Wang and Commissioner of Taxation (Taxation)

[2023] AATA 2962

Wang and Commissioner of Taxation (Taxation) [2023] AATA 2962 (7 September 2023)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2022/5626, 2022/5627, 2022/5628

Re:Peter Wang

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member G Lazanas

Date:7 September 2023

Place:Brisbane

The objection decision dated 11 May 2022 is affirmed.

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

Senior Member G Lazanas

CATCHWORDS

TAXATION – income tax default assessments – whether the taxpayer could satisfy the onus of proof by establishing errors in assets betterment methodology adopted by the Commissioner – no agreement to confine the issues in dispute – failure to adduce sufficiently reliable evidence –whether administrative penalties correctly imposed for failure to lodge tax returns– objection decision affirmed

LEGISLATION

Income Tax Assessment Act 1936 (Cth) ss 161, 166, 167

Taxation Administration Act 1953 (Cth) s14ZZK, Sch 1 ss 284-75; 284-90, 284-220, 298-20

CASES

Bosanac v Commissioner of Taxation [2019] HCA 41; (2019) 374 ALR 425

Commissioner of Taxation v Ross [2021] FCA 766; (2021) 174 ALD 77

Condon v Commissioner of Taxation [2023] FCA 561

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

Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301

Ma v Federal Commissioner of Taxation (1992) 37 FCR 225; 23 ATR 485

Rigoli v Federal Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 62

REASONS FOR DECISION

Senior Member G Lazanas

7 September 2023

INTRODUCTION

1. The applicant, Mr Peter Wang also known as Bing Xiang Wang and Raymond Wang, applied to the Tribunal seeking review of the decision of the Commissioner of Taxation to not allow his objection to the Commissioner’s assessments (the Objection Decision) for the income years ended 30 June 2014, 2015 and 2016 (the Relevant Years). Each of the assessments issued by the Commissioner to Mr Wang were default assessments pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936). Mr Wang also sought review of the Commissioner’s Objection Decision regarding the imposition of administrative penalties.

2. Mr Wang submitted that he did not earn any taxable income in the Relevant Years, and he was not required to file any income tax returns. Mr Wang claimed that he derived no assessable income and that he was self-funded using his own capital as well as loans from third parties in China for his living expenses. However, according to the default assessments issued by the Commissioner, Mr Wang’s taxable income for the Relevant Years was $6,446,072 for the 2014 income year; $4,511,115 for the 2015 income year; and $1,975,891 for the 2016 income year. That is, the disparity between what Mr Wang claimed he earned - being nil - and the total sum of the taxable income in the default assessments, was $12,933,078.

3. To succeed in his application for review of the Objection Decision, Mr Wang must discharge the onus of proof under s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA). Specifically, Mr Wang must satisfy the Tribunal that the assessment for each of the Relevant Years was excessive and establish what the assessments should have been for each of those years. Furthermore, he must also persuade the Tribunal that no administrative penalties are applicable.

4. As these reasons will explain, I have concluded that Mr Wang failed to discharge the onus of proof as he did not produce sufficiently reliable evidence to meet the statutory test. Mr Wang’s glib assertions that he used his own accrued wealth and he obtained loans from friends to independently support himself are accordingly rejected. Furthermore, it is not relevant for the Tribunal to consider Mr Wang's discrete challenges to elements of the Commissioner's default assessments as Mr Wang is unable to succeed by pointing to errors in the Commissioner’s default assessments. It is also irrelevant that the Commissioner may have made incorrect judgements and proceeded on flawed assumptions, including as to Mr Wang’s expenditure and as to the acquisition of certain property by him on behalf of others.

5. I have also concluded that the administrative penalties were properly imposed on the basis that Mr Wang failed to lodge income tax returns for the Relevant Years in circumstances where he was clearly required to do so. Consequently, the Objection Decision is affirmed.

THE ISSUES BEFORE THE TRIBUNAL

1. The essential issue to be determined by the Tribunal is whether Mr Wang has discharged the onus of proof and established that the default assessments issued to him by the Commissioner were excessive and what his assessments should have been for each of the Relevant Years. There is also the issue of whether the administrative penalties were properly imposed.

2. A subsidiary issue which emerged during the hearing, and which is considered below under the treatment of the evidence is whether Mr Wang is allowed to rely on further documents that he produced for the first time at the hearing.

THE FACTUAL AND PROCEDURAL BACKGROUND

1. The following findings of fact are based on the respective Statements of Issues, Facts and Contentions filed by Mr Wang and the Commissioner, as well as the evidence given by Mr Wang to which I will come shortly. There were also T-Documents and Supplementary T-Documents which were filed by the Commissioner. These included documents compiled by the Commissioner from third parties such as bank statements, as well as documents provided by Mr Wang throughout the tax audit. I also briefly address these documents further below when considering the veracity of the evidence.

Mr Wang’s financial affairs and assets

1. Mr Wang is 59 years old and a Chinese immigrant. Mr Wang first entered Australia on

   
   

   3 December 1999 on a Business (short stay) visa. He then entered Australia between

   
   

   28 March 2004 and 19 December 2008 on a Business Skills (migrant) visa. He became an Australian citizen in June 2009. It was common ground that Mr Wang was an Australian tax resident for the Relevant Years.

2. In 2014, Mr Wang purchased his current residence in Queensland. His previous residence, which he jointly owned with Ms Xiaomin Lin, his former girlfriend, was in South Australia. Mr Wang had purchased and sold other properties in South Australia and Queensland before and during the Relevant Years. Mr Wang had obtained investment loans from Australian banks for those purchases, copies of which were amongst the T-Documents. The loan application forms revealed, amongst other things, that Mr Wang claimed he would earn rental income from the properties being purchased.

3. Mr Wang was involved in a proposed business venture through the company Whitsunday Chinatown Investment Pty Ltd of which he has a director and shareholder. That company apparently had paid up share capital of $4 million as of 12 May 2014. In 2014, the company purchased council land at Airlie Beach, Queensland at a cost of $785,789 with a view to developing an area to be known as Airlie Beach Chinatown. The major attraction of the development was to be a high-rise casino resort complex with an approximate development value of $300 million. However, the project did not proceed because of objections from residents due to the proposed size of the development and the loss of views. The precise amount that Mr Wang had invested in the proposed business venture and in the abovementioned company was unclear, but the Commissioner was understandably of the view that Mr Wang was heavily involved as published articles in Queensland newspapers (contained in the T-Documents) referenced Mr Wang.

4. Mr Wang was also a director and shareholder of approximately 15 other Australian private companies, virtually all of which have been deregistered. According to the records of the Australian Securities and Investments Commission contained in the T-Documents, only two of these companies were still registered – CAI Entrepreneurs (Group) Pty Ltd and Window of China Pty Ltd – and Mr Wang was a director and a shareholder, amongst others, of both those companies. However, it wasn’t clear what those companies were involved in, nor for that matter did Mr Wang explain the past activities of all the other deregistered companies as well as his involvement.

5. According to information provided by Australian casinos of which Mr Wang was a member, Mr Wang’s gambling activities produced a ‘total player loss’ in the order of approximately $2.3 million in the Relevant Years.

6. Mr Wang had three motor vehicles registered in his name during the Relevant Years, namely, a Mercedes Benz S350 Model 2008 purchased in 2010, a Bentley Flying Spur Model 2010 purchased in 2012 and a Land Rover SW Model 2011 purchased in 2014 (this was disposed of during 2015). Mr Wang claimed to have been gifted the Mercedes Benz by his former girlfriend’s family and to have won the Land Rover. While there was no evidence about the gifted Mercedes Benz, there was evidence to support Mr Wang’s claim that he won the Land Rover.

The Commissioner’s audit

1. Mr Wang did not lodge any income tax returns for the Relevant Years as he claimed it was unnecessary for him to do so in circumstances where he did not derive any income.

2. The Commissioner conducted an audit of Mr Wang's financial affairs for the Relevant Years. That audit concluded on or about 9 January 2020. The ATO Position Paper indicated that Mr Wang held more than 25 Australian bank accounts in his name and or as a joint holder with Ms Lin. He was also a signatory of multiple accounts in other names including of various companies.

3. On 6 September 2019, Mr Kenneth Chan, Mr Wang’s former accountant, provided a response to an initial position paper issued by the Commissioner as part of the audit of Mr Wang. Mr Chan stated, amongst other things, that “all business transactions are transfers between bank accounts by investors and that all [Mr Wang’s] private wealth in Australia is from borrowed funds.” On 16 October 2019, Mr Chan, on behalf of Mr Wang, provided further information and documents including copies of translated ‘IOUs’, ‘payment receipts’ and ‘loan agreements’. Mr Chan also explained that prior to Mr Wang migrating to Australia, the hotel business of Fujian Quanshou Huxin Hotel Co Ltd had been sold in May 2005 and Mr Wang’s “asset backing was audited by Australian Immigration Department indicating that he holds 86% of the hotel business having $82 million capital and $28 million net asset”.

The Commissioner’s assessments, the objection and the objection decision

1. On 16 January 2020, the Commissioner issued Mr Wang with default assessments for the Relevant Years pursuant to s 167 of the ITAA 1936 using the asset betterment methodology. Broadly, this methodology entails identifying and calculating the betterment or increase based on the net assets (assets less liabilities) of a taxpayer as at 30 June of a particular year compared with the taxpayer’s net assets as at 30 June of the previous year. The betterment represents the taxable income for that particular year. The Commissioner used the income year ending 30 June 2013 as the starting base year for the purposes of applying the asset betterment methodology in relation to Mr Wang to determine his taxable income for each of the 2014, 2015 and 2016 income years. The Commissioner had rejected the various documents provided by Mr Wang as they did not explain Mr Wang’s version of events.

2. The Commissioner also issued assessments of administrative penalties pursuant to

   
   

   s 284-75(3) of Schedule 1 to the TAA for failure to lodge documents. The penalty amount for the 2014 income year was calculated at the base penalty amount of 75% of the tax liability under s 284-75(3) as Mr Wang failed to file his tax return. The same base penalty amount of 75% was initially applied in respect of the 2015 and 2016 income years for the failure to lodge income tax returns and was also increased by 20% because there had been a prior imposition of the penalty for the 2014 income year.

3. The following table summarises the Commissioner’s assessments:

Year	Taxable income	Default assessment	Penalty
2014	$6,446,072	$3,067,661.55	$2,300,746.15
2015	$4,511,115	$2,248,060.05	$2,023,254.05
2016	$1,975,891	$967,771.95	$870,994.75

1. On or about 6 September 2021, Mr Wang lodged a notice of objection to his assessments prepared by Andreyev Lawyers, his legal representatives at that time. Relevantly, the objection referred to several grounds, as follows:

   ·the default assessments are incorrect as Mr Wang earned no assessable income in Australia during the relevant years

   ·the private expenditure amounts were financed by loans from Mr Wang’s Chinese friends loans

   ·although the gambled amounts were placed in Mr Wang’s account, that money was actually deposited by his Chinese friends and the associated gambling losses were as a result of those friends losing their money.

   ·Mr Wang came to Australia with around $8.6 million personal wealth

   ·none of the properties acquired by Mr Wang were ever rented out

   ·Mr Wang did not have to file income tax returns for the Relevant Years as s 161 of the ITAA 1936 relevantly only requires someone who earns assessable income to lodge a tax. Mr Wang earned no assessable income despite holding significant personal assets and wealth and having significant personal expenditure

   ·Mr Wang should not have had administrative penalties imposed for failure to lodge documents because none were required to be lodged in the first place

2. On 11 May 2022, the Commissioner notified Mr Wang that his objection to each of the default assessments and penalty assessments had been disallowed and the Commissioner also provided reasons for his decision (being the Objection Decision referred to at [1] above). Mr Wang had not asked for the remission of penalties nor for the remission of general interest charge. Consequently, those matters are not before the Tribunal.

The Tribunal proceedings

1. On 5 July 2022, Mr Wang’s new accountants, PPA Accountants Group Pty Ltd (PPA), lodged his application for a review of the Objection Decision with the Tribunal.

2. On 10 October 2022, the Tribunal made the following relevant directions:

   2. On or before 24 February 2023, the Applicant must give to the Tribunal and the Respondent a Statement of Issues, Facts and Contentions and the evidence the Applicant intends to rely on.

   ...

   4. On or before 21 April 2023, the Applicant must give to the Tribunal and the Respondent any evidence in reply that the Applicant intends to rely on or the Applicant is to notify the Tribunal and the Respondent in writing if the Applicant does not intend to rely on such evidence.

3. On 24 February 2023, Mr Wang filed two documents being a document titled 'Evidence and Witness Statement Lodgement required on or before 24th February 2023' and a separate document described as 'Witness Statement' signed by Mr Wang on 23 February 2023 (collectively referred to as ‘Exhibit A2’ at the proceedings).

4. On 20 April 2023, Mr Wang filed a document titled 'Applicant's Statement of Evidence to be relied on’ (‘Exhibit A1’), as well as a hearing certificate certifying that the case was ready for hearing. It is appropriate at this juncture to observe that paragraph 5 of Exhibit A1 states ‘Evidence and comments on matters still in dispute’ and continued with the following statement:

   The following table provides comments on the outstanding items that remain in dispute and reference documents attached to this Statement of Evidence to assist support the contentions to be submitted…

   [table omitted]

5. The table referred to in Exhibit A1 then lists numerous items under the heading ‘Contention’. The listed items are ‘Paid share capital in private companies’, ‘Private expenses…’, ‘Rental income’, ‘Real Estate Glandore property’, ‘Real Estate – Cannonvale properties’, ‘Real Estate - Cairns’, ‘Private expenses …’. The abovementioned statements, together with the table of listed items, suggested that Mr Wang and the Commissioner had reached an agreement to confine the issues so that Mr Wang only had to discharge the onus of proof in relation to certain outstanding disputed matters. However, counsel for the Commissioner was categorical at the hearing that there was no such agreement reached and that Mr Wang had to prove that the default assessments were excessive, and what was his taxable income for each of the Relevant Years.

THE EVIDENCE

1. As stated at [25] and [26] above, Mr Wang provided several documents which he sought to rely on as his evidence. He also gave oral evidence in person at the hearing held in Sydney with the assistance of a Mandarin interpreter and his representatives from PPA participated by video from Adelaide. Counsel for the Commissioner, who also attended in person at the hearing, decided not to cross-examine Mr Wang. No other person gave evidence on behalf of Mr Wang.

2. Mr Wang stated that the reason other people did not give written or oral evidence was because they feared retribution in the form of a tax audit by the Commissioner. I do not accept the explanation as it was anecdotal in nature and not substantiated.

3. There were many explanations advanced by Mr Wang as to the difficulties he faced in compiling his evidence. For example, in a document filed by Mr Wang on 15 August 2023, titled ‘Applicant’s Outline of Submissions’ (‘Exhibit A3’), Mr Wang relevantly canvassed, amongst other things, the problems he had in adducing evidence. It was submitted that:

   [Mr Wang] does not possess the extent of evidence required to satisfy his claim [that he did not earn any taxable income in the Relevant Years]

   the lack of original evidence and the inability to obtain further evidence has presented difficulties in supporting Mr Wang’s assertion that taxable income in each year was zero

   Mr Wang’s accountant in 2014 has denied having any evidence relating to the entities and personal taxation related documents belonging to Mr Wang and his associated entities despite lodging BAS statements on behalf of the entities

   The original accountant even denied knowledge of Mr Wang and stated that they had no record of Mr Wang and stopped responding to attempts to communicate with him

   The lawyer who prepared and lodged the loan documents and incorporated many of the entities has retired and denied having any documents relating to Mr Wang

   Further, many documents that would have provided evidential support were destroyed in the Queensland floods in 2015 which affected Mr Wang’s residence at the time

   Submitted evidence provided in the Objection has been rejected

4. I turn now to address Mr Wang’s oral evidence. Mr Wang stated that he did a lot of business in China, and, at some stage, he had four hotels, a taxi hire business and factories, including one for the making of alcohol. Mr Wang stated that he spent most of each year in China after first coming to Australia, and did not become a resident of Australia, for income tax purposes until the 2014 income year. Mr Wang stated that he initially purchased some properties in Australia to satisfy his business visa immigration requirements. Mr Wang stated the properties purchased by him were never used as rental properties and he never earned any rental income from them. This was despite representing to the banks that they would earn specific rental amounts.

5. Mr Wang stated that when he became a resident of Australia for tax purposes, from the 2014 income year, he no longer earned any income in Australia. It was unclear to me whether he continued to earn any income overseas. Mr Wang was adamant that he had not derived any income in Australia and that, instead, he relied on his wealth made in China, and that Australia benefited from him spending his accrued wealth in Australia.

6. Mr Wang claimed not to have undertaken any business activities in 2014. He stated that in 2015 he had tried to put together a bid for a new casino project at Airlie Beach in Queensland, but the project did not proceed and he and the companies which he had formed all lost money. Mr Wang claimed that he had no or limited documentation in relation to the project due to the Queensland floods. Whatever documents he did have were thrown away by those residing in his residence.

1. Mr Wang stated that as he was the founder of China-Australia Entrepreneurs Holdings Pty Ltd, he assisted friends and colleagues coming from China to Australia with booking hotels and expanding the tourism businesses of his Chinese associates in Australia. He also helped about six Chinese families migrate to Australia and assisted some of them to purchase property including by putting the property in his name.

2. In relation to the gambling ‘total player loss’ recorded on his memberships with several gambling venues in Australia, Mr Wang stated that the gambling was not undertaken by him but by his Chinese friends and business colleagues. He stated that they transferred monies into his member account and the losses were theirs. There was a signed document, apparently from his Chinese friends, which was translated from Mandarin into English, stating that the amounts spent at the casinos were monies deposited by them into Mr Wang’s accounts and gambled by them. However, it was not possible to test the authenticity and veracity of this document (and other similar documents contained in the T-Documents and apparently provided by Mr Wang in the course of the tax audit), as Mr Wang did not provide adequate explanations. Nor did any of those persons give evidence. 

3. I was not persuaded that Mr Wang was giving an honest and accurate account of his financial affairs. Mr Wang’s evidence was limited and opaque, for example, as to the broad assertion that he lived off loans from third parties in China, and there were also inconsistencies and discrepancies. For example, he gave oral testimony that there were no loan documents because of cultural reasons, namely, he would not have entered into loan agreements with good friends. However, there were supposedly numerous loan agreements previously provided by Mr Wang during the tax audit to the Commissioner contained in the T-Documents which he did not reference in his oral testimony.

4. Mr Wang’s evidence was not plausible in the absence of any probative, independent or contemporaneous evidence. There was no evidence, for example, before the Tribunal from his former professional advisers. When it came to his bank statements, many of which were contained in the T-Documents, Mr Wang readily accepted that he had mixed his personal financial affairs with those of the companies with which he was associated and could not differentiate nor substantiate the different entries in his bank accounts. Mr Wang provided no meaningful explanation to support his assertion that during the Relevant Years he was self-funded using his own accumulated wealth in China and loans from third parties in China. Mr Wang did not provide sufficiently reliable evidence to corroborate his claims.

5. Turning to the documents that were before the Tribunal, it is necessary to briefly address the Tribunal’s treatment of documents filed by Mr Wang throughout the proceedings. Counsel for the Commissioner argued that, while the Tribunal is not bound by the rules of evidence, the Tribunal should nevertheless not accept any of the documents filed as evidence for several reasons. First, the documents were written in the third person and were akin to submissions. Secondly, it was repeatedly asserted in the documents that Mr Wang’s financial affairs were managed by his legal and accounting representatives, and he was entirely reliant on them, so it was unclear how he came to prepare the documents. Thirdly, as Mr Wang does not speak English, it was questionable as to how and by whom the documents had been prepared in English (and then translated into Mandarin for Mr Wang, as was explained by PPA to be the process that was undertaken in correspondence and at the hearing). This was peculiar in circumstances where the opposite approach might have been expected with the preparation of his materials, that is, documents prepared in Mandarin after taking statements from Mr Wang, and then translating those into English.

6. The thrust of the Commissioner’s submissions was that the Commissioner was suspicious as to whether the documents were based on Mr Wang’s direct evidence of events and transactions. Counsel for the Commissioner drew my attention to the fact that when the Mandarin translations of the documents sent by Mr Wang to the Tribunal and to the Commissioner on 18 August 2023 (collectively marked Exhibit R1 at the hearing), the explanation provided by PPA in their email was “[t]he documents we presented were in English, prompting Peter Wang to engage his own private translator to aid his comprehension on each occasion, It’s important to emphasize that we bear no responsibility for the translated rendition”. I accept there are shortcomings in Mr Wang’s documentary evidence and have taken these into account in the little weight attributed to them.

7. As stated at [7] above, Mr Wang sought to rely on a further 6 documents which he brought with him to the hearing, collectively marked for identification purposes as ‘X’. I reserved making a ruling in respect of whether these would be considered until I had an opportunity to further consider them as part of the reasons for decision. The documents which were in English (with Mandarin translations) have the respective titles ‘Supplementary Explanation dated 19 August 2023’, ‘A few ideas about appealing to the Tax office’, and ‘The supplementary explanation on the purchase of real estate – 1 Albion Avenue Glandore China Australia Entrepreneurs Holdings Pty Ltd’. There were also copies of various contemporaneous transaction documents such as a trust account receipt, an ANZ home insurance letter and a residential sale contract.

8. The Commissioner objected to these documents being admitted because they were provided during the hearing and disadvantaged the Commissioner if they were to be considered. The Commissioner’s counsel pointed out that the taxation officer with carriage of the Tribunal proceedings had written to PPA on 26 April 2023 indicating that, in accordance with the Tribunal’s directions (see [24] above), Mr Wang should not expect to be able to, relevantly, adduce any further evidence, as Mr Wang had had an adequate opportunity to do so.

9. I agree with the Commissioner’s position that Mr Wang had been provided with a reasonable opportunity to prepare and present his evidence and the documents marked ‘X’ should not be considered by the Tribunal. Mr Wang did not foreshadow producing further evidence, aside from his oral testimony, at any stage before the hearing, even though there was correspondence between PPA and the Commissioner on 18 August 2023 (see [39] above). While the Tribunal does allow considerable latitude to parties because, amongst other things, it is not bound by the rules of evidence, all requests for leave to file documents late must be reviewed on a case-by-case basis. I have also considered that in the present matter Mr Wang was represented, both at the hearing and throughout the audit and objection stage, albeit by different representatives. I have also considered that, as with the other documents provided in English and Mandarin by Mr Wang, there were questions as to the authenticity of some of the documents and who had prepared them, who had translated them and if they were accurate and relevant. I was not prepared to adjourn the matter to allow the Commissioner to properly consider the documents. This was not appropriate in circumstances where the parties had filed and exchanged hearing certificates on 20 April 2023 representing the matter was ready for hearing.

10. Furthermore, my decision to not accept the documents marked ‘X’ as material before the Tribunal, and to also not adjourn the matter for a resumed hearing, is fortified by the fact that, for the reasons explained further below, even if they were accepted, they would not have assisted Mr Wang in altering the outcome in these proceedings. This is because the documents appeared to only deal with discrete challenges to the Commissioner’s asset betterment methodology rather than present a holistic explanation by Mr Wang for the Relevant Years. I am satisfied that the appropriate course is not to accept the documents marked ‘X’.

RELEVANT STATUTORY PROVISIONS AND PRINCIPLES

1. The starting point is that the Commissioner is empowered to make a default assessment pursuant to s 167 of the ITAA 1936 in certain circumstances. That section relevantly provides:

   Section 167 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.

2. Section 167 of the ITAA 1936 authorises the Commissioner to form a judgement as to the amount on which tax ought to be levied once satisfied, relevantly here, that a person has made a default in furnishing a return, or that there is reason to believe that the person who failed to furnish a return derived taxable income. A default assessment by the asset betterment method is a legitimate form of assessment, even though it necessarily involves an element of guesswork. Plainly, there is no burden on the Commissioner to show that the assessments were correctly made.

3. A default assessment under s 167 of the ITAA 1936 can be contrasted with an assessment made under s 166 of the ITAA 1936. Section 166 relevantly requires an evidence-based calculation of a person's taxable income and the tax payable as evident from the terms in the section referencing “the returns, and from any other information in the Commissioner’s possession”, whereas s 167 authorises the Commissioner to form a judgment as to the taxable income on which tax should be levied. The Commissioner typically resorts to making a s 167 default assessment where the Commissioner is unable to make an accurate assessment in accordance with s 166.

4. Section 14ZZK of the TAA relevantly provides as to the grounds of objection and burden of proof with respect to tax disputes in the Tribunal, as follows:

   Section 14ZZK 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.

5. The taxpayer's onus of proof with respect to default assessments has been the subject of detailed analysis in two decisions of Derrington J in the Federal Court: Commissioner of Taxation v Ross [2021] FCA 766 (Ross) and Condon v Commissioner of Taxation [2023] FCA 561 (Condon). Similar to Mr Wang's situation, both of those cases involved the respective taxpayers objecting to default assessments made by the Commissioner utilising the asset betterment methodology. In both decisions, Derrington J helpfully collated the principles and authorities applicable to the taxpayer's onus in challenging an objection decision: Ross at [48]; Condon at [27].

6. As I am bound to follow the decisions of Derrington J in Ross and Condon and the numerous authorities to which his Honour referred, it is useful to set out the following relevant extracts from Ross:

   47 Whilst the overarching principles surrounding the onus might be succinctly stated as they are above, a question arose in the present matter as to the application of the onus in the context of a challenge to a default assessment founded upon the “asset betterment method”. In particular, the parties differed as to the manner in which the onus might be discharged in that context.

   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 (Rigoli) [12].

   (2)     The assessment by the “asset betterment method” is a legitimate form of assessment: Trautwein at 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 [55]; George v Federal Commissioner of Taxation (1952) 86 CLR 183 (George) at 204. 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 [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 [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 [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 [62]; Rigoli [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 [63]; Dalco at 623 – 625; Trautwein at 88; Ma v Federal Commissioner of Taxation (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) 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].

   (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 [63] – [67]; Rigoli [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 [66]. A deficiency in proof of the excessiveness of the assessment results in the challenge failing: Dalco at 624 – 626. 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 [66]; Rigoli [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 [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 [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 – 624. 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 [61]. See also Dalco at 624.

   (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 624. 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.

DID MR WANG DISCHARGE THE ONUS OF PROOF WITH RESPECT TO THE DEFAULT ASSESSMENTS?

1. As there was no agreement between Mr Wang and the Commissioner to confine the issues in dispute with respect to the Relevant Years (see [27] above), Mr Wang had to discharge the onus of proof in s 14ZZK(b)(i). Mr Wang had to prove the assessments were excessive and what the assessment should have been for each of the Relevant Years. It was not sufficient for Mr Wang to provide explanations only as to some of the expenditure and assets identified in the asset betterment statement produced by the Commissioner.

2. It is well established, and unequivocally reaffirmed recently in Ross, that in order to establish an assessment under s 167 is excessive, a taxpayer must positively prove their actual taxable income: per Derrington J at [48], [63], [66], [68] - [69]. See also Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301 (Gashi) at [63]; Trautwein v Commissioner of Taxation (Cth) (1936) 56 CLR 63 at 88; Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 per Burchett J at 230.

3. Applying the relevant principles to Mr Wang, it is clear that Mr Wang failed to discharge his onus of proof by his attempts to pick and choose his way through the asset betterment methodology and to seek to prove that particular items were incorrect or should not have been included: Ross per Derrington J at [48], citing Gashi at [63] - [67], Rigoli v Federal Commissioner of Taxation [2014] FCAFC 29 at [12], [25]. See also Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (Dalco)at 624 - 625.

1. It is the very approach which Derrington J made definitively clear in Ross and Condon is inadequate in the context of discharging the onus of proof with respect to default assessments issued under s 167. In Condon at [29], Derrington J reiterated, as follows:

   ... Characterising the issue in this way impliedly suggested that a taxpayer might succeed on an appeal to the extent that she or he could establish that certain discrete amounts included in an assessment were not reflective of assessable income. That suggestion is contrary to the principles set out above, which indicate that either the taxpayer is able to establish what their assessable income is or else the appeal fails. This is sometimes referred to [as] the "all or nothing" approach.

2. It follows that Mr Wang has failed to discharge his onus, on the balance of probabilities, because he failed to establish that the assessments were excessive and what the assessments should have been for each of the Relevant Years. That is, Mr Wang failed to engage with the statutory test in s 14ZZK(b)(i) and to persuade me that the assessments were excessive and what were the amounts of his assessments.

3. Put simply, Mr Wang has failed under the “all or nothing” approach because he only ever engaged on a limited basis, namely, he sought to selectively attack the Commissioner's default assessments rather than comprehensively explain what his taxable income was in the Relevant Years. Mr Wang’s attempts were both inadequate and irrelevant in all the circumstances. It will be recalled that Mr Wang advanced only two grounds. First, he said that he supported himself using his own accrued wealth in China, all of it earned prior to his arrival in Australia. Secondly, he stated that he obtained loans from Chinese friends. However, Mr Wang did not put on sufficiently reliable evidence to substantiate the wealth he asserts he held at the time of his arrival in Australia, its source or the balance amount held by him at any time, especially during the Relevant Years. There was also no probative evidence regarding the alleged loans to Mr Wang.

4. Thus, the possibility of Mr Wang demonstrating errors in the asset betterment methodology did not advance Mr Wang’s case as it fell short of what was actually required to discharge his onus under s 14ZZK(b)(i). The authorities make it patently clear that in order to demonstrate the excessiveness required by s 14ZZK(b)(i), Mr Wang had to show that the Commissioner's assessment of his taxable income was excessive relative to his actual taxable income for the relevant period (at [68] of Ross). Mr Wang failed to do that because he failed to prove what his actual taxable income was in each of the Relevant Years and what the assessments should have been.

DID MR WANG DISCHARGE THE BURDEN OF PROOF WITH RESPECT TO THE ADMINISTRATIVE PENALTIES?

1. The Commissioner’s position with reference to the issue of administrative penalties was relatively straightforward. The Commissioner argued that administrative penalties were properly imposed under s 284-75(3) of Schedule 1 to the TAA because Mr Wang failed to lodge his income tax returns by the due dates, the returns were necessary for the Commissioner to determine Mr Wang’s tax liability, and the Commissioner determined the liability without the returns. This was incontrovertible in circumstances where, as noted above, Mr Wang had failed to lodge his returns and he had taxable income. The base penalty amount was calculated at 75% of the tax related liability concerned: s 284-90(1), Item 3 of the TAA.

2. The Commissioner further determined that the base penalty amount should be increased by 20% pursuant to s 284-220(1) with respect to the 2015 and 2016 income years, by reason of Mr Wang’s prior failure to lodge his 2014 income tax return. The Commissioner determined in the Objection Decision that there were no grounds to exercise his discretion to remit all or part of the penalties under s 298-20(1) of the TAA. Mr Wang had not, in any event, objected to the Commissioner’s decision not to remit penalties.

3. I agree with the submissions of counsel for the Commissioner that as Mr Wang failed to lodge income tax returns when required to do so, Mr Wang is liable to administrative penalties at the rate of 75% of the tax shortfall in the 2014 income year and at the 90% rate with respect to the tax payable for the 2015 and 2016 income years, that is, the base penalty of 75% uplifted by 20%. These penalties were in accordance with the statutory provisions in the TAA and are, therefore, not excessive or otherwise incorrect (see s 14ZZK(b)(i)). No submissions were made for the remission of the administrative penalties and there are no grounds warranting remission of penalties in all the circumstances (see s 14ZZK(b)(ii)).

CONCLUSION

1. Mr Wang failed to discharge the onus of proof by showing that the default assessments issued to him for the Relevant Years were excessive and what the assessments should have been. Mr Wang also failed to discharge the onus of proof in relation to the administrative penalties.

DECISION

1. For the reasons given, the Objection Decision is affirmed.

I certify that the preceding 61 (sixty -one) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas

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

Associate

Dated: 7 September 2023

Date(s) of hearing:	21 - 22 August 2023
Advocates for the Applicant:	Mr P Prestwich OAM, Ms C Zheng, PPA Accountants Group Pty Ltd
Counsel for the Respondent:	Ms J Marr
Solicitors for the Respondent:	Mr K O'Seighin, ATO Litigation & Legal Services