Youssef Said Abdelbari (Taxation)
[2024] AATA 1978
•24 June 2024
Youssef Said Abdelbari (Taxation) [2024] AATA 1978 (24 June 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2022/7366-67
Re:Maged Youssef Said Abdelbari
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member G Lazanas
Date: 24 June 2024
Place:Sydney
The decision under review with respect to the income tax assessments is affirmed.
.....................[Sgd]...................................................
Senior Member G Lazanas
CATCHWORDS
TAXATION – whether four transfers of money from overseas to applicant are assessable income – where three transfers made by a company that applicant was previously a partner of – where three transfers described as payment of salary – where one transfer made by applicant’s son and described as family support – where applicant signed special power of attorney appointing son as attorney in relation to company – whether four transfers of money are from applicant’s son pursuant to a loan agreement – whether loan exists – periodicity of payments – burden of proof – failure to adduce reliable evidence – objection decision affirmed
LEGISLATION
Income Tax Assessment Act 1936 (Cth) s 166
Income Tax Assessment Act 1997(Cth) ss 4-15, 6-5, 51-30, 51-50
Taxation Administration Act 1953 (Cth) ss 14ZZK, Schedule 1, 284-75, 284-80, 284-85,284-90, 284-220, 298-220
CASES
Commissioner of Taxation v Firth (2002) 120 FCR 450
Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300
Commissioner of Taxation v Rawson Finances Pty Ltd (2012) 89 ATR 357
Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540
Gauci v Commissioner of Taxation (1975) 135 CLR 81
Hart v Commissioner of Taxation [2018] FCAFC 61
Liang v Commissioner [2024] FCA 535
REASONS FOR DECISION
Senior Member G Lazanas
24 June 2024
INTRODUCTION
Mr Maged Youssef Said Abdelbari, the applicant, has applied to the Tribunal seeking review of the decision made by the respondent, the Commissioner of Taxation (the Commissioner) on 24 August 2022 to not allow Mr Abdelbari’s objection to the Commissioner’s assessments (the Objection Decision) for the income years ended 30 June 2019 and 30 June 2020 (the Relevant Years). The Commissioner had issued assessments on the basis that Mr Abdelbari had received a total of $232,506.33 in foreign source income from the United Arab Emirates (UAE) that he had not declared in his income tax returns for the Relevant Years.
This case is about whether four transfers of money received from the UAE between 16 January 2019 and 5 February 2020 totalling $232,506.33 were assessable income of Mr Abdelbari. Mr Abdelbari asserted these transfers of money represented a loan from his son who was living in the UAE. The Commissioner argued that Mr Abdelbari had not discharged his burden of proof under s 14ZZK of the Taxation Administration Act 1953 (Cth) (TAA), namely, to prove that the amounts were not his assessable income.
As these reasons will explain, I have decided that Mr Abdelbari failed to discharge the burden of proof and, therefore, the transfers were correctly included in his assessable income in the Relevant Years.
THE ISSUE BEFORE THE TRIBUNAL
The essential issue in these proceedings is whether Mr Abdelbari has discharged his burden of proof under s 14ZZK(b)(i) of the TAA. This requires Mr Abdelbari to prove, on the balance of probabilities, that the assessments issued to him by the Commissioner were excessive and what the assessments should have been for each of the Relevant Years.
Relevantly, Mr Abdelbari has to prove that the transfers from UAE to him which were treated by the Commissioner as his assessable income were not ordinary income or statutory income. Mr Abdelbari argued the transfers of money were a loan or, in the alternative, if the loan were ultimately not repaid or forgiven by his son, they would take on the character of a gift.
THE FACTUAL BACKGROUND AND THE EVIDENCE
The following findings of fact are based on the respective Statements of Facts, Issues and Contentions (SFIC) filed by Mr Abdelbari and the Commissioner, as well as the evidence given by Mr Abdelbari.
Mr Abdelbari was the only person who gave evidence. Mr Abdelbari had sworn an affidavit on 12 April 2023 which also attached a number of documents (Exhibit A2). He also gave oral evidence at the hearing with the assistance of an interpreter and was also cross-examined by the Commissioner’s lawyer.
Also filed with the Tribunal and tendered by the Commissioner at the hearing were the T-Documents including Supplementary T-Documents. Additionally, Mr Abdelbari produced a number of receipts at the hearing from a third party money transfer office in Australia (Exhibit A1) and recent correspondence between the legal representatives of the parties (Exhibits A3). Separately, the Commissioner also produced at the hearing other correspondence between the legal representatives of the parties (Exhibit R1).
It suffices to note that Exhibit A3 (in part) and Exhibit R1 related to a misunderstanding which arose between the parties as to whether Mr Abdelbari was prepared to give oral evidence at the hearing. In circumstances where Mr Abdelbari did ultimately give oral evidence, it is unnecessary to further analyse the correspondence between the legal representatives.
Mr Abdelbari’s work in UAE
On 22 September 2017, Mr Abdelbari emigrated to Australia. Prior to 22 September 2017, Mr Abdelbari lived and worked in the UAE. While there, Mr Abdelbari was a partner in Delma Laboratory for Soil & Construction Materials Inspection LLC (Delma Laboratory), in which he held a 49% share.
On 5 August 2017, the Abu Dhabi Business Center had issued a Commercial License for Delma Laboratory. Mr Abdelbari was listed as a named partner.
On 20 August 2017, in anticipation of his move to Australia, Mr Abdelbari appointed his son, Mr Yousif Abdelbari (Yousif), as his Special Power of Attorney in respect of his share in Delma Laboratory pursuant to a document, an English translation of which had been provided by Mr Abdelbari to the Commissioner during the course of the audit (the Special Power of Attorney).[1] Relevantly, the Special Power of Attorney stated that Mr Abdelbari, in his capacity as partner and to the extent of his 49% share in Delma Laboratory, appointed his son, Yousif, to represent him and act on his behalf to the extent of his share, in relation to, amongst other things, finalising transactions, appointing employees and selling his share in the said license whether to himself or third parties. The Special Power of Attorney was valid for three years unless revoked earlier.
[1] T13, 106 – 108.
On 9 May 2018, Yousif, in his capacity as Mr Abdelbari’s Special Power of Attorney, transferred Mr Abdelbari’s 49% share in Delma Laboratory to himself for no consideration pursuant to a document referred to as “Addendum 5”, an English translation of which formed an annexure to Mr Abdelbari’s affidavit (Addendum 5).[2] Addendum 5 referred to the fact that the other 51% share in Delma Laboratory was in the name of the partner Mr Abdullah Mohammed Khalfia Alkendi. The parties to Addendum 5, who had also signed it, were Mr Alkendi, Mr Abdelbari and Yousif.
[2] T16, 120 – 121.
Mr Abdelbari’s income tax returns
On 20 July 2020, Mr Abdelbari lodged his first income tax returns in Australia for the years ended 30 June 2019 and 2020 and reported that he was a resident of Australia.
He declared his total income to be $32,550 comprising of gross interest only in respect of the 2019 financial year.[3] For the 2020 financial year, Mr Abdelbari declared total income of $32,655, which again comprised of gross interest in the amount of $32,550 and other minor net business income.[4] There was no further information before the Tribunal regarding the interest income.
[3] T4.
[4] T5.
The transfers from UAE
During the Relevant Years, Mr Abdelbari received four amounts totalling $232,506.33 Australian dollars via international transfers. The details of the transfers, all from the UAE, which are the subject of the Commissioner’s assessments were, as follows:
Transaction Date Payer Name Amount (AUD) Description Source Country 16-01-2019
Delma
Laboratory for Soil and Const
$37,461.58
Payment of Salary
UAE
06-03-2019
Delma
Laboratory for Soil and Const
$38,089.75
Payment of Salary
UAE
23-07-2019
Delma Laboratory for
Soil and Const
$76,672.42
Payment of Salary
UAE
05-02-2020
Yousef M Y
Abdalbari Manal[5]
$80,282.58
Family Support
UAE
[5] While there were some minor discrepancies in the spelling of Yousif’s name as printed on various documents, it was common ground that Yousif and Yousef was the same person and the applicant’s son.
As set out in the table above, the payer of three of the four transfers was Delma Laboratory made on 16 January 2019, 6 March 2019 and 23 July 2019 and the description of those three transfers was “Payment of Salary”. The fourth transfer was made by Yousef M Y Abdalbari Manal being Mr Abdelbari’s son, Yousif, and had the description “Family Support”.[6] Mr Abdelbari’s position was that all four transfers, regardless of their description, constituted a loan from Yousif.
[6] See footnote 5.
The abovementioned information was contained in a report produced by the Australian Transaction Reports and Analysis Centre (AUSTRAC) dated 3 February 2022, a copy of which was included in the T-Documents and itself based on international funds transfer instruction reports by reporting entities.[7] The AUSTRAC report identified that the reporting entity for the three transfers by Delma Laboratory was the National Australia Bank Limited (NAB), and the reporting entity for the transfer by Yousif was the Australia and New Zealand Banking Group Limited. All transfers were made from the UAE and all transfers were facilitated by U.A.E. Exchange, a money transfer business.
[7] T8, 85.
Copies of Mr Abdelbari’s NAB account statements for the period from 1 July 2018 to 30 June 2020, as well as copies of the credit advices in respect of the three transfers by Delma Laboratory to Mr Abdelbari’s NAB bank account, were contained in the Supplementary T-Documents lodged by the Commissioner.[8]
[8] ST1, 90 – 92.
There were numerous other transfers reported in the AUSTRAC report both prior to and after the Relevant Years. For example, after the Relevant Years, there were further transfers made by Yousif to Mr Abdelbari on 6 July 2020, 27 August 2020 and 17 November 2020 for the amounts AUD78,016.16, AUD75,398.49 and AUD37,070.26, respectively, each described as being “Family Needs”.[9]
[9] T8, 85.
The Commissioner’s audit and assessments
On 4 February 2022, the Commissioner wrote to Mr Abdelbari advising that he had commenced an audit of his income tax returns for the Relevant Years based on information received from AUSTRAC. The Commissioner included in his letter a schedule for each of the Relevant Years listing the transfers in each financial year which he considered to be foreign source income of Mr Abdelbari.[10]
[10] T9, 87 – 89.
On or about 11 February 2022, a telephone discussion took place between a taxation officer and Mr Abdelbari. A file note prepared by the taxation officer recounts, amongst other things, that Mr Abdelbari advised that he sold his share in Delma Laboratory to Yousif in 2017 and the foreign payments made to him in the Relevant Years were a loan to him.[11]
[11] T10.
On 4 March 2022, a further telephone conversation took place in which the tax officer asked Mr Abdelbari to provide English translations of the documents that Mr Abdelbari had previously provided, as well as documents to prove the asserted loan agreement between Mr Abdelbari and his son.[12]
[12] T12.
On 17 March 2022, Mr Abdelbari provided the Commissioner with an undated document evidencing the purported loan. It was in the form of a letter from Yousif addressed to Mr Abdelbari as Borrower with the subject “Personal Loan”.[13] It relevantly stated: “[t]his letter is full acknowledgement of your final loan amounted to Two Hundred Thirty-Two Thousand Five Hundred Forty-Six Dirhams (AED 232,506.00)”. The document was purportedly signed by Yousif as “Lender” (the First Loan Document). It did not contain any details as to any terms of the alleged loan.
[13] T13, 111.
On 7 April 2022, a taxation officer asked for further information from Mr Abdelbari in an email to Mr Abdelbari.[14] Relevantly, the officer stated that the loan agreement did not have details and queried whether Mr Abdelbari was “able to provide documents of the loan agreement showing dates, interest rate etc”. On or about 14 April 2022, the taxation officer received a call from Mr Abdelbari’s tax agent who apparently stated that “the payments are not income and therefore does not need to be declared”.[15]
[14] T14, 112.
[15] T15, 115.
On 29 April 2022, the Commissioner completed the audit and concluded that the transfers were assessable foreign source income subject to income tax in the Relevant Years. The Commissioner also determined that administrative penalties at the rate of 25% for failure to take reasonable care were also applicable.[16] The Commissioner issued notices of amended assessments for each of the Relevant Years as well as notices of administrative penalties in respect of the tax shortfalls.[17]
[16] T17, 127.
[17] T18, 131; T19, 135; T20, 139; T21, 143.
On or about 29 April 2022, Mr Abdelbari provided the Commissioner with a further document dated 1 January 2019 titled “Loan Agreement”. The document was also purportedly signed by Yousif (the Second Loan Document).[18]
[18] T16, 123.
The Second Loan Document stated, as follows:
Loan Agreement
This is a loan agreement for the amount of $232,506 Australian Dollar from [Yousif] … to Mr … Abdelbari …
Condition of use: Personal Loan
This loan is with 0% interest rate.
This loan is not to be paid back by a specified time.
There is no loan repayment schedule.
There is no cancellation policy.
The Objection, the Objection Decision and Tribunal proceedings
On 12 May 2022, Mr Abdelbari lodged an objection to the assessments of income tax and penalties, through his tax agent. Broadly, the tax agent stated that “the client [Mr Abdelbari] was still in the process of sending the requested information … the client then started the process of acquiring the loan document with all the required information… Administrative penalty should be removed as the client was in the process and was complying with ato to provide all information to support their claim.” Relevantly, a further document was attached to the objection which was a further iteration of a loan agreement. It was identical to the Second Loan Document (see [27]-[28] above) except that it was additionally signed by Mr Abdelbari (the Third Loan Document).[19] In particular, it is noted that the Second Loan Document and Third Loan Document both stated “[t]his loan is not to be paid back by a specified time. There is no loan repayment schedule” (see [28] above).
[19] T22, 153.
On 24 August 2022, the Commissioner issued his Objection Decision.[20] The Commissioner disallowed Mr Abdelbari’s objection on the basis that he was not satisfied that the arrangement between Mr Abdelbari and his son was a genuine loan. The Commissioner determined that the three transfers received on 16 January 2019, 6 March 2019 and 23 July 2019, respectively, from Delma Laboratory were in connection with Mr Abdelbari’s income producing activities and were therefore assessable income under
s 6-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). The Commissioner additionally stated that he was not satisfied that the fourth transfer received by Mr Abdelbari from his son on 5 February 2020 in the amount of $80,282.58 was a loan and consequently determined that it was also received in connection with Mr Abdelbari’s income earning activities and was assessable income. The Commissioner also stated that “Yousif is a third party to your partnership at Delma Laboratory, has the authority to conduct the business of Delma Laboratory and make decisions affecting the operation of the business on your behalf”.[21][20] T25, 158.
[21] T25, 160, [19] - [21].
On 8 September 2022, Mr Abdelbari lodged an application for review with the Tribunal with respect to the Objection Decision.
THE EVIDENCE
As stated above, Mr Abdelbari swore an affidavit on 12 April 2023 which attached a number of documents.[22] In his affidavit, he stated that between the years of 2008 and 2018, he was a partner of Delma Laboratory holding a 49% share and, on 9 May 2018, he stepped down from the Company and his son, Yousif, replaced him as partner of Delma Laboratory and his share was transferred to Yousif. This decision was made on account of Mr Abdelbari and his family leaving Abu Dhabi to live in Sydney.
[22] Exhibit A2.
Mr Abdelbari’s oral evidence was that from the date of the Special Power of Attorney in August 2017, Yousif had control of Delma Laboratory and Mr Abdelbari had nothing further to do with that company. However, Mr Abdelbari also stated that he stepped down from his role on 9 May 2018 and, it was from that date that he was no longer making decisions in relation to Delma Laboratory, nor was Yousif making decisions on behalf of Mr Abdelbari, in relation to Delma Laboratory’s business activities. While there was some confusion as to the effective date of Mr Abdelbari no longer exercising control with respect to Delma Laboratory, I accept that by 9 May 2018, at the latest, Mr Abdelbari no longer had any control or authority in respect of Delma Laboratory and there were relevantly two partners in Delma Laboratory at all relevant times.
Mr Abdelbari also stated that there were times where he struggled with finances in relation to supporting his family in Australia and he relied on Yousif to assist him and the family of nine with funds while he was setting up as a sole trader in the fruit and vegetable industry. This general statement was supported by the numerous other transfers of monies from Yousif to Mr Abdelbari after the Relevant Years that were reported in the AUSTRAC report (see [20] above), as well as in Mr Abdelbari’s NAB account statements, which were variously described as “Family Needs”, “Family Support”, “Family Maintenance”. Mr Abdelbari did not directly reference any of these later transfers, although they were variously described as “Family Needs”, “Family Support” and “Family Maintenance”. Almost all of those transfers were made by Yousif, and none were made by Delma Laboratory.
With respect to the arrangement with Yousif regarding the four transfers in issue in these proceedings, Mr Abdelbari’s evidence was that there was a loan for the sum of those four transfers. However, he did not canvass the position with respect to the numerous other transfers to him from Yousif, as referred to immediately above. Mr Abdelbari stated, as follows in his affidavit:
7. Conversations between Yousif and I confirmed that the funds provided to me would be on a loan basis, and that I would pay back the funds in time. A loan agreement with Yousif’s conditions were drafted – Annexure B [the Second Loan Agreement].
8. On 16/01/2019, 06/03/2019, 23/07/2019 and 05/02/2020, Yousif assisted me by transferring a total of $232,506 from his Company and Personal account to my personal account – Annexure C [AUSTRAC report].
9. This transfer was completed through a third party exchange, whereby they had accidentally put the description as payment of salary, when I have no interest in the Company.
10. After I stepped down from the Company, I had never become an employee nor attended to any further work for the Company, therefore it could not have been a salary.
11. When it came to my attention that the third party exchange company had put “salary” as the description, I tried to amend the issue, but the exchange company had closed down, thus I could not get it changed.
12. There is no evidence that since my resignation I was ever an employee of the Company or had provided any more work to the Company.
13. The transfer was a loan for the purposes of supporting our transition from Abu Dhabi to Australia.
…
16. Further conversations between Yousif and I to establish that the funds transferred were a loan, a loan agreement was drafted and signed by all parties – Annexure D.
17. On 01 May 2023, I will be transferring my first payments back to Yousif to ensure that the first steps to the Loan Agreement have been actioned.
18. Again, the funds transferred are not foreign income as I had no interest in the Company at the time of the transfers, and I confirm that they are a loan for the purposes of supporting myself and my family during our transition from Abu Dhabi to Australia.
Mr Abdelbari’s affidavit included, at Annexure D, another loan agreement dated 16 December 2022 in respect of the alleged loan (the Fourth Loan Document). The Fourth Loan Document is 19 pages in length and much more comprehensive. It was apparently also signed by Mr Abdelbari and Yousif in the presence of witnesses.
The recitals of the Fourth Loan Document state as follows:
The lender is agreeing to lend principal sum set out in this agreement on the basis that the parties agree to the following:
(a) This is a formal agreement to formalise the current loan arrangement signed in 2019 between the Lender and the Borrower.
(b) That there is no set repayment periods between the Lender and the Borrower.
(c) That the repayments must be paid in United Arab Emirates Dirham.
Amongst other things, the Fourth Loan Document defines the “Principal Sum” as total funds advanced being $232,506AUD. Clause 3 states “[n]o applicable interest rate [is] provided within the terms of this agreement”. Contrary to the recitals which specifically state that “there is no set repayment periods”, clause 4 states “[t]he Borrower agrees to repay the Principal Sum together with any accrued but unpaid interest and all other Moneys Owing on the Maturity Date”. The “Maturity Date” is defined in clause 1.1 to be ten years from the date of the agreement.
The receipts
At the hearing, Mr Abdelbari gave oral evidence that he had repaid the loan from Yousif. He produced what he referred to as two receipts issued from Australian Exchange Pty Ltd being Exhibit A1. The receipts each had the heading “Sender Invoice/ Bank Transfer”, and recorded the following payments from Mr Abdelbari to Yousif and details:
21 August 2023 – Family Support - AED 11,000 Emirates Dirhams – AUD$4,906
25 August 2023 – Repay loan/debt – AED 489,000 Emirates Dirhams - AUD$214,624
It appears from the correspondence produced at the hearing that the first abovementioned receipt for the transfer from Mr Abdelbari to Yousif on 21 August 2023 had been sent to the Commissioner’s lawyer in August 2023.[23] The other receipt, despite referring to a transfer made on 25 August 2023, was emailed to the Commissioner’s lawyer on 24 April 2024, a few days prior to the Tribunal hearing. The Commissioner’s lawyer had replied by email dated 24 April 2024 that “the payment made by your client on 25 August 2023 does not change the Commissioner’s position….”[24]
[23] Exhibit A3.
[24] Exhibit A3.
The cross-examination and re-examination of Mr Abdelbari
As stated above, Mr Abdelbari gave oral evidence and was cross-examined at the hearing. A substantial part of the cross-examination was concerned with matters which went to his credibility, especially in relation to whether the loan was genuine.
It is appropriate to start with the questions regarding the various loan agreements. It will be recalled that the Second Loan Document and Third Loan Document were both dated 1 January 2019 and that they referred to the final loan amount (see [27]-[29] above). In the First Loan Document (which was undated), the amount was stated to be AED232,506 while in the Second, Third and Fourth Loan Documents, the final loan amount was stated to be AUD232,506. Mr Abdelbari explained that the First Loan Document, which he said was signed only by Yousif, was incorrect as to the currency amount and the loan amount of 232,506 was in Australian dollars. He testified that the loan amount was correctly shown in the Second Loan Agreement, which he says he signed and, furthermore, that the loan amount was based on the amounts of the four transfers to him.
He also stated in cross-examination that he signed the Second Loan Document before he received the loan. When it was put to Mr Abdelbari that he could not have signed the Second Loan Document on 1 January 2019 – because the loan amount in Australian dollars was based on the sum of the four transfers to him (the last of which was made on 5 February 2020) – Mr Abdelbari stated that he didn’t understand the question. He did, however, agree in cross-examination that he could not have known the total loan amount in Australian dollars until all four transfers had been made to him.
Mr Abdelbari added, as part of his explanation, that he had since paid back Yousif the whole of the loan amount. However, in cross-examination about the receipts regarding the two payments made by Mr Abdelbari to Yousif in August 2023 (see [39] above), Mr Abdelbari realised that he had incorrectly added AUD214,624 and AED11,000 leading to his mistaken understanding that he repaid the total loan amount of approximately AUD225,624. He accepted that he had not repaid the whole loan to Yousif having confused the currencies. When it was specifically put to Mr Abdelbari, that the payments by him to Yousif were not loan repayments because no loan existed, Mr Abdelbari responded:
“No, that was loan repayment. Otherwise why would I be sending the money?
What do you mean there was no loan? …
I don’t understand how you say there was no loan, when this is me paying back the money to him”.
The Commissioner’s lawyer further pointed out that the receipt dated 21 August 2023 described the payment from Mr Abdelbari to Yousif as “Family support” and did not reference the repayment of the loan (see [39] above). Mr Abdelbari responded: “I can call to Australian Exchange and tell them you made a mistake and change it for me”.
Another line of questioning was about Mr Abdelbari’s written evidence that the third party exchange in Abu Dhabi had accidentally put the description “Payment of salary” with respect to the three transfers from Delma Laboratory to him (see [35] above, paragraph 9 of affidavit). Mr Abdelbari had also stated in his affidavit that he tried to amend the errors but the exchange company had closed down, thus he could not get it changed (see [35] above, paragraph 11 of affidavit). Besides his assertions that he tried to have the transfers amended and that the U.A.E Exchange had closed, Mr Abdelbari did not explain what, if anything, he did to amend the so-called mistaken description. He also did not provide any independent information to support his assertion that the U.A.E. Exchange had closed.
A further topic in cross-examination concerned the fact that three out of the four transfers were made by Delma Laboratory to Mr Abdelbari. Mr Abdelbari stated that Yousif was in control of Delma Laboratory and arranged for Delma Laboratory to make the three transfers to him from that company. Mr Abdelbari accepted that Yousif had a 49% share of Delma Laboratory and that was a smaller share than that of the other partner, Mr Alkendi. When it was put to Mr Abdelbari that the transfers from Delma Laboratory would have required Mr Alkendi’s agreement, Mr Abdelbari stated, as follows:
when I asked my son for money, Mr Alkendi must have signed the document. He must have signed. At the end of financial year that amount given to me by my son would be deducted from his profit.
In re-examination, Mr Abdelbari gave evidence that there was no need to have a written loan agreement between a father and son. He also stated that the written loan agreements were all prepared after he received the transfers and were prepared “for this case and as an assurance that there is evidence for what belongs to my son”. He explained that what he meant by his answer “that he wrote the loan agreement for this case” was “there is no difference between a father and a son. I was asked to provide document to prove this was the loan from my son. I provided the document.” Mr Abdelbari was asked if he could be more precise as to the date when he signed the Third Loan Document (see [29] above). Mr Abdelbari stated that he could not remember exactly but that he had signed it after he received the money and after he knew how much he received from his son.
Summary re evidence
I was not satisfied on the information before the Tribunal including Mr Abdelbari’s written and oral evidence of the existence of a loan between Yousif and Mr Abdelbari. Mr Abdelbari’s affidavit was very general on the critical issue relating to the alleged loan arrangement and only glibly referred to “conversations” between him and Yousif regarding a loan. Mr Abdelbari did not give details of any such conversations which he claimed took place and the terms of the loan. The existence of the loan was asserted by Mr Abdelbari alone, but that assertion was not evidence of the existence of the loan. No other witness was called to corroborate the existence of the loan.
The evidence about the written loan documents and the changes in the terms of the alleged loan reinforced my view that there was not a loan in existence. I agree with the Commissioner’s submission that all four loan agreements did not substantiate the existence of a loan but assumed it to be the case. In his oral evidence, Mr Abdelbari agreed that all four loan documents were prepared after the audit started, notwithstanding the dates on them. Curiously, however, the Fourth Loan Document signed by Mr Abdelbari expressly stated in the recitals that “[t]his is a formal loan agreement to formalise the current loan arrangement signed in 2019 between the Lender and the Borrower”. This was inconsistent with Mr Abdelbari’s evidence that the loan documents were all signed after the audit commenced.
Similarly, the fact that Mr Abdelbari had arranged to make two payments to Yousif in August 2023 (see [39] above), did not support the existence of a loan from Yousif to Mr Abdelbari.
All of the documentation produced by Mr Abdelbari was after the date of the transfers and, on Mr Abdelbari’s own evidence, was created “for this case”, in response to the Commissioner’s queries about the loan. Mr Abdelbari’s oral evidence was there was no need to document the loan arrangement between him and his son. However, contrary to that explanation about not needing to document the loan because of his relationship with his son, in re-examination, he proffered that, besides preparing the written loan agreement “for this case”, the written loan agreements were “to provide evidence for what belongs to my son”.
I find that the four loan documents were constructed in an attempt to prove the existence of a loan. This is supported by the fact the various loan documents progressively included more terms. For example, the Fourth Loan Document introduced for the very first time a repayment obligation and a Maturity Date. A further difficulty with Mr Abdelbari’s evidence was that he did not explain the basis for the changes in the alleged loan terms. Furthermore, Mr Abdelbari also did not explain why, having executed the Fourth Loan Document which provided for a Maturity Date of ten years, he then proceeded to make substantial so-called repayments to Yousif in August 2023.
There were other deficiencies in Mr Abdelbari’s evidence regarding the four transfers to him, the alleged loan and the alleged repayment of the loan which reinforced my view that Mr Abdelbari did not discharge his onus of proof regarding the existence of a loan. These included the following:
(a)the lack of reliable evidence as to why Delma Laboratory was making the transfers to Mr Abdelbari;
(b)the lack of reliable evidence as to whether or not Mr Alkendi, the majority partner of Delma Laboratory was aware of payments by Delma Laboratory to Mr Abdelbari;
(c)the lack of reliable evidence regarding the alleged misdescriptions in the transfers facilitated by U.A.E. Exchange, particularly as it seemed unlikely that a third-party money transfer office charged with transferring funds at a sender’s request would describe funds as “Payment of Salary” without such instructions on three separate occasions;
(d)the lack of evidence as to Mr Abdelbari’s capacity to repay the claimed loan from Yousif;
(e)the paucity of evidence as to how Mr Abdelbari was able to make the alleged repayments of the loan to Yousif in August 2023, that is, what was the source of those funds.
As stated above, no-one besides Mr Abdelbari gave evidence. The Tribunal would have expected to hear from Yousif and Mr Alkendi, in all the circumstances. Additionally, there was no explanation before the Tribunal with respect to the numerous other transfers made before and after the Relevant Years (see [20] above). In this regard, there were at least seven transfers totalling in excess of AUD250,000 made in the period from 6 July 2020 to 26 July 2021, according to the AUSTRAC report.[25] While those later transfers were not in issue, further explanations about those transfers may have assisted in providing relevant context for the four transfers in issue especially as the later transfers were in close proximity to the four transfers totalling the alleged “total funds advanced” of AUD 232,506 as per the definition of Principal Sum in the Fourth Loan Document dated 22 December 2022.
[25] T85, 85.
The overall lack of independent evidence produced by Mr Abdelbari meant that he failed to discharge his onus of proof as regards the existence of a loan from Yousif to him representing the four transfers.
RELEVANT STATUTORY PROVISIONS AND PRINCIPLES
Assessments and onus of proof
The Commissioner must make an assessment of, relevantly, the amount of the taxable income of any taxpayer and the amount of the tax payable thereon “from the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources” pursuant to s 166 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).
58. Section 14ZZK of the TAA relevantly provides as to the grounds of objection and burden of proof with respect to tax disputes in Tribunal proceedings, as follows:
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving:
(i)if the taxation decision concerned is an assessment - that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii)in any other case - that the taxation decision concerned should not have been made or should have been made differently.
It follows from the above, that Mr Abdelbari bears the onus of proving that the assessments issued to him were excessive and “the amount upon which … income tax ought to be levied”. That is, he must prove that the amount assessed exceeds his “actual taxable income”. The onus also rests upon him to establish the facts upon which he relies. It is not enough to show that the Commissioner made an error or that an assessment is wrong. The Commissioner is under no burden to establish that the assessments were correctly made and he is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessments.
Ordinary Income
Under the ITAA 1997, a taxpayer’s liability to income tax depends on their “taxable income” for the income year which is worked out by determining “assessable income” and then subtracting “deductions”: s 4-15. “Assessable income” includes income according to ordinary concepts which is called ordinary income: s 6-5(1). It was not in dispute that Mr Abdelbari was a resident of Australia in the Relevant Years and, therefore, his assessable income includes the ordinary income he derived directly or indirectly from all sources, whether in or out of Australia, during the income year: s 6-5(2).
Mr Abdelbari contended that the four transfers were not ordinary income as in the product of employment or business because he did not hold any interest in Delma Laboratory in the Relevant Years. He relied upon the Special Power of Attorney and Addendum 5 to support his contention that the transfers had nothing to do with him working for Delma Laboratory. Mr Abdelbari also argued that the transfers could not be considered to be ordinary income because there was no periodicity to the payments. He relied on Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 (Dixon).
The Commissioner also relied on Dixon to argue that the four transfers are income according to ordinary concepts. The Commissioner argued that the fact that Mr Abdelbari was no longer a partner of Delma Laboratory did not mean that the payments were not connected with his income producing activities. The Commissioner added that when one views the 16 January 2019 and 6 March 2019 payments as one payment that was divided into two transactions, it objectively appeared and I find that Mr Abdelbari received approximately the same amount of money (allowing for currency fluctuations and transfer fees) every six months or so in the Relevant Years, that is, the four transfers in issue were periodic or regular payments of approximately similar amounts made to Mr Abdelbari (see [16] above).
DID MR ABDELBARI DISCHARGE THE ONUS OF PROOF IN RELATION TO THE ASSESSMENTS?
I was not satisfied that Mr Abdelbari discharged his onus of proof to show that the assessments of his taxable income in each of the Relevant Years were excessive as per
s 14ZZK(b)(i) of the TAA. Mr Abdelbari failed to adduce evidence sufficient to establish on the balance of probabilities the true amount of his taxable income and, therefore, the assessments issued by the Commissioner were not excessive.Significantly, Mr Abdelbari failed to persuade me of the existence of a loan between him and his son. I did not find Mr Abdelbari’s evidence to be reliable and, therefore, do not accept it. Moreover, the documentary evidence produced by Mr Abdelbari, including the four loan documents as well as the receipts for the ostensible repayments of the loan had various deficiencies and did not, in any event, advance his case in proving the existence of a loan. They were all done after the event “for the case”.
In reaching this conclusion, I have had regard to the following statement of Edmonds J in Federal Commissioner of Taxation v Rawson Finances Pty Ltd (2012) 89 ATR 357 at [20] and the cases cited by his Honour, as regards the fundamentals of a loan:
20 The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B: Commissioner of Taxation v Radilo Enterprises Pty Ltd [1997] FCA 22; (1997) 72 FCR 300 at 313 per Sackville and Lehane JJ; Commissioner of Taxation v Firth (2002) 120 FCR 450 at [73] per Sackville and Finn JJ. Absent that obligation, the transfer of the money from A to B is something else – a gift, a payment by direction, a payment or repayment of an anterior obligation – but it is not a loan. The obligation of repayment is not proved by subsequent payment of the same amount, let alone a different amount, from B to A; that may be explicable by reference to another obligation or circumstance having nothing to do with the original payment from A to B. Rather, the obligation of repayment is proved by the terms of the contract under which the money was transferred from A to B.
It will be recalled that the First, Second and Third Loan Documents did not contain any obligation of repayment. This obligation was only included in the Fourth Loan Document, after the Commissioner’s queries and after the Commissioner’s Objection Decision, and it was later also referenced in Mr Abdelbari’s affidavit (see [35] above).
As the transfers did not constitute a loan, it is appropriate to next consider Mr Abdelbari’s contention that the four transfers were otherwise gifts from Yousif to him, or “would take on the character of a gift”. Mr Abdelbari’s submission in his SFIC was that: “it is not necessary for the Tribunal to find the existence of a legally binding loan agreement in order to accept [Mr Abdelbari’s] contention that the payments were motivated by family considerations, and hence not to be characterised as ordinary income. If the loan were ultimately not repaid or forgiven by the applicant’s son, it would take on the character of a gift. In neither case would the payment form part of the applicant’s ordinary income.” This contention must be rejected because there was no evidence led to persuade the Tribunal that the four transfers (or any of them) were a gift or would take on the character of a gift if there were a loan and the loan was not repaid or forgiven.
It is appropriate to further consider the legal complexion of the four transfers, especially in light of the competing and specific submissions of the parties with respect to Dixon (see [61] – [62] above).
In Dixon, which both parties relied on, the majority of the High Court found that the regular payments made by the former employer did constitute income according to ordinary concepts of the taxpayer. This was because the former employee could confidently rely on receiving the periodic payments to fund his ordinary living expenditure. The payments were income notwithstanding the fact the payments were voluntary payments and not made in return for any service provided to the employer or in exchange for a promise that the taxpayer would return to his employer after the war.
Dixon CJ and Williams J, who together with Fullagar J formed the majority in Dixon, held at 557:
In the present case we think the total situation of the taxpayer must be looked at to see whether the receipts of the taxpayer from Macdonald, Hamilton & Co. are of an income character. He was employed at a salary. The war placed him, in common with many others, in a position in which he felt it was incumbent upon him to enlist. At the same time to do so meant that the earnings upon which he and possibly his dependants subsisted would be much reduced. His employers recognized this fact and intimated that they would do their best to see that if he decided to join the fighting forces his military pay and allowances would be supplemented so that it would not mean a financial loss. …From the taxpayer's point of view, it is not unlikely that when he decided to enlist in the armed services, he relied to some extent upon the intimation he received from his employers. The result was to keep his income up to the standard that would have been maintained had he not enlisted. We have advisedly used the word "income" because, from his point of view, the contribution made by his employers meant that the periodical receipts upon which he depended for the maintenance of himself and his dependants remained at the same level as his civilian employment would have given. From his point of view therefore the word "income" would be clearly applicable to the total receipts from his military pay and allowances and from his civilian employers. It does not seem to matter whether these employers are regarded as his former employers, as his future employers or as the other party to a suspended employment. … it is clear that if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognized incident of the employment or work.
Because the £104 was an expected periodical payment arising out of circumstances which attended the war service undertaken by the taxpayer because it formed part of the receipts upon which he depended for the regular expenditure upon himself and his dependents and was paid to him for that purpose, it appears to us to have the character of income, and therefore to form part of the gross income within the meaning of s. 25 of the Income Tax Assessment Act 1936-1943. (Bolding is emphasis added)
Fullagar J agreed with this conclusion. His Honour stated at 567-568:
It seems to me that the appellant’s receipts from Macdonald, Hamilton & Co. must be regarded as having the character of income. They were regular periodical payments ‒ a matter which has been regarded in the cases as having some importance in determining whether particular receipts possess the character of income or capital in the hands of the recipient …. This consideration, while not unimportant, is not decisive. What is, to my mind, decisive is that the expressed object and the actual effect of the payments made was to make an addition to the earnings, the undoubted income, of the respondent. What the employing firm decided to do, and what it really did, in relation to the respondent and others in the same position was “to make up the difference between their present rate of wages and the amount they will receive”. What is paid is not salary or remuneration, and it is not paid in respect of or in relation to any employment of the recipient. But it is intended to be, and is in fact, a substitute for ‒ the equivalent pro tonto of ‒ the salary or wages which would have been earned and paid if the enlistment had not taken place. As such, it must be income, even though it is paid voluntarily and there is not even a moral obligation to continue making the payments. (Bolding is emphasis added)
It follows that, if it were necessary to decide the character of the payments, the four transfers to Mr Abdelbari were income according to ordinary concepts because they were periodic payments in the nature of maintenance payments, as discussed in Dixon. Applying Dixon, it would not matter whether the payments were related to Mr Abdelbari’s income producing activities with Delma Laboratory or indeed whether or not they were made by Delma Laboratory such as deferred employment income. This is because Mr Abdelbari depended on the regular transfers for himself and his dependents, and the payments were paid to him to support him and his family in their transition from Abu Dhabi to Sydney. Therefore, the transfers had the character of income according to ordinary concepts.
I am reinforced in my view by the decision of the Full Court of the Federal Court in Hart v Commissioner of Taxation [2018] FCAFC 61. In that case it was similarly decided, after referring to Dixon, that receipts were income under ordinary concepts where the taxpayer relevantly relied on the receipts and had the use and enjoyment of what was paid to him. Robertson, Wigney and Steward JJ held as follows at 65:
We would therefore have, in any event, and absent the trust resolutions and the terms of the Practice Trust deed upon which the Commissioner relies, been satisfied that the amounts received by the appellant were assessable as income in ordinary concepts. The reason for their assessability is that they were received, at least in part, regularly, but more importantly, were relied upon by the appellant to fund his daily expenditure. As counsel for the appellant said, “he had to live”. In other words, he had the use of and enjoyment of what was paid to him. Consistently with the reasoning in Dixon, income regularly received and relied upon “to live”, in the particular circumstances here, is income in ordinary concepts.
Finally, I observe that s 51-50 of the ITAA 1997 (set out further below) only exempts from income tax certain maintenance payments. In other words, s 51-50 is of no assistance to Mr Abdelbari as it does not apply on its terms, because the transfers were from Yousif to Mr Ablelbari, namely, a son to a father. Section 51-50 states:
51‑50 Maintenance payments to a spouse or child
(1) This section sets out the conditions on which a periodic payment, in the nature of maintenance, that:
(a) is made by an individual (the maintenance payer); or
(b) is attributable to a payment made by an individual (also the maintenance payer);
is exempt from income tax under item 5.1 of the table in section 51‑30.
(2) The maintenance payment is exempt from income tax only if it is made:
(a) to an individual who is or has been the maintenance payer’s spouse; or
(b) to or for the benefit of an individual who is or has been:
(i) a child of the maintenance payer; or
(ii) a child who is or has been a child of an individual who is or has been a spouse of the maintenance payer.
(3) The maintenance payment is not exempt if, in order to make it or a payment to which it is attributable, the maintenance payer:
(a) divested any income‑producing assets; or
(b) diverted ordinary income or statutory income upon which the maintenance payer would otherwise have been liable to income tax.
For completeness, item 5.1 in s 51-30 of the ITAA 1997 (referred to in the above section), in turn, states:
51‑30 Welfare
Welfare Item If you are: … the following amounts are exempt from income tax: ... subject to these exceptions and special conditions: 5.1 an individual in receipt of periodic payments in the nature of maintenance the payments see section 51-50
It is appropriate, at this juncture, to record that, after reserving my decision in this proceeding on 29 April 2024, the Tribunal became aware of the judgment of Logan J in the Federal Court in Liang v Commissioner of Taxation [2024] FCA 535 (Liang) which concerned unexplained deposits that the Commissioner had assessed as ordinary income. His Honour relevantly held in Liang at [59] that:
given the way in which the issue was confined, it was not sufficient for the Tribunal to merely act upon a rejection of the evidence of [the taxpayers]. The Tribunal remained obliged, particularly in light of the deliberate submission made to it, as to what ought to be concluded even if their evidence were rejected to determine whether, on the material before it, the Deposits constituted income under ordinary concepts. This, it failed to do.
The Tribunal asked both parties whether they wished to make any written submissions in relation to the application of Liang, and both parties took up the opportunity to do so.
Mr Abdelbari submitted that the Commissioner’s SFIC contained the same error as highlighted in Liang. Specifically, Mr Abdelbari contended that if the Tribunal were to find, that the payments were not principal amounts advanced under a loan agreement because the documentation for the loan agreement did not exist at the time of the payments, it would be an error to reason that the payments were ipso facto ordinary income. Rather, the Tribunal would conclude that the payments were made by Mr Abdelbari’s son to provide support to the family from evidence other than the loan documents. Mr Abdelbari contended that such payments, whether characterised as a gift or a loan, are not income according to ordinary concepts. According to Mr Abdelbari, he would have discharged his burden of proving that the Commissioner’s assessments were incorrect.
On the other hand, the Commissioner submitted that Liang can be distinguished because it was premised on certain concessions said to have been made on the part of the Commissioner, including that the deposits the subject of the dispute in Liang were not income from services. I concur with the Commissioner’s submission that, in the present case, no concessions were made and there was no confining of the issues regarding the four disputed foreign sourced payments. The Commissioner also stated that Liang is on appeal. Furthermore, the Commissioner submitted that the Tribunal should follow definitive authorities on s 14ZZK (and its predecessor, the former s 190(b) of the ITAA 1936) including the following statement by Mason J (as his Honour then was) in Gauci v Commissioner of Taxation (1975) 135 CLR 81 at 89-90:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail. ... The crux of the matter is that when in a s. 26 (a) case an appellant seeks to overcome the onus created by s. 190 (b) by adducing evidence as to his intentions with a view to establishing the purpose of the acquisition was not a s. 26 (a) purpose and that evidence is not accepted, he has not discharged the onus which he bears …
In all the circumstances, it is unnecessary to wait for the outcome of the appeal in Liang to decide the present case, especially as there were no concessions or confining of the issues regarding the four disputed payments in this case.
OTHER MATTERS
The Commissioner had imposed an administrative penalty at the base penalty rate of 25% of the tax shortfall on the basis of a failure to take reasonable care: ss 284-75(1), 284-80(1), 284-85(1) and 284-90(1), item 3 of Schedule 1 of the TAA.
Mr Abdelbari’s objection with respect to the penalties aspects was simply that “administrative penalty should be removed as the client was in the process and was complying with ato to provide all information to support their claim.”[26] In the Objection Decision, the Commissioner stated Mr Abdelbari failed to take reasonable care because he did not provide sufficient information to support his claim. The Commissioner further decided in the Objection Decision that there are no facts or policy considerations that warrant any remission or penalty and that the final penalty of 25% represents an appropriate and fair outcome in the circumstances.
[26] T22, 148.
Mr Abdelbari did not reference the administrative penalties in his application for review lodged with the Tribunal. He focused only on the assessability to income tax of the transfers. Furthermore, no further submissions were made regarding the imposition and/or the remission aspects regarding penalty in Mr Abdelbari’s SFIC, except to the effect that the administrative penalty and interest assessed would consequentially fall away where Mr Abdelbari’s receipts were held not to be assessable income.
In the circumstances, as the administrative penalty issues were not agitated before the Tribunal, it is not appropriate to make any decision on those matters.
CONCLUSION
Mr Abdelbari failed to discharge the burden of proving that the assessments issued to him by the Commissioner in respect to income tax for the Relevant Years were excessive. Moreover, in accordance with Dixon, the transfers to Mr Abdelbari were periodic payments on which he relied to fund his daily expenditure and, therefore, income according to ordinary concepts.
DECISION
The Objection Decision with respect to the income tax assessments is accordingly affirmed.
I certify that the preceding 86 (eighty-six) paragraphs are a true copy of the reasons for the decision herein of Senior Member G Lazanas.
................................[Sgd]........................................
Associate
Dated: 24 June 2024
Date of hearing: 29 April 2024
Date final submissions received: 14 June 2024 Counsel for Mr Abdelbari: Mr S Young Solicitors for Mr Abdelbari: Mr O Sada, Elysium Law Firm Solicitors for the Commissioner: Ms A Donohoo, Australian Taxation Office Litigation and Legal Services
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