YNVP and Commissioner of Taxation (Taxation)
[2024] AATA 2588
•30 June 2024
YNVP and Commissioner of Taxation (Taxation) [2024] AATA 2588 (30 June 2024)
Division:Small Business Taxation Division
File Number(s):2020/6322-40
2020/6341-50
2020/6351-60
Re:YNVP
LXFS
FGND
APPLICANT
Commissioner of TaxationAnd
RESPONDENT
DECISION
Tribunal:Deputy President F D O’Loughlin KC
Date:30 June 2024
Place:Melbourne
In respect of the shortfall interest charge decisions which are capable of being reviewed and the penalty decisions, the Tribunal sets those decisions aside and remits them to the Commissioner to be recalculated consistent with these reasons. The Tribunal otherwise affirms the decisions under review.
................................[sgd]........................................
Deputy President F D O’Loughlin KC
Catchwords
SMALL BUSINESS TAX AND COMMERCIAL – burden of proof – tribunal powers on review – alleged unreported income – decisions set aside and remitted.
Legislation
Income Tax Assessment Act 1936 (Cth)
Tax Agent Services Act 2009 (Cth)Taxation Administration Act 1953 (Cth)
Cases
Al Rubaei and Commissioner of Taxation [2019] AATA 71
Atkinson and Commissioner of Taxation (2020) 111 ATR 844; [2020] AATA 1666
Bai v Federal Commissioner of Taxation [2015] FCA 973
Beaumont Constructions Pty Ltd v Commissioner of State Revenue [2020] QCAT 52
Bell IXL Investments Ltd v Life Therapeutics Ltd [2008] FCA 1457
Binetter v Commissioner of Taxation (2016) 249 FCR 534; [2016] FCAFC 163
Bosanac and Commissioner of Taxation (2019) 110 ATR 126; [2019] AATA 1240
Bosanac v Commissioner of Taxation (2019) 267 FCR 169
Briginshaw v Briginshaw (1938) 60 CLR 336
Buzadzic and Commissioner of Taxation [2021] AATA 4820
Buzadzic v Commissioner of Taxation [2024] FCAFC 50
Chhua and Commissioner of Taxation [2022] AATA 2593
Commissioner of Taxation v Bazzo [2024] FCA 452
Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust [2023] FCAFC 19
Commissioner of Taxation v Dixon (Trustee) [2007] FCA 1079
Commissioner of Taxation v Ross [2021] FCA 766
Condon v Commissioner of Taxation [2023] FCA 561
Confidential v Federal Commissioner of Taxation [2013] AATA 624
Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333
Davsa Forty-Ninth Pty Ltd as Trustee for the Krongold Ford Business Unit Trust and Federal Commissioner of Taxation [2014] AATA 337
Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296
Dezfoolian and Commissioner of Taxation [2021] AATA 3991
Diarra and Commissioner of Taxation [2019] AATA 5545
Dobie and Commissioner of Taxation (Taxation) (2020) 111 ATR 444; [2020] AATA 292
Elcheikh and Commissioner of Taxation [2023] AATA 859
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315
Hua-Aus Pty Ltd v Federal Commissioner of Taxation (2010) 184 FCR 430; [2010] FCA 341
Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148
Jassar & Manesh Pty Ltd as trustee for the Jassar Manesh Consultants Unit Trust and Commissioner of Taxation [2023] AATA 3499
Krew v Federal Commissioner of Taxation (1971) 71 ATC 4213
Lambourne and Commissioner of Taxation [2020] AATA 4562
Liang v Commissioner of Taxation [2024] FCA 535
Ma v FCT (1992) 92 ATC 4373
McCormack v Commissioner of Taxation (1979) 143 CLR 284
Munkayilar and Commissioner of Taxation [2021] AATA 1839
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170
Nguyen and Commissioner of Taxation [2016] AATA 1041
Nguyen v Federal Commissioner of Taxation (2018) 265 FCR 355; [2018] FCA 1420
PDXS and Commissioner of Taxation [2021] AATA 725
PNGR and Commissioner of Taxation (2013) 97 ATR 1072
QQRK and Commissioner of Taxation [2023] AATA 3493
Rawson Finances Pty Ltd v Federal Commissioner of Taxation (2013) 93 ATR 775; [2013] FCAFC 26
RHXV and Commissioner of Taxation [2021] AATA 1349
Rigoli v Commissioner of Taxation [2014] FCAFC 29
S J Buller Pty Ltd and Commissioner of Taxation [2013] AATA 617
S M Ho & K W Loh & T Low & W Orr and Commissioner of Taxation (2018) 109 ATR 145; [2018] AATA 3911
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 212 FCR 483
SDRQ v Federal Commissioner of Taxation (2019) 110 ATR 687; [2019] AATA 2003
St George Club Ltd v Hines (1961) 35 ALJR 106
Stewart and Commissioner of Taxation (2013) 97 ATR 963; [2013] AATA 845;
The Counsellor and Commissioner of Taxation [2024] AATA 220
The Trustee for the NFTA Unit Trust and Commissioner of Taxation [2022] AATA 4132
Tidsall v Webber (2011) 193 FCR 260
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Tschierschky and Commissioner of Taxation [2023] AATA 1201
Whiddon and Commissioner of Taxation (2022) 114 ATR 220; [2022] AATA 197
WYVW and Commissioner of Taxation [2023] AATA 4242
XPQZ, KYZC, DHJP and Commissioner of Taxation [2020] AATA 1014
REASONS FOR DECISION
A NATURE OF THE DISPUTE
The present applications concern whether the Company Applicant, which conducted two cash sales sushi restaurant businesses at two locations in the Melbourne CBD, and the Company Applicant’s shareholders (who are also the Company Applicant’s director and secretary) who provided the substantial human involvement in that business, have established what their taxable incomes and (in the Company Applicant’s case) net amounts were for the period spanning the 2008 to 2015 Years.[1]
[1]A Year being a 12-month period ending on 30 June in any calendar year.
The Commissioner was not satisfied that the relevant taxable incomes or net amounts as previously disclosed by the Applicants were correct, and made income tax assessments pursuant to s 167 of the 1936 Assessment Act[2] and assessed net amounts for the same periods. The Commissioner has also imposed penalties and SIC.[3] The income tax, GST,[4] penalties and (to the extent permissible) Shortfall Interest Charges are disputed.
[2]The Income Tax Assessment Act 1936 (Cth).
[3]Shortfall Interest Charge.
[4]Goods and Services Tax.
Determining the applications requires the Applicants to demonstrate either that there was no fraud or evasion or the correct amount of their taxable incomes and net amounts. These applications do not turn upon whether the Commissioner’s assessments are an accurate reflection of what the Applicants’ taxable incomes and net amounts would be outside a system of taxation administration which, for understandable and sound policy reasons, couples assessment entrenchment styled provisions with statutory burdens of proof. Coupling these styled provisions produces an operational effect of requiring taxpayers to demonstrate that an assessment is excessive by demonstrating what the relevant taxable amounts are, failing which the relevant assessments stand. In this regard:
(a)s 167 the 1936 Assessment Act, which provides that ‘If [prescribed conditions are met] … 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.’; and
(b)the conclusive evidence provisions of Item 2 in the table forming part of s 350-10(1) of Schedule 1 to the Administration Act[5] to the effect that production of a notice of assessment is conclusive evidence that the assessment was properly made; and except in proceedings under Part IVC (which the present applications are) on a review relating to the assessment, the amounts and particulars of the assessment are correct,
are two examples of provisions which entrench the assessed amounts unless and until set aside by successful Part IVC challenge.
[5]The Taxation Administration Act 1953 (Cth).
Some of the circumstances of the Applicants in the present matters lead to an observation that the taxable incomes and net amounts assessed are (outside the effect of entrenching provisions of the kind noted above) probably considerably higher than what the amounts of taxable incomes and net amounts calculated by reference to all of the business and related transactions that in fact occurred during the Years under review would be. No clearer evidence of acceptance of that conclusion can be imagined than the Commissioner’s correspondence to the Company Applicant in August 2018,[6] about which more is said below.
[6]T 276.
B EVIDENCE AND OTHER MATERIALS BEFORE THE TRIBUNAL
Annexure A sets out the evidence and other materials before the Tribunal. The witnesses who gave evidence were:
(a)Mr KE, Ms Applicant’s uncle (overseas)
(b)Mr LCS, Ms Applicant’s brother-in-law (overseas)
(c)Ms LYC, Ms Applicant’s cousin
(d)Ms YKO, Ms Applicant’s cousin’s daughter
(e)Ms YMO, Ms Applicant’s cousin’s daughter
(f)Ms YY, customer
(g)Ms WL, customer
Ms WL gave evidence of occasional visits to the second sushi business in conversations she had with Mr and Ms Applicant during her breaks between 9:30 AM and 10 AM and at about 3 PM. She observes that during these non-crowded times when she was in Ms and Mr Applicant’s presence use of the cash register was orthodox. That evidence can be accepted for what it is, but it does not establish that the cash register was uniformly used that way.
At some stage after the 2015 year the Company Applicant changed its cash register and its business model moved more to online payments. No evidence has been led of the profitability sales margins and turnover during this time when them were more external inputs to the reliability of the Applicant company’s financial performance.
C FACTS
Adopting the non-controversial parts of the Applicant’s SFIC[7] and opening and closing submissions concerning relevant facts, the following is an overview to of the setting in which the disputed tax liabilities arise.
[7]Statement of Facts Issues and Contentions.
C1 The Entities
Mr Applicant:
(a)was born in Ho Chi Minh City (then known as Saigon), Vietnam in 1963;
(b)grew up speaking Cantonese;
(c)fled Vietnam as a refugee;
(d)spent time in a refugee camp in Malaysia where he met Ms Applicant;
(e)finished formal education at primary school level;
(f)emigrated to Australia in 1982; and
(g)learned how to make sushi while employed at a Japanese restaurant in Melbourne.
Ms Applicant:
(a)was born in Malaysia in 1965;
(b)grew up speaking Mandarin and Malay;
(c)is now also fluent in Cantonese;
(d)has a sister and two brothers and several cousins;
(e)was raised by her aunt who lived next door after her mother passed away when she was 7 years old;
(f)finished formal education at primary school level;
(g)worked in a canteen in a camp for Vietnamese refugees from age 13 and continued until around 1982;
(h)emigrated to Australia in 1982;
(i)married Mr Applicant in 1985;
(j)with Mr Applicant has two children; and
(k)retains relationships with her extended family and has received money from them.
With prior experience working in beauty parlours, from the mid-1990s Ms Applicant carried on her own beauty business at various premises in Melbourne. Up until 2008 or 2009, the evidence is equivocal, when she ceased operating the beauty business, she spent time in that business and the first sushi business.
In or about 2000, Ms and Mr Applicant commenced operating a sushi café known as “[Name] Sushi”.
Until 1999 Ms and Mr Applicant owned an apartment in suburban Melbourne. Following the sale of that apartment in 1999, Ms and Mr Applicant lived with Ms Applicant’s sister and her husband from 1999 to 2006 at [northern suburb]. The northern suburb property had been a bride price given in respect of the marriage of Ms Applicant’s sister by the family of Ms Applicant’s brother-in-law. The bride price was part of Ms Applicant’s cultural traditions.
In 2006 Ms Applicant’s sister and her husband gifted the northern suburb property to Ms Applicant and Mr Applicant. They sold it in 2013 for $523,000.
The Company Applicant was formed in or around early 2007 following advice from Ms and Mr Applicant’s accountant. Mr Applicant was the sole director. Ms Applicant was the Company Applicant’s Secretary and public officer for taxation purposes and each of Mr Applicant and Ms Applicant were shareholders in 80% and 20% proportions.
C2 The Applicants’ businesses and investment activities
The Company Applicant - Overview
With a break in 2010, the Company Applicant has conducted two take-away and in-house sushi restaurant businesses under the trading name ‘Anonymous Sushi’ at leased premises in the Melbourne CBD, the first from 2007 to 2010 at an address on a major thoroughfare road and the second from December 2010 on what might be called one of the Melbourne CBD’s “‘Little” streets, that is not a major thoroughfare. The first sushi restaurant ran from around the time the Company Applicant was registered in 2007 to January 2010. The second from later in 2010 in a new location up to this day.
The Company Applicant - Closure of first business
The first sushi business was conducted from the commencement of the registration of the Company Applicant until early 2010 as noted above.
In 2009 the Company Applicant was advised by its landlord that its premises was to be redeveloped and its lease terminated in the near future. All other tenants in the facility were told the same, and over a period occupancy in the facility began to decline, as did foot traffic to the precinct, and the business revenue declined. Early 2010 the first sushi business at the first premises ended.
The Company Applicant retained some equipment from the first sushi business, in particular its cash register.
The Company Applicant - Start of new business
Late in 2010 the Company Applicant purchased a different food business in a different location proximate to the first business location, but on a street carrying less motor vehicle traffic. The business purchased had been reporting losses but was purchased for approximately $59,000 and allowed the Company Applicant to take over the lease of the property and the vendor’s plant and equipment which, on some of the evidence led, included a cash register.
The Applicants contend, and the evidence shows, that the new business increased its revenue year-on-year after commencement in the new location with steady growth through to the 2015 year whereupon growth declined albeit there remained some modest growth.
The Company Applicant’s explanation for the drop in growth in the 2015 year was that a competitor business operated in a nearby location who cut prices, the Applicants say unsustainably, to attract custom.
Ms Applicant maintains that $300,000 that she borrowed was advanced to the Company Applicant to create this business and support her husband.
From 2013 until sometime in 2023, two of Ms Applicant’s relatives, her sister and her cousin, worked part-time in the second sushi business.
The Company Applicant - Business indicators
The company’s financial performance can be summarised in the terms of Table C1 below.
Table C.1 [YNVP]
Financial Record Taken from tax returns[8]Year Other sales of goods and services Total Income Cost of sales Rent expenses Rent % of sales Cost of sales % of sales 2008
$165,914
$165,914
$70,243
$40,170
24.21%
42.34%
2009
$139,012
$139,012
$59,757
$41,375
29.76%
42.99%
2010
$73,216
$73,540
$27,535
$24,270
33.15%
37.61%
2011
$55,427
$65,437
$32,541
$28,137
50.76%
58.71%
2012
$123,530
$141,172
$46,255
$63,930
51.75%
37.44%
2013
$163,194
$179,137
$64,228
$62,527
38.31%
39.36%
2014
$173,633
$186,447
$59,875
$60,000
34.56%
34.48%
2015
$176,130
$179,347
59,683
60,000
34.07%
33.89%
For 2011 the difference between sales and total income was represented by $5,059 Gross interest and $4,951 other gross income and the rent expense was the amount allowed by the Commissioner albeit not claimed.
For 2012 the difference between sales and total income was represented by $8,732 Gross interest $8,910 other gross income.
For 2013 the difference between sales and total income was represented by $2,829 Gross interest $13,114 other gross income.
For 2014 the difference between sales and total income was represented by $3,003 Gross interest $9,811 other gross income.
For 2015 the difference between sales and total income was represented by $742 Gross interest $2,475 other gross income.
[8]T 67 – T 76, p 516-604.
Business accounting system
The Company Applicant’s accounting system involved a cash register that recorded sales and other uses of the cash register, production of a print role recording transactions and other uses, correction of errors on the printout when needed, transposition of those details into cash journal that recorded receipts and relevant expenses and amounts banked.
The cash register to function was the critical entry point for revenue information. This system is discussed below.
The post cash register system impeccably tracked the captured information through to tax returns and BAS.
Cash management system
The cash management system involved leaving some coinage cash at the business premises and taking notes and some coins from the business premises to Mr and Ms Applicant’s home each day in a cloth styled bank bag. For the following day, an amount of notes, and potentially coins, was taken from the money supply kept at home in the cloth styled bank bag and used to create the float at the business for the oncoming day. The evidence is not consistent about the amount of money that was carried back to the business premises on any day. Mr Applicant gave evidence to the effect that it was the float amount and not very much, potentially $300, while Ms Applicant said the amount could vary; that she prepared the bags to be taken to the business the following day; and there was enough taken each day to provide a float and to pay for supplies that were paid for in cash at the business premises. Cash was accumulated and from time to time when it reached worthwhile amounts the money was banked. Money banked was recorded in the cash journal.
Business insurance
The evidence discloses the insurance policies taken out by the Company Applicant from November 2010 to November 2015. In each policy there was a business interruption risk aspect of cover and a notation of the Company Applicant’s income range. Table C2 summarises the details of the policies in evidence.
Table C.2
Year
Insurer
Type of cover
Business interruption risk covered
Income shown on policy document
Average rent[9]
15/11/2010 – 15/11/2011[10]
AMP
Business insurance
- Fire and other damage
- Business interruption (effective 13/12/2010[11] altered from 2/3/2011[12])
- Glass
- Public and product liability
$105,000 contents
Business interruption
- Gross rentals $260,000 [13] (on 4/3/2011)
- Gross profit not insured
$101,000 – $250,000
$61,021
15/11/2011 – 15/11/2012 [14]
AMP
Business insurance
- Fire and other damage
- Business interruption
- Glass
- Public and product liability
$107,000 contents
Business interruption
- Gross rentals $260,000[15]
$101,000 – $250,000
$61,021
15/11/2012-15/11/2013[16]
AMP
Business insurance
- Fire and other damage
- Business interruption
- Glass
- Public and product liability
$109,242 contents
Gross rentals/profits unknown[17]
$250,001-$500,000
$61,021
15/11/2013 – 15/11/2014[18]
Resilium
Business insurance
- Fire and other damage
- Business interruption
- Glass
- Public and product liability
$145,384 contents
Business interruption
- $260,000 gross profit, gross rentals not insured
$250,001-$500,000
$61,021
2014
15/11/2014 – 15/11/2015[19]
Resilium
Business insurance
- Fire and other damage
- Business interruption
- Glass
- Public and product liability
$166,000 contents
Business interruption
- $300,000 gross profit, gross rentals not insured.
$250,001-$500,000
$61,021
[9]$61,021 is the average of the rent expense disclose in Table C1 over the four and a half year period for the 2011 through 2015 years.
[10]Tab C pp 325-328.
[11]Tab C p 381.
[12]Tab C p 486.
[13]Tab C p 486.
[14]Tab C p 796.
[15]Tab C p 800.
[16]Tab C p 1323.
[17]The policy document in the evidence is incomplete (missing every second page) nature of business interruption risk insured for unknown.
[18]Tab C p 1797.
[19]Tab C p 2358.
In each insured year, the Company Applicant’s rent was never the amount of rent insured for and only in 2012 was the Company Applicant’s income in the range quoted for insurance cover.
Cash register operations and events
As noted above, the cash register was the critical entry point for revenue information.
Sales were entered in the cash register in some cases by reference to product and price and in other cases effectively just by price. Nothing sinister ought be inferred from the two types of data entry with the probable explanation being that the cash register did not have sufficient product keys to accommodate each product type sold. Where mistakes occurred, at times they were corrected by operating a void function. The void function required use of a manual key and when activated produced a negative amount report in the cash register system and on the cash register printout role reversing the effect of an earlier entry. Where mistakes were made during the day that could not be fixed using the cash register void function, a note was made of them. At the end of the day the mistakes recorded on the notes were entered onto cash register role printouts, and the (edited if necessary) information was recorded in the cash journal. The mistake notes were not retained. Notwithstanding the cross-examination as to retention of these notes, nothing should be inferred from non-retention of a manually prepared recording of an error which was subsequently transposed manually to another record, particularly in circumstances where it did not happen frequently, as is the case here.
In addition to the sales noted above, the cash register roll printouts recorded customer counts, transactions voided, and ‘no sale’ counts. Those printouts are available for the 2012 to 2015 Years. They have been summarised and consolidated in Annexure C to the Respondent’s submissions.
Table C3 below shows customer and no sale counts annually.
Table C.3
[YNVP]
Customer counts
[20]T p 83.
[21]Respondent’s submissions, Annexure C.
[22]Respondent’s submissions, Annexure C.
Year
Reported sales[20]
Customer count[21]
No sales count[22]
Aggregate
Customer count % of aggregate
No sales % of aggregate
2008
$169,964
n/a
n/a
n/a
n/a
n/a
2009
$142,826
n/a
n/a
n/a
n/a
n/a
2010
$78,654
n/a
n/a
n/a
n/a
n/a
2011
$60,379
n/a
n/a
n/a
n/a
n/a
2012
$132,440
17,229
3,868
21,097
81.67%
18.33%
2013
$180,130
20,879
3,683
24,562
85.01%
14.99%
2014
$183,445
28,184
1,365
29,549
95.38%
4.62%
2015
$178,607
34,086
1,048
35,134
97.02%
2.98%
Critically, the Commissioner has formed the view and raised assessments on the basis that the amounts recorded in the cash register roles as the input entry point to the Company Applicant’s system was not a complete record and sales were made that were not recorded.
Each of Mr Applicant and Ms Applicant was cross-examined extensively concerning the number, identity, and operation of cash registers in the second sushi business.
Mr and Ms Applicant’s evidence concerning cash registers was confused, inconsistent, and unconvincing.
When the topic of the number of no sales was brought to Mr Applicant’s attention, he appeared to be completely blindsided, and from that point the evidence given in the cross-examination:
(a)concerning the number, reliability and maintenance of cash registers became confused and as between Mr and Ms Applicant was not always consistent; and
(b)became an apparent scramble to recover and maintain the proposition that all actual sales of the sushi business had been recorded.
The principal reason proffered by Mr Applicant for the no sale count was that the cash register had a problem with the money drawer closing. Mr Applicant said that ultimately the cash register was repaired on a weekend about the time the no count figures peaked in or about March 2012.[23] The cash register printouts for the period in March 2012 and the months either side do not reveal a noticeable drop off of the no sale counts at the commencement of any week which would be consistent with the cash register drawer problem being fixed as contended. To the contrary, the numbers remained high through 2013 suggesting that any drawer closing problem was unlikely to be the source of the no sale count. Further, no evidence is pointed to of any payment being made for a cash register repair service. The business cash book reveals a payment of $515 on 9 August 2011 to an enterprise called Lotus with an annotation ‘cash register’,[24] but Ms Applicant’s evidence was that that was for a replacement cash register not a repair.
[23]Transcript p-322
[24]Cash Payments Book, August 2011 9 August entry, payment to Lotus $515, and Ms Applicant’s evidence at Transcript 1 May 2024 p 568.
Mr Applicant’s evidence concerning the number of cash registers used at one point was that upon commencement of the second sushi business the Company Applicant had the cash register from the first business as well as a new cash register from the acquired business, and later was to the effect that there was only ever one cash register, and that it had problems, and at one point the cash register was replaced. The Applicant did not indicate when that replacement occurred and speculated as to when a repair might have occurred as noted.
Mr Applicant also gave evidence that the problem with the cash register, whichever one it was, was with the paper rolls.
Ms Applicant’s evidence concerning the no sale count was to the effect that the no sale numbers could be represented by people coming in off the street seeking change for parking meters and other miscellaneous uses, but the numbers she suggested for each of these would not account for the numbers recorded particularly in 2012 and 2013 where on average 15 no sale recordings were made in each of 240 days assuming the business only operated during weekdays, which it did, and was closed for four weeks each year.
On the evidence led concerning the cash register operation in isolation, at best, from the perspective of the case advanced for the Applicants, the only conclusion that could be reached is that the no sale count remains unexplained. It is noteworthy that two of Ms Applicant’s relatives worked in the second sushi business at this time, and did not want to be involved in giving evidence in these matters. More is said of this below. These people were in the best position to give evidence the operation of the cash register and an explanation of the no sale count and their evidence is not available to the Tribunal. Further the only evidence of their disinclination to give evidence is from Ms Applicant who gave the Tribunal an account of what she was told. The Tribunal is not in a position to have received this additional evidence, and assuming it would have been consistent with Mr and Ms Applicant’s evidence, to have that evidence forensically tested through the cross-examination process.
In circumstances where it is clear that the Applicants were on notice that the Commissioner did not believe that all sales had been recorded and all sales income disclosed, and where the Applicants are all represented by experienced and capable practitioners there can be no doubt that there was an awareness that this potential evidence may well have been important. There is no evidence from the practitioners is to conversations between them and the potential witnesses who declined to give evidence.
Ms Applicant’s beauty business
From at least 1990 Ms Applicant was the owner of the business name ‘[Ms Applicant] Beauty Centre’ and from 1 July 2000 it was registered for GST. The beauty centre business was carried on at various addresses and ceased in either the 2008 or 2009 year from a CBD residential apartment address. At the time of acquisition of the CBD apartment, enquiries were made of the owners’ corporation/ body corporate and permission to conduct the beauty business from that location obtained. One of Ms Applicant’s customers has given evidence of having procured services at that address.
The beauty business reported losses in 2008 and 2009 which the Commissioner has rejected. A significant driver of those losses is the interest on borrowings to acquire the apartment. Table C4 summarises the details returned.
Table C.4
[25]T85.
[26]T83.
Ms Applicant [name] business
2009[25]
2008[26]
Income
$0
$22,827
Opening Stock
$600
$88.0
Purchases
$448
$2,294
Closing Stock
$1,048
$600
COGS
$0
$2,574
Interest o/s
$6,176
$25,886
Depreciation
$6,812
$7,694
Other expenses
$5,502
$6,851
$18,490
$43,005
Loss
-$18,490
-$20,178
While the Commissioner disputes the business was ever carried on from the CBD apartment address, the evidence led suggests that it was. Ms YY’s evidence was unequivocal that until at least 2008 the business was carried on to some degree.
Ms Applicant’s evidence was that the CBD apartment was acquired for dual purposes: as a place to conduct the beauty business and to have a residential address so that her children could become eligible to attend a particular school for their secondary education.
While it is clear that the business was carried on until at least 2008, the dual purpose of the acquisition of the apartment raises questions about the deductibility of the interest on the borrowings which ought not be accepted as fully deductible without a more rigorous examination of the drivers for the acquisition and that examination has not been conducted.
There are also problematic features associated with the contended for business operation in 2009: no income was recorded but an opening stock, purchases and closing stock were reported in Ms Applicant’s tax return. It’s difficult to conceive why there would be purchases in a Year where no income is reported.
Ms Applicant contends that the apartment was vacant for a period and used as a secondary residence to demonstrate place of residence entitlement connected with her children’s attendance at the preferred secondary school, and thereafter was rented as an ordinary investment property. The Commissioner contends that it was rented throughout and has assessed Ms Applicant accordingly. He does not point to evidence of tenants that would compel that conclusion.
C3 Gifts and loans
Ms Applicant’s evidence was that she received a number of gifts and loans from friends and family and explained the cultural background in the following terms in her statement:
75. In my family culture and tradition, family members will help each other unconditionally, and especially when other family members are facing any difficulties with money and other aspects…Family members will give the money back when asked and when they can, as I did with the money I borrowed from my sister's husband…
Table C5 below is a summary of the gifts and loans that Ms Applicant contends were received from her family and friends from 1999.
Table C.5
Date
Lender/Donor
Relationship
Gift
Loan
19/01/1999
Mr LMC*
Ms Applicant’s brother-in-law’s father
$98,880[27]
~2000
Mr LMC*
Ms Applicant’s brother-in-law’s father
$119,985[28]
~2003
Ms CSY*
Ms Applicant’s Aunt
$70,000[29]
29/12/2006
Ms HKS*
Ms Applicant’s Aunt (overseas)
$ 260,000[30]
23/06/2008
Ms CSY*
Ms Applicant’s Aunt
$90,000[31]
21/11/2011
Ms LYC / AYY[32]
Ms Applicant’s sister (interstate)
$90,000[33]
9/12/2011
Ms AYY*
Ms Applicant’s Aunt
$9,200[34]
23/02/2012
Ms AYY*
Ms Applicant’s Aunt
$9,014[35]
8/04/2012
Ms AYY*
Ms Applicant’s Aunt
$9,500[36]
10/11/2012
Ms AYY*
Ms Applicant’s Aunt
$8,000[37]
10/11/2012
Ms AYY*
Ms Applicant’s Aunt
$8,000[38]
17/11/2012
Ms AYY*
Ms Applicant’s Aunt
$9,000[39]
17/11/2012
Ms AYY*
Ms Applicant’s Aunt
$9,000[40]
24/11/2012
Ms AYY*
Ms Applicant’s Aunt
$8,000[41]
24/11/2012
Ms AYY*
Ms Applicant’s aunt
$8,000[42]
27/12/2012
Mr KE
Ms Applicant’s uncle (overseas)
$75,000[43]
31/12/2012
Mr KE
Ms Applicant’s uncle (overseas)
$75,000[44]
26/02/2013
Mr TFL*
Ms Applicant’s brother-in-law
$300,000[45]
26/03/2013
Ms LYC
Ms Applicant’s cousin
$9,000[46]
28/03/2013
Ms LYC
Ms Applicant’s cousin
$6,000[47]
28/03/2013
Ms LYC
Ms Applicant’s cousin
$9,800[48]
6/06/2013
Ms LYC
Ms Applicant’s cousin
$1,500[49]
5/07/2013
Ms LYC
Ms Applicant’s cousin
$1,500[50]
27/08/2013
Ms LYC / Ms YMO[51]
Ms Applicant’s cousin’s daughter
$3,000[52]
4/09/2013
Ms LYC
Ms Applicant’s cousin
$200[53]
15/09/2013
Ms YMO
Ms Applicant’s cousin’s daughter
$3,000[54]
21/11/2013
Ms LYC / Ms YKO
Ms Applicant’s cousin’s or cousin’s daughter
$5,000[55]
10/03/2014
Ms LYC / Ms YMO[56]
Ms Applicant’s cousin
$6,000.[57]
15/04/2014
Mr LCS
Ms Applicant’s brother-in-law (overseas)
$16,940[58]
1/07/2014
Ms CSY*
Ms Applicant’s aunt
$70,000[59]
25/07/2014
Ms YMO
Ms Applicant’s cousin’s daughter
$6,000[60]
15/09/2014
Ms LYC
Ms Applicant’s cousin
$3,000[61]
13/11/2014
Ms LYC
Ms Applicant’s cousin
$4,000[62]
1/12/2014
Ms YMO
Ms Applicant’s cousin’s daughter
$6,000[63]
6/01/2015
Mr LCS
Ms Applicant’s brother-in-law (overseas)
$12,137[64]
18/03/2015
Ms YMO
$6,000[65]
10/06/2015
Ms YMO
$6,000[66]
[27]Tab E, p 22 & T, p 187, and p 192.
[28]Tab E, p 23.
[29]Tab E, p 23.
[30]T pp 198 & 1576-1577.
[31]Tab E p 28.
[32]The evidence is unclear whether this gift was from LYC or AYY.
[33]T165, p 1576.
[34]T165, p 1576.
[35]T165, p 1576.
[36]T165, p 1576.
[37]T165, p 1576.
[38]T165, p 1576.
[39]T165, p 1576.
[40]T165, p 1576.
[41]T165, p 1576.
[42]T165, p 1576.
[43]Tab H.
[44]Tab H.
[45]Tab E p 27 & T p 197.
[46]Tab L, p 2.
[47]Tab L, p 2.
[48]Tab L, p 2.
[49]Tab L, p 2.
[50]Tab L, p 2.
[51]Ms C thought it was from Ms LYC; however, Ms LYC and Ms YKO agree it was YMO.
[52]Tab L, p 2 & Tab K.
[53]Tab L, p 2.
[54]Tab K.
[55]Tab L, p 2 & Tab K.
[56]Ms C thought it was from Ms LYC; however, Ms LYC and Ms YKO agree it was YMO.
[57]Tab L, p 2 & Tab M.
[58]Tab I & T165, p 1576.
[59]Tab E, p 23 & T p 193.
[60]Tab K.
[61]Tab E p 30.
[62]Tab E p 30.
[63]Tab K.
[64]Tab I.
[65]Tab K.
[66]Tab K.
The 28 March 2013 gifts of $6,000 and $9,800 were made the same day at different bank branches.[67]
[67]T 161 p 1516.
Ms Applicant gave evidence that a number of relatives, and people connected to relatives, who she claims had given or loaned money to her or had been employed in the sushi business had told her that they did not wish to give evidence.
(a)Ms Applicant’s sister, Ms YKC, and brother-in-law, Mr TFL
Ms YKC had worked at the second sushi shop from 2013 to at least 4 October 2023. Ms Applicant said that Ms YKC and Mr TFL had told Ms Applicant they had had previous matters with the ATO that were overturned and that they did not want to be involved in these proceedings.
(b)Ms Applicant’s sister’s father-in law, Mr LMC
Ms Applicant contends that Mr LMC made loans to the Applicants, but Ms Applicant said that he did not wish to be involved in these proceedings.
(c)Ms Applicant’s Cousin, Ms YFN
Ms YFN had worked in the sushi shop from 2013 until 2023, but told Ms Applicant that she did not want to give evidence in these proceedings.
(d)Ms Applicant’s sister’s mother-in-law Ms HKS
Ms Applicant contends that Ms HKS made a loan to the Applicants. Ms HKS passed away in 2019.
(e)Ms Applicant’s aunt Ms CSY
Ms Applicant contends that Ms CSY made a loan to the Applicants. Ms CSY passed away in 2019.
(f)Ms Applicant’s aunt Ms AYY
Ms Applicant contends that Ms AYY made a number of gifts and loans to the Applicants. Ms AYY passed away in 2013.[68]
[68]Statement of Ms Applicant dated 4 October 2023.
Those of the lenders/donors who gave evidence were cross-examined by telephone connection. Their evidence is consistent with the propositions advanced by Ms Applicant. The evidence was also consistent with the Applicants’ contended for financial needs being the setting for the money being advanced.
Two of those who declined to give evidence are family members who could have given direct evidence of the practices within the second sushi business. Ms Applicant’s sister, Ms YKC, could also have given evidence of the contended for gift of her and her husband’s property to Ms Applicant.
C4 Asset acquisitions and sales
As at 1 July 2007 the Applicants’ asset holdings included:
(a)a portfolio of listed company shares comprising:
(i)368 shares in AMP Limited;
(ii)14,825 shares in Arrium Limited (formerly known as OneSteel Limited);
(iii)526 shares in the Star Entertainment Group Limited (known at the time as Echo Entertainment Group Limited up until 13 November 2015);
(iv)71 shares in Shopping Centres Australasia Property Group Limited; and
(v)526 shares in Tabcorp Holdings Limited;
(b)a northern suburbs residential property which was transferred to Ms Applicant on 25 January 2006 by her brother-in-law and she became the sole proprietor on 2 February 2006 ;
(c)the Melbourne CBD apartment; and
(d)the sushi business.
Between 28 October 2009 and 6 February 2015 Ms Applicant acquired ASX listed shares to the value of $334,607.
Between January 2013 and 6 February 2015 Ms Applicant sold shares to the value of $267,870
Post 1 July 2007 Mr and Ms Applicant acquired further assets.
(a)under a contract dated 18 June 2009 a residential property in [name] Lane, Melbourne for a price of $276,000. This property was subsequently sold for $290,000 under a contract dated 21 May 2010;[69]
(b)a car park in the Melbourne CBD for $44,000 in 7 July 2010;
(c)a Parkville Property, purchased for $1.19 million with settlement on 18 January 2013. The purchase was funded by a Westpac loan and other available funds; and
(d)a Lexis car at a cost of $39,500.
[69]T 20 & 21.
C5 Safe deposit box
From November 2005 to date Ms Applicant has maintained a cash safety deposit box and paid for that facility. Her evidence was that it has never been used to store cash and that it was acquired to hold the title to a property gifted to Mr and Ms Applicant by her sister and brother-in-law.
Ms and Mr Applicant only took title to the gifted property in January 2006.
C6 Credits to accounts
Ms Applicant has given evidence of the sources of credits to accounts. Some appear proximate in time and have an appearance of credibility about them. Others were not connected in time and lack credibility. Those that simply entailed working backwards through a passbook or account statement until sufficient withdrawals could be accumulated to source a later deposit are not credible. The latter type of evidence provided an insight into the Applicants’ approach to establishing their case. Working backwards through statements to find sufficient earlier withdrawals to fund the deposits was an apparent attempt to show that money was just moving in circles and was not new money. An example of this is taken from the transcript below:
MR DIAZ: Ms [Applicant], I’m just asking, is this the same approach you’ve taken where you’ve worked out the repayment on your Altitude Black credit card,
INTERPRETER: If you look at tab E, page 83, the passbook.
MR DIAZ: Yes.
INTERPRETER: On 17 January 2103, I sold some shares. And the proceeds was $13,659.
MR DIAZ: Yes.
INTERPRETER: And then I withdrew $4,000 all on 23 January.
MR DIAZ: Yes.
INTERPRETER: And then I withdraw another $3,500. And then I withdraw another $4,500.
MR DIAZ: Yes.
INTERPRETER: So all these are the cash that I kept in hand.
MR DIAZ: So you’re saying that where your passbook now says, ‘wdl withdrawal’ on these three instances it was withdrawn in cash?
INTERPRETER: That’s correct.
MR DIAZ: And you’re saying that what you did with this cash is you kept it so that you could pay a credit card bill in December 2014. Is that what you’re saying?
INTERPRETER: Because I can’t, you know, possibly use all the cash at one go, so I may use the cash I have left over to pay for, you know, those amounts.
MR DIAZ: Okay. So you kept the cash and you used it over time. Is that what you’re saying?
INTERPRETER: Yes. Because I will have, you know, some cash at hand. If say, you know, I have deposited a certain amount then I will still have some money left on hand that I can use.
MR DIAZ: So these three withdrawals of cash add up to $12,000. That’s a lot of cash, isn’t it?
INTERPRETER: Yes.
MR DIAZ: Where did you keep $12,000 in cash?
INTERPRETER: I won’t keep all those cash myself, you know. Sometimes I would give some for my elder sister to hold it. Sometimes I will keep some myself and I will give some money for my husband to keep it.
MR DIAZ: Do you keep a note or a document setting out how much you give to your, was it you said your sister and your husband?
INTERPRETER: We do not need to write it down.
MR DIAZ: So the answer is no.
INTERPRETER: I didn’t.
MR DIAZ: And so why were you giving cash to your older sister and your husband?
INTERPRETER: Because my husband would need some money, you know, to buy certain things, for example, he wants to buy a cup of coffee.
MR DIAZ: Yes. And what about your older sister? Why were you giving her cash?
INTERPRETER: I don’t need to give her money. But if I have a lot of money then I will ask her to keep it for me for the time being.
MR DIAZ: Why?
INTERPRETER: Because sometimes, you know, when I don’t have enough money then I can ask for that money back. This money from the bank, from the passbook account, you know, I will ask her to keep it for me for the time being.
MR DIAZ: Why not just leave it in the passbook account?
INTERPRETER: Because sometimes, you know, I don’t go to the bank to withdraw – like I don’t visit the bank, I don’t need to visit the bank regularly to withdraw money when I need money. And also this account does not pay any interest. And sometimes, you know, I may need cash. So, you know, I keep some money on hand for, to enable cash flows.
MR DIAZ: Okay. In January 2013, where was your sister living?
INTERPRETER: Which sister are you referring to?
MR DIAZ: The sister that you’re giving cash to.
INTERPRETER: She lives in Melbourne.
MR DIAZ: Where in Melbourne?
INTERPRETER: Kensington.
MR DIAZ: Sorry, where?
INTERPRETER: Kensington.
MR DIAZ: So it’s more convenient for you to go to your sister in Kensington to get money than to a bank. Is that what you’re saying?
INTERPRETER: No.
MR DIAZ: So giving money to your sister so that you could get it later, doesn’t make any sense, does it?
INTERPRETER: No. It does make sense.
MR DIAZ: The other reason you gave for giving your sister money was because you weren’t getting interest on the passbook account. Was your sister paying you interest?
INTERPRETER: She would not pay interest, but she would stop me from spend – this will stop me from spending money unnecessarily.
MR DIAZ: So is now what you’re saying that you’d give money to your sister so that you couldn’t spend it?
INTERPRETER: Like for – no – for example, here you’ve got 4,000, 3,500 and you’ve got another 4,500. So, you know, I would say I would give 2,000 to my eldest sister, so I don’t spend money unnecessarily. And then I’ll give 2,000 to my husband, and then I still keep, you know, the rest of the cash myself. Then, you know, when I don’t have enough money and when it’s urgent, then I would know where my money can come from – where my money is.
MR DIAZ: Okay. So using that 12,000 as an example, you say you give some of that to your sister to keep and some to your husband to spend?
INTERPRETER: My husband is not the kind who, you know, who is a big spender. So he would also, yes, keep the money for me.
MR DIAZ: So you gave it to your husband not to spend, just to keep. Is that right?
INTERPRETER: He would keep most of it.
MR DIAZ: And so is what you would do is spend the cash that you have for yourself and then once you finish that you would get the extra cash from your sister and from your husband, is that right?
INTERPRETER: We don’t spend those money, you know. We usually use those money to pay bills.
MR DIAZ: And then once you’ve spent all that money paying bills you would withdraw more money, is that right?
INTERPRETER: This sum of money will be sufficient to last me for quite a long time.
MR DIAZ: So there’d be no need to withdraw money for a long time, is that right?
INTERPRETER: No. Sometimes if I pass a bank branch and I need to pay bills I would still, yes, give – yes, withdraw.
MR DIAZ: How are you paying your bills?
INTERPRETER: I can’t remember, but most were paid by cash?
MR DIAZ: But where did you go to pay your bills?
INTERPRETER: In the past it was usually post office.
MR DIAZ: So you’d have to go from your house to the post office, is that right?
INTERPRETER: I think so.
MR DIAZ: And you have some cash at home, is that right?
INTERPRETER: Yes.
MR DIAZ: And you’re saying sometimes you wouldn’t use that cash. You’d instead go to the post office and on your way withdraw more cash, is that right?
INTERPRETER: Because, say, if you know I forget to bring cash out with me and I happen to need to pay some bills, you know, then, you know, I will, you know, usually pass the post office or the bank. Then – so I just, you know, withdraw some money to pay the bills.
MR DIAZ: And returning back to the original questions I had – is what you’re saying that some of the $12,000 you withdrew in January of 2013 – sorry – no, January 2013 – used to pay credit card bills in December of 2014.
INTERPRETER: So, yes, part of it may be used for that purpose. But if I don’t have enough cash then I will, you know, do a withdrawal.
MR DIAZ: Just one question about that. Why didn’t you put this cash in your safe deposit box?
INTERPRETER: I seldom visit my safe box. Seldom, if you check the record.
MR DIAZ: Your safe deposit box was in the city, wasn’t it?
INTERPRETER: Yes.
MR DIAZ: It was close to where you had the apartment that you were running your beauty services business. Do you agree with that?
INTERPRETER: It’s not close to my apartment.
MR DIAZ: Is it closer to your apartment than it is to your sister in Kensington?
INTERPRETER: I see my elder sister all the time.
MR DIAZ: Yes, but you don’t need the money you gave to her all the time, do you?
INTERPRETER: I only put a thousand or two thousand dollars with – for her to keep.
MR DIAZ: Yes. In relation to the money you were giving your husband – the cash – did he ever use this in relation to the sushi restaurant businesses?
INTERPRETER: The cash I gave him, I don’t think so.[70]
[70]Transcript Day 6, pp 499-505.
The account of Ms Applicant’s dealings with money was clearly an attempt to give an acceptable explanation for deposits to bank accounts and credit card accounts and the Tribunal finds this is entirely implausible.
Ms Applicant’s entirely implausible account of her dealings with money contributes in a material way to shaping the lens through which all explanations as to dealings with money should be viewed.
All of this leaves the Tribunal with the conclusion that it cannot accept the account advanced by or on behalf of the Applicants.
C7 Bank loan applications records of income levels
Two loan applications, first in respect of a $300,000 loan from Homeside (part of the National Australia Bank organisation) in 2009/2010 and second in respect of the loan for the Parkville property from Westpac in 2013, report Ms Applicant’s income as significantly more than her tax returns suggest.
The Homeside application documents report a share of the annual net business profit after expenses but before tax of $75,000. The Westpac loan application in respect of the loan for the Parkville property in 2013, reports that Ms Applicant earned $7769 per month or $93,228 per year.
In contested evidence Ms Applicant claimed not to be the originator of these amounts and that the false amounts were suggested by bank staff. Whether that is true is open to question, but what certainly is true is that Ms Applicant participated knowingly in the compilation of that information that was presented to these banks in support of her representation of credit worthiness so as to procure a loan. In an earlier interview with the ATO Ms Applicant said it was an estimate of what she could earn.[71]
D THE COMMISSIONER’S AUDIT
[71]T 161 p 1543.
D1 Enquiries
The Commissioner has conducted an audit involving information gathering from a variety of sources.
D2 Misleading or false information given with the assistance of the Applicants’ tax agent
In early August 2016 ATO staff arranged an interview between them and Ms Applicant and Mr Applicant at the offices of their tax agents. the ATO advised that it was proposed to record the interview and that it would provide the Applicants with a copy of the recording.[72] The interview was conducted on 23 August 2016 at the Applicants’ then tax agent’s offices in Richmond. The interview was recorded, and a transcript was produced.[73] The transcript reveals that two ATO officers, the Applicants’ tax agent Peter, a Cantonese speaking woman (described on the transcript as ‘Female’, who was assisting Peter and the Applicants), and Mr and Ms Applicant were present though not all at the one time.
[72]T 159, p 1468 & T 160, pp 1469-1476.
[73]T161, pp 1477-1561.
The transcript records discussions from the time the recording started, and it can be inferred that the recording started after the discussions began. The transcript doesn’t include the usual particulars of when the meeting took place who was present and the purpose of the meeting. The surrounding correspondence in the lead up to the meeting are sufficient to show that the transcript is a transcript of the meeting between 2 unnamed ATO personnel, Officers 1 and 2, albeit their identities are made clear in the earlier correspondence, the tax agent (Peter), Peter’s assistant [name redacted], and at different times Mr Applicant and Ms Applicant. The transcript records conversations that appear to have been conducted in English language and in Cantonese language and a certified translation of the Cantonese spoken word to English.[74]
[74]T 161, p 1561.
The content of the translated discussions in Cantonese language compels an inference that the two ATO officers did not speak or understand spoken Cantonese, and that the discussions in Cantonese was, at least at the time of the interview, not known to or understood by the ATO officers present.
In that interview the Applicants’ tax agent, Peter, gave advice to Mr Applicant in Cantonese to give false answers to some questions and answers to other questions that would tend to lower any estimate of the Company Applicant’s taxable income from the sushi restaurant business than might otherwise be the case and to lower the extent of Ms Applicant’s asset holdings.
(a)In relation to a purchase of a motor vehicle, Peter told Mr Applicant to disclose that the vehicle was older than it was to which Mr Applicant responded to the effect that there were documents to prove the age of the vehicle so he did not give the false answer that was encouraged.[75]
(b)In relation to the number of customers on average of the sushi restaurant business, the Applicants’ tax agent Peter wanted Mr Applicant to lower the average number of customers and Mr Applicant obliged.[76]
(c)In relation to business trading hours, there were suggestions to be misleading at best and dishonest at worst.[77]
(d)In relation to the upstairs facilities at the restaurant, Peter urged non-disclosure of restaurant seats upstairs which was not acted upon by either Mr or Ms Applicant.[78]
(e)In relation to catering, Peter suggested Mr Applicant say he didn’t do catering work but Mr Applicant again referred to documents and advised one or two jobs per week were done.[79]
(f)In relation to the shares owned by Ms Applicant Peter suggested that Ms Applicant ‘say less’.[80]
[75]T 161, p 1488.
[76]T 161, pp 1502-1503.
[77]T 161, pp 1495-1496.
[78]T 161, pp 1498-1499.
[79]T 161, p 1500.
[80]T161, p 1548.
This interview process revealed an awareness on the part of Mr Applicant of the effect of documentary evidence and the pointlessness associated with giving false evidence that could be contradicted by documentary material. The process also revealed tax agent activities that at least call for an enquiry by the Tax Practitioners Board as to potential breached of the Code of Conduct.[81]
[81]Tax Agent Services Act 2009 (Cth), s 30-10.
D3 Audit conclusions
Following the conduct of an audit, partly covertly and partly openly and one which included s 353–10[82] notices issued to various parties including Ms Applicant’s relatives, the Commissioner formed the view that:
(a)the Company Applicant’s reported sales were less than industry norms, and in conjunction with other observations concerning asset accumulations, deposits into bank accounts, number of customers visiting the shop, disclosures made to banks, disclosures made in insurance policy renewals, disclosures made in interviews of the Applicants’ accountant and Mr and Ms Applicant, determined that he was dissatisfied with the level of sales income disclosed;
(b)a sales income amount for each Year and GST reporting period should be substituted for the sales income amounts disclosed in income tax returns and BASs by reference to a 15% rent-based industry multiple for similar styled businesses operating throughout Australia;
(c)some of the deductions claimed by the Company Applicant were not allowable;
(d)Ms Applicant had failed to disclose rental income and had claimed deductions to which she was not entitled;
(e)Ms and Mr Applicant had not disclosed income received from the Company Applicant;
(f)there had been fraud or evasion; and
(g)both net amount and amended income tax assessments should issue.
[82]Notices pursuant to section 353-10 of Schedule 1 to the Administration Act.
The Commissioner issued audit reasons papers, followed by assessments and amended assessments, and assessments of net amounts.
The amounts included in the assessments issued do not in all cases track precisely with the related audit reasons, and do not identify particular explanation for the departures from amounts shown in the audit reasons. It can be accepted that the assessments and the bases for them are materially and reasonably represented by the audit reasons.
In his audit reasons for the Company Applicant, the Commissioner formed the view that income tax assessments should be amended as set out in Table D1.
Table D.1
[YNVP]
Summary of proposed amendments[83]
[83]T 2 p 77.
Year
Rental expense
Rent-turnover @ 15%*
Turnover (sales of goods and services) as returned
Difference
Add/subtract deductions disallowed/allowed
Net understated income
Returned profit or loss
Adjusted profit or loss **
Shortfall
2008
$40,170
$267,800
$165,914
$101,886
nil
$101,886
-$21,194
$80,692
$24,208
2009
$41,375
$275,833
$139,012
$136,821
nil
$136,821
-$3,570
$133,251
$39,975
2010
$24,270
$161,800
$73,216
$88,584
nil
$88,584
-$93,108
-$4,236
$0
2011
$28,137
$187,580
$55,427
$132,153
$28,137
Rental expenses allowed
$104,016
-$41,863
$2490
(6,726 less
carry
forward
loss from
2010)$747
2012
$63,930
$426,200
$123,500
$302,700
$104,500
(overseas
interest)$407,200
-$124,243
$263,927
$79,178
2013
$62,527
$416,846
$163,194
$253,652
nil
$253,652
-$1,176
$252,476
$75,743
2014
$60,000
$400,000
$173,633
$226,367
$453
(carry forward losses)
1,198
(Fuel)$227,565
$453
$226,800
$68,040
2015
$60,000
$400,000
$176,130
$223,870
1,186 (Fuel)
$225,056
-$5,263
$219,793
$65,938
For the 2011 Year:
- the company did not claim rental expenses and a deduction was allowed on the basis of bank account records; and
- the Adjusted profit or loss is not shown correctly. While its correctness is questionable, in a later position paper issued to Mr Applicant it was shown as $57,629 ($62,153 less carry forward loss of $4,524 from the 2010 Year)
The adjusted profit or loss calculation for the 2014 year appears to be wrong. It appears it should have been $227,112: ($227,565 - 453). That is the aggregate amount included as ‘other/omitted income’ in Mr and Ms Applicant's amended assessments for 2014.
The audit reasons were followed by assessments. Table D2 summarises the income tax and related assessments that were issued.
Table D.2
[YNVP]
Year
Disputed income tax assessments[84]
Disputed penalty assessments[85]
Total amount
payableTaxable income previously assessed
Amended taxable income
Taxable income shortfall
Tax shortfall
SIC
2008
$0
$80,692
$80,692
$24,208
$15,912
$21,787
$45,994
2009
$0
$133,251
$133,251
$39,975
$22,326
$35,978
$75,953
2010
2011
$0
$2,202
$2,202
$661
$217
$595
$1,419
2012
$0
$282,927
$282,927
$84,878
$20,846
$76,390
$150,438
2013
$0
$252,476
$252,476
$75,743
$13,680
$68,169
$143,911
2014
$0
$226,800
$226,800
$68,040
$7,921
$61,236
$129,276
2015
$0
$219,793
$219,793
$65,938
$3,925
$59,344
$125,282
total
$0
$1,198,141
$1,198,141
$359,442
$84,828
$323,498
$672,275
[84]T 204 p 1997-2012; T 211 p 2019-2034.
[85]T 208 p 2013-2018, T 215 p 2035-2042.
For Ms Applicant the audit reasons for decision again forecast amendments to assessments as set out in Table D3 below.
Table D.3
Ms Applicant
Summary of proposed amendments[86]
[86]T 177 p 1696.
Year
Taxable income returned
Add other/omitted income
Add rental income
Remove rental deduction
Remove business loss
Remove prior year loss
Add prior year loss
After proposed amendment
Proposed variation
2008
-$9,188
$40,346
$15,200
nil
$20,178
nil
$40,033
$26,503
$35,691
2009
$0
$66,625
$15,400
nil
$18,490
$10,920
nil
$111,435
$111,435
2010
$502
$42,846
$15,400
nil
nil
$4,478
nil
$63,226
$62,724
2011
$17,225
$31,076
$15,600
nil
nil
nil
nil
$63,901
$46,676
2012
$108
$146,228
nil
$24,700
nil
nil
nil
$171,036
$170,928
2013
-$4,387
$126,238
nil
$24,700
nil
nil
nil
146,551*
$150,938
2014
$1,690
$113,556
nil
$18,174
nil
nil
nil
$133,420
$131,730
2015
$0
$109,896
nil
$18,174
nil
$1,647
nil
$129,717
$129,717
Other/omitted income amounts origins
The other/omitted income amount for 2008, 2009, 2013 and 2015 are a half share of the respective Adjusted profit or loss amounts for the Company Applicant, shown in Table D.1.The other/omitted income amount for 2011 is a half share of the $104,016 taxable income shortfall less the loss previously reported $41,863 for 2011, shown in Table D.1.
The other/omitted income amounts for 2012 is a half share of the respective Adjusted profit or loss amounts for the Company Applicant for 2012, shown in Table D.1.
The other/omitted income amount for 2014 is a half share of the correctly calculated Adjusted profit or loss amount for the Company Applicant for 2014 as noted in Table D.1.
The reasons were followed by assessments. Table B4 summarises the income tax and related assessments that were issued to Ms Applicant.
Table D.4
Ms Applicant
Notices of assessment/amended assessment[87]
[87]T 243, p 2227-2258.
Year
Taxable income previously assessed
Amended taxable income
Additional taxable income
Tax shortfall
Shortfall interest charge
2008
nil
$26,503
$26,503
$2,718
$1,682
2009
nil
$111,435
$111,435
32.231.31
$16,638
2010
$502
$20,380
$19,878
$802
$322
2011
$17,225
$61,639
$44,414
$12,548
$3,731
2012
$108
$166,286
$166,178
$52,877
$11,433
2013
nil
$146,551
$146,551
$44,369
$6,448
2014
$1,690
$133,420
$131,730
$39,314
$3,858
2015
nil
$129,717
$129,717
$38,527
$1,173
The amended assessment for the 2010 did not include the $42,846 forecast as the other/omitted income in the ATO audit reasons reflected in Table D3.
For Mr Applicant the audit reasons for decision again forecast amendments to assessments as set out in Table D5 below.
Table D.5
Mr Applicant
Proposed amendments in the Commissioner's audit reasons dated 3 July 2017[88]
Year
Income returned
Add other/omitted income
Income after amendment
Variation
Tax shortfall
2008
$18,280
$40,346
$58,626
$40,346
$11,975
2009
$7,632
$66,625
$74,257
$66,625
$17,387
2010
$1,296
nil
nil
nil
nil
2011
$1,053
$28,814
$29,867
$28,814
$2,523
2012
$1,029
$146, 228
$147,257
$146,228
$45,361
2013
$1,863
$126,238
$128,101
$126,238
$37,266
2014
$1
$113,556
$113,557
$113,556
$31,666
2015
$4,214
$109,896
$114,110
$109,896
$32,450
Other/omitted income amounts origins
- The other/omitted income amounts for 2008, 2009, 2013 and 2015 are a half share of the respective Adjusted profit or loss amounts for the Company Applicant, shown in Table D.1.
- For 2011 Mr Applicants share is a half share of the net understated income in table D1 less the returned loss less an assumed carry forward loss of 4,524
- The other/omitted income amount for 2012 is a half share of the Adjusted profit or loss amount for the Company Applicant for 2012, shown in Table D.1.
- The other/omitted income amount for 2014 is a half share of the correctly calculated Adjusted profit or loss amount for the Company Applicant for 2014 as noted in Table D.1.
[88]T 191, p 1882.
The reasons were followed by assessments. Table B6 summarises the income tax and related assessments that were issued to Mr Applicant.
Table D.6
Mr Applicant
Notices of assessment/amended assessment[89]
[89]T 250, p 2426-2453.
Year
Taxable income previously assessed
Amended taxable income
Additional taxable income
Tax shortfall
SIC
2008
$18,280
$58,626
$40,346
$11,975
$7,468
2009
$7,632
$74,257
$66,625
$17,387
$9,050
2010
n/a
n/a
n/a
n/a
n/a
2011
$1,053
$29,867
$28,814
$2,523
$760
2012
$1,029
$147,257
$146,228
$45,361
$9,970
2013
$1,863
$128,101
$126,238
$37,266
$5,649
2014
$1
$113,557
$113,556
$31,666
$3,210
2015
$4,214
$114,110
$109,896
$32,450
$1,062
Again, assessments followed. Table D7 summarises the GST and related assessments that were issued to the Company Applicant.
Table D.7
[YNVP]
Period
Net Amount assessments[90]
Penalties assessed[91]
Previous net Amount
Assessed net amount
Difference
01 Jul 2007 to 30 Sep 2007
$3,019
$5,125
$2,106
$1,580
01 Oct 2007 to 31 Dec 2007
$2,535
$4,636
$2,101
$1,891
01 Jan 2008 to 31 Mar 2008
$2,304
$4,972
$2,668
$2,401
01 Apr 2008 to 30 Jun 2008
$514
$3,867
$3,353
$3,018
01 Jul 2008 to 30 Sep 2008
$1,819
$5,112
$3,293
$2,964
01 Oct 2008 to 31 Dec 2008
$1,390
$4,841
$3,451
$3,106
01 Jan 2009 to 31 Mar 2009
$1,489
$5,088
$3,599
$3,239
01 Apr 2009 to 30 Jun 2009
$1,728
$5,103
$3,375
$3,038
01 Jul 2009 to 30 Jun 2010
4,041.00 CR
$4,832
$8,873
$7,986
01 Jul 2010 to 30 Jun 2011
1,358.00 CR
$11,362
$12,720
$11,448
01 Jul 2011 to 30 Sep 2011
$1,007
$8,351
$7,344
$6,610
01 Oct 2011 to 31 Dec 2011
$629
$8,072
$7,443
$6,699
01 Jan 2012 to 31 Mar 2012
$886
$8,193
$7,307
$6,576
01 Apr 2012 to 30 Jun 2012
$1,085
$8,367
$7,282
$6,554
01 Jul 2012 to 30 Sep 2012
$1,766
$8,077
$6,311
$5,680
01 Oct 2012 to 31 Dec 2012
$2,118
$7,921
$5,803
$5,223
01 Jan 2013 to 31 Mar 2013
$7,593
$7,881
$288
$5,306
01 Apr 2013 to 30 Jun 2013
$1,817
$7,901
$6,084
$5,476
01 Jul 2013 to 30 Sep 2013
$2,456
$7,857
$5,401
$4,861
01 Oct 2013 to 31 Dec 2013
$1,983
$7,464
$5,481
$4,933
01 Jan 2014 to 31 Mar 2014
$1,847
$7,465
$5,618
$5,056
01 Apr 2014 to 30 Jun 2014
$2,855
$8,011
$5,156
$4,640
01 Jul 2014 to 30 Sep 2014
$2,257
$7,699
$5,442
$4,898
01 Oct 2014 to 31 Dec 2014
$1,953
$7,499
$5,546
$4,991
01 Jan 2015 to 31 Mar 2015
$1,980
$7,448
$5,468
$4,921
01 Apr 2015 to 30 Jun 2015
$1,984
$7,667
$5,683
$5,115
Total
$49,014
$180,811
$137,196
$128,207
[90]T 197-198, p 1946 -1948.
[91]T 199, p 1950, 1952.
E OBJECTIONS
The Applicants duly objected.
E1 Grounds
Included in the grounds of objection were the following propositions:
‘The calculation of omitted income is incorrect. The conclusion that the business records are inaccurate are [sic] incorrect. There is unfair characterisation of myself and tax affairs based on interview which I was required to answer questions covering a long period. I was not prepared for detailed questions such as how many customers and this was made out to be misleading by the auditor. The auditor could have reviewed the cash register for the number or I could have done it. The count of customers by the ATO is also inaccurate. It was done covertly outside the business without reason. Not every person that enters purchases from us. It is primarily a take away shop. Also, the average sales are low. People buying 1 or 2 sushi rolls will spend less than $10.
The use of benchmarks is also incorrect. If the ATO is to apply the benchmark for rent to estimate the income, the benchmarks should also be used to estimate the expenses. We sell food. to have that income requires input in the form of raw materials and labour. Also, the application ignores the fact that the business closed down for a period of time before starting in a new location. At the old location, the building was being redeveloped leading to a significant decline in customers. The new business takes time to build up. Rent is a fixed cost and the business cannot break the lease.
Finally, the ATO has not shown where the money has gone to. The assessments suggest that at least $1.3 million was omitted over the period. We have provided information to demonstrate the source of funds. The auditor has just decided to incorrect disregard things like the proceeds of sale of our previous home or loans from overseas.’
E2 Prospective objection decision
In August 2018[92] the Commissioner advised the Applicants’ then-accountant that the ATO had formed a preliminary view of the objections lodged in September 2017 and that it sought the Applicants’ feedback. The preliminary view was that a metropolitan rent to turnover ratio would be a more reliable guide than a rent to turnover ratio that included regional business operations, with the effect that there would be a lower overall tax and GST liability. The consequence of that revised view was that at least some of the objections should be allowed in part and that penalties should be recalculated. The ATO had reached a view that the earlier amounts of sales income had been inappropriately calculated in some years and ought be reduced, for five of the eight years by approximately 25%. In that correspondence the Commissioner noted that:
‘Our primary, preferred, income tax assessments will issue to these two individuals. The same allocation of alternative (company) and primary income tax assessments (individuals) was applied as a result of the prior audit.
The income tax payable as a result of the objection decisions will occur under the primary assessments for those two individuals. Amounts will be advised in the individual objection decisions and assessment notices; which will issue after this objection for [Company Applicant] is finalised.
Income tax liability arising from the company assessments for these years will not be payable, as we only intend to collect the ‘relevant amount of tax’ and not the aggregate amounts of all assessments.’
[92]T 276, pp 2541-2555.
On 24 August 2018 the Commissioner advised the Company that its objections were proposed to be allowed in part on the basis of an incorrect use of the rental multiplier.[93] It is necessary to set out parts of what the Commissioner said in full. He said:
We currently propose to make the following decisions on your objection:
[93]T 276, pp 2542 to 2544.
Income year
Decision
Change to annual turnover
2007-08
Disallowed
Maintain $267,800 from audit
2008-09
Allowed in part
Reduce from $275,833 to $201,829
2009-10
Allowed in part
Reduce from $162,164 to $115,571
2010-11
Disallowed
Maintain the $114,026 audit outcome
2011-12
Allowed in part
Reduce from $443,842 to $327,846
2012-13
Allowed in part
Reduce from $432,789 to $320,651
2013-14
Allowed in part
Reduce from $411,596 to $307,692
2014-15
Allowed in part
Reduce from $403,217 to $300,000
We propose to amend the company’s assessments for these years and send you notices. These will be considered alternative assessments.
You also lodged related objections for two individuals who provided services to the company that operated the business. These individuals were both shareholders of the company during the audit period.
Our primary, preferred, income tax assessments will issue to these two individuals. The same allocation of alternative (company) and primary income tax assessments (individuals) was applied as a result of the prior audit.
The income tax payable as a result of the objection decisions will occur under the primary assessments for those two individuals. Amounts will be advised in the individual objection decisions and assessment notices; which on for [Company Applicant] is finalised.
Income tax liability arising from the company assessments for these years will not be payable, as we only intend to collect the ‘relevant amount of tax’ and not the aggregate amounts of all assessments.
Objection to goods and services tax
We propose to revise and reduce the amount of goods and services tax (GST) payable in relation to the business’s activity over some of these periods and maintain audit outcomes for others, as shown below.
These adjustments will come as a direct consequence of the reductions we propose to make to annual turnover amounts; as shown in the table above. The corresponding GST adjustments are detailed in the table below;
Income year
Decision
GST on sales
2007-08
Disallowed
Maintain $26,412 from audit
2008-09
Allowed in part
Reduced from $27,327 to $19,454
2009-10
Allowed in part
Reduced from $15,715 to $15,236
2010-11
Disallowed
Maintain $18,758 from audit
2011-12
Allowed in part
Reduced from $42,620 to $32,784
2012-13
Allowed in part
Reduced from $41,302 to $31,262
2013-14
Allowed in part
Reduced from $40,000 to $30,769
2014-15
Allowed in part
Reduced from $40,000 to $30,000
Wherever possible we propose to make these adjustments to GST on sales within the 4th quarter (April to June) business activity statement for each income year. We will then issue you with notifications of the revisions.
Objection to shortfall penalties (income & indirect tax)
As a result of your objection we propose to maintain current penalty rates. The amount of penalties will however decrease in proportion with a reduction in shortfall for most tax periods. Those shortfall reductions will occur due to the adjustments detailed above which we propose to make to income tax and GST amounts.
…
4We propose to make changes to how the rent/turnover method has been applied. We do not agree the audit area’s use of a median of the rent/turnover benchmark ranges for takeaway food services for the periods concerned is the most accurate estimate that we can make in relation to the … Sushi business. Our proposed and revised way of applying the rent/turnover benchmark will lower the business’s overall tax liability and take into account that sushi and take away food service businesses located in a metropolitan location are likely to incur a higher percentage of rent (in relation to turnover) than their regional counterparts.
5We propose to reduce the net GST liability for [the Company Applicant] over the audited period. Adjustments will be made to GST on sales, in line with our revised benchmark calculations and corresponding adjustments to se to maintain the amount of input tax credits allowed at audit.
Over the next two years, a period significantly affected by ATO deployment of resources to the Covid 19 response measures, a series of correspondence passed between the Applicants’ then-representative, Ms Applicant’s nephew, and the ATO Review and Dispute Resolution unit. On multiple occasions the Applicants’ then-representative was advised that objection decisions would be made shortly.
In June 2020 the Applicants served s 14ZYA notices, withdrew them as they were about to produce a deemed objection decision in August 2020 and a formal decision was said to be not far away, gave further s 14ZYA notices in August 2020 and in early October 2020 were advised that an objection decision would be made imminently. On 9 October the Applicants were presented with options in the following terms:[94]
[94]T 339, p 3239.
‘… in light of the 14ZYA notice there are two options:
1. If your position is still that there is no shortfall for each of the years audited then we are prepared to let the section 14ZYA notices lapse as of close of business today. The matters will be deemed disallowed; or
1.[sic] If you do want objections decisions to issue to you, we suggest withdrawing the 14ZYA notices (via return email) and we will prepare objections decisions:
·for [Mr and Ms Applicant] on the basis of the original objection teams [sic] analysis that we sent to you on 31 July; and
·for [Company Applicant] based on some adjustments to the benchmark analysis in the taxpayers [sic] favour.
These objection decisions will issue by 31 October.
Can you please advise which of these options you so choose. If it is the latter, we are happy to arrange a phone hook up with you about the reasons for decision prior to issue. Please note that if no response is received by end of business today, the matter will be deemed disallowed in line with Option 1.’
The precise terms or amounts involved in the prospective amended assessments were not advised in that communication. Whether all of the prospective adjustments could have been ascertained is not revealed.
Within 10 minutes of being provided with a copy of the 31 July analysis referred to above, on 9 October 2020 the Applicants’ representative requested that the ATO issue ‘… the deemed disallowance decision today so we can appeal to the AAT’.[95] It can readily be seen that this was an act of frustration, and in the circumstances ill considered.
[95]T 339, p 3238.
The prospective reductions to tax liabilities that had been forecast were not made, leaving the decisions under review and the decisions now defended by the Commissioner, deemed disallowances of objections to the assessments and amended assessments issued at the conclusion of the audit. Those assessments remain on foot unadjusted for the matters that the Commissioner has subsequently thought should be adjusted. The Commissioner continues to contend that penalty and interest should be levied by reference to the tax shortfalls calculated by reference to these assessments.
F PROCEDURAL MATTERS
F1 The Decisions Under Review
The relevant decisions under review are deemed decisions to disallow objections made by operation of s 14ZYA of the Administration Act.
F2 The decisions the Tribunal can make
The parties were asked to:
(a)assume the Tribunal were to conclude that the Applicants had not discharged their onus of establishing what their taxable incomes and net amounts were;
(b)have regard to the content of the communications between the Applicants’ representative and the Commissioner’s staff contained in the Tribunal’s documents T278 through to T339 and in particular the communications between 1:22 PM and 1:32 PM on 9 October 2020 where the Applicants’ representative, within 10 minutes of being given options to have either a deemed objection decision or an actual objection decision by 31 October 2020, chose the former option which left the original amended assessments unaltered and the subject matter of the present application; and
(c)consider the appropriate decision to make having regard to the options available to the Tribunal under s 43 of the AAT Act, namely to:
(i)affirm the decision under review;
(ii)vary the decision under review; or
(iii)set the decision under review aside and:
a.make a decision in substitution for the decision so set aside; or
b.remit the matter for reconsideration in accordance with any directions or recommendations of the Tribunal.
The Applicants responded on 27 June 2024 to the effect that:
(a)the Tribunal has a duty to form its own conclusion as to the facts;[96]
(b)mathematical precision is not required, and estimates can be made on the basis of inexact evidence;[97]
(c)an average sale value in the recognised sales multiplied by the number of no sale recordings on the cash register rolls (less an allowance for legitimate cash register openings) would be the best estimate of omitted income;
(d)the next best estimate would be the sales projection using the Commissioner’s endorsed cost of goods sold multiple; and
(e)finally the sales projection that would have been applied had the Commissioner’s draft objection decision been made could be applied.
[96]Referring to the decisions in Krew v Federal Commissioner of Taxation (1971) 71 ATC 4213 at 4216 as referred to in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, at 89 by Mason J.
[97]Referring to the decision in Condon v Commissioner of Taxation [2023] FCA 561, Derrington J and his Honour’s reference to Burchett J’s decision in Ma v FCT (1992) 92 ATC 4373 and Haritos v Commissioner of Taxation (2015) 233 FCR 315 at 392 [234].
The Respondent also responded on 27 June 2024 to the effect that:
(a)the Tribunal is bound to affirm the decisions under review if it finds that the Applicants have not discharged their burden;
(b)referring to Rawson Finances and Bai,[98] the Commissioner contends that if the Tribunal is not satisfied the Applicants have satisfied their burden that the assessments are excessive, then affirming the decisions under review is the course to follow; and
(c)referring to Liang,[99] an acceptance that an assessment is excessive without establishing certainty of what the taxable income is, is not enough. His Honour said:
‘In cases where an estimate has been made of a taxpayer’s income, it is always for the taxpayer to show what his, her or its income was. As to this, a point made by then Senior Member McCabe (as he then was) in PNGR and Commissioner of Taxation (2013) 97 ATR 1072 is surely right. In such cases, if a taxpayer fails to establish what the assessment should have been, in other words, what their true taxable income was, then even if it is accepted that the amended assessments were excessive, if there remains uncertainty as to the correct amounts of taxable income, the onus of proof will not have been discharged. That is not to say that an onus of proof in a default assessing context might not be able to be discharged if, on the material, taxpayer’s demonstrated that their taxable income was not more than a particular amount: see Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148, at 167.’
[98]Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26 at [111] and [112] Jagot J, and Bai v Federal Commissioner of Taxation [2015] FCA 973 [38] (Rares J).
[99]Liang v Commissioner of Taxation [2024] FCA 535, at [58] Logan J endorsing then Senior Member B J McCabe in PNGR and Commissioner of Taxation (2013) 97 ATR 1072.
Having regard to the content of the communications between the Applicants’ representative and the Commissioner’s staff in this period, it is quite clear that the Commissioner accepted that his original estimate of the Applicants’ taxable income was inappropriately based and was about to be adjusted down. The amounts of those prospective adjustments cannot be ascertained precisely. Had those adjustments been made, the post adjustment assessments would have been the subject of the continuing challenges.
The Commissioner’s powers to assess are broader than the Tribunal’s power on review. If the Tribunal on review is unable to conclude what the Applicants’ taxable income was in a s 167 dispute then the burden has not been satisfied and recognising that difference in function and role, the Tribunal cannot do what the Commissioner may have done.
In these matters, it is quite apparent that the Company Applicant has understated its income and Mr and Ms Applicant have had the benefit of that income and the Applicants’ case to the contrary is not accepted. It is also clear that the extent to which that has happened is probably not as has been assessed. However, that is all that can be said with confidence concerning the proper amounts.
F3 SIC
Section 280-170[100] limits the Applicants’ entitlements to object to the Respondent’s decision to remit SIC for the 2013, 2014 and 2015 Years. Table F1 below lists the critical percentages for those years.
[100]Administration Act, Schedule 1, s 280-70.
Table F.1 Year Shortfall amount SIC SIC as a % of the Shortfall Amount Ms Applicant 2013 $44,369 $6,447 14.53% 2014 $39,313 $3,858 9.81% 2015 $38,536 $1,172 3.04% Mr Applicant 2013 $37,265 $5,648 15.16% 2014 $31,666 $3,210 10.14% 2015 $32,449 $1,061 3.27% Company Applicant 2013 $75,742 $13,679 18.06% 2014 $68,040 $7,921 11.64% 2015 $65,937 $3,925 5.95%
SIC can be objected to and considered by the Tribunal for the other years.
F4 Burden of Proof Principles
The Respondent contends that the burden of proof principles to be applied in the present context are as follows.
(a)The Applicants are required to show that the amount upon which tax has been levied by the Respondent’s assessments exceeds their actual substantive liability.[101]
[101]Referring to Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63, 88 (Latham CJ); Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, 623 to 625 (Brennan J).
(b)The Respondent has no onus to show that the assessments were correctly made and nor is there any statutory requirement that his assessments be sustained or supported by evidence.[102]
[102]Referring to Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, 89 (Mason J); McCormack v Commissioner of Taxation (1979) 143 CLR 284, 303 (Gibbs J), 306 (Stephen J) and 323 (Murphy J).
(c)The Applicants are unable to discharge the onus of proof by showing an error by the Respondent in forming a judgment as to the amount of the assessments.[103]
[103]Referring to Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, 621 (Brennan J).
(d)The Applicants are obliged to establish the facts they rely upon to discharge their onus of proof and they are obliged to satisfy the Tribunal of those facts.[104]
[104]Referring to Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333, 337 (Latham CJ); Hua-Aus Pty Ltd v Federal Commissioner of Taxation [2010] FCA 341; 184 FCR 430, 436 [22] (Edmonds J).
(e)The Applicants are required to prove each fact they rely upon to discharge their onus of proof on the ‘balance of probabilities’.[105]
[105]Referring to McCormack v Commissioner of Taxation (1979) 143 CLR 284, 303 (Gibbs J).
(f)The Applicants can discharge their onus of proof either by:[106]
[106]Referring to McCormack v Commissioner of Taxation (1979) 143 CLR 284, 303 (Gibbs J) and 323 (Murphy J).
(i)providing direct evidence of the facts relied upon; or
(ii)seeking inferences to be drawn from the evidence as to the existence of facts relied upon by them.
(g)As to inferences, the Tribunal must be careful to distinguish, on the one hand, inferences that the Applicants seek to draw from the evidence to establish a fact and, on the other hand, the Applicants’ reliance on conjecture to assert the existence of a fact. In that regard, the Tribunal must keep in mind that:[107]
[107]Referring to Bell IXL Investments Ltd v Life Therapeutics Ltd [2008] FCA 1457, [14] (Middleton J).
‘…conjecture may be plausible, but it is effectively still a mere guess. An inference is a deduction from the evidence, and if reasonable can be treated as part of the legal proof to be considered in making factual determination in any particular proceeding…’
(h)To establish the existence of a fact by drawing inferences from the evidence, the Applicants need to establish a body of evidence that can reasonably sustain the inference and permit the Tribunal to draw the inference sought.[108] In that regard:[109]
[108]Referring to Tidsall v Webber (2011) 193 FCR 260, 297 [127] (Buchanan J).
[109]Referring to Tidsall v Webber (2011) 193 FCR 260, 297 [128] (Buchanan J).
‘…where the application of a judicial method is expected, the process of drawing an inference from available facts is not to be equated with conjecture, surmise or guesswork. The arbitrary selection of one possibility over others from an available number of possibilities by such a method is not merely lacking in logic; it fails to conform to the necessity that inferences be drawn as matters of legitimate deduction, based on probative values.’
(i)The Applicants cannot establish the existence of a fact on the balance of probabilities by conjecture.[110]
[110]Referring to Rawson Finances Pty Ltd v Federal Commissioner of Taxation (2013) 93 ATR 775, [88] (Jagot J).
(j)The Tribunal is not in a position, unassisted, to embark on examining records in an endeavour to work out the Applicants’ taxable income.[111] Where those amounts are not ‘obvious’ the Tribunal would be engaging in speculation and guesswork if it were to undertake that task without proper assistance and explanatory evidence (that would not be a proper foundation for concluding whether the Applicants have shown their true taxable income).[112]
[111]Referring to Buzadzic and Commissioner of Taxation [2021] AATA 4820, [49].
[112]Referring to Ibid.
(k)The quality of the evidence that the Applicants are required to adduce to discharge their onus is not lessened because the time for their compulsory retention of records had passed.[113]
[113]Referring to Buzadzic v Commissioner of Taxation [2024] FCAFC 50, [8] (Bromwich, Abraham and McEvoy JJ).
(l)The strength of the evidence the Applicants need to adduce to prove each fact on the balance of probabilities varies according to the nature of the fact that they seek to prove.[114] In all cases, the Applicants’ evidence must be of sufficient strength so that the Tribunal feels actual persuasion that the fact occurred or existed before that fact can be found on the balance of probabilities.[115] That is, the Tribunal must believe that the occurrence of the fact asserted was more likely than not.
[114]Referring to Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170, 170 to 171 (Mason CJ, Brennan, Deane and Gaudron JJ).
[115]Referring to Briginshaw v Briginshaw (1938) 60 CLR 336, 361 to 362 (Dixon J).
(m)Insofar as the evidence of Mr Applicant and Ms Applicant are concerned, they are witnesses who have interest in the outcome of these proceedings. Therefore, their evidence needs to be approached critically.[116] Moreover, insofar as Ms Applicant’s and Mr Applicant’s evidence comprised self-serving statements:[117]
[116]Referring to Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149, 176 [82] (Ryan, Jessup and Perram JJ).
[117]Referring to Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148, 155 (Hill J).
(i)those statements must be tested ‘…most closely and received with the greatest of caution…’; and
(ii)some other corroborative evidence would normally be required making it more probable than not that their sworn evidence is to be believed.
(n)Insofar as the Applicants’ evidence failed to do more than establish the possibility that a fact existed, that fact was not established on the balance of probabilities.[118]
[118]Referring to St George Club Ltd v Hines (1961) 35 ALJR 106, 107 (Dixon CJ, Kitto, Taylor, Menzies and Windeyer JJ).
(o)Insofar as the assessments were made where the Respondent formed the opinion that there had been evasion, the following further principles are relevant.
(i)The Applicants bear the onus of proving that the Respondent should not have formed the opinion that there had been evasion.[119]
[119]Referring to Binetter v Commissioner of Taxation [2016] FCAFC 163; 249 FCR 534, 552 [93] (Perram and Davies JJ).
(ii)A ‘blameworthy act’ is one that lies somewhere between an ‘innocent mistake’ and an act done with an intention to defraud. It involves culpable conduct, being more than merely avoiding or merely withholding information. The intentional omission of income from a tax return with no credible explanation is a blameworthy act.
(iii)The Applicants may discharge the onus of proving that the Respondent should not have formed the opinion that there had been evasion either:[120]
(1)by showing that they had not omitted any income such that there was no avoidance of tax; or
(2)by accepting that there has been an omission of income and showing that the omission of that income was not due to a ‘blameworthy act’ as described in Denver Chemical.[121]
(p)Insofar as the assessments made by the Respondent were ‘default assessments’ relying on s 167 of the 1936 Assessment Act, the following further principles are also relevant.
(i)The Applicants cannot discharge the onus of proof by merely demonstrating that the Respondent formed a judgment as to the Applicants’ taxable income on a wrong basis and that the amount assessed far exceeded the Applicants’ taxable income.[122]
(ii)To establish that a default assessment is excessive, the Applicants must positively prove their “actual taxable income” and, in doing so, must demonstrate that the amount of tax levied by the default assessment exceeds their actual substantive liability.[123] In doing so the Applicants must, in effect, furnish a return of their actual income which involves establishing both their assessable income and their allowable deductions.[124]
(iii)In the absence of the Applicants establishing what their actual taxable income is vis-à-vis any default assessment, that default assessment must stand even if one can assume that the default assessment is inaccurate in some respects.[125]
[120]Referring to Nguyen and Commissioner of Taxation [2016] AATA 1041, [33]; Nguyen v Federal Commissioner of Taxation (2018) 265 FCR 355, 395 [152] (Kenny J).
[121]Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296, 313 (Dixon J).
[122]Referring to Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, [62] (Bennett, Edmonds and Gordon JJ); Rigoli v Commissioner of Taxation [2014 FCAFC 29, [12] (Edmonds, Jessup and McKerracher JJ).
[123]Referring to Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, [63] (Bennett, Edmonds and Gordon JJ).
[124]Referring to Bosanac v Commissioner of Taxation (2019) 267 FCR 169, [57] (Greenwood, Burley and Colvin JJ).
[125]Referring to Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, [77] to [79] (Bennett, Edmonds and Gordon JJ).
In the Commissioner’s consolidated SFIC he said:[153]
[153]Tab N.
12.On the basis set out above, the Commissioner decided to:
(a)issue amended assessments to [the Applicants] for their income tax liabilities for the Relevant Years;
(b)issue assessments and amended assessments to [the Company Applicant] for its GST liabilities for the Relevant Tax Periods; and
(c)issue assessments for shortfall penalties.
13.In issuing the above assessments, amended assessments, and penalty assessments, the Commissioner:
(a)was not satisfied with the income tax returns that had been provided to him by [the Applicants];
(b)made an assessment of the amount upon which, in his judgment, income tax ought to have been levied on [the Applicants] under s. 167 of the Income Tax Assessment Act 1936 (Cth) (1936 Act) by adopting the following methodology:
…
(ii)his primary view was that the income of [the Company Applicant] was received by, paid to, or otherwise applied for [Ms and Mr Applicant’s] benefit in equal shares such that this income was assessable in their hands with alternative assessments being issued to [Company Applicant] for that same amount;
Unsure as to what was meant by the references to alternative assessments and primary assessments and primary views, the Commissioner was asked to explain. The transcript details the Commissioner’s position: [154]
[154]Transcript of Hearing, Day 1, page 51 line 41 – page 52 line 46.
MR DIAZ: Green lines reflect the Commissioner’s primary assessments, and the white line reflects the Commissioner’s alternative assessment, and you raised a query as to that at our last directions hearing of how these two sets of assessments interact, and I may address that now, if that’s of assistance.
DEPUTY PRESIDENT: (Indistinct.)
MR DIAZ: It’s set out at paragraph 10.4 of the outline of opening submissions, and there are two cases that bear upon the matter. The first is Winter and Deputy Commissioner of Taxation of New South Wales. It’s a decision of the Federal Court of Australia and heard by Justice Fox. And then the second decision is a more recent case. It’s B&F Investments Pty Ltd 5 v Commissioner of Taxation. It’s reported in volume 298 of the Federal Court reports, beginning at page 449. If it’s of assistance, I can hand up a copy of each of those cases to you.
DEPUTY PRESIDENT: For the purposes of an opening, is it necessary?
MR DIAZ: I suppose not, other than to make this – you raised the query at our previous - - -
DEPUTY PRESIDENT: Yes, yes. I just need to understand what the lay of the land is, not necessarily the why.
MR DIAZ: Certainly. Yes, certainly. So in that regard, the lay of the land is this, that although there’s a set of primary and alternative assessments, each taxpayer bears its onus, and there’s a possibility in this case that none of the taxpayers can discharge their onuses, and as matter of course, all the assessments stand.
DEPUTY PRESIDENT: Well, if one is upheld, does another necessarily fall away?
MR DIAZ: No, no, because of the nature of them being default assessments.
DEPUTY PRESIDENT: So the proposition that was advanced is not one that is shared?
MR DIAZ: That’s right.
DEPUTY PRESIDENT: Yes, okay.
MR DIAZ: That’s right. And that’s addressed by - - -
DEPUTY PRESIDENT: So all I want to know is whether you agree with that proposition or whether I have to actually deal with the making a decision on whether one in fact falls away.
MR DIAZ: Yes. Yes.
DEPUTY PRESIDENT: Yes.
MR DIAZ: Yes, no, that’s certainly not an agreed proposition…
…
The Applicants proceeded with the case unaltered, presumably on the footing that their evidence would deal with both assessments, whether primary or alternative.
This is a rather unsatisfactory circumstance where parties are led to believe the Commissioner is adopting one approach when the reality is somewhat different. One of the purposes of a Statement of Facts Issues and Contentions is to identify for the Tribunal and the parties the issues that need to be resolved. Quite clearly insofar as the question of alternative assessments is concerned, that has not occurred in the present matter.
The Commissioner’s final submissions do not present the matter on the basis that there are primary and alternative views or assessments.
F7 The transcript of the ATO interview
The 23 August 2016 interview was recorded. A copy of the recording was provided to the Applicants on 29 August 2016.[155] A transcript of that interview was subsequently produced on 30 May 2021 and this transcript was included in the T documents[156] filed and served on or about, 21 September 2021.
[155]Tab Q T 163.
[156]Tab Q T 161.
At the hearing the Applicants complained about the usefulness of the transcript given its lack of particularisation of the event to which it related and the translation content in it. The complaint is misconceived. The Applicants had the recording and the transcript well before the hearing, had the opportunity if they wished to listen to the recording and check the transcript and translation if they wished and have not made any earlier complaint.
F8 Observed customer numbers
At the audit stage the Commissioner was not satisfied that the Applicants had given a true account of the number of customers of the business. In his reasons for decision, he said:
‘We were also told at interview that the business served from 40 to 60 customers each day. However, the business was observed on Wednesday 07 September 2016 to serve 90 customers between 11.43 am and 13.14 pm. That is, in a period of 91 minutes the number of customers significantly exceeded the number of customers that we were told attend the business during the entire trading day.’[157]
[157]T 2 p 16.
In his consolidated SFIC the Commissioner said:
‘The observations made on 7 September 2016 were inconsistent with representations made by [the Mr and Ms Applicant] in the interviews conducted on 23 August 2016. In particular, [Mr Applicant] had stated in his interview that the business served approximately 60 to 70 customers per day.’[158]
[158]Tab N, 28 [78].
The ‘evidence referred to in support of this proposition was the earlier audit reasons. The actual reports of the audit staff have not been provided so there is no basis for any view as to whether any of the visitors to the premises actually purchased goods when they visited.
This is a manifestly unreliable basis to sustain a conclusion that the business attracted more customers than contended for. Another of the purposes of a Statement of Facts Issues and Contentions is to identify contentions that are to be advanced and the evidence on which they are based.
The only purpose for which the customer numbers comments in the Commissioner’s audit reasons can be relied upon is for the proposition that the Applicants were on notice from the outset that the Commissioner believed that that the volume of the Applicants’ business was greater than had been reported, from which it could be readily understood that the Commissioner believed that not all of the sales revenue had been brought to account by the Company Applicant. The Applicants’ awareness of this view was sufficiently clear to form the basis for express mention in the Applicants’ objections noted above.
F9 Absence of clear puttage
The Applicants contend to the effect that it ought not be found that they participated in underreporting the Company Applicant’s trading income. In this regard they observe that propositions to the effect that the Company Applicant’s income had been underreported, that they were making false statements or telling lies in contending that it had not been underreported had not been squarely put to Mr and Ms Applicant. The Applicants also observe that the content of the cash register rolls had never been in issue before the hearing commenced. In a sense, the contended for absence of puttage is correct, and the puttage could have been clearer. Nevertheless, the Commissioner contends that if that is the case, it doesn’t matter.
Puttage rules are at least partly anti-ambush rules and rules of fairness. In the present setting, the audit reasons squarely put that not all of the Company Applicant’s trading income had been reported. As did the Commissioner’s SFIC. It is inconceivable that the Applicants can be taken by surprise by the contention regarding non-disclosure of cash sales income. Whilst it might have been better in a formal sense to have attended to puttage, on no view could the Applicants be surprised that their credibility concerning the alleged non disclosed income was not only also in issue; it was also squarely at the core of the dispute.
G APPLICANTS’ POSITION
Save for a concession that the interest deduction of $104,500 claimed by the Company Applicant in the 2012 Year appears to have been abandoned, and in the scheme of this dispute a small number of small amounts otherwise conceded to require adjustments, the Applicants effectively contend that the taxable incomes and net amounts are as have been disclosed, and that there should be no penalty.
Alternatively, the Applicants contend that the penalties should be remitted.
H CONCLUSIONS
H1 Findings in relation to Mr and Ms Applicant as witnesses
The Applicants’ submissions call for positive findings to be made concerning the two most important witnesses in the application, Mr and Ms Applicant.
In relation to Mr Applicant the Applicants’ counsel submitted:
Mr [applicant] was cross examined over parts of 4 days (22, 23, 24 and 26 April 2024) via an English-Cantonese translator. He tried his best in difficult and personally stressful circumstances to follow and answer the questions posed via the translator, in circumstances where it became apparent that the translator was using “key words” but in part “summarising” or “truncating” answers, which no doubt contributed on occasion to the confusion (see T514-39 to T151.27).
It was readily apparent he found the experience stressful.
The Applicants’ Counsel stresses that, ‘In particular, his evidence that to his knowledge at no time were sales made without being recorded in the cash register.’
The Tribunal can accept that attendance to give evidence in hearing (which the Tribunal attempts to make as comfortable as is possible and with a degree of formality fit for the occasion but less than the formality of courtroom) can be stressful for a witness, and particularly a witness who is a party challenging an earlier adverse decision of the regulatory authority like the ATO. However, stress can also be the product of dealing with questions directed to an unfavourable outcome in a less than fully candid way. The Tribunal makes the observation that Mr Applicant found the experience of giving evidence in cross-examination stressful, but does not conclude that the reason for was simply the occasion sitting in time for which he was questioned.
In relation to Ms Applicant similar observations are sought by the Applicants’ counsel to the effect:
She presented as a honest witness doing her best to recall the details of the matters raised in cross-examination. Difficulties she had in understanding and responding directly to questions are explained but issues of giving evidence via a translator, the no doubt stressful nature of the cross-examination process, and her level of education and background. On the key elements of the case, her evidence should be accepted as credible and reliable.
Observations about the stress of the occasion and the like on a witness giving evidence do not exhaust the possibilities of explanations for confusing and problematic evidence. An alternative explanation for having trouble under pressure can be made with at least equal force in the present matter. In the present circumstances some of the cross-examination evidence was entirely implausible. When required to identify the source of money underlying credits to accounts as noted above, Ms Applicant embarked upon the most implausible explanation for both the source of the money, money management and retention. Both Mr and Ms Applicant’s evidence concerning cash register use was equally problematic.
The Tribunal was not impressed to the effect that Mr and Ms Applicant should be characterised as asserted by their counsel and in the face of the improbabilities associated with critical parts of their evidence. The Tribunal cannot conclude that they were telling the truth in important matters concerning the level of the Company Applicant’s income.
H2 Company Applicant’s interest deduction claim 2012 of $104,500[159]
[159]Tab Q T p 563.
The interest deduction claim made by the Company Applicant in the 2012 year has not been explained nor has it been pursued in the present application. It’s difficult to conceive how in 2012 business that is modest turnover possibly $200,000 which was purchased for $50,000 no more than 2 years earlier and didn’t have a large number of employees could conceivably have debt that would sustain interest charge of $104,500.
Absent an explanation of this amount is difficult to see both how it could be deductible and how it could be so that there was not fraud or evasion in making the claim for that deduction.
H3 Cash flow spreadsheet
The cash flow spreadsheet submitted by the Commissioner with his final submissions tracking cash flows generated suggested that the reported cash available was insufficient to cover expenditures and for significant periods. If it were accurate, there were negative cash flows. The logic in its construction it is understandable, the inputs to it are the point of weakness if they are not appropriate. If it were the case that the Commissioner were required to prove its accuracy, he would probably failing in that task.
The criticisms of the spreadsheet by the Applicants are that it omits certain withdrawals from bank accounts which when supplemented with the information in it produce positive cash flows and situations for all but a de minimus number of days during the period which covered. The problem with the Applicant’s criticism of the Commissioner spreadsheet is that the withdrawals of cash from bank accounts to which the Applicant’s submissions point withdrawals that don’t appear to have an explanation of their use. If the explanation is similar to Ms Applicant’s explanation as to the source of some of the credits to her banking facilities, then the withdrawals pointed to might not be properly seen as a reliable guide to being a supplement to the cash flows. The Tribunal is not in a position to evaluate the reliability of those amounts to supplement the cash flows posited by the Commissioner. Accordingly, the Tribunal is not in a position to give it great weight.
In the event necessary conclusion is that neither spreadsheet is determinative in a search for whether the Applicant’s discharge their owners of demonstrating with the true taxable incomes and net amounts were.
H4 Ms Applicant stand alone issues
For the reasons outlined above in relation to Ms Applicant’s CBD apartment, the Tribunal could not find that the losses claimed are available on the evidence led.
H5 Other Conclusions
The evidence discloses and the Tribunal finds:
(a)an awareness on the part of Mr Applicant of the difference between provability of information where there are documentary records and the reduced provability of that information where it is perceived that there are no records;
(b)a preparedness to be truthful where there are documentary records notwithstanding urgings to the contrary by his advisor;
(c)a preparedness to be untruthful in a self-serving way whether it was perceived that there might not be documentary material;
(d)unconvincing and confusing evidence concerning critical cash register operation and the role it played in the sushi business, particularly after it became apparent that the cash register system recorded uses of the cash register that were accepted as a function that opened the drawer without any monetary sales being recorded;
(e)unconvincing and confusing evidence concerning management of cash;
(f)a preparedness to explain otherwise unexplained deposits and credits to banking facilities with the most improbable story;
(g)participation in disclosures to banking institutions that reveal greater earnings than what the Applicants contend is true;
(h)absence of witnesses who were in a position to give an account of the sales activities at the second sushi business, which are at the centre of the understated income allegations and assessments concerning the Company Applicant and, through it, Mr and Ms Applicant in relation to the Company Applicant’s income and profits;
(i)what are contended to be loans and gifts from relatives made:
(i)to ameliorate Mr and Ms Applicant’s personal financial circumstances where Mr and Ms Applicant were the owners of real estate of material value, a share portfolio of material value and engaged in share purchases and share sales of a material value;
(ii)at times by two deposits on the same day (or on behalf of the same person) of amounts less than $10,000 but in aggregate exceeding $10,000 from which it can be presumed that those involved were acutely aware of systemic cash tracing systems operating in Australia.
(j)there was a deduction claim in the 2012 year by the Company Applicant for interest expenses of over $100,000 which without explanation is no longer pressed in circumstances where within two years of the commencement of a new business that does not appear to have required debt remotely close to the magnitude required to cause an interest bill of more than $100,000 to have accrued; and
(k)the Applicants’ tax agent ceasing to act for the Applicants immediately after the interview between the Applicants their tax agent and ATO personnel.
In these circumstances the Tribunal cannot conclude that all of the income of the Company Applicant has been brought to account nor that all of the rent associated with the CBD apartment has been brought to account nor that all of what was portrayed to be gifts and loans from relatives are truly gifts and loans as portrayed by the Applicants.
The failure to call people in a position to give evidence on one of the critical features of the factual sitting in these matters is telling. The Tribunal does conclude that their statements of not wanting to be involved may well be very true and for very good reason, but the Tribunal concludes that their evidence would have assisted the Tribunal in its task but would not have assisted the Applicants.
The necessary conclusion is that the Applicants have not discharged the onus for establishing what their true taxable incomes were or what the Company Applicant’s true net amounts were.
Moreover because they have failed to discharge that onus, the Tribunal is left in a position where there is either intentional nondisclosure of income and attempts to cover it, which constitutes fraud or evasion, or there is no material before the Tribunal on which you could make the evaluative judgement as to whether there was an absence of any blameworthy event within the Denver Chemical sense.
In reaching this conclusion the Tribunal is not able to formulate what the Applicants income is and is not in a position to speculate. The Tribunal does note, and accepts, that in all probability, absent the entrenchment provisions, it could confidently be said that the amounts assessed in most of the years materially exceeds the amount which is likely to be the Company Applicant’s and through it Mr and Ms Applicant’s taxable income, but the extent of the excess is unknown.
In relation to shortfall interest, the Tribunal has limited jurisdiction. One of the considerations relevant to shortfall interest is the Commonwealth be compensated for being out of the use of money that it should have had. Bearing this in mind, given the acceptance by the Commissioner the agent of the Commonwealth, that a better calculation of the Applicants’ taxable income would have been consistent with his prospective objection decision, it is fitting that shortfall interest charge be calculated by reference to what that better calculation would have been. To the extent the Tribunal is able to consider remission of SIC in these applications, it sets aside the decision under review and remits the matter to the Commissioner for recalculation remitting the SIC to an amount which would have been determined had the prospective objection decision been made.
In relation to penalty, having regard to the principles concerning remission as set out above, the circumstances of the Applicants make it just and reasonable to remit the penalty that has been imposed to an amount no greater than the amount that would have applied had there been an objection decision consistent with that forecast by the Commissioner as noted above. In other respects. the necessary conclusion is that the Applicants have not displaced the proposition that there was intentional disregard of the law nor have they displaced the proposition that steps were taken to obfuscate the true situation and hinder or hamper the Commissioner’s enquiries by the Applicants and their tax agent. Accordingly, penalty at the rate of 90% remitted as aforesaid is appropriate in the objection decision is set aside and remitted back to the Commissioner to be recalculated.
These matters should be referred to the Tax Practitioners Board for consideration.
DECISION
In respect of the shortfall interest charge decisions which are capable of being reviewed and the penalty decisions, the Tribunal sets those decisions aside and remits them to the Commissioner to be recalculated consistent with these reasons. The Tribunal otherwise affirms the decisions under review.
I certify that the preceding 157 (one-hundred-fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President F D O’Loughlin KC
............................[sgd]............................................
Associate
Dated: 30 June 2024
Dates of hearing:
22, 23, 24, 26, 29 30 April 2024
1 & 8 May 2024
3 & 21 June 2024
Date final submissions received:
27 June 2024
Counsel for the Applicant:
Mr C Peadon
Solicitors for the Applicant:
Specialist Law Lawyers
Counsel for the Respondent:
Mr D Diaz
Solicitors for the Respondent:
HWL Ebsworth
ANNEXURE A.
Table of Evidence and other materials before the Tribunal
T Documents
(Tab Q) YNVP - T Documents - lodged 21 September (T1 – 428, paged 1 – 6150)
(Tab R) 1.0 Supplementary T Documents (Matters Combined) ST1 - ST9 lodged 30 June 2022
(Tab S) 2.0 Supplementary T Documents (Matters Combined) ST10 - ST12 lodged 4 August 2022
(Tab T) 3.0 Supplementary T Documents (Matters Combined) ST13 - ST24 lodged 24 February 2023
(Tab U) 4.0 Supplementary T Documents (Matters Combined) ST25 - ST35 lodged 17 March 2023
(Tab V) 5.0 Supplementary T Documents (Matters Combined) ST36 lodged 23 May 2023
Applicant’s Submissions
(Tab A) Amended ASFIC (Matters Combined) dated 16 June 2023
(Tab B) opening Submissions dated 9 April 4 2024 (Final)
A's Closing Submissions (6.5.24) (final)
Reply Submissions (Final 15.5.24)
Annexure E review 2024 June 16
spreadsheet - explanation (18 June 2024v2)
Submissions (Alternate outcomes) (27 June 2024)
[YNVP] - no sale count sales and cogs calculation v3
Respondent’s Submissions
Amended RSFIC (Matters Combined) dated 30 June 2022 (Tab N)
Respondents Reply to ASFIC dated 2 August 2023 (Tab O)
[YNVP] v CoT Respondents Closing Submissions 06 May 2024
Respondent's Closing Submissions - Annexure C - revised
Respondent's Closing Submissions - Further Revised Annexure E
Respondent's Revised Closing Submissions - 10 May 2024
Respondents Further Submissions final 2 date 27 June 2024
Applicant’s Material
(Tab C) 1.0 Statement of FGND dated 11 June 2023 with Annexures
(Tab D) 3.0 Statement (Second) of LXFS - YNVP dated 11 June 2023 with Annexures
(Tab E) 2.0 Statement (First) of LXFS - Personal dated 12 June 2023 with Annexures
(Tab F) 2.1 Statement of LXFS dated 4 October 2023 with Annexures YKC62 - YKC64
(Tab G) 10.0 Statement of YY dated 25 July 2023
(Tab H) 4.0 Statement of EK dated 31 August 2023
(Tab I) 6.0 Statement of LCS dated 1 September 2023
(Tab J) 7.0 Statement of WL dated 13 September 2023
(Tab K)9.0 Statement of YMO dated 20 September 2023
(Tab L) 5.0 Statement of LYC dated 25 September 2023 with Annexures
(Tab M)8.0 Statement of YKO dated 25 September 2023
Respondent’s Material
n/a
0
27
0