TAXATION – where the Administrative Appeals Tribunal affirmed the Commissioner of Taxation’s decision not to allow the applicant’s objection to a default assessment issued pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) – where the default assessment was made applying the asset betterment methodology – whether the applicant could satisfy the burden of proof in s 14ZZK(b)(I) of the Taxation Administration Act 1953 (Cth) by establishing errors in the default assessment – whether Tribunal erred in applying the “all or nothing” approach – no error in the Tribunal’s approach
ADMINISTRATIVE LAW – where the applicant was not cross-examined by the Commissioner on various issues and no contrary evidence was led on those issues– whether Tribunal erred in not accepting the applicant’s evidence allegedly in breach of the rule in Browne v Dunn (1893) 6 R 67 – where the applicant had adequate notice of the Commissioner’s position
ADMINISTRATIVE LAW – whether Tribunal failed to give adequate reasons as required by s 43(2B) of the Administrative Appeals Tribunal Act 1975 (Cth) – whether Tribunal erred in failing to give due weight to corroborative evidence – whether question of law raised by alleged failure by the Tribunal to receive documents into evidence – where alleged errors based on applicant’s erroneous approach to the burden of proof – where errors invited merits review – application dismissed
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Wang v Commissioner of Taxation [2024] FCA 585
Case
[2024] FCA 585
Decision Date
CaseChat Overview and Summary
In Wang v Commissioner of Taxation, the applicant, Mr Wang, contested a default assessment issued by the Commissioner of Taxation under section 167 of the Income Tax Assessment Act 1936 (Cth). The dispute centred on whether Mr Wang could satisfy the burden of proof by establishing errors in the default assessment and if the Administrative Appeals Tribunal (AAT) erred in its approach. The AAT had affirmed the Commissioner’s decision not to allow Mr Wang’s objection, and Mr Wang appealed to the Federal Court.
The key legal issues were whether Mr Wang could discharge the burden of proof under section 14ZZK(b)(I) of the Taxation Administration Act 1953 (Cth) by identifying errors in the default assessment, if the AAT erred in its application of the “all or nothing” approach, and whether the AAT breached the principles in Browne v Dunn by not accepting Mr Wang's evidence. Additionally, the court considered if the AAT failed to give adequate reasons as required by section 43(2B) of the Administrative Appeals Tribunal Act 1975 (Cth) and whether it erred in not giving due weight to corroborative evidence.
The Federal Court found that Mr Wang's burden of proof required him to show that the default assessment was excessive or incorrect and what the assessment should have been. The court clarified that a default assessment under section 167 of the ITAA 1936 necessarily involves a judgment as to the taxpayer’s income, and the applicant cannot discharge the onus by merely demonstrating that particular items were incorrect. The AAT did not err in applying the “all or nothing” approach since Mr Wang did not discharge his onus of proof. The court also found no breach of the principles in Browne v Dunn because Mr Wang had adequate notice of the Commissioner’s position and the issues in dispute. Furthermore, the AAT did not err in its reasoning or in failing to give adequate reasons, as the alleged errors were based on a misapprehension of the burden of proof.
The application was dismissed, and the applicant was ordered to pay the Commissioner's costs, which were deemed fair and reasonable.
Orders
Orders of the court
1. The application is dismissed.
2. The applicant is to pay the respondent’s costs fixed in the sum of $26,847.64.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Finally, while a submission was made by the Commissioner to the effect that the untendered documents lodged by the Commissioner in the Tribunal pursuant to s 37 of the AAT Act (T-documents) were not in evidence before the Tribunal and there could therefore be no error in the Tribunal not having made findings of fact with respect to them, it is unnecessary to determine that question.2. BACKGROUND The following background is largely taken from the findings by the Tribunal and was not in dispute save where I otherwise explain.2.1 The Commissioner’s audit The applicant did not lodge any income tax returns for the relevant years because he claimed that it was unnecessary for him to do so in circumstances where he had not derived any income. An audit was conducted by the Commissioner of the applicant’s financial affairs for the relevant years which concluded in January 2020. The ATO Position Paper indicated that the applicant held more than 25 Australian bank accounts in his name and/or as a joint holder with his former girlfriend, Ms Lin. He was also a signatory of multiple accounts in other names, including of various companies. The applicant’s former accountant, Mr Kenneth Chan, provided on 6 September 2019, a response to an initial position paper issued by the Commissioner as part of his audit. In that response, Mr Chan apparently stated, among 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”: TR [17] (emphasis added). Further information and documents were provided by Mr Chan on behalf of the applicant to the Commissioner on 16 October 2019, including copies of translated alleged “IOUs”, payment receipts, and loan agreements. Mr Chan also explained that the hotel business of Fujian Quanshou Huxin Hotel Co Ltd had been sold in May 2005, before the applicant migrated to Australia, and that the applicant’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”: TR [17].2.2 The Commissioner’s assessments and the notice of objection As earlier mentioned, on 16 January 2020, the Commissioner issued the applicant with default assessments for the relevant years pursuant to s 167 of the ITAA 1936 using the asset betterment methodology. The Tribunal explained that (at TR [18]):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 to determine the applicant’s taxable income for the relevant years. The Commissioner did not consider that the various documents produced by the applicant explained his version of events. Assessments of administrative penalties were also issued by the Commissioner for the failure to lodge documents. Those assessments were summarised in the following table at TR [20]:
Evidence
Evidence Before The Court
As Derrington J explained in Ross at [40], there is a clear distinction between the two forms of assessment:Section 166 requires, unequivocally, an evidence-based calculation of a person’s taxable income, tax payable thereon, and tax offset refunds. By contrast, s 167 authorises the Commission to form a judgment as to the amount on which tax ought to be levied, once one of the matters in sub-paragraphs (a), (b) or (c), on which the power is conditioned, is satisfied. Broadly speaking, the substance of those matters is that, in the circumstances, the Commissioner is unable to make an accurate assessment in accordance with s 166.(Emphasis in original omitted; emphasis added.) If dissatisfied with an assessment, a taxpayer may object to the assessment in accordance with Part IVC of the TAA: s 175A of the ITAA 1936. Specifically, the taxpayer may apply under s 14ZZ of the TAA to the Tribunal for review of the Commissioner’s decision or appeal against the decision to the Federal Court. In the present case, the applicant chose to apply to the Tribunal for review of the objection decision. The AAT Act applies in relation to the review by the Tribunal of reviewable objection decisions subject to the modifications set out in Division 4 of Part IVC: s 14ZZA of the TAA. As both parties accepted, the onus of proof on an application for review is imposed on the taxpayer by s 14ZZK of the TAA. That section relevantly provides that: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; Section 14ZZK(b)(i) is in the same terms as s 14ZZO(b)(i) of the TAA imposing the onus of proof on a taxpayer who applies instead to the Federal Court for review. This version of s 14ZZK came into effect with respect to assessments made on or after 1 July 2013 and which relate to the income year 2013–2014 or to later income years: see sch 5 item 27 of the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (Cth). As such, it applied to all of the assessments challenged in the present case. However, as Derrington J observed in Ross at [45]:Prior to the amendments, s 14ZZK provided that an applicant had the burden of proving that an assessment was “excessive” and did not expressly require, as it now does, proof of “what the assessment should have been”. While this might be taken to suggest that some lower burden of proof applied previously, that is not the case and the latter requirement has always formed part of the taxpayer’s burden of proof in challenging an assessment. See also the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2013 Measures No 1) Bill 2013 [7.36] – [7.38]. Accordingly, as Counsel for each of the parties accepted at the hearing, which version of s 14ZZK is inconsequential in terms of the burden of proof that applies.
Decision
Reasons for decision
As such, the alleged error in the Tribunal’s decision, as explained in the applicant’s submissions, is based upon the same misapprehension as to the nature of a default assessment under s 167 of the ITAA 1936 and the statutory onus as that which underlies ground 1 of the notice of appeal. As earlier explained, the asset betterment method and resulting assessment necessarily involve a “guess” as to the taxpayer’s income and, absent an agreement to confine the issues, the applicant does not discharge the onus under s 14ZZK(b)(i) by demonstrating that particular items included in the asset betterment methodology were incorrect or should not have been included. As such, the ground is misconceived. No error is therefore shown in the Tribunal’s ruling that even if the X documents were accepted, they could not have assisted the applicant in altering the outcome in these proceedings.4. CONCLUSION For the reasons set out above, the application must be dismissed. As the applicant has been wholly unsuccessful, there is no reason why the applicant should not pay the Commissioner’s costs. In this regard, the Commissioner relied upon the affidavit of Kevin Ó Seighin, Government Lawyer employed by the respondent, and affirmed on 22 April 2024 in support of a lump sum costs order in the sum of $26,847.64, including the anticipated costs of the hearing before me on 29 April 2024. I am satisfied, on the basis of Mr Ó Seighin’s affidavit, that the amount claimed by way of a lump sum is fair and reasonable, and that it is appropriate for a lump sum costs order to be made in the sum claimed.