special assessment under s 168 of ITAA 1936 for the year ended 30 June 2016 (the 2016 special assessment).[38]
[38] T46; HB/8180.
The 2016 special assessment assessed the Applicant’s tax liability as follows:
(a)Taxable income: $1,960,000.00;
(b)assessed tax payable: $855,547.00;
(c)Medicare levy: $39,200.00; and
(d)temporary budget repair levy: $35,600.00.
On 6 March 2017, the Applicant lodged an objection to the 2016 special assessment.[39]
[39] T50; HB/8207–17.
On 18 December 2017, the Respondent issued the objection decision to the Applicant disallowing the objection.[40]
[40] T111; HB/8581–2.
The Applicant lodged the application for review of that objection decision in the Tribunal on 21 December 2017 which, I note, is within the time prescribed by s 14ZZC of the TAA (see [30] above).
The issues for determination application 2017/7664
The Applicant’s 2017 SFIC identified the issues for determination to be:
(a)Whether the Applicant held Anketell Road on her own account or as a trustee.
(b)If the Applicant held Anketell Road as the beneficial owner, whether she held it on a capital account or a revenue account (i.e. trading stock of a business).
(c)If the Applicant held Anketell Road on a capital account, whether s 115-25 of the ITAA 1997 applies.
(d)If the Applicant held Anketell Road on a revenue account:
(i)whether s 6-5 of ITAA 1997 was correctly interpreted and/or applied;
(ii)whether the Respondent was correct to disallow deductions for expenses incurred; and
(iii)what the additional taxable income for the relevant year is.
(e)Whether the assessment is excessive.
(f)Whether all or any part of the general interest charge should be remitted.
The Respondent’s 2017 SFIC identified the issues for determination to be:
(a)Whether the 2016 special assessment is excessive.
(b)Whether the proceeds of sale of Anketell Road are ordinary income of the Applicant under s 6-5 of ITAA 1997.
(c)Whether the proceeds of sale of Anketell Road should be reduced by 50 per cent under s 115-25 of ITAA 1997.
Although, again, the Respondent does not identify the beneficial ownership of Anketell Road as being an issue for determination, the Respondent’s case is based on the premise that the Applicant was the beneficial owner of Anketell Road and was entitled to the proceeds of the sale of that property. Paragraph 20 of the Respondent’s 2017 SFIC contended that the Applicant was the legal and beneficial owner of Anketell Road. That is an issue for determination in these proceedings.
the hearing and the evidence
The four applications were dealt with and heard together. The Applicant was represented by Ms C Burnett SC and Mr D Lewis and the Respondent was represented by Mr S White SC, Ms C Thompson SC and Ms L Coci. The applications were heard over ten days from 14 February 2022 to 25 February 2022. The following documents were admitted into evidence:
(a)Agreed hearing book (A1);
(b)supplementary hearing book (A2);
(c)single page titled “schedule of corrections to the witness statements and affidavits of [VTBL]” (A3);
(d)settlement statement from P Settlements dated 5 May 2005 (A4);
(e)lease documents relating to Anketell Road (A5);
(f)G Holdings Pty Ltd account transactions accrual 1 July 2004 to 30 June 2011 (A6);
(g)agreed list of transcript corrections (A7);
(h)movement records of the Applicant, also reproduced at pages 70–81 of the cross-examination bundle for the Applicant bundle (R1);
(i)ASIC extract for AKFR Pty Ltd (R2);
(j)ASIC search for H Holdings Pty Ltd (R3);
(k)The applicant’s conviction record (R4);
(l)reasons for decision in VTO Group Ltd (R5);
(m)judgment of the Federal Court of Australia in [citation omitted] (R6);
(n)real estate summary statement for the period July 2009 to February 2010 addressed to G Holdings (R7);
(o)judgment of the Supreme Court of Western Australia in [citation omitted] (R8);
(p)judgment of the Supreme Court of Western Australia in [citation omitted] (R9);
(q)page 328 of the tender bundle, being information from the Australian Federal Police relating to A[41] (R10);
(r)decision of the AAT in the matter of [citation omitted] (R11);
(s)movement records of A which appear at pages 322–327 of the cross-examination bundle for that witness (R12);
(t)letter from ATO to G Holdings including reasons for the decision issued 23 February 2015 (R13);
(u)email from the Respondent’s instructing solicitors to the Applicant’s instructing solicitors dated 17 December 2021, including attached schedule of partial documents (pages 104–112) (R14).
[41] This is the pseudonym assigned to the Applicant’s partner.
The following witnesses gave evidence at the hearing:
(a)The Applicant;
(b)DCW;[42]
(c)A; and
(d)Mr David Bay.
[42] Pseudonym provided to the internal accountant employed by M Contracting Pty Ltd.
Written closing submissions totalling 59 pages were handed up by the Respondent’s counsel on the last day of the hearing. Given the detail and size of these submissions, the Applicant sought leave to file responsive submissions. On 25 February 2022, I directed that the Applicant have leave to file and serve written materials in reply to the Respondent’s written closing submissions by 18 March 2022. The Applicant’s responsive submissions, including a schedule of evidence references, were filed on 18 March 2022.
Relevant legislation
Section 166 of ITAA 1936 is as follows:
Assessment
From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:
(a)    the amount of the taxable income (or that there is no taxable income) of any taxpayer; and
(b)    the amount of the tax payable thereon (or that no tax is payable); and
(c)    the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).
Section 167 of ITAA 1936 is as follows:
Default assessment
If:
(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 or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
Section 168 of ITAA 1936 is as follows:
Special assessment
(1)The Commissioner may at any time during any year, or after its expiration, make an assessment of:
(a)     the taxable income derived (or that there is no taxable income) in that year or any part of it by any taxpayer; and
(b)     the tax payable thereon (or that no tax is payable); and
(c)     the total of the taxpayer's tax offset refunds for that year or that part of it (or that the taxpayer can get no such refunds).
(2)Where the income, in respect of which such an assessment is made, is derived in a period less than a year, the assessment shall be made as if the beginning and end of that period were the beginning and end respectively of the year of income.
Section 170 of the ITAA 1936 empowers the Respondent to amend an assessment and prescribes the time in which an assessment can be amended. Relevantly, item 1 of s 170 of the ITAA 1936 allows the Respondent to amend an assessment of an individual within two years after the day on which the Respondent gives notice of the assessment to the individual and item 5 allows the Respondent to amend an assessment at any time if the Respondent is of the opinion there has been fraud or evasion.
Section 6-5(1) of the ITAA 1997 is as follows:
Income according to ordinary concepts (ordinary income)
(1)Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Note:Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.
(Original emphasis.)
Section 115-25 of the ITAA 1997 relevantly provides for a discount to apply to tax liability arising out of capital gains in certain circumstances (relevant to the Applicant’s issue identified in [44(c)] above).
Section 14ZZK of the TAA is as follows:
Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii) in any other case—that the taxation decision concerned should not have been made or should have been made differently.
Section 284-75 of Schedule 1 to the TAA relevantly provides as follows:
Liability to penalty
(1)You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
...
(5)You are not liable to an administrative penalty under subsection (1) ... for a statement that is false or misleading in a material particular if you, ... took reasonable care in connection with the making of the statement.
(Original emphasis.)
Section 284-90 of Schedule 1 to the TAA relevantly provides:
Base penalty amount
(1)The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:

Base penalty amount

Item

In this situation:

The base penalty amount is:

1

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a *taxation law (other than the *Excise Acts) by you or your agent

75% of your *shortfall amount or part

2

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts)

50% of your *shortfall amount or part

3

You have a *shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts)

25% of your *shortfall amount or part

Section 284-220 of sch 1 to the TAA provides for the base penalty to be increased by 20 per cent in certain circumstances. Section 284-220(1)(a) identifies one of those circumstances in which the base penalty can be increased by 20 per cent as the taxpayer taking steps to prevent or obstruct the Respondent from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the shortfall amount was calculated.
the parties’ contentions
The Respondent
The Respondent’s 2016 SFIC made the following contentions:
(a)Pursuant to s 14ZZK of the TAA, the burden of proving that each of the assessments is excessive and what the correct assessment should have been rests with the Applicant.
(b)A taxpayer assessed under s 167 of the ITAA 1936 must positively prove the correct amount of their actual taxable income upon which tax should be levied. It is not enough to prove that the Respondent erred in the way he calculated the assessed amount.[43]
[43] Citing Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88; Federal Commission of Taxation v Dalco (1990) 168 CLR 614 at 621−625; Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301 at 314−315 (Gashi FC).
(c)The 2009–2011 default assessments are not excessive.
(d)In forming his opinion that there had been evasion, the Respondent found that the Applicant:
(i)had consistently omitted taxable income over a number of years without a credible explanation;
(ii)would have been aware of the omitted income and intentionally omitted that income to avoid paying tax on it; and
(iii)would have been aware of her taxation obligations and the requirement to return the correct income.
(e)The 2009 default assessment and the 2010 default assessment were validly issued and no proper basis for impugning the Respondent's opinion that there had been evasion has been articulated.
(f)The penalty assessment correctly assessed penalties under s 284−75(1) of Schedule 1 to the TAA for making statements in each of the 2009, 2010 and 2011 income years that were false or misleading on the basis of:
(i)base penalty amount of 75 per cent of the shortfall amount as a result of intentional disregard of a taxation law by the Applicant or her agent under item 1 of the Table in s 284−90(1) of sch 1 to the TAA; and
(ii)an increase of the basis penalty amount by 20 per cent under s 284−220(1) of sch 1 to the TAA.
(g)There is no basis to remit the penalties.

The Respondent’s 2017 SFIC made the following contentions:
(a)Pursuant to s 14ZZK of the TAA, the Applicant has the burden of proving that the 2016 special assessment is excessive and of proving what the correct assessment should have been.
(b)The 2016 special assessment is not excessive.
(c)At all material times the Applicant was:
(i)the legal and beneficial owner of Anketell Road; and
(ii)carrying on a business of property development.
(d)The proceeds of sale of Anketell Road were ordinary income of the Applicant under s 6-5 of the ITAA 1997 in the income year ended 30 June 2016.
(e)The capital gains tax provisions in pt 3-1 of the ITAA 1997 do not apply.
The Applicant
The Applicant’s 2016 SFIC made the following contentions:
(a)The properties, the sale proceeds of which were included in the Respondent’s assessments of the Applicant’s taxable income for the tax years 2009 and 2010, were each held by the Applicant beneficially for another entity such that the proceeds of sale of the properties does not form part of the Applicant’s assessable income.
(b)The withdrawals from the accounts which were included in the Respondent’s assessments of the Applicant’s taxable income for the tax years 2009, 2010 and 2011 were not part of the Applicant’s assessable income because the accounts were used for the business transactions of third parties.
(c)Certain of the transactions on the credit cards included in the Respondent’s assessments of the Applicant’s taxable income for the tax years 2009, 2010 and 2011, were not part of the Applicant’s assessable income for the reasons identified in the Applicant’s affidavit dated 8 November 2017.[44]
(d)If contentions (a)–(c) above are accepted, the Applicant will have explained all of the amounts included in the Respondent’s asset betterment calculation such that there will be no amounts of “unexplained accumulated wealth”.[45]
(e)The Tribunal should be satisfied:
(i)that the Applicant has disclosed all matters that bear upon the calculation of her taxable income and the tax payable thereon for each tax year; and
(ii)as to the specific amount of the Applicant’s taxable income for each year being the amounts identified in the Applicant’s statement dated 2 May 2017[46] and as to the amounts of tax payable thereon which are less that the amounts assessed by the Respondent.
(f)In relation to the 2009 and 2010 assessments, the Respondent should not have formed the view that there was evasion of tax such that the statutory condition to amend an assessment under item 5 of s 170(1) of the ITAA 1936 was met. The assessments for those years are, accordingly, excessive.
(g)If any penalty is applicable, then the quantum is less than that contended by the Respondent.
[44] Included in A1: HB/76–185.
[45] Citing Gashi FC at 315 [63].
[46] Included in A1: HB/45–6.
The Applicant’s 2017 SFIC made the following contentions:
Application for leave
(a)The Applicant did not contend in the 2017 objection that she, in the alternative to holding Anketell Road as bare trustee, held Anketell Road as trustee for the G Holdings Trust, further and alternately, that she was a constructive trustee of Anketell Road for:
(i)the trustee of the G Holdings Trust; and
(ii)M Pty Ltd.
(b)The Applicant seeks leave to raise these alternative arguments.
The establishment of a trust in relation to land
(c)A trust may be established in relation to land in Western Australia provided that it is in writing. Where a trust is not in writing in relation to land, that does not limit a finding that the registered proprietor held the land on trust, including relevantly as a constructive trustee.[47]
[47] Citing Property Law Act 1969 (WA) (PLA) s 34 and Adamson v Hayes
Requirements for the establishment of a trust
(d)The requirements for the establishment of a trust are:[48]
[48] Citing Knight v Knight (1840) 49 ER 58.
(i)the intention to create the trust;
(ii)the existence of a valid beneficiary; and
(iii)identifiable and certain trust property.
(e)The Applicant was the sole registered proprietor of Anketell Road, the identified trust property.
(f)The Applicant took steps to establish a trust which was in writing and the G Holdings Trust recorded its interest in Anketell Road (but not from the commencement of the trust).
Prior consistent dealings
(g)The Respondent acknowledged at para 49 of the 2017 objection decision that the Applicant held other properties as bare trustee and refers to a previous audit decision.
(h)The Respondent accepted, before any appeal was instituted, that 222 of 230 properties involved in developments were held on trust by the Applicant for the benefit of other entities.
(i)The Applicant’s evidence concerning her dealings in property establish consistent methods of acquiring property using trusts, obtaining borrowed funds from financiers and developing land.
Income tax
(j)Section 960-100(3) of the ITAA 1997 recognises that a person may act in different capacities and when they do, in each of the capacities, the person is taken to be a different entity.
(k)Similarly, s 96 of the ITAA 1936 ensures that except as provided in that Act, a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate.
(l)The Applicant contended that she held Anketell Road as trustee and disputes the Respondent’s finding that she was liable to pay GST.
(m)A determination that there was an enterprise conducted by a beneficiary of a trust does not conclusively determine whether a taxpayer was, for example an investor (and held assets on capital account) or a property developer (and held assets on revenue account).
Bare trust
(n)The Applicant purchased Anketell Road as a bare trustee for the trustee of the G Holdings Trust. Anketell Road was purchased with the intention that it would form part of a future development.
(o)The trust deed dated 15 November 2005 identified the Applicant as the trustee of the G Holdings Trust. That was an error. She was not the trustee of that trust.
New trust
(p)If it is not found that the Applicant was a bare trustee, the evidence of the Applicant is also consistent with the establishment of a new trust called the “G Holdings Trust” which is different from the trust established by the deed dated 1 July 2005 since there is no specific reference in the trust deed to the trust established 1 July 2005.
Constructive trust
(q)If it is not found that the Applicant was a bare trustee of the G Holdings Trust or that a new trust was established by the deed of trust, the Applicant’s further contention is that a constructive trust ought to be recognised.
(r)A constructive trust may be regarded as either a trust imposed by analogy or a remedial device.[49]
[49] Citing Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.
(s)The Applicant did not provide any moneys for:
(i)the purchase of Anketell Road; or
(ii)the ongoing expenses related to the Property including interest on the loan, rates and development costs.
(t)The Respondent concluded in the 2017 objection decision at para 44 that funds for the acquisition of Anketell Road were paid by G Pty Ltd (formerly G Holdings Pty Ltd) and loaned moneys from Liberty Funding Pty Ltd.
(u)While the Applicant owned Anketell Road the rental income was payable to a third party under the applicable joint venture agreement (the JVA).
(v)The intended land subdivision did not occur, and Anketell Road was sold. On the sale, the proceeds were distributed to various parties. The GST liability arising on the sale was brought to account in the books and records of the G Holdings Trust.
(w)Equity will not allow a statute to be a cloak (an instrument) for fraud and a party may be declared to be a constructive trustee.[50]
[50] Citing Rochefoucauld v Boustead (1897) 1 Ch 196.
(x)A constructive trust is ordered where it would be unconscionable for a party to retain ownership of property which rightfully belongs to another.[51]
[51] Citing Baumgartner v Baumgartner (1987) 164 CLR 137; Keech v Sandford (1726) 25 ER 223.
Income or capital gains?
(y)Any moneys derived from the sale of Anketell Road were not income pursuant to s 6-5 of the ITAA 1997 because:
(i)the moneys were not income according to ordinary concepts; further and alternately; and
(ii)the Applicant was not conducting a business of property development.
Income according to ordinary principles
(z)As a general rule, the income derived by a taxpayer is to be determined using a method of tax accounting which, in the circumstance, is “calculated to give a substantially correct reflex of the taxpayer’s income.”[52]
[52] Citing Commissioner of Taxes (SA) v Executor & Trustee Agency Co of South Australia (1938) 63 CLR 108 (Carden’s case).
(aa)The Respondent considered that Federal Commissioner of Taxation v The Myer Emporium Ltd[53] and TR 97/11[54] meant that the Applicant was carrying on a business. The Respondent, however, failed to consider whether the Applicant derived directly or indirectly ordinary income from the sale of Anketell Road for the purposes of s 6-5 of the ITAA 1997.
[53] (1987) 163 CLR 199.
[54] Commissioner of Taxation, Income tax: am I carrying on a business of primary production? (TR 97/11, 4 June 1997).
(bb)Under the JVA, the Applicant did not have:
(i)The right to the proceeds of the sale of Anketell Road ahead of any banks, the Developer (as defined in the JVA) or the Commonwealth for GST amounts; or
(ii)any legal obligation to pay expenses associated with the sale of Anketell Road.
(cc)The sale of Anketell Road was reported in the records and books of the trustee of the G Holdings Trust. There was a net loss for income tax purposes for the relevant period.
Investor or property developer?
(dd)If the Applicant owed Anketell Road in her own right, she contends that she invested in Anketell Road and was not a property developer.
(ee)A taxpayer acquiring land in the expectation of a profit does not, of itself, result in a conclusion that the person is a property developer, or an investor.[55]
[55] Citing Shields and Commissioner of Taxation [1999] AATA 4.
(ff)The proceeds of the sale of Anketell Road were not income of the Applicant, and it was, accordingly, wrong to apply s 6-5 of ITAA 1997.
(gg)The factors identified in the 2017 objection decision for concluding that Anketell Road was trading stock were not correct as they failed to address the factors under TR 97/11 or the factors identified in Shields.
(hh)If Anketell Road was trading stock, then development costs should have been allowed.
Capital gains
(ii)If the Applicant owned Anketell Road in her own right, she was an investor and, on disposal, “CGT Event A1” occurred under s 104-10 of ITAA 1997, and s 115-25 of the ITAA 1997 allows the Applicant to reduce any gain arising from the disposal of Anketell Road by 50 per cent.
Remission of the general interest charge
(jj)The general interest charge was intended to replace the late payment penalties that were formerly imposed with a “commercially realistic charge”.[56]
(kk)For the purposes of sub-ss 8AAG(5)(a)–(b) of the TAA, there are special circumstances which would render it fair and reasonable to remit all or a part of the charge, or it is otherwise appropriate to remit the charge. They are:
(i)The Applicant held around 230 properties, one of which was Anketell Road.
(ii)The Respondent accepted that 222 of the properties were held by the Applicant on trust.
(iii)The Applicant had a reasonable basis for believing that she held Anketell Road on trust.
(iv)The Applicant did not receive the rental income or proceeds of sale.
(v)Even if the Applicant is unable to satisfy the burden of proving a trust, the parties agreed that Anketell Road be held on trust in accordance with the JVA.
(vi)If the Applicant cannot pay the general interest charge the Respondent can commence proceedings against the Applicant which could result in the issuing of a bankruptcy notice.
(vii)The non-remission of interest on the tax-related liabilities is harsh in light of the fact that the Applicant did not personally benefit from any the transactions involving Anketell Road.
[56] Citing Dixon v Commissioner of Taxation (2008) 167 FCR 287; [2008] FCAFC 54.
Application for leave to amend grounds of objection – application 2017/7664
As noted at [63(a)] above, the Applicant sought leave to raise grounds of objection that were not raised in the 2017 objection lodged with the Respondent. Section 14ZZK(a) of the TAA (see [56] above), limits the grounds of objection that a taxpayer can rely on before the Tribunal to those stated in the objection made to the Respondent, unless the Tribunal orders otherwise. By an order made by consent on 24 February 2022, I granted leave to the Applicant to raise the matters in paragraphs 9.1.2 and 9.1.3 of the Applicant’s 2017 SFIC, which are reflected in [63(a)] above.
consideration
The law – s 14ZZK(b)(i) of the TAA
At [46] of Commissioner of Taxation v Ross,[57] Derrington J summarised the effect of s 14ZZK(b)(i) of the TAA as follows:
The parties generally agreed that the effect of s 14ZZK(b)(i) is that the taxpayers bear the burden of proving, on the balance of probabilities, both that the assessment is “excessive” and, also, what the assessment should have been to make the assessment right, or “more nearly right”: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88; [1936] ALR 425 (Trautwein) per Latham CJ; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623–5; 90 ALR 341 at 343–5 (Dalco) per Brennan J and at CLR 632–4; ALR 350–1 per Toohey J; Gashi v Commissioner of Taxation (2013) 209 FCR 301; 296 ALR 497; [2013] FCAFC 30 (Gashi) at [61]–[67]. It was also not in dispute that the onus is to the civil standard, being the balance of probabilities. It should always be kept steadily in mind that the rationale for the onus imposed by s 14ZZK(b)(i) is that the facts relating to a taxpayer’s taxable income are peculiarly within their knowledge and they must be taken to know what their income is and how it was derived: Trautwein at CLR 87. It follow that there is no undue harshness in requiring a taxpayer, who has failed to lodge a return or whose return is not compliant with the taxation legislation, to bear the onus of establishing their true taxable income for the relevant income year.
[57] Commissioner of Taxation v Ross(2021) 174 ALD 77; [2021] FCA 766.
Agreeing with the parties’ view as to the effect of s 14ZZK(b)(i), Derrington J went on to make the following observations about “… the application of the onus in the context of a challenge to a default assessment founded upon the ‘asset betterment method’”:[58]
[58] Ross at [48].
Some guidance as to that question can be gleaned from a more granular analysis of the principles concerning the onus as they have been synthesised in the authorities. In general terms, the relevant authorities establish as follows:
(1)An assessment under s 166 is fundamentally different to an assessment under s 167 and, necessarily, the manner in which they can be challenged are also fundamentally different: Gashi [61]–[67]; Rigoli v Commissioner of Taxation (2014) 141 ALD 529; [2014] FCAFC 29 (Rigoli) at [12].
(2)The assessment by the “asset betterment method” is a legitimate form of assessment: Trautwein at CLR 86–87, 99 – 100 and 105; even though it necessarily involves an amount of guesswork and, whilst almost certainly inaccurate to some extent, it is no part of the Commissioner’s duty to establish what judgment he has formed in making a s 167 assessment: Gashi at [55]; George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 204; [1952] ALR 961 (George). Clearly enough, any inaccuracy follows from the circumstances which impel the Commissioner to make a default assessment, being that a process of calculating assessable income less deductions is not possible: Rigoli at [12].
(3)It is not part of a review of an objection decision concerning an assessment under s 167 to seek to identify the facts the Commissioner adopted for the purpose of making the assessment and whether those facts disclose a taxable income: Gashi at [55]; George at 204. The principal fact which the Commissioner is required to determine in making an assessment pursuant to s 167 is “the amount of income upon which ... income tax ought to be levied”: Gashi at [56].
(4)It is insufficient to discharge the burden under s 14ZZK(b)(i) in relation to an assessment under s 167, whether based on the asset betterment method or otherwise, to merely demonstrate that the Commissioner formed a judgment about the taxpayer’s taxable income on a wrong basis and that the amount assessed far exceeded the taxpayer’s taxable income: Gashi at [62]; Rigoli at [12].
(5)In order to establish that an assessment under s 167 is excessive, a taxpayer must positively prove their “actual taxable income” and, in doing so, must demonstrate that the amount of tax levied by the assessment exceeds their actual substantive liability: Gashi at [63]; Dalco at CLR 623–5; ALR 345–7; Trautwein at CLR 88; Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 at 230; 27 ALD 601 at 605 (Ma); by, in effect, furnishing a return of actual income which involves establishing both sides of the equation: Bosanac v Commissioner of Taxation (2019) 267 FCR 169; [2019] FCAFC 116 (Bosanac (FC)) at [57].
(6)In the context of a s 167 assessment based on the asset betterment method, the taxpayer must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and that may be achieved by an accepted denial of any undisclosed source of income, providing acceptable evidence of how the taxpayer spends their time, and demonstrating a reasonable explanation for any appearance of the possession of assets: Ma at FCR 230; ALD 605; Gashi at [64]–[65]. The taxpayer must account for the unexplained increase in assets by explaining the source of those assets and identifying that those sources are not taxable. “[I]f the disclosed “actual” taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive”: Gashi at [65].
(7)The converse is that it is insufficient for a taxpayer to prove that an item in their asset betterment statement was wrong or should not have been included: Gashi at [63]–[67]; Rigoli at [12]. If they do not also satisfactorily explain the source or sources for the other unexplained wealth, that is that they were derived from non-income sources, the onus under s 14ZZK(b)(i) will remain unsatisfied: Gashi at [66]. A deficiency in proof of the excessiveness of the assessment results in the challenge failing: Dalco at CLR 624–6; ALR 346–7. Necessarily, this prevents a successful challenge to an assessment being made by a process of “picking and choosing” part or parts of the increased wealth relied upon by the Commissioner and attacking them as being improperly included as part of the taxpayer’s taxable income: Gashi at [66]; Rigoli at [25]. A process which involves attacking elements of the Commissioner’s calculation and facts in respect of which the taxpayer chooses to lead evidence is not sufficient. The same is true for a default assessment not based on the asset betterment method: Rigoli at [12].
(8)These principles can result in a situation where the default assessment can be assumed to be inaccurate in some respects but, in the absence of the taxpayer establishing what their actual taxable income was, it must nevertheless stand: Gashi at [77]–[79]; Woellner and Zetle, “Satisfying The Taxpayer’s Burden Of Proof In Challenging A Default Assessment – The Modern Labours Of Sisyphus?” [2014] JlALawTA 11.
(9)The ultimate question in Part IVC proceedings relating to an assessment made under s 167 is whether the amount of the assessment is excessive. That places no burden on the Commissioner to show that the assessments were correctly made: Dalco at 623–4; ALR 345. The manner in which the taxpayer can discharge the burden may vary with the circumstances but “absent agreement with the Commissioner to confine the issues for determination in a Pt IVC proceeding, the Commissioner is entitled to rely upon any deficiency in the taxpayer’s proof of the excessiveness of the amount assessed in seeking to uphold the assessment”: Gashi at [61]. See also Dalco at CLR 624; ALR 346.
(10)There may be cases where the amount of taxable income depends upon the legal complexion of known facts or upon specific factual questions. In such a case, a taxpayer may successfully discharge the onus by establishing that the Commissioner included in their taxable income amounts which ought not to have been included: Dalco at CLR 624; ALR 347. However, such a situation would only arise where the Commissioner agrees to a process which is different to that described above by confining the scope of the dispute between him and the taxpayer to certain enumerated amounts. One might expect some clear expression of that agreement, involving as it does an abandonment of the advantages accorded to the Commissioner in s 167 in respect of defaulting taxpayers.

Justice Derrington analysed the decisions of Logan J in Le v Commissioner of Taxation[59] and the decision of the Full Court of the Federal Court of Australia in Haritos v Federal Commissioner of Taxation.[60] That analysis applies to the present case. Relevantly his Honour stated:
[59] [2021] FCA 303.
[60] [2015] FCAFC 92; (2015) 233 FCR 315.
[53]     Mr Hack QC submitted that the decision in Le applied statements of principle from Haritos as to the manner in which a taxpayer might be able to discharge their onus of proof. In particular, it was submitted that the Full Court in Haritos (at [233]–[237]) rejected the “all or nothing” approach to the discharge of the onus of proof by a taxpayer faced with a default assessment founded on the asset betterment methodology and that Logan J had adopted that in Le (at [54]). It was submitted that the result of this was:
Where, by concession or by the Tribunal’s finding, it is concluded that an amount included in an applicant’s assessable income by the Commissioner is not, in truth, assessable income of the applicant the applicant has shown that the assessment is excessive to the extent of that concession or finding.
[54]     It is appropriate to first consider the Full Court’s decision in Haritos as it was subsequently relied upon by Logan J in Le. There, the Commissioner had undertaken a wide ranging audit of the taxpayers’ affairs over a number of years and issued assessments substantially increasing the amount of their assessable income for each income year. By the time the matter had reached the Tribunal, the issues between the parties had reduced to a consideration of a number of issues relating to certain payments and expenses…
…
[56]     After considering a number of arguments as to the manner in which the burden of proof applied in the case before them, the Court addressed one further argument as follows:
235. The third way in which the appellants put their argument that the Tribunal had misused the burden of proof section is related to the second. The appellants submitted that even if Mr Haritos’ evidence was correctly rejected, they had nevertheless established subcontractor expenses of at least a certain amount. The Tribunal was not entitled to adopt what the appellants described as an “all or nothing” approach. If an “at least” figure was established on the evidence, then the Tribunal should have made a finding in accordance with that evidence.
236. We think that proposition is correct. If a taxpayer claims his or her expenses were $10, but fails to prove that fact because their evidence is rejected, this does not prevent the Tribunal from finding that the expenses were $5 where there is other satisfactory evidence establishing expenses of at least that amount. In our opinion, the burden of proof section does not dictate a different conclusion.
[57] Mrs Ross submitted that this latter discussion by the Full Court in Haritos had the consequence that, in attempting to discharge the burden imposed by s 14ZZK(b)(i) in relation to an assessment made pursuant to s 167, it was sufficient to identify that elements of the Commissioner’s assessment were incorrect or partially incorrect and, to the extent error is shown, the taxpayer’s taxable income is revealed by the remaining amount. With respect, although the Full Court in Haritos may have intended to overturn the earlier decisions of the Full Court in Gashi, Rigoli and Bosanac (FC) by a side-wind, it is probably unlikely. As the Commissioner submitted, Haritos concerned circumstances where the taxpayers and the Commissioner had reduced the scope of the hearing to a number of particular disputed amounts which, depending upon the manner in which they were resolved, would increase or decrease the amount which the parties had otherwise agreed represented the taxpayers’ taxable income. In other words, the underlying circumstances in relation to the taxpayers’ taxable income were generally agreed with the remaining disputed items to be determined by the Tribunal, with the results of those determinations altering the otherwise accepted amount of taxable income. Haritos was not a case where, before the Tribunal, the taxpayers’ were still required to fully and completely establish the actual amount of their taxable income. Given the context in which the Court was discussing the effect of the taxpayer establishing some portion of its expenses, there is nothing exceptional about its comments at [235] to [236] and no reason to think the Court was departing from the orthodox principles described earlier.
[58] In Le, the Commissioner had made default assessments after conducting an audit and, in part, those assessments were based on the asset betterment method. The Tribunal rejected the taxpayers’ application for review concerning some of the income years under review, but made alterations to the Commissioner’s objection decisions relating to other income years. Logan J critiqued the Commissioner’s approach to undertaking the assessments but observed that the discharge of the statutory onus “entails rather more than just a critique of that approach”: at [31]. His Honour also referred to the observations of Burchett J in Ma which have been mentioned above and identified that they were directed to circumstances where the occurrence of the underlying taxable events is controversial, of which undisclosed income cases offer a paradigm case. The appellants in Le had submitted that, given what the decision in Ma permitted, the Tribunal had failed to address key elements of the explanation which they had provided for their assets…
[59]     Logan J then identified why it was important for the Tribunal to consider the arguments advanced as to why the amount of declared income was excessive. His Honour said (at [52]):
This statement also underscores the importance of engaging with the explanation proffered by a taxpayer to explain, in each income year, why there is no unexplained wealth such that the taxable income as declared (or additionally conceded) is indeed the true taxable income with the consequence that the contested assessment for that year is excessive.
[60]     He then considered the taxpayers’ submissions as to the consequences of the Tribunal’s alleged failure to consider the nature and extent of the evidence on which the taxpayers had relied as demonstrating that the credits in their bank accounts were transfers from other accounts and not income (as the Commissioner had assumed for the purpose of the taxpayer’s asset betterment statement), stating (at [53]):
Against this background, particularly the emphasised parts of the observations in Haritos, the applicants’ allegation that the Tribunal failed to advert to one of their central arguments as to why in each year the amount of the assessment was excessive does not just have force, it should be accepted. The flow of funds into and out of bank accounts was in evidence, as was an explanation as to why outgoings from accounts were not income. The applicants gave precision in their tabulations as to the resultant excess in the amount of each assessment. A failure to consider that explanation is, truly, a failure to undertake the statutory review function. Further, the impact of that failure is not explicable by findings as to credit, because those findings themselves were made without considering the explanation.
…
[61]     His Honour then held (at [54]), in relation to the Full Courts’ observations in paragraphs [233] to [236] in Haritos, that a taxpayer is entitled to succeed in having shown that an assessment is excessive even if they have not succeeded to the fullest extent:
The observations made by the Full Court in Haritos offer, with respect, elucidation about the operation of the statutory onus of proof in practice. If the material before, and accepted by, the Tribunal shows that the assessment is excessive in a particular amount, it is nothing to the point that an applicant contends that it is excessive to an even greater extent. Section 14ZZK does not have the effect that, because that contention fails, the applicant has not shown the assessment to be excessive or, related to that, that the Tribunal is thereby relieved from concluding, based on the material it has accepted, that the assessment is excessive to the extent revealed by that material.
[62]     There is little doubt that, in relation to the circumstances considered in Haritos, those comments are correct. The parties before the Full Court in that case had effectively accepted that the taxpayers’ taxable income in particular years was a certain amount, save that it might be increased or decreased depending upon the manner in which a number of disputed items were resolved. Even if the taxpayers’ contentions in relation to those matters were only partially accepted, the amount of taxable income was to be decreased to that extent, but that was only because of the paradigm in which the parties accepted the dispute was to occur.
[63]     However, his Honour’s observations should not be accepted in relation to circumstances where the Commissioner has made a default assessment based on the asset betterment method and the taxpayer is faced with having to establish what their actual income is and that it is less than that assessed by the Commissioner. As the authorities previously referred to clearly establish, in such cases the methodology adopted by the Commissioner by which he reached a judgment about the amount of taxable income for the default assessment is not in issue. What is in issue is whether the taxpayer is able to establish both what their actual taxable income was and that it was less than the Commissioner’s assessment (which gives rise to the conclusion that the latter is excessive).
…
[66]     Mr Hack QC for Mrs Ross submitted that the approach adopted by Logan J in Le has the consequence that, where the Commissioner has made a default assessment using the asset betterment method, a taxpayer can succeed in establishing that the assessment is excessive by merely identifying errors in the Commissioner’s methodology which inflated the amount of the default assessment. With respect, that cannot be so. Most obviously it would be directly inconsistent with the Full Court decisions in Gashi and Rigoli and the earlier High Court authorities in Dalco and Trautwein. It is an approach which would assume, wrongly, that the Commissioner’s default assessment was a calculation of actual taxable income from which items might be challenged leaving the remainder as the taxpayer’s actual taxable income. The authorities establish that not to be the case. It is a judgment of what the taxpayer’s taxable income should be and it establishes the taxpayer’s liability to the Commonwealth save and unless they can successfully challenge it by demonstrating the amount of their actual taxable income and that it is less than the amount of the default assessment. Whilst Logan J may have considered some observations in Haritos to suggest to the contrary, those statements were directed to the particular circumstances before the Full Court where the parties had agreed as to the manner in which the remaining issues in dispute were to affect the taxpayers’ taxable income. That situation did not apparently exist in Le and, for the reasons explained below, did not exist in the present case.
In the present case there was no agreement between the parties of the type existing in Haritos, namely, an agreement to the effect that default assessment was a calculation of actual taxable income from which items might be challenged, leaving the remainder as the taxpayer’s actual taxable income. The Applicant establishing that components or a component of the asset betterment calculation on which the Respondent based the s 167 of the ITAA 1936 default assessment (see [16] above) should not have been included, could (potentially) establish that the assessment was not in the correct amount, but would not, of itself, establish that it was “excessive or otherwise incorrect” for the purposes of s 14ZZK(b)(i) of the TAA. As a matter of logic, in order to establish that an assessment was excessive, it would be necessary to establish what it should have been, that is, establish what the actual taxable income was.[61]
[61] Gashi FC at 315 [63]–[65]; Ross at [47(4)], see [65] above.
As was the case in Ross, in the present case the parties correctly agreed that the effect of s 14ZZK(b)(i) of the TAA is that the taxpayer bears the burden of proving, on the balance of probabilities, both that the assessment is “excessive” and, also, what the assessment should have been.[62] Kitto J, the judge at first instance in George, described the burden on the taxpayer as follows:[63]
… in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment. That will involve him, of course, in accounting for the increase in his assets, and it may well be that the commissioner will direct his efforts mainly or even wholly to endeavouring to meet the evidence the appellant adduces on this point. But the source of the increase in the assets is not the actual issue in the case; even if it were proved, for example, that that source consisted of winning bets on the racecourse, the issue would still be whether or not from any source the appellant derived as much taxable income as the assessment treats him as having derived.
[62] Ross at [46]; see [64] above.
[63] George at 189.
The cases to which the parties referred fall into two broad categories. There are those, including Ross and George, in which the taxpayer seeks to explain increases in the taxpayer’s net wealth as coming from non-income sources. The second category of cases is those in which the taxpayer seeks to establish that the property on which the asset betterment assessment was made was not the taxpayer’s property or that the transaction treated as income had been mischaracterised.[64]
[64] See for example, Dalco; Trautwein, Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534; [2016] FCAFC 163. and, in part, Haritos.
In the present case, while the amended assessments issued by the Respondent were described as being based on an “asset betterment method”,[65] the calculations of the taxable income as stated in the amended assessments (see [17(a)], [18(a)] and [19(a)] above) had four components[66] some of which would not ordinarily be described as asset betterment. The first component is described as “Asset Increase/Decrease”. The calculations of that component for two of the three years were significantly in the negative.[67] The majority of the amounts assessed as amended taxable income in each of the years were made up of the second component, “Add: Other Income”[68] and the third component described as “Add: Private Expenses”.[69] The fourth component, “Add: Taxable Adjustments”, were in each year relatively minor.[70] From the totals of these four components, deductions[71] were allowed to calculate the “Taxable Income as per Asset Betterment”, which was also reflected in the “Taxable Income as Adjusted” figure in each of the amended assessments.
[65] Reasons for Decision following audit: T45, HB/6011 para 4.
[66] HB/6042.
[67] 2009: -$1,027,674.57; 2010: -$2,460,342.79; 2011: $309,322.52.
[68] 2009: $1,527,529.60; 2010: $5,142,529.60; 2011: $6,885.60.
[69] 2009: $3,751,212.06; 2010: $3,242,726.59; 2011: $4,094,657.05.
[70] 2009: $7,779.75; 2010: $860.70; 2011: -$7,482.61.
[71] 2009: $484,031.43; 2010: 506,499.38; $305,718.57.
The calculation of each of the three major components of the assessments were, in part at least, sought to be explained in the Reasons for Decision. The “Asset Increase/Decrease” calculation was set out in Appendix 1 Attachment A to that document.[72] In the table headed “Net Assets”, the first item shown was “Assets at Cost”. The first category under that heading was “Cash”, under which nine bank accounts and credit cards were listed.[73] At para 71 of the Reasons for Decision,[74] the Respondent explained that “Only bank accounts held in your name, which relate to your income and expenditure, were included in the Betterment” and, at para 72, the statement was made that “For deposit accounts, the balance as at 30 June each year is shown as an asset in the Betterment”. The list of accounts under the heading “Cash” in Appendix 1 Attachment A did not identify which of the nine accounts related to income and expenditure and which were deposit accounts.
[72] Attachment A: Asset Betterment Statement; HB/6039–42 (also cited as the asset betterment calculation).
[73] HB/6039.
[74] HB/6020.
The second component in the “Net Assets” table in Appendix 1 Attachment A,[75] is headed “Shares” under which 12 companies are identified, five of which are listed as having shares held by the Applicant.[76] Paragraphs 121–2 of the Reasons for Decision[77] explained that “a share registry database search shows that you owned the following shares during the 2008, 2009, 2010 and 2011 income years” and that “[t]hese amounts form part of your assets for the purpose of the Betterment”.
[75] HB/6039.
[76] HB/6039.
[77] HB/6025.
The third component of the “Net Assets” table in Appendix 1 Attachment A is headed “Properties” under which 26 property addresses are listed.[78] The first seven of those properties are included in the eight properties identified in para 124 of the Reasons for Decision[79] with the note that “OSR property records show that you currently own the following properties” and that “[t]hese amounts form part of your assets for the purposes of Betterment”.[80]
[78] HB/6030–40.
[79] HB/6025.
[80] HB/6025; Reasons for Decision para 125.
Paragraph 126 of the Reasons for Decision stated:[81]
OSR records show that in the period 30 June 2008 to 30 June 2011, 230 properties registered in your name were sold. The consideration received upon the sale of these properties totalled $70,981,500. (Footnote omitted.)
[81] HB/6026.
At para 127 of the Reasons for Decision, the Respondent stated that the Applicant’s then lawyers had advised in May 2010 that the 230 properties registered in the name of the Applicant were purchased and held for the benefit of other entities and that the Applicant derived no income from the sale of the properties. At para 128, the Respondent stated that “… the following 21 properties were not identified to be beneficially held on behalf of another entity and the income from the sale of these properties has not been returned”. At para 130 on the Reasons for Decision, the Respondent advised that “[a]ccordingly the Commissioner considers that you as the registered proprietor owned and sold these properties in your own right.” The total of the sale prices of these 21 properties are included in Appendix 1 Attachment A under the heading “Taxation Adjustments” under the sub-heading “Income”[82] in the amounts of $1,519,000.00 for 2009 and $5,134,000.00 for 2010.
[82] HB/6041.
The next element of the “Net Assets” part of Appendix 1 Attachment A appears under the heading “Assets - related entity loans”.[83] The inclusion of these amounts in the calculation is referred to in para 120 of the Reasons for Decision and explained as follows:
You provided loans to [G Holdings] Pty Ltd. The loans accounts balances [sic] for 2008 to 2011 financial years are as follows…[84]
[83] HB/6040.
[84] HB/6024.
The balances of those loans (presumably as at 30 June in each year) are then included in the calculation of the total assets.
The final element of the “Net Assets” table of Appendix 1 Attachment A is the deduction of liabilities which are identified as being amounts owing to various named lending entities.[85]
[85] HB/6040.
Once the liabilities are deducted from the total assets position for each of the years, the increase or decrease in the net asset value from year to year is calculated to reach the “Asset Increase/Decrease” figure for each year. As noted at [71] above, for two of the three years there were significant decreases in the net asset value. Irrespective of whether the net asset value calculation in each of the three years showed a year-on-year increase or decrease, a significant component of that calculation was based on the eight properties identified in para 124 of the Reasons for Decision (see [74] above) being beneficially owned by the Applicant.

The parties’ respective contentions are, as one would expect, made from diametrically opposite factual assumptions, the Respondent’s being made on the assumption that the assessments and the objection decision were correct, and the Applicant’s being made on the opposite assumption. The resolution of the issue of penalties and potential remission of penalties will, in large part, be affected by my determination of the correctness of the assessments and the objection decision. It is, therefore, appropriate to deal with the issue of penalties and remission of penalties at the end.
Were the 2009 and 2010 default assessments validly issued by the Respondent under section 170(1) item 5 of the ITAA 1936?
The Applicant’s written submissions[409] outlined the Applicant’s argument as follows:
(a)The Respondent had no power under s 170 of the ITAA 1936 to amend the Applicant’s assessments of her liability to income tax for the income years ended 30 June 2009 and 2010 unless he was of the opinion that there was fraud or evasion. The role of the Tribunal is to consider all of the evidence that is before it to determine whether there was, in the Tribunal’s opinion, fraud or evasion. Under s 14ZZK of the TAA, the taxpayer has the onus of proving that the Tribunal should not form that opinion.[410]
(b)The Respondent formed his opinion on the basis that he considered that there was evasion by the Applicant. He has at no time suggested that there was fraud by the Applicant.
(c)Evasion in the sense used in s 170 of the ITAA 1936 refers to a shortfall in tax resulting from some “blameworthy act” of the taxpayer.[411] There, Dixon J approved of the approach of McTiernan J in Barripp v Commissioner of Taxation (NSW)[412] (at 71) that evasion relevantly referred to a taxpayer’s intentional omission of an item of income and the absence of a “credible explanation” for that omission.
(d)The Respondent said that there was evasion on the basis that the Applicant omitted items of income from her tax return and that there was no “credible explanation” for that omission.[413]
(e)The Respondent formed the view that the Applicant, as a signatory to her bank accounts, and as the registered proprietor of the properties sold during the relevant period, knew of the transactions involving substantial cash flows into and out of her bank accounts and of the sales of those properties, and that she ought to have known that the resultant amounts were taxable to her.[414]
(f)Contrary to the Respondent’s contentions, the cash flows into and out of the Applicant’s bank accounts were properly excluded from the Applicant’s tax returns because those amounts were not taxable to her and the proceeds of sale of the properties were also properly excluded from the Applicant’s tax returns because, again, those amounts were not taxable to her.
(g)If the Tribunal forms the view that it cannot accept the Applicant’s quantification of her taxable income, it should still conclude that Applicant did not omit any item in a blameworthy manner. In particular, all of the significant transactions were correctly omitted.
(h)Further, even if the Tribunal were to reject the Applicant’s contentions as to the proper legal characterisation of these significant transactions, it would conclude that there was no evasion in respect of these matters. It would accept that the Applicant honestly and reasonably believed that these matters were not taxable to her. The “credible explanation” for that omission would be that the Applicant honestly and reasonably thought that the amounts were not taxable, because they were not hers.
[409] Paras 163–75.
[410] Citing Binetter.
[411] Citing Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 at 313.
[412] (1941) 6 ATD 69.
[413] Respondent’s 2016 SFIC para 41.1.
[414] Respondent’s Fraud or Evasion Opinion: HB/5989.
The Respondent’s written closing submissions[415] were to the following effect:
[415] Paras 316–23.
(a)Section 170(1) of the ITAA 1936, item 5 provides the power for an amendment to be made after the usual four-year period, in circumstances where the Respondent is of the opinion that there was fraud or evasion at the time of the original assessment.
(b)For the income years ended 30 June 2009 and 2010, the Respondent exercised his power to amend the Applicant’s assessments having formed the opinion that there had been fraud or evasion.[416] The Respondent relied on there having been an omission by the Applicant in her tax returns of significant transactions that the Respondent considered to be taxable, being the proceeds from the sales of properties and the amounts deposited in the NAB Flexi Account.
(c)The Respondent cited the following passage from Denver:
To apply these principles it is necessary to consider what relevant conduct amounts to evasion and whether the Board correctly applied their minds to the question of evasion. I think it is unwise to attempt to define the word “evasion.” The context of s 210 (2) shows that it means more than avoid and also more than a mere withholding of information or the furnishing of misleading information. 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.
(d)The Applicant has failed to demonstrate the omission of income from her assessable income was not due to evasion.
(e)The proposition put by the Applicant’s counsel in oral closing submissions that an opinion made under s 170 only permitted the reconsideration of the items which are said to have given rise to the Fraud or Evasion Opinion, rather than the entire taxable income of the taxpayer for the year in consideration, is wrong. Whilst Denver might, possibly, give that impression, it is erroneous in the context of the current statutory framework within which the tribunal operates. As Kenny J in Nguyen v Commissioner of Taxation[417] said at [117]
There are, nonetheless, relevant differences between the present statutory regime and former regimes. In the present case, the Tribunal was engaged only in reviewing the objection decision, and not in reviewing the process of assessment. Further, the Tribunal’s decision could not of itself create a taxation liability, this being the function of the issue of a notice of assessment.
The issues for determination
[416] HB/6011–32.
[417] (2018) 265 FCR 355; [2018] FCA 1420.
Were the assessments excessive or otherwise incorrect – s 14ZZK(b)(i) of the TAA?
I am satisfied that the Applicant has established, on the balance of probabilities, that each of the 2009, 2010 and 2011 default assessments and the 2016 special assessment was excessive or otherwise incorrect. In each case the Respondent, in calculating the amount of the default assessment, relied on the asset betterment calculation contained in the audit report (see [71] above).[418] That asset betterment calculation, amongst other things, treated the seven properties identified in [87] and the property identified in [191] relevant to the 2016 special assessment as being beneficially owned by the Applicant, and the money passing through the Applicant’s NAB Flexi Account and other accounts as being for her benefit. For the reasons set out above, I accept the Applicant’s argument that over many years and in relation to multiple subdivisional developments undertaken by A, his companies and business associates, the Applicant purchased and held property on trust for other entities, either at the request of A on particular occasions, or as part of a general practice. As noted above, the Respondent in fact accepted that to be the case in relation to the vast majority of the 230 properties registered in the Applicant’s name which were included in these developments (see [75] above). Following the audit, the Respondent accepted that all but 21 of those 230 properties registered in the Applicant’s name were beneficially held by the Applicant for another entity (see [76] above) and then, subsequently, accepted that all but eight of the relevant properties were not beneficially owned by the Applicant (see [23]–[24] above).
[418] Reasons for Decision following audit: HB/6011 para 4.
In finding that the Applicant held the eight properties on trust for others, I am not relying on the evidence of the Applicant alone. As noted at [256] above, while A was not a particularly satisfactory witness in a lot of respects, his evidence, the documentary evidence and the evidence of Mr Bay and DCW, were consistent with the Applicant holding the properties in question on trust for other entities involved in the relevant developments. The evidence indicated that the Applicant received no direct benefit from the development and sale of the properties in question and bore none of the costs. While it was repeatedly put to the Applicant that she had no intention of putting the deeds of trust into effect and, as a matter of fact did not do so, the evidence is consistent with her having given effect to the deeds of trust. The Respondent himself accepted that that was the case with over 220 of the 230 properties registered in the Applicant’s name and there was no reason that emerged from the evidence why the remaining eight properties should be treated any differently.
I also accept that the Applicant’s NAB Flexi Account and the Bendigo Bank accounts no. ----8627 and ----2227 included in the asset betterment calculation upon which the default assessments were based, were not held by the Applicant for her benefit and that the funds that passed through those accounts should not be considered income of the Applicant. I am therefore satisfied that the assessments the subject of the objections and the objection decision were excessive or otherwise incorrect.
As the Respondent correctly points out, a finding that the assessments were excessive or otherwise incorrect is only half the requirement of s 14ZZK(b)(i) of the TAA. The Applicant must also establish, on the balance of probabilities, what the assessment should have been: in other words, what her actual taxable income was for each of the years. She does not do that by starting with the assessments issued by the Respondent and deducting from the assessments items which are shown to have wrongly been included. The steps necessary to satisfy this element of s 14ZZK(b)(i) of the TAA are described by Derrington J in Ross at [47] as set out in [66] above. Of particular relevance in the present case are the following comments made by Derrington J:
(5)In order to establish that an assessment under s 167 is excessive, a taxpayer must positively prove their “actual taxable income” and, in doing so, must demonstrate that the amount of tax levied by the assessment exceeds their actual substantive liability: Gashi [63]; Dalco at 623 – 625; Trautwein at 88; Ma v Federal Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 (Ma) at 230; by, in effect, furnishing a return of actual income which involves establishing both sides of the equation: Bosanac v Commissioner of Taxation [2019] FCAFC 116; (2019) 267 FCR 169 (Bosanac (FC)) [57].
(6)In the context of a s 167 assessment based on the asset betterment method, the taxpayer must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and that may be achieved by an accepted denial of any undisclosed source of income, providing acceptable evidence of how the taxpayer spends their time, and demonstrating a reasonable explanation for any appearance of the possession of assets: Ma at 230; Gashi [64] – [65]. The taxpayer must account for the unexplained increase in assets by explaining the source of those assets and identifying that those sources are not taxable. “[I]f the disclosed “actual” taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive”: Gashi [65].
The Applicant’s basic contention is that her actual income was as declared in the returns that she lodged for each of the years in question. At paras 528–671 of her affidavit dated 8 November 2017[419] the Applicant set out what she said were the sources of her income for each of the years in question. These included:
(a)director’s fees paid by G Holdings Pty Ltd;
(b)salary paid to her by M Nominees Pty Ltd;
(c)dividend payments; and
(d)interest generated on bank accounts.
[419] HB/144–81.
In these paragraphs the Applicant also set out the assets that she held in each of the relevant years, the living expenses (including holiday expenses) that she incurred in each of the years and sought to explain the flow of funds through her many bank accounts and credit cards. At para 635 of her affidavit of 8 November 2017, the Applicant referred to the $1,000,000 payment that she received from G Holdings Pty Ltd in February 2011 which she claimed was repayment of a loan. For the reasons set out at [316]–[318] above, I do not accept the Applicant’s explanation of this payment.
In the present case, it being a ITAA 1936 s 167 assessment based on the asset betterment method in each year, the Applicant, as described by Derrington J at [47(6)] of Ross, must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the Respondent should not be treated as income. As stated above, I accept that the Applicant has, on the balance of probabilities, established that the eight properties were not held beneficially by her and that she has explained why the funds going through the NAB Flexi Account and the two Bendigo Bank accounts referred to in [328] above, were, as Derrington J described it at [47(6)] of Ross, “derived from non-income sources”. I do not accept that she has discharged that onus in respect of the other bank accounts and credit cards identified by the Respondent. In relation to those other accounts and credit cards, we have little more than the Applicant’s assertion that the funds were not used by her for her benefit. Unlike the NAB Flexi Account, there was no detailed analysis based on bank statements or other third-party documents provided by the Applicant.
While the above represent my findings on those issues, my role is to review the objection decision[420] and, exercising the powers under s 43(1) of the Administrative Appeals Tribunal Act 1975 (Cth), to:
(a)affirm the objection decision;
(b)vary the objection decision; or
(c)set the objection decision aside and;
(i)make a decision in substitution for the objection decision; or
(ii)remit the objection decision for reconsideration with or without a direction or recommendation.
[420] See Stevenson v Federal Commissioner of Taxation (1991) 29 FCR 282.
The exercise described in [332] is affected by the operation of s 14ZZK(a) of the TAA (see [56] above) which limits the grounds of the review of the objection decision to the grounds stated in the objection lodged by the Applicant. Those grounds of objection (expanded by leave at the hearing; see [64] above) are reflected in the objection decision. The grounds of the objection lodged by the Applicant are summarised in [22] above.
As noted at [291] above, the Respondent summarised, in my view accurately, the Applicant’s objections in his reasons for the objection decision. It was the rejection of these objections, in some cases partial rejection, which were agitated in these proceedings. Given my findings as summarised above, I consider that the correct or preferable decision is to vary the objection decision to allow the Applicant’s objections to the inclusion of the eight properties in the assessments issued in each of the years, as well as the NAB Flexi Account and the Bendigo Bank accounts numbered ----8627 and ----2227. This will reduce the assessments for the 2009, 2010 and 2011 years and will allow in full the objection in relation to the 2016 special assessment.
Were the shortfall penalties in the penalty assessment, as adjusted by the objection decision, correctly imposed and should the penalties be remitted in whole or in part?
The parties’ respective contentions on this issue are set out at [319]–[321] above. As I noted at [322], the question of whether the penalties were correctly imposed and whether any should be remitted has to be determined in light of whether the assessments were found to be excessive. In the present case I have found that they were. While that finding will obviously impact the amount of the shortfall on which any penalty is based, a finding that the assessments were excessive will not necessarily affect the legal basis upon which the penalty was imposed.
In the case of the 2009 to 2011 default assessments, while I have allowed the Applicant’s objection to the inclusion of the seven properties and some of the bank accounts included in the assessments for those years, there was still, in my view, a failure on the part of the Applicant to include all of the sources of income and that that failure was a result of the Applicant’s intentional disregard of a taxation law. Accordingly, the base penalty amount calculated at 75 per cent of the shortfall under item 1 of the table in s 284-090(1) is appropriate. I find that the shortfall in the income declared by the Applicant in her returns for 2009 to 2011 was the result of more than negligence or recklessness, but rather, was deliberate conduct on her part to disregard the legislation or regulations. She is not an unsophisticated person. She is, as the Respondent pointed out, an experienced businessperson who has been engaged in complex property deals and developments in her own right over many years, and I find that she would have been well aware of her legal obligations in relation to tax. I also consider that the Applicant’s lack of proper record keeping, demonstrated by her inability to produce documents (or to produce documents in a timely manner) and her inability to be able to account for all of the transactions through her various bank accounts and credit cards, is indicative of someone who has insufficient regard for the tax laws. As far as the payments, bank accounts and credit cards in relation to which I have not varied the objection decision are concerned, it would have been a relatively straight-forward exercise for the Applicant, or those who worked for her, to have kept proper records of the transactions that occurred in those accounts, or to use purpose-specific accounts. The Applicant chose not to.
In relation to the uplift of 20 per cent under s 284-220 of the TAA, other than failing to disclose income, I am not satisfied that the Applicant “took steps to prevent or obstruct the [Respondent] from finding out about a shortfall”.[421] While it may be argued that the Applicant could have responded more promptly to some of the requests for production of information or documents during the audit, and it could be argued that she ought to have kept better records, any failure in that regard was, at worst, an act of omission rather than the taking of a step to prevent or obstruct the Respondent in the audit and in finding out about a shortfall.[422]
[421] TAA s 284-220(1)(a).
[422] See Bosanac and Commissioner of Taxation [2018] AATA 472 (Bosanac AAT) at [104].
The Respondent argues that s 284-220(1)(c) of the TAA applies to the penalties in respect of the 2010 and 2011 years because a penalty had been imposed in relation to the income year ended 30 June 2009 (see [322(a)] above). The relevant assessments for the 2010 and 2011 years were contemporaneous with the assessment for the 2009 year. While the penalty assessed the 2009 year was, like the penalty amounts for 2010 and 2011 years, calculated using items 1, 2 or 3 of the table in subsection 284-90(1) of the TAA, the issue is whether the assessment in respect of the 2009 year was made “previously” to the assessments for the 2010 and 2011 years given that it was made at the same time. In considering an earlier version of s 284-220(1)(c), Jessup J in Gashi at [57] found:
The policy with which the paragraph appears to be concerned is the discouragement of subsequent defalcations, once a taxpayer has been subjected to an administrative penalty of a particular kind on a previous occasion. On one view, it would not induce to the implementation of that policy if the taxpayer were subjected to the s 284-220(1)(c) uplift for each of the second and subsequent years in circumstances where he or she received assessments from the Commissioner in respect of a series of years at the one time. The question is: does “for a previous accounting period” mean “in respect of a previous accounting” or “on a previous occasion”? Counsel for the Commissioner informed me that this question has not previously been addressed by the courts, but submitted that the former construction was the correct one. Counsel for the applicants did not engage with that submission. I am disposed to accept it. Whatever legislative policy is discernible here, the latter interpretation would involve something of a strain against the words actually used in the provision. I would hold that it was open to the Commissioner to apply the uplift factor to the penalty assessments in 2004 and 2005, notwithstanding that they were served on Mr Gashi at the same time, and at the same time as was the 2003 assessment.

As the above passage indicates, the provision that Jessup J was considering was materially different to the current section. The s 284-220(1)(c) that Jessup J was dealing with was:
the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items for a previous accounting period....
(Emphasis added.)
The language of the current s 284-220(1)(c) is as follows:
the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items previously.
(Emphasis added.)
Justice Jessup’s judgment was based on the meaning of the words “for a previous accounting period”. The wording of the current s 284-220(1)(c) is consistent with the “latter interpretation” referred to by his Honour in the above passage. In fact, given the change in the wording of the section, the interpretation found by his Honour to apply to the former language of the section “would involve something of a strain against the words” of the section as it now reads. In other words, “previously” should be interpreted to mean “on a previous occasion” as distinct from “in respect of a previous accounting period” as found by Jessup J on the former wording of that section.
The Applicant’s written submissions referred to PSLA 2012/5 (see [322(d)] above) which relevantly provides:
15K. The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. There is no requirement for the entity to be aware of the penalty for the increase to apply. This means that, where we assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements.[423]
[423] Citing Gashi FC.
…
17A. If imposition of the penalty provides an unintended or unjust result, we may remit the penalty in whole or in part.
…
17C. In some instances, the mechanical or calculation process of the law could result in an unintended or unjust result, and remission in part or full may be warranted.
…
17E. As noted in paragraph 15K and Example 8, remission of the 20% uplift is usually given where:
•a BPA is increased because two or more penalties were assessed at the same time
•the entity has not been advised of a previous penalty (usually because of concurrent calculation), and
•the behaviour is not intentional disregard of the law.
I have a couple of issues with para 15K of PSLA 2012/5. Firstly, it cites the decision of the Full Court in Gashi FC (noting that the citation does not identify a pinpoint). That case did not deal with s 284-220(1)(c) of the TAA. That section was interpreted and applied by Jessup J in the first instance judgment as set out at [339] above. His Honour’s findings in relation to that section were not subject to appeal, which was, in any event, dismissed by the Full Court. Secondly, para 15K does not represent the current law. It is a statement of the effect of Jessup J’s decision in Gashi based on the legislation as it stood prior to 4 June 2010 when the amendment effected by the Tax Laws Amendment (2010 Measures No. 1) Bill 2010 (Cth) came into operation.[424]
[424] See Morrison and Commissioner of Taxation [2015] AATA 114 at [117] and [118].
In the present case I find that s 284-220(1)(c) does not operate to apply a 20 per cent uplift to the base penalties applied under s 284-90(1) of the TAA for the 2010 and 2011 years because at the time that the penalties were worked out in respect of those years, a penalty had not “previously” been applied in respect of the 2009 year.
In relation to whether the penalties should be remitted, s 298-20 of sch 1 the TAA relevantly provides:
(1)The Commissioner may remit all or a part of the penalty.
(2)If the Commissioner decides:
(a)not to remit the penalty; or
(b)to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
At [192] of Sanctuary Lakes Pty Ltd v Commissioner of Taxation,[425] Greenwood J described the discretion to remit penalty under s 298-20 of the TAA as follows:
Section 298-20 addresses the topic of “Remission of Penalty”. It applies to each penalty arising under each of the penalty regimes under Part 4-25. In order to provide the Commissioner with the flexibility necessary to determine the circumstances informing the exercise of the discretion to remit a penalty imposed under a Division of Part 4-25, s 298-20(1) simply provides that the Commissioner “may remit all or a part of the penalty”. Section 298-20 does not provide for any considerations that must be taken into account in the exercise of the discretion to remit all or a part of the penalty.
[425] (2013) 212 FCR 483; [2013] FCAFC 50.
His Honour at [193] further described the discretion under s 298-20 of the TAA in the following terms:
The discretion conferred by s 298-20(1) is unconstrained, according to its terms. It must, however, be exercised for a proper purpose; in accordance with the objects of the Administration Act; and according to law.
At [206] to [209] of Sanctuary Lakes, Greenwood J described the basis for the exercise of the discretion to remit as follows:
206.Upon a proper exercise of the discretion, the Tribunal might or might not conclude that the penalty imposed by the Administration Act on the taxpayer in failing to take reasonable care is to be remitted to zero. That is entirely a matter of merits assessment in the exercise of the discretion for the Tribunal in determining where the balance of factors lies. However, the exercise of the discretion must take account of the statutory scheme, the foundation upon which the Administration Act imposes the penalty and the questions that need to be examined in exercising the discretionary power to remit the penalty.
207.The Tribunal must be taken to have asked itself the question, does the object of the penalty regime justify the exercise of the discretion conferred by s 298-20(1) of Sch 1 so as to remit the penalty imposed upon the taxpayer by operation of s 284-75(1), s 284-80, s 284-85 and s 284-90 of Sch 1, to nil because the statement made to the Commissioner in the absence of reasonable care nevertheless gave rise to a reasonably arguable claim for a deduction.
...
209.In exercising the discretion under s 298-20(1) to remit, the Tribunal was required to ask itself, having regard to the evidence, what were the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care in making the statement to the Commissioner that might explain the conduct the subject of the penalty and what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that notwithstanding the imposition of a penalty on the taxpayer by the Administration Act on the footing of a failure to take reasonable care in making the statement, the penalty ought nevertheless be reduced either in whole or in part, and as in this case, to nothing.
Justice Griffiths in Sanctuary Lakes, having reviewed the language of s 227(3) of the ITAA 1936 dealing with the discretion under that act to remit penalties (which refers remission where the outcome would otherwise be harsh), observed at [247]:
In my view, there is no warrant for reading into the broad discretion conferred by s 298-20 of the TAA 1953 (or, indeed, former s 227(3) of the ITAA 1936) a requirement that the decision-maker must be satisfied that the outcome is “harsh” for the particular taxpayer in his or her individual circumstances unless penalty is remitted. One rhetorically asks what is the basis for reading into s 298-20 a term which is simply not there?
And at [249]:
In my opinion, the correct question which arises under s 298-20 should not be expressed in terms of “harshness”. Rather, the question is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part. For example, a decision-maker might determine that it is appropriate to remit penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh (see the observations of McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 on the different meanings of the individual words “harsh”, “unjust” and “unreasonable” in a different context concerning unfair dismissal and the collocation of those words in both legislation and an industrial award).
In Bosanac and Federal Commissioner of Taxation[426] at [33] I described the exercise of the discretion under s 298-20 of the TAA as follows:
The Tribunal is bound and guided by the principles spelt out by the Court in Sanctuary Lakes. On that point the parties seem to be agreed. The correct question for the Tribunal as identified by the Court in Sanctuary Lakes is whether it is satisfied, having regard to the “taxpayer’s personal circumstances”, that it is “appropriate” to remit the penalty in whole or in part. The judgment in Sanctuary Lakes, as applied in subsequent cases, also makes it clear that the discretion in s 298-20 of Schedule 1 is broad.
[426] [2019] AATA 1240.
The Applicant in her written submissions at paras 223–6 referred to the fact that the Applicant returned her director’s fee from G Holdings Pty Ltd in the income year ended 30 June 2010 when it should in fact have been returned in the income year ended 30 June 2011. This resulted in there being an excess in the return for the 2010 year but a shortfall for the 2011 year. The Applicant argues that there was no intentional disregard of or recklessness as to the operation of a taxation law. The Applicant recognised that the director’s fee was assessable income and returned it– she just did so one year early. There could be no possible advantage for the Applicant in doing so.
The Applicant refers to PSLA 2012/5 [17W]–[17AC] and contends that the penalty imposed in respect of the shortfall in the 2011 year caused by the director’s fees being returned a year early should be remitted. I agree that that is appropriate and in accordance with the Respondent’s published practice statement.
In relation to the penalties applying to all other shortfall amounts, there was nothing in the evidence which would indicate that the Applicant’s personal circumstances, the circumstances that have given rise to the shortfalls and the imposition of penalties or any other consideration, make it appropriate to remit any part of the penalties.
Were the 2009 and 2010 default assessments validly issued by the Commissioner under s 170(1) item 5 of the ITAA 1936?
Section 170, item 5 of the ITAA 1936 provides the power for an amendment to be made after the usual four-year period, in circumstances where the Respondent is of the opinion that there was fraud or evasion at the time of the original assessment.
The Respondent argues that he formed the reasonable view that there had been, as a minimum, evasion in respect of the returns for the 2009 and 2010 years. The Respondent contends that the relevant test is that stated by Dixon J in Denver quoted at [325(c)] above. That is an oft cited passage and I accept that to be the applicable test.
Fullagar J in Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation[427] at 37 stated the test to be:
In order that the appeals should succeed, it is necessary that I should hold that the opinion was not in fact entertained, or that it was based upon a misconception of the meaning of the word "evasion", or that it was arrived at "capriciously, or fancifully, or upon irrelevant or inadmissible grounds" (per Rich and Dixon JJ in Australasian Scale Co Ltd v Commissioner of Taxes (Qld) (1935) 53 CLR 534, at p 555: cf Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621, at pp 636–637). In the course of a well known passage in Moreau v Federal Commissioner of Taxation (1926) 39 CLR 65, Isaacs J said —
Unless the ground or material on which his belief is based is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason cannot be overridden…"
I am inclined to think, with respect, that this puts the position somewhat too strongly. The position was put to me by counsel for the Commissioner very much as I have put it above, and I think it was correctly so put. The taxpayer can, of course, obtain an actual review of an opinion or discretion of the Commissioner by the Board of Review, though not by the court…
I am satisfied that the Commissioner did entertain such a view, and that such a view is not based on any misconception of law. And I am not able to say that it was an unreasonable view — still less that it was arrived at "capriciously or fancifully or upon irrelevant or inadmissible grounds". The result is that, in my opinion, all the amended assessments were authorized by the Act, and all the appeals fail.
(Emphasis added.)
[427] (1953) 88 CLR 23.
I also note the observations of Perram and Davies JJ in Binetter as to the application of the power under s 170(2) of the ITAA 1936:
72.For the purposes of this appeal, there is no material difference between the statutory requirements of s 170(2) in the income years 2002 to 2004 and those for the income years 2005 to 2007 contained in s 170(1) item 5. Both permitted the Commissioner to amend a notice of assessment issued for an income year at any time so long as he first formed the opinion that there had been fraud or evasion in relation to that year.
…
74.The Commissioner did, in fact, form the opinion that there had been “evasion” (although not fraud). In relation to the 2002 to 2004 income years, he did so on 29 July 2010. In relation to the 2005 to 2007 income years, he did so on 20 September 2011. His power to do so having then been enlivened, the Commissioner issued amended assessments for the income years 2002 to 2007…
The fact that I have found that certain of the items included in the asset betterment calculation undertaken by the Respondent upon which he based the Fraud or Evasion Opinion[428] (see [33] above) were either explained by the Applicant or should not be treated as income, does not affect whether the Respondent, as a matter of fact held the requisite opinion. I am satisfied that the Respondent held the requisite opinion, and I am satisfied that that opinion was not based upon a misconception of the meaning of the word "evasion", or that it was arrived at "capriciously, or fancifully, or upon irrelevant or inadmissible grounds".[429]
[428] HB/5987–6008.
[429] See Australasian Jam Co at 37 cited at [357] above.
I am satisfied that the Respondent had the power to issue amended assessments under s 170(1), item 5 of the ITAA 1936 in respect of the 2009 and 2010 tax years.
decisions
Applications 2016/2809, 2016/2810 and 2016/2811
For the reasons set out above, I have found that the properties listed in [87], which were included by the Respondent in the 2009 and 2010 default assessments, were not beneficially owned by the Applicant. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2009 and 2010 default assessments to allow the objection to the inclusion of those properties in the default assessments.
Further, for the reasons set out above, I have found that the moneys passing through the NAB Flexi Account and the Bendigo Bank accounts numbered ----8627 and ----2227 were not for the benefit of the Applicant. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2009, 2010 and 2011 default assessments to allow the objection to the inclusion of money passing through those accounts as the Applicant’s income or the Applicant’s property in the default assessments.
Further, for the reasons set out above, I have found that neither s 284-220(1)(a) nor s 284-220(1)(c) applies. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2010 and 2011 default assessments to allow the objection to the 20 per cent uplift to the penalties under s 284-220 of the TAA.
Further, for the reason set out in [353] above, the correct or preferable decision is to vary the objection decision to remit the penalty imposed in respect of the shortfall in the 2011 year caused by the director’s fees being returned a year early.
Application 2017/7664
For the reasons set out above, I have found that Anketell Road, the sale of which was included by the Respondent in the 2016 special assessment, was not beneficially owned by the Applicant. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2016 special assessment to allow the objection to inclusion of that property in the assessment.

I certify that the preceding 365 (three hundred and sixty-five) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle

...[SGD].....................................................................
Associate
Dated: 13 February 2023

Dates of hearing: 14–25 February 2022

Date final submissions received: 18 March 2022

Counsel for the Applicant: C Burnett SC, D Lewis

Solicitors for the Applicant: O'Loughlin Westhoff

Counsel for the Respondent: S T White SC, C H Thompson SC, L D Coci

Solicitors for the Respondent: Australian Taxation Office

*Base penalty amount*
Item	In this situation:	The base penalty amount is:
1	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a taxation law (other than the *Excise Acts) by you or your agent	75% of your *shortfall amount or part
2	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a taxation law (other than the *Excise Acts)	50% of your *shortfall amount or part
3	You have a shortfall amount as a result of a statement described in subsection 284‑75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a taxation law (other than the *Excise Acts)	25% of your *shortfall amount or part

Dates of hearing:	14–25 February 2022
Date final submissions received:	18 March 2022
Counsel for the Applicant:	C Burnett SC, D Lewis
Solicitors for the Applicant:	O'Loughlin Westhoff
Counsel for the Respondent:	S T White SC, C H Thompson SC, L D Coci
Solicitors for the Respondent:	Australian Taxation Office