Interest deduction claim - Onshore Debt
170 I begin consideration of this group of deductions by setting out my understanding of what constitutes a "loan" and "interest".
171 A loan, stated Sackville and Lehane JJ in Federal Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300, at 313, referring with approval a discussion in C L Pannam, The Law of Money Lenders in Australia and New Zealand (1965), at p 6, "involves an obligation on the borrower to repay the sum borrowed". That obligation may be to repay the money borrowed on demand or at a fixed date but obligation to repay there must be in order for a payment by one to another to be a loan. Conventionally, the sum borrowed is referred to as the "principal" of a loan.
172 In turn, "interest" is "the compensation to the lender for being kept out of the use and enjoyment of the principal sum" with its essence being that it is referable to that principal sum: Myer Emporium, at 218.
173 I have referred to what constitutes "novation", especially its tripartite feature, above.
174 The origin of the deductions claimed was said to lie in a loan of $3,063,050 made by Darlington McCarthur to the AA Trust on 30 June 1992. That sum was said to have been used to acquire a portfolio of assets. The AA Trust, it will be recalled, was settled on 30 June 1992.
175 The existence, inferentially, of that loan but not its terms, as well as an apparent, related acquisition of assets, is supported by a number of entries in books of account which are in evidence. The financial statements of the AA Trust as at 30 June 1992 record total assets of $3,173,981.06 (asset details being specified in the notes to the accounts) and a debt owing to Darlington McCarthur of $3,063,050. There is a corresponding entry in the financial statements of Darlington McCarthur at 30 June 1992 recording a current asset being a loan to Anglo American of $3,063,050. At the time, Anglo American was the trustee of the AA Trust (on and from the settlement of that trust on that very day, 30 June 1992).
176 The $3,063,053 loan debt of the AA Trust is said by the AA Trust to have been acquired by Swire Investments Limited (Swire Investments) from Darlington McCarthur in November 1992 in partial discharge of a debt that Darlington McCarthur owed to Swire Investments.
177 Swire Investments was incorporated in the United Kingdom on 25 November 1982 under the name Perigee Limited. It changed its name to Swire Investments on 15 October 1986. At all material times, its ultimate beneficial shareholder was Wah Dak Limited (Wah Dak). Its directors were Mr Borgas and his wife, Mrs Winny Borgas. Swire Investments was dissolved on 23 July 1996.
178 Mr Gould accepted in evidence that he "had a fair degree of influence and control over the day-to-day operations", that he had practical control of Swire Investments. For reasons which I shall now detail, this was an understatement. It displayed an absence of candour.
179 The evidence establishes that Wah Dak was incorporated in the then British Crown Colony of Hong Kong on 30 April 1985. It had its registered office in Kowloon in Hong Kong. Its day to day management was conducted by Mr Roman Tse, an accountant based in Hong Kong. From around 1992, Wah Dak held shares in Melbourne Corporation and in Philadelphia Investments Pty Ltd (Philadelphia Investments). These two companies, as Mr Gould acknowledged in evidence, were within his private group of companies from 1990 to 2015. In other words, these were companies which he controlled and which served his private interests.
180 One indication of that control and service is that the directors of Melbourne Corporation and Philadelphia Investments over this period included employees of Mr Gould's incorporated accountancy practice, Ms Jenness Dunne (Ms Dunne), Ms Merrilee Lisle (Ms Lisle) and Ms Lewis. Mr Gould accepted that these persons would conform to his wishes. Another director of Melbourne Corporation is stated in an Australian Securities and Investments Commission record in evidence to be Mr Russell Vanda Gould. That is the name of Mr Gould's father although the date of birth in the record is that of Mr Gould and the related address is Mr Gould's personal address. On this basis, and on the basis of the similarity of their names, I infer that the record is in error and that it was Mr Gould who was the director, not his father. Another indication of that and of Mr Gould's control of it is that Melbourne Corporation was the registered owner of suites 301 and 302 and a basement storeroom in BMA House, 135 Macquarie Street, Sydney and Philadelphia Investments was the registered owner of Suites 401 and 402 of BMA House. Melbourne Corporation and Philadelphia Investments participated in the settlement of Mr Gould's Family Court proceedings on 13 September 1994. Pursuant to that settlement, Melbourne Corporation sold its property at suite 302 in BMA House and paid the proceeds to Mr Gould's former wife. Further, an asserted liability of Darlington McCarthur's liability to Swire Investments of $3,132,312.28 as at 31 December 1992 was secured by a mortgage of BMA House premises.
181 The Commissioner submitted that there was no plausible explanation for this other than that Mr Gould controlled Wah Dak. I agree. The only plausible explanation for Wah Dak's shareholders participating in Mr Gould's matrimonial property settlement was his control of them; hence my observation as to Mr Gould's absence of candour.
182 There were other indications in the evidence that Mr Gould controlled Swire Investments. The accounts of Swire Investments for the year ended 30 June 1989 record that Wah Dak was the ultimate holding company of Swire Investments. In a facsimile dated 21 August 1991, Lubbock Fine requested Mr Gould's authorisation to pay the Swire Investments final fee note. In the ledger and accounts of the AA Trust for the year ended 30 June 1993, Swire Investments is shown as a "related corporation" whereas loans to clients were not. When asked about this feature of the ledger and accounts, Mr Gould stated that the ledger was possibly incorrect and that it depended on the meaning of "related corporation". Once again, in the face of so many indications to the contrary, I thought these answers lacked candour.
183 The point of this excursion into the control of the shareholders of Wah Dak is that it is a corollary, and I find, that, via his control of its shareholder Wah Dak, Mr Gould controlled Swire Investments.
184 Mr Gould's oral evidence was that he acted for Mr Gowrie-Smith in relation both to Swire Investments and to Wah Dak. He was, he stated, "like Ian's power of attorney". But the facts I have recited in the preceding paragraphs, especially the matrimonial property proceedings involvement dimension, tells against Mr Gould being merely an influential agent or attorney. So, too, does an absence of reference to Mr Gowrie-Smith in contemporary documentary evidence. Mr Gowrie-Smith was another notable absentee from the witness box.
185 I just do not accept this aspect of Mr Gould's evidence. Perhaps a different conclusion might have been open if Mr Gowrie Smith had been called as a witness but he was not. Once again, it was for the AA Trust, on whom the onus of proof lay, not for the Commissioner, to do this.
186 More particularly, the evidence which supports the existence of the alleged loan and its novation to Swire Investments was summarised by the AA Trust in submissions to be as follows:
(a) Darlington McCarthur financial statements record that, on 30 June 1991, Darlington McCarthur owed Swire Investments $10,792,812;
(b) In a signed letter dated 17 November 1992, Swire Investments, by its director, Mr Borgas, stated that Swire Investments would enter into a transaction, whereby Swire Investments would accept the receivable from the AA Trust as a $3,063,050 reduction in Darlington McCarthur's indebtedness to Swire Investments, and Swire Investments would prepare a written loan agreement for execution by Swire Investments and the Anglo American;
(c) Mr Glenn Thompson (Mr Thompson), the solicitor who acted for the now former Mrs Gould in the Family Court property proceeding made an affidavit in which he deposed he saw and reviewed a signed loan agreement that had Anglo American and Swire Investments as parties on which $3,063,056 had been drawn, which was signed by Mr Borgas, Mr John Leaver, Ms Dunne (another employee of the incorporated accountancy practice who served as required and as directed by Mr Gould as a director of various companies) and Mr Gould;
(d) In the Family Court proceeding, Mr Gould made an affidavit in which he deposed that the November 1992 debt to Swire Investments replaced the debt to Darlington McCarthur and that, while there was a written loan agreement, the debt was not created by transfer of cash from Swire Investments;
(e) A file note styled "Details of Repayment of Swire Investments Ltd since 1 July 1992" records a transaction described as "17 November 1992 Anglo American Transfer", which effects a $3,063,050 reduction in Darlington McCarthur's indebtedness;
(f) The 1993 general ledger of the AA Trust contains an account entitled "Darlington McCarthur" with a starting balance on 1 July 1992 of ($3,063,050). Two entries in this account, which are dated November 1992, between them total $3,063,049 and are styled as "Reassignment of Loan" and "Reassignment" respectively, reduce the running balance of the account to nil as at 30 November 1992. On the same page of the AA Trust's 1993 general ledger there is a separate account entitled "Swire Investments". In the Swire Investments account two entries of identical amount are shown as changing the running balance of the account from zero to ($3,063,050) as at 30 November 1992;
(g) Correspondence from Swire Investments to the Anglo American, dated 19 January 1993 refers to the debt the Applicant owes Swire Investments, and requests a repayment of principal in respect of that debt;
(h) The 1993 balance sheet of the AA Trust records it was indebted to Swire Investments in the amount of $2,263,050 as at 30 June 1993.
187 These accounting entries offer some evidence, inferentially, of the claimed loan: Richard Walter, at 247, per Hill J. However, they offer no evidence as to the terms of the loan, including whether any interest was payable in respect of the loan and, if so, on what basis. Further, they are not, on the balance of probabilities, conclusive as to the existence of the claimed loan.
188 As was submitted for the AA Trust, a possible explanation for the $2,263,050 figure for the debt in the 1993 balance sheet of the AA Trust may well be that, that on 29 June 1993, it paid Swire Investments $800,000, reducing the its debt to Swire from $3,063,050 to $2,263,050. Further, it is possible that this $800,000 payment occurred in response to the letter from Swire Investments, dated 19 January 1993, already mentioned.
189 Acknowledging then that there is some evidence to support the bringing into existence of the alleged loan debt, its existence beyond 1 June 1994 is conjectural, even accepting that this need only be proved on the balance of probabilities. In evidence is an application dated 1 June 1994 by Anglo American, (not expressed to be in its capacity as trustee of the AA Trust, although that, in itself is neutral as to whether it was acting in that capacity) for a loan from HWBB and signed by Ms Lisle on behalf of Anglo American. It is stated in that application that Anglo American and thus the AA Trust had at that time "nil" current borrowings. Mr Gould sought in evidence, to dismiss this statement not on the basis that Ms Lisle had no authority but rather because she would have misconstrued the application form as only requiring information relating to bank borrowings. But it was for Ms Lisle, not Mr Gould, to state, if that be the case, that she had misconstrued the requirements of HWBB in respect of the application. And Ms Lisle was neither called as a witness by the AA Trust nor was her absence explained. As it is, there is in evidence in this loan application a representation that the asserted loan as by then allegedly acquired by Swire Investments, no longer existed as at 1 June 1994.
190 It is necessary to view the alleged loan against the background of a matrimonial property proceeding to which Mr Gould and his now former wife were parties, which commenced in the Family Court in early 1992. As I have already mentioned, that the AA Trust was settled on 30 June 1992 was no coincidence but part of what in this proceeding was described on behalf of the AA Trust as an "asset protection strategy" adopted by Mr Gould. The existence of that strategy in the context of that Family Court proceeding was embraced by the AA Trust in submissions as a reason why it should be concluded that the loan was not a fiction and that assets did exist. Hence the submission:
As a matter of ordinary human experience, a person does not implement an asset-protection strategy to preserve assets that are fictional or devoid of financial value. The objective evidence confirms that in 1992 an asset protection strategy was put in place. All the objective evidence fits: the commencement of the Family Court proceeding in early 1992, the settlement of the Applicant as a trust on 30 June 1992, the appointment of John Leaver as director of the trustee on 30 June 1992, Vanda Gould's resignation as a director, the nomination of a John Leaver company as Protector. These steps were taken for a reason. It was not to protect non-existent assets.
191 The John Leaver mentioned in this submission was a then associate of Mr Gould in the incorporated accountancy practice. He and Mr Gould are longstanding business associates. I did not have the benefit of evidence from Mr Leaver. Once again, given the onus of proof, it was for the AA Trust, not the Commissioner, to call Mr Leaver.
192 The firm of solicitors which acted for Mr Gould in the Family Court proceeding was Henry Davis York. It did not prove possible for Mr Gould to access, much less for the AA Trust to tender in evidence, copies of documents held in the files of that firm which might have assisted in deciding whether there was a loan as alleged. I draw no adverse inference from this. The matrimonial property proceedings were compromised by agreement in 1994. On the evidence, it was not until the second decade of the 21st century that Mr Gould might have had occasion to wish to access that firm's file in relation to the present income tax controversy. A quarter of a century passed between 1994 and the trial of this proceeding. I readily accept that the absence in evidence of any documents from that file is referable to record destruction in accordance with ordinary archival practices of a law firm.
193 In his affidavit of 23 January 2019, Mr Gould placed the novation of the debt from Darlington McCarthur as having occurred in the latter part of the 1993 calendar year. At the time when he made this affidavit, Mr Gould did not have access to certain relevant documents later produced pursuant to a notice to produce. In contrast, in his affidavit of 19 February 2019, Mr Gould placed the novation in the latter part of the 1992 calendar year, following the settlement of the AA Trust. This later affidavit evidence is consistent with the entry in the 1992 accounts of the AA Trust, mentioned above. Further, as was submitted on behalf of the AA Trust, I accept that these two affidavits of Mr Gould are generally consistent with the affidavit he long ago made for the purposes of the Family Court proceeding.
194 When asked about the difference between his initial affidavit and these 1992 accounts, Mr Gould asserted that there would be an explanation for it but that he could no longer recall what that was. In that initial affidavit, and by reference to the 1993 financial statements of the AA Trust, Mr Gould had explained the inclusion of the non-current liability owed to Darlington McCarthur as at 30 June 1992 by saying that, because the AA Trust was established on 30 June 1992, the comparative figures in the 1993 accounts were from a date later in the 1992 calendar year. When cross-examined about that affidavit evidence, Mr Gould conceded under cross-examination that this affidavit evidence was a "construction" based on "some assumptions" and that he had no independent recollection in respect of the whole transaction. That concession, I thought, was not just candid but, to observation, patently so.
195 Mr Gould also stated in his affidavit evidence that he had given instructions for the preparation of a novation agreement to be executed by Darlington McCarthur, Swire Investments and the AA Trust and that he had executed such an agreement. No agreement executed in November 1992 is in evidence. But there is secondary evidence as it its contents.
196 In the course of the Family Court matrimonial property proceedings, Mr Thompson investigated Mr Gould's financial position including related corporations and trusts. This is how he came to sight and to make notes in respect of various documents referring to related corporations and trusts. He was, unsurprisingly, well aware of a corporation acting in its own right and one acting as a corporate trustee. In an affidavit of 14 June 1994, Mr Thompson stated that, on 15 June 1993, he observed a document dated 17 November 1992 between Swire Investments and Anglo American stating "the amount drawn down is (in a typed form) $2,260,050 and (in a handwritten form) $3,063,056". It will be recalled that the handwritten amount of $3,063,056 accords with what the AA Trust alleges to be the amount of the debt owed to Darlington McCarthur novated to Swire Investments. Further, $2,260,050 is similar to the $2,263,050 in the 1993 balance sheet of the AA Trust.
197 Mr Thompson's evidence was that, in 1994, if he had been describing a company acting as a trustee, he would have referred to it in that way. Hence his evidence was that the reference in his affidavit of 14 June 1994 to a document in which Anglo American was named was not a reference to that company acting as a trustee. His evidence was that the only parties to the document he saw were Swire Investments and Anglo American with Mr Gould as guarantor. His further evidence was that the document he saw was a "revolving credit facility" contract. Mr Thompson also stated that, if Darlington McCarthur had been a party to the document he saw, he would have noted that.
198 There is no reason to doubt, and I do not doubt, Mr Thompson's evidence, including in particular the account he gave by affidavit in 1994 for purposes unrelated to the present proceeding.
199 The Commissioner submitted that Mr Thompson's evidence cannot be reconciled with that of Mr Gould's conceded reconstruction, well over a quarter of a century after the event.
200 The Commissioner also put that Mr Thompson's evidence was inconsistent with the letter dated 17 November 1992, signed by Mr Borgas, which mentioned Anglo American, rather than the AA Trust.
201 In Mr Gould's concession as to reconstruction and assumptions may lie an explanation as to why his recollection of events, including his recollection of a novation agreement, does not completely accord with that of Mr Thompson. Based on Mr Thompson's evidence, it does seem likely that, in November 1992, there was a plan to involve Swire Investments in a debt acquisition transaction. But the difference of recollection in relation to an involvement of Darlington McCarthur in this plan remains. Further, no resultant, executed agreement is in evidence.
202 In the context of the Family Court proceedings "asset protection" is not necessarily, as the AA Trust would have it, a benign explanation supportive of the existence of a genuine loan and later novation in June and November 1992 respectively. Camouflaging a true position is also a form of "asset protection", albeit an unlawful stratagem in the context of an extant Family Court matrimonial property proceeding. However, as was put for the AA Trust, any such conclusion would be inconsistent with the participation of, amongst others, Wah Dak, in the settlement of his Family Court property proceedings.
203 It is not necessary to reach any conclusion about whether the more sinister view, to which s 140(2) of the Evidence Act is applicable, is preferable. That is because of a conflict of evidence which leaves me unsatisfied, on the balance of probabilities, that there was ever a novation or acquisition by Swire Investments of any loan debt owed by the AA Trust to Darlington McCarthur.
204 I have already referred to the inconsistency apparent in the 1994 loan application to HWBB.
205 Mr Thompson's evidence, as I have indicated, does point to an involvement of Swire Investments in a debt acquisition in November 1992 and his noting of Anglo American rather than the AA Trust could, I accept, be regarded as neutral, as its acting in a trustee capacity may not have been disclosed. However, it does seem inherently likely, given his then role and what he did note, that his not noting any reference in a document to Darlington McCarthur was either inadvertent or negligent.
206 More telling is that the balance sheet of Swire Investments as at 12 March 1993, after the supposed novation, records debtors of only £5,000. Further, the 1994 income year balance sheet of the AA Trust records an amount of $281,802, owing to Darlington McCarthur, after the supposed novation to Swire Investments of the AA Trust's liability to Darlington McCarthur. The 1995 balance sheet of the AA Trust shows that the amount owing to Darlington McCarthur has been reduced to nil.
207 All in all, I am just not satisfied, on the balance of probabilities, that, as at 30 June 1992, the AA Trust was indebted to Darlington McCarthur, let alone that this debt was, in November 1992, novated to Swire Investments. There is just too much unexplained, inconsistent evidence to the contrary.
208 Assuming, however, that there was such a loan debt to Darlington McCarthur and a novation of that debt to Swire Investments, the AA Trust must prove yet further novations. The AA Trust alleges that, on 1 June 1995, Cheung Wah Bank Limited (Cheung Wah Bank) assumed a debt of $2,265,050 that the AA Trust owed to Swire Investments in exchange for $2,265,050 from CVC Fund Managers Pty Ltd (CVC Fund Managers).
209 Cheung Wah Bank was incorporated in the then Western Samoa (now the Independent State of Samoa) in May 1991. Cheung Wah Bank was managed by Asiaciti Trust Group (Asiaciti), an international fiduciary services provider with an office in Samoa. An employee of Asiaciti, Ms Faalelei Sua (Ms Sua) gave evidence in the proceeding. I thought that Ms Sua gave honest evidence, to the best of her recollection. In essence, her evidence was that both HWBB and Cheung Wah Bank were managed in the same way both by and for Mr Gould. Notably for present purposes, Cheung Wah Bank was another participant in the settlement of Mr Gould's Family Court proceedings on 13 September 1994. This participation is proof perfect of the honesty and accuracy of Ms Sua's evidence as to Mr Gould's control of Cheung Wah Bank and of its acting in accordance with his directions and in his personal interest and those of the clients of his incorporated accountancy practice as and when he directed. Cheung Wah Bank's participation in the matrimonial property settlement is explicable only on the basis that it was under Mr Gould's control and, on that occasion, acting in his interest by his direction.
210 CVC Fund Managers was registered on 20 April 1993 and deregistered 10 September 2001. On the evidence, CVC Fund Managers was one of the entities which served the private interests of Mr Gould and his associate, Mr Leaver. In practice, Mr Gould was responsible for its administration.
211 There is a representation in a letter dated 1 August 1995 from Cheung Wah Bank to CVC Fund Managers that a novation as alleged occurred. For reasons just given, it is inherently likely that this letter was written in accordance with a direction given by Mr Gould. Mr Gould's control of each of Swire Investments, Cheung Wah Bank and CVC Fund Managers was such that a novation might have occurred informally. The difficulty about accepting this, or acting on the representation in the letter of 1 August 1995 is, as the Commissioner submitted, that there is an unexplained inconsistency between the reaching of such a conclusion and the position as disclosed in the accounts of Swire Investments. These accounts record that, between 30 June 1992 and 12 March 1993, its receivables of £4,950,000 had reduced to nil, as had the creditors of £5,195,196,335. They also disclose that, as at 12 March 1994, Swire Investments still had no significant receivable. In short then, the Swire Investments accounts disclose a contradictory evidentiary position. In the circumstances, I am not satisfied, on the balance of probabilities, that the claimed further novation occurred.
212 The next in the claimed chain of novations is an alleged novation on 30 June 1999 of the AA Trust's debt to CVC Fund Managers to CVC IN. CVC IN, was an entity like CVC Fund Managers which fulfilled a like role, also administered by Mr Gould. It changed its name to "Sub Prime Nominees Pty Limited" on 16 September 2008. Once again, Mr Gould's control over the AA Trust, CVC Fund Managers and CVC IN was such that a novation as alleged might have occurred informally. There is some evidence to support this in the financial statements of the AA Trust and CVC Fund Managers, and in an extract from the general ledger account of CVC IN. However, quite apart from the failures of proof in respect of the existence in the alleged original indebtedness and earlier alleged novations thereof, there are other reasons, which I now detail, why I am not satisfied on the balance of probabilities that this particular novation as alleged by Mr Gould occurred.
213 The case for the AA Trust was that this particular novation was funded by a loan from CVC IN to Normandy Finance and HWBB. As detailed below, HWBB was operated in accordance with Mr Gould's instructions, if not also indirectly beneficially owned by him.
214 For reasons which follow, I am not satisfied on the balance of probabilities that CVC IN had any loans from Normandy Finance and HWBB. In turn, I am not satisfied that the AA Trust had any obligation to repay to CVC IN a loan.
215 The AA Trust has not put in evidence any financial statement for CVC IN in respect of the income year ended 30 June 1999. The earliest in evidence is a balance sheet CVC IN for the 2001 income year. This does record a debt of $25,092,000 to Normandy Finance. At most, that is not inconsistent with that debt having arisen before that income year. However, even that position is contradicted by the balance sheet of Normandy Finance, which records no such loan debt.
216 As to whether CVC IN had an indebtedness grounded in a loan to it from HWBB, the evidence is contradictory. The 2002 financial statements of CVC IN are in evidence. These contain an entry described as a debt owing to HWBB of $7,968,000. If the entry concerned is viewed in isolation, a like position for HWBB is evidenced by the 2002 HWBB "Analyze Balance Sheet". However, that same HWBB "Analyze Balance Sheet" records a corresponding amount of $7,968,000 to be owing by HWBB to CVC IN. The net position on the face of the 2002 HWBB "Analyze Balance Sheet" is therefore one of no indebtedness from one to the other. How this apparent position was to be reconciled with the case as put for the AA Trust was not explained.
217 The final claimed novation was said to have occurred in June 2001, when the AA Trust's then debt to CVC IN, said to have been $3,431,950.17 at 30 June 2001, was novated to the GF Trust. This was said to be evidenced in the financial statements of the GF Trust. However, regard to the general ledger of the AA Trust discloses a succession of entries reducing its debt to CVC IN to nil with corresponding entries against the accounts of the VRG Family Settlement Share Trust (of $503,877.84), Melbourne Corporation (of $50,000) and Southsea Nominees (of $2,878,072.33). These corresponding entries do total $3,431,950.17 but there was no satisfactory explanation in the evidence led by the AA Trust as to why it should be accepted that these entries evidenced a novation of a debt hitherto owed by the AA Trust to CVC IN to a debt of that amount owed by the AA Trust to the GF Trust.
218 Another unanswered, interrogative note is sounded by an entry in these financial statements which describes the total debt owing by AA Trust to the GF Trust at the end of 30 June 2001 as being $3,354,638, including $476,565.98 reallocated from the "VRG Family Settlement Trust". Subtracting this reallocated amount from the total debt yields a sum equivalent to the corresponding entry in respect of Southsea Nominees mentioned in the preceding paragraph. However, how that amount is attributable to the novation relied upon by the AA Trust in support of its claim is unexplained.
219 For these reasons, I am not satisfied on the balance of probabilities that any of the claimed novations occurred.
220 Assuming, however, that there was a loan and that it was novated and varied in amount owing from time to time as alleged, I am just not satisfied on the balance of probabilities that the loan ever carried interest, as opposed, assuming it existed at all, to the balance owing from time to time was just being repayable on demand. More likely than not, the claimed amounts of interest are just ex post facto constructs by Mr Gould, mere artifices which are shams of no effect in law at all. They are just a form of fiscal balancing charge on the revenue account side of the ledger in the same way as the alleged management fees are, for reasons already given, a like balancing charge on the expenditure side of the ledger. The invoices in evidence, which purport to record an interest liability, are mere pretences.
221 I consider that, in the course of his cross-examination, Mr Gould came as close as he was disposed to come to admitting just this. His evidence in cross-examination included these responses. He stated that in determining the amount of interest he would "look at the tax planning of all the companies together", including that:
when you're making an accrual you will also be picking up - another company is going to have to pay - return the interest as assessable income. So that is true, that would be a factor. More often though would be the need to actually move money to a point where I could pay some of the external bills.
222 Mr Gould also stated in cross-examination that:
the factual basis [for charging the interest] has to exist [that is, there must be a debt between the entities] and then … after discussions, an invoice has been prepared.
The discussions to which Mr Gould referred were, he claimed, between him and the staff of his incorporated accounting practice and directed to whether or not the proposed interest was "reasonable". He stated that he would each year review the draft financial statements for the purpose of deciding whether he would make entries and call them management fees or interest income and that:
I would certainly have a look at the prima facie taxable income. That's what I was interested in. The actual detailed accounting was of less interest to me, but the tax effect was certainly of interest to me."
The latter was, I thought, as candid a concession as Mr Gould was disposed to make.
223 What I do not accept of this evidence is that the amounts of the interest liabilities claimed by the AA Trust were fixed prior to the end of the financial year to which, as returned and claimed, they purportedly related.
224 My reasons for this non-acceptance are multi-factorial. Underpinning all of them is Mr Gould's eventual concession under cross-examination that his affidavit evidence was largely a re-construction from documents. I have also had regard to the memorandum of 18 July 1997, mentioned already, in relation to the fixing of management fees for the preceding income year. As to the interest claims in respect of "On Shore" loans, I regard this as supportive of a conclusion already otherwise established on an examination of the evidence with respect to particular interest deduction claims, for reasons which I detail below.
225 First I should set out particular passages from cross-examination, cited by the Commissioner, which I accept tell in favour of a conclusion that Mr Gould has engaged in a process of reconstruction from documents. Under cross-examination, Mr Gould accepted that he had "no independent recollection of this conversation, apart from looking at the documents", that "I have to use the documents as an aide-memoire…. I have no independent recollection", that "I rely on documents telling me the date" … "I'm not strong on dates", and that "in general terms you're right" that the dates used in his affidavit evidence for events occurring between the 1980s and around 2010 had been arrived at by a process of reconstruction.