Bai v Commissioner of Taxation

Federal Court of Australia|2015-09-03|Before: Rares J

Background 8 On 22 June 2009 a Deputy Commissioner wrote to the taxpayer informing her of the completion of the audit of her returns for the years ended 30 June 2003, 2004, 2005 and 2006. Relevantly, in respect of the 2005 year, the audit found that the taxpayer had reported $13,790 as her assessable income when that should have been $1,183,398, and accordingly, her return had been amended by adding $1,169,608 to assessable income, leaving a tax shortfall of $558,570.73. The letter stated in respect of the 2005 year: 2005 Financial Year Your taxable income stated on your income tax return for the year ended 30 June 2005 is $13,790. Gross Income Your total income stated on your income tax return for the year ended 30 June 2005 is $14,361. Your bank statements have deposits which have not been identified by you. These are summarised as follows: Account Amount HSBC … $200.00 Commonwealth … $80,000.00 Commonwealth C/Card … $71,324.94 Westpac … $1,018,083.83 Total unidentified deposits $1,169,608.77

9 On 21 August 2009, the taxpayer's then accountants, PKF, wrote to the Commissioner noting that his letter of 22 June 2009 had not stated any opinion that there had been fraud or evasion and that, accordingly, the amended 2005 assessment was out of time because it had been issued more than two years after the original one. 10 The Tribunal found that the Commissioner had issued notice of his objection decision on 27 January 2010. In the objection decision the Commissioner explained that on 19 June 2008 an authorised officer had formed the opinion that there had been evasion in relation to the 2003 and 2005 years. Relevantly, it stated that in respect of the 2005 year the officer had had regard to: the taxpayer's relatively modest declared income of $13,790 that she had declared; the large number of unidentified deposits into her bank account in that financial year totalling $1,179,809.51; her financial records that indicated that her private expenses and outgoings in that period were well in excess of her declared income; and the ability of the taxpayer to finance the acquisition of "substantial real estate assets over the period in review that would not have been possible with the level of income declared on her tax returns". 11 The Commissioner stated that, as he had the opinion that there was evasion, it was open to him to amend the 2005 assessment under s 170(1) at any time. 12 On 12 February 2010, the taxpayer's solicitor lodged her notice of objection to the amended 2005 assessment. That stated that first, the amended 2005 assessment was excessive because it included transfers between her bank accounts, including redrawings from her loan account and repayment of a loan, and secondly, it was made without power because there was no fraud or evasion. 13 The taxpayer supported her objection in an affidavit sworn on 30 January 2010 in which relevantly she gave an explanation of her receipt of the two sums that remain in issue. She deposed that in September 2004, at the suggestion of her husband, Li Zhang, from whom she subsequently separated, she purchased a property at Sylvania Waters for $2.9 million. She said that her husband had arranged for the provision of the deposit and finance from Westpac Banking Corporation through a mortgage loan. She also deposed that her husband had given her $15,000 on 11 October 2004, $526,821.97 on 15 October 2004 and $476,261.86 on 15 November 2004. The latter two payments are now the sole contentious receipts by the taxpayer included as assessable income in her 2005 amended assessment as determined by the Tribunal. 14 On 19 February 2010, Mr Zhang made a notarised statement in support of his wife's objection. He said that he was a director of High Trade Company Pty Ltd, an investment and development company that, in 2001, had been the successful tenderer to develop the Kogarah Town Square. He stated that the taxpayer had lent High Trade money and that when its cash flow had improved he obtained repayment from it of some of his director's loan account. Mr Zhang said that, on occasion, he caused High Trade to pay some of those loan account repayments directly into the taxpayer's Westpac loan accounts, including the contentious receipts in October and November 2004. 15 Subsequently, in her 2 April 2012 affidavit in the Tribunal, the taxpayer gave a more detailed account of the contentious receipts. She referred to her earlier affidavit and her husband's statement and explained that High Trade's source of those moneys was its receipt of the proceeds of the sale of units 4 and 6 in a development of a block of six units called "High Waters" in Cronulla (the Cronulla project). She said that that block was held in the name of another company, Brightfull Pty Ltd, that the taxpayer controlled. The Tribunal noted that Brightfull was "apparently the provider of market research and consulting services to the High Trade group". The Tribunal noted that the taxpayer said that all the funds that she received that had originated from Brightfull were beneficially owned by her.

The Tribunal's findings 16 Importantly, the Tribunal explained its understanding of the onus of proof under s 14ZZK as follows: THE TAXPAYER'S BURDEN OF PROOF 22. Under s 14ZZK of the TAA a taxpayer has the burden of proving that an assessment is excessive. 23. The Commissioner provided very detailed and helpful written submissions on this issue. Those submissions correctly point out that there is no obligation imposed on the Commissioner to show that an assessment can be sustained or supported by evidence: Gauci v Federal Commissioner of Taxation [1975] HCA 54; 135 CLR 81. It is also the case that the Commissioner is entitled to "rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment": Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at 624 per Brennan J. 24. In Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333, Latham CJ said at 337: ... upon an appeal the onus rests upon the taxpayer of establishing the facts upon which he relies and if it is necessary for him to establish a particular fact in order to displace the assessment he must satisfy the Court with respect to that fact. 25. In assessing the evidence of a taxpayer, the Tribunal must acknowledge, as Senior Member O'Loughlin did in Nguyen and Commissioner of Taxation [2011] AATA 544 at [7], that the evidence of witnesses who have interests that turn on whether that evidence is accepted needs to be approached critically, and will necessarily be the subject of careful scrutiny. The Senior Member referred to Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74 and Davis v Federal Commissioner of Taxation [2000] FCA 44 in support of those propositions. But that is not to say that evidence that may be described as "self-serving" should necessarily be disbelieved (Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation 91 ATC 4546 at 4552, per Hill J) or should be regarded as "prima facie unacceptable" (McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 302, per Gibbs J). 17 The Tribunal found that the taxpayer's receipt of $526,821.97 was sourced from the sale by Brightfull of unit 6 and her receipt of $476,261.86 was from its sale of unit 4. 18 The Tribunal found: 31. … The vendor of the units was Brightfull Pty Ltd. Ms Bai explained that High Trade had "purchased this land [a development site] in the name of Brightfull" [Transcript P-298, line 38], that Brightfull had borrowed $2 million from Westpac for that purpose [Exhibit A2-2, page 15] and that the borrowing was guaranteed by High Trade [Transcript P-303, line 38]. Brightfull had provided a portion of the Westpac funds ($880,000) to High Trade[35] but High Trade had contributed $491,364.15 towards the purchase: in other words, High Trade was receiving a net $388,635.85 from Brightfull (ultimately, of course, sourced from Westpac). When the units were sold, according to Ms Bai, High Trade (presumably at the direction of Li Zhang) paid $1,003,083.83 ($526,821.97 + $476,261.86) to Ms Bai. Specifically why (and how, given that it had no apparent control over those funds) it did so remains unclear. 32. Ms Bai's explanation is hard to understand. On the face of it, Brightfull (a company owned and controlled by Ms Bai, not her husband) was the registered proprietor of the property. The borrowing from Westpac appears to have been in Brightfull's name; no document supporting the assertion that the loan was guaranteed by High Trade has been produced. Construction work undertaken by Constructions was invoiced to Brightfull and apparently paid [Transcript P-305, lines 19-45]. When Brightfull sold the units the net proceeds totalling over $1 million were paid to Ms Bai (the owner and controller of Brightfull, the property owner) personally. Ms Bai's explanation does not satisfy me that those payments do not form part of her assessable income. (emphasis added) Next, the Tribunal concluded: 38. While I have found myself unable to accept Ms Bai's evidence in its entirety (because some of it lacked either plausibility or corroboration, or both), I do accept that over a period of time she had lent money to her husband for use in his companies. Unfortunately the state of the evidence renders it impossible for me to make any reliable finding as to the precise amount she lent, or the precise times when she did so. I also accept that some of the money that was deposited into her accounts, and which originated from her husband or from one of the companies in the High Trade group, was a repayment, or a partial repayment, of the amounts that she had previously lent. The amounts of $217,000 and $122,000 are in that category. The amount of $500,000 is, in my opinion, properly regarded as an inducement to purchase the second unit in the Sylvania development, but it bears no relationship to any income-producing activities of Ms Bai and does not form part of her income. 39. One of the areas in which I found Ms Bai's evidence unsatisfactory was in relation to her conduct of the affairs of her company Brightfull. Despite holding herself out as a person capable of running a company providing market research and consulting services, mainly if not exclusively to companies in the High Trade group, she appeared to have little understanding of her responsibilities, and an almost total inability to explain how the company met its tax obligations. Simple questions on the company's business records attracted unconvincing responses; she was unable to explain satisfactorily the records underpinning the company's business activity statements. My dissatisfaction with the evidence she gave about her company's affairs was a factor in my conclusion, at [32] of these reasons, in relation to the tax treatment of the proceeds of the sale of the units in Burke Road, Cronulla. (emphasis added) 19 The Tribunal then examined over 50 smaller deposits into the taxpayer's bank accounts. She claimed that some of these were made because of an arrangement between her and Mr Zhang that he would pay her $80,000 per annum toward family expenses. The Tribunal accepted that, in itself, such an arrangement would not be unusual. However, it found that the deposits could not be reconciled to any such arrangement or the state of the family and business finances over the period in which they occurred. The Tribunal did not accept the taxpayer's explanation because it found that it did not ring true. Critically, it found: 48. As a result, there is no satisfactory explanation for these deposits. It follows that I cannot exclude the possibility that these are receipts of income that Ms Bai knowingly failed to declare. In other words, and in respect of each of the relevant years, I am not satisfied that evasion was not present. (emphasis added) 20 Accordingly, the Tribunal found that the Commissioner had not made any of the four amended assessments out of time. It then determined that it would not be satisfied that an assessment ought be reduced merely because the taxpayer established that no evasion was involved with any particular deposit. It held that the taxpayer "has not made out her case that there has not been evasion" and accordingly found that the Commissioner had had power to amend the original assessments and continued: 51. … If she had made out her case that there had not been evasion, then she would have established that the amended assessments were entirely excessive. But, having failed on that point, she must now establish that the amended assessments are arithmetically excessive, by proving that particular deposits should not have been included in her assessable income, and therefore her taxable income. In that exercise, the question of evasion in relation to a particular deposit is irrelevant. The threshold under s 170 having been met (or, more accurately, Ms Bai having failed to establish that it had not been met), it is now simply a question as to whether she can prove that any given deposits should not have been included in the assessment. (emphasis added)

(1) The onus issue - consideration 21 I am of opinion that the taxpayer's argument must be accepted. That is because the Tribunal applied the wrong onus of proof, as appears in [48] and [51] of its reasons. In effect, as it stated, the Tribunal had required the taxpayer to "exclude the possibility" of fraud or evasion as its onus of proof. 22 Critically, s 177(1) of the 1936 Act allowed a taxpayer who was dissatisfied with an assessment to seek a review of its amount under Pt IVC of the Taxation Administration Act. The latter Act provided, in s 14ZZK(b)(i), that in a review in the Tribunal under Pt IVC, the taxpayer had the burden of proving that the challenged assessment was excessive. There was no automatic requirement for the Tribunal, in such a review, to consider the precondition to the exercise of the Commissioner's power to amend the earlier assessment, for s 173 of the 1936 Act provided that the amended assessment was an assessment for all purposes. 23 However, the taxpayer could challenge the Commissioner's authority to amend the original assessment, including on the ground of forming an opinion that there had been fraud or evasion under item 5 of the table in s 170(1) of the 1936 Act, and so show that the amended assessment was excessive because the Commissioner lacked authority to make it: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621-622 per Brennan J with whom Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreed; McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 at 269-271 per Dixon CJ, McTiernan and Webb JJ, 282-283 per Taylor J. 24 And, in a case where the taxpayer seeks a review by the Tribunal, or appeals to the Court, on the ground that the Commissioner did not have authority to amend an assessment so as to impose a taxation liability, Dixon CJ, McTiernan and Webb JJ held in McAndrew 98 CLR at 269 that the onus of proof "lies on the taxpayer if his objection is that he did make a full and true disclosure of all the material facts necessary for his assessment or that there had not been an avoidance of tax". Their Honours' reference to "avoidance of tax" was to a then equivalent of the present ground in item 5 of s 170(1) of the 1936 Act, authorising the Commissioner to amend an assessment if he is of the opinion that there has been fraud or evasion. 25 The question is whether it was necessary for the taxpayer to establish that there was no fraud or evasion on the balance of probabilities or to the higher standard, of exclusion of any possibility, in order to negate the authority that the Commissioner had exercised, after forming the opinion that there had been fraud or evasion, to amend his original assessment under item 5 of s 170(1) of the 1936 Act. 26 The question of whether there had been fraud or evasion is one of objective fact. In rejecting the proposition that the Commissioner had the onus of proving the facts justifying the power to amend, Dixon CJ, McTiernan and Webb JJ explained in McAndrew 98 CLR at 270-271 that on a review (or appeal to the Court) under the analogue of the present s 14ZZK(b)(i): No doubt too the standard was objective. But it is quite another thing to say that upon appeal it was for the commissioner to prove the facts and that in proceedings to recover the tax they were matters that might be put in issue. Unless they are matters covered by s. 177 (1) clearly enough they might be put in issue but if they are covered by s. 177 (1) then it seems to us that considerations arise which show fairly clearly that the burden cannot be upon the commissioner of establishing on appeal that there was a failure to disclose and avoidance of tax. That they are so covered appears to us to be shown by the words of s. 177 (1) themselves, viz. "conclusive evidence of the due making and (except etc.) that the amount and all the particulars of the assessment are correct". If the existence of the conditions on which the power to amend arises is not part of the due making, it certainly is a matter on which the amount of the assessment must depend…. But bearing in mind that the word "excessive" relates to the amount of the substantive liability it is not difficult to see that it will extend over the area in which the conditions mentioned in s. 170 (2) find a place. For the fulfilment of those conditions goes to the power of the commissioner to impose the liability by amendment. If he cannot amend consistently with s. 170 (2) and so increase the amount of the assessment then it must be excessive. (emphasis added) 27 A taxpayer may challenge, under Pt IVC of the Taxation Administration Act, the "substantive liability" to which their Honours referred, including the opinion formed by the Commissioner as a criterion of its imposition: WR Carpenter Holdings Pty Ltd v Commissioner of Taxation (2008) 237 CLR 198 at 203-205 [5]-[10] esp at 205 [10] per Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ. 28 Here, the Tribunal explained at [48] of its reasons that the reason that it was "not satisfied that evasion was not present" was because "I cannot exclude the possibility that these are receipts of income that Ms Bai knowingly failed to declare". I am of opinion that the taxpayer did not have an onus of excluding every possibility in order to negate the criterion to enliven the Commissioner's power to amend the 2005 assessment under item 5 of s 170(1). She bore the civil onus of proving, on the balance of probabilities, that there was no fraud or evasion if she were to prove that the challenged amended 2005 assessment was excessive in law. 29 The Commissioner accepted that the Tribunal's expression of its conclusion in [48] of its reasons was, in his counsel's submission, "a poor choice of words" but he argued that it reflected its global conclusion as to whether the Commissioner's exercise of his power to make amendments of the four assessments in issue before it was excessive, as being wrong. 30 A court should not construe the reasons of an administrative decision-maker "minutely and finely with an eye keenly attuned to the perception of error" or be unduly concerned with looseness in language or "unhappy phrasing" of those reasons: Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 272 per Brennan CJ, Toohey, McHugh and Gummow JJ. The Tribunal identified, at [48] of its reasons, the onus of proof that it had applied in assessing the taxpayer's case on whether there was fraud or evasion. While the Tribunal found that the taxpayer's evidence was unsatisfactory in numerous respects, the Deputy President gave reserved reasons for his decision and explained that he had arrived at his decision that there was "no satisfactory explanation for these deposits", including the two contentious receipts, on the basis that he could not "exclude the possibility that these are receipts of income that Ms Bai knowingly failed to declare". 31 There is a substantive difference in requiring the exclusion of a possibility and the conventional civil onus of proof of establishing a matter on the balance of probabilities. It is one thing not to be satisfied about a matter because, weighing all the evidence, the decision-maker is not persuaded that it is more likely than not that a fact existed or did not exist, and quite another thing to require the proof of that matter by excluding all other possibilities. The latter is akin to applying the criminal onus of proof beyond reasonable doubt. The difference in onuses cannot be elided by treating the Tribunal's statement of why it was not satisfied that there was no evasion as a mere slip of expression or an otherwise legally correct application of the standard of proof: see the discussion by Weinberg, Bennett and Rares JJ in relation to the civil onus of proof in judicial proceedings in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at 479-482 [29]-[38]. 32 At no point in its reasons, including in [22]-[25] where it discussed the onus of proof, did the Tribunal refer to the balance of probabilities or to a test other than that it said that it had applied in [48] of its reasons. It did, however, expressly refer at [23] to what Brennan J had said in Dalco 168 CLR at 624 that the Commissioner was entitled to "rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment". Thus, when the Tribunal used the expression "exclude the possibility" in [48] of its reasons, it appears to have related this to Brennan J's expression of "deficiency in proof" of the excessiveness of an assessment. It appears to have reasoned that there was a deficiency in the taxpayer's proof of excessiveness in the Commissioner's opinion that there was evasion because she had not excluded a possibility, relevantly for the amended 2005 assessment, that the two contentious receipts were not income. 33 I am satisfied that the Tribunal applied the wrong onus of proof imposed on the taxpayer by s 14ZZK(b)(i) to its consideration of whether the Commissioner's opinion, that there was fraud or evasion, was excessive, i.e.: that the taxpayer had failed to disclose income in her 2005 return and so evaded or avoided the correct assessment of her taxation liability. That was the criterion that underpinned the Commissioner's power to amend the 2005 assessment: WR Carpenter 237 CLR at 205 [10]. As the Tribunal noted at [51], had she established this part of her objection, the whole amended 2005 assessment would have been invalid and the original assessment would have remained in place. 34 The taxpayer had to satisfy the Tribunal, on a review of an objection decision, that the Commissioner's opinion that there had been fraud or evasion was excessive, that is, she had the onus of proving that the Commissioner's opinion was objectively wrong in order to discharge her onus of negating the precondition for the exercise of his power to amend her assessment under item 5 of s 170(1) of the 1936 Act. If she had done so, then the whole amended 2005 assessment would have been set aside and the legal efficacy of the original assessment restored. 35 However, if the taxpayer did not establish that the Commissioner was wrong to have formed the opinion that she had not made a full and true disclosure, she could still challenge the quantification of her assessable income, and consequently her substantive liability, by satisfying the Tribunal that the Commissioner's assessment complained of was excessive. 36 The taxpayer also argued that, because the Tribunal had amended the 2005 assessment by accepting that it was excessive in respect of sums that the Commissioner had conceded ought not to have been included, the Tribunal had to form its own opinion in any event as to whether there had been fraud or evasion. Although it is not necessary to decide on the correctness of that argument, I should state my conclusion that it is erroneous. 37 If the taxpayer had failed to establish her first ground, that the 2005 assessment was excessive because the Commissioner had no power to amend it under item 5 of s 170(1) of the 1936 Act, then she could still argue, as she did, that his quantification of her liability to tax was excessive. But I am of opinion that, if the Tribunal were not satisfied that there was any excessiveness, or error, in the Commissioner's opinion that there was fraud or evasion, it was entitled to proceed on the basis that it stated in [51] of its reasons. The Commissioner's concessions established that the quantification of taxable income in the 2005 assessment was excessive, not that there was any basis to revisit the Commissioner's anterior formation of his opinion that there was fraud or evasion that allowed the initial amendment.

(2) The receipt characterisation issue 38 The Tribunal must perform its function of review to arrive at the correct and preferable decision (see Wilson v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 189 CLR 1 at 18 per Brennan CJ, Dawson, Toohey, McHugh and Gummow JJ), in accordance with the legislative constraints imposed by Pt IVC of the Taxation Administration Act and, in particular, by s 14ZZK(b)(i). Its powers are not at large under the AAT Act including the, ordinarily, plenary power under s 43(1) of the AAT Act. This was explained by Jagot J, with whom Nicholas J agreed, in Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307 at 343-344 [111]-[112]. Her Honour explained that under s 14ZZK(b)(i) the only state of satisfaction that the Tribunal must reach in a review was whether, on the facts as found, the taxpayer had proved that the assessment was excessive. She said that if the Tribunal was not so satisfied, it had to dismiss the application for review: … irrespective of the Tribunal being satisfied or not satisfied that the facts as found by the Tribunal give rise to the amount of the liability in the impugned decision. [112] The two tasks (on the one hand, being satisfied on the facts as found that the applicant has proved that the assessment is excessive and, on the other hand, being satisfied on the facts as found as to the amount of the liability in the impugned decision) are conceptually different. The statute consigns the first task only to the Tribunal. It may be accepted that, in performing the first task, the Tribunal may consider and/or resolve the second task. No doubt in a case where the Tribunal can satisfy itself, in accordance with the second task, that the facts as found by the Tribunal give rise to the amount of the liability in the impugned decision the Tribunal can also discharge the first task with a high degree of confidence and conclude that the applicant has not proved that the assessment was excessive. Provided the Tribunal's consideration of the second task does not distract it from the task which the statute requires to be performed there will be no question of law capable of vitiating the Tribunal's decision. But the second task cannot be substituted for the first task. There may well be cases where the Tribunal cannot satisfy itself on the facts as found that the amount of the liability is the amount in the impugned decision and yet the applicant also cannot satisfy the Tribunal that the amount is excessive. In such a case, the application must be dismissed by reason of s 14ZZK(b)(i) of the TA Act. 39 Here, the taxpayer satisfied the Tribunal that her 2005 assessment was excessive to a limited degree. However, the taxpayer failed to satisfy the Tribunal that the contentious receipts (namely, the two very substantial deposits into her bank account of $476,261.86 and $526,821.97 respectively) from Brightfull's sale of units 4 and 6 were not receipts of assessable income. 40 I reject the taxpayer's argument that the Tribunal erred in considering whether the two contentious receipts were income according to ordinary concepts. The effect of s 14ZZK(b)(i) is that the assessment was invulnerable to alteration unless the taxpayer proved to the Tribunal that it was excessive. That she failed to do. It is true that receipts of money can be characterised as not being income. It all depends on the facts as to the character the receipts will bear. But in a taxpayer's challenge to an assessment, the settled meaning of Pt IVC of the Taxation Administration Act and its analogues is that the taxpayer must prove, first, that the assessment was excessive and, secondly, if the Tribunal were to reassess, by how much. 41 I also reject the taxpayer's argument that the Tribunal erred because it failed to find that there was no evidence to support the inclusion of each of the two contentious receipts as income. She contended that once the Tribunal had accepted that the assessment was excessive in respect of a number of smaller sums, the Tribunal had to consider whether the other sums in issue, and in particular the two "big-ticket" receipts, were in fact of an income character having regard to the other facts that it had found as to the taxpayer's personal income producing circumstances. 42 As Hill J said in Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 at 258G to succeed on an objection that an assessment is excessive, the taxpayer mush show, not only that the assessment is wrong "but the extent to which it is wrong". He held, with the agreement of Lockhart J (at 67 FCR at 247C-D, 261C-D), that there the taxpayer had the onus of showing that a particular amount should not have been treated as a profit made in the course of, or incidentally to, its business activity and that once the tribunal of fact had disbelieved the evidence of the taxpayer's witness and found the accounts he had produced for the taxpayer could no longer be relied on, there was no evidence to show that the payments in question were not income. 43 Obviously, if the taxpayer had been able to satisfy the Tribunal that the actual character of the two contentious receipts was not income at all, she would have proven both the excessiveness of the assessment and the quantum of its overstatement. But, the evidence adduced by the taxpayer left the Tribunal in the position that it was not satisfied as to any excessiveness in the assessment in relation to the two contentious receipts. 44 The taxpayer argued that the Tribunal had to decide positively that those two receipts were income. That submission is in the teeth of what Brennan J held in Dalco 168 CLR at 623, namely that the taxpayer in an appeal or review under the predecessor of Pt IVC of the Taxation Administration Act had "to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer". Brennan J distilled the position applicable here saying (168 CLR at 624): The amounts assessed represent the Commissioner's bona fide judgment as to the amount of the taxpayer's taxable income and the power to make the assessment was validly exercised. The assessments being valid, the burden was on the taxpayer to prove that the amounts assessed were excessive. The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. (emphasis added) 45 Here, the Tribunal found that the taxpayer's evidence as to the two contentious receipts did not satisfy it that each receipt was not income. 46 I reject the taxpayer's argument that the Tribunal should have considered that the two contentious receipts were payments by her husband to her, as his wife, and so not income according to ordinary concepts. The underlying commercial relationships and transactions between the spouses and their various corporate vehicles was the context in which the taxpayer received these two very large sums. It was for the taxpayer to prove that each of those receipts was not income according to ordinary concepts. 47 Given the complexity and detail of the taxpayer's affairs and her evidence in the seven day hearing before the Tribunal, it is not possible to discern any error in the Tribunal's conclusion as to the characterisation of those two receipts. 48 Accordingly, ground 2 fails.

(3) The procedural fairness issue - background 49 The taxpayer contended that the Commissioner had access to, and knowledge of, documents that were material to, and supportive of, her explanation of the two contentious receipts of the proceeds of sale of units 4 and 6 of the Cronulla project. She argued that the Commissioner had a duty under s 33(1AA) of the AAT Act to use his best endeavours to assist the Tribunal by making those documents available to it or her, but had failed to do so. 50 In 2011, the taxpayer had applied to the Tribunal under s 37(2) of the AAT Act (the s 37(2) application) for access to a large number of documents that the Australian Federal Police (AFP) had seized under search warrants when the business affairs of her, her husband and their companies, including Brightfull and High Trade, were under scrutiny during or after the Commissioner conducted tax audits of each of them from about 2007. Those tax audits had resulted in amended assessments, including the taxpayer's 2005 assessment the subject of this appeal. After the application for access to the documents seized by the AFP had been prepared by the parties for a hearing by the tribunal, the taxpayer withdrew that application. 51 During the course of her cross-examination on the sixth day of the hearing in the Tribunal, the taxpayer gave evidence that High Trade had loaned money to Brightfull for the Cronulla project. She gave evidence, with the assistance of an interpreter, including the following: MR KASEP: Ms Bai, I understand what you say about this transaction but my question is, why would High Trade be repaying part of what you say is your loan by depositing money into an account held by Brightfull? THE WITNESS: I just correct the interpreter interpretation of that. You mean, High Trade pay me through the Brightfull? MR KASEP: Yes. THE WITNESS: Okay. THE INTERPRETER: Because the project in Cronulla, High Trade loaned the money to Brightfull to have it for the - to help it develop the project. Therefore, High Trade loaned funds to Brightfull --- THE WITNESS: High Trade repaid my loan through - by Brightfull. The funds directory is High Trade loaned to Brightfull and when High Trade repaid my loan, it used the money - Brightfull repaid High Trade and they deposit directly to me. Is that clear? MR KASEP: Ms Bai, this is the first time we've heard about any sort of loan from High Trade to Brightfull if I recall. Why would High Trade be loaning money to Brightfull? THE INTERPRETER: Please take out evidence in reply to list of concession. Please turn to the page with tab 5, page 15. That is the settlement statement of the Cronulla project and it indicates that deposit paid by High Trade which was $160,000 and the balance settlement funds from High Trade is 331,000 - 3,331,364.15. If you have read through the evidence in reply, you will know - you had a incorrect memory about High Trade's loan, the memory of the first time High Trade loaned money to Brightfull. (emphasis added) 52 The cross-examination continued for a short time until the Deputy President asked the taxpayer about the sources of funding for the Cronulla project in the following questions and answers: THE D.PRESIDENT: … did any of the money come from Brightfull? THE INTERPRETER: No. THE D.PRESIDENT: No. Did Brighfall borrow the money from Westpac? THE INTERPRETER: Yes. THE D.PRESIDENT: When did you tell us that? THE INTERPRETER: It was indicated in the statement, it said, "Westpac Banking Corp loan, 2 million." THE D.PRESIDENT: Didn't you say this morning that Brightfull couldn't [get] the funding, and so the funding had to come from High Trade; didn't you say that? THE INTERPRETER: No, no, no. THE D.PRESIDENT: No. Well, just a minute. Did I imagine that, Mr Kasep? MR KASEP: You did not, Deputy President. THE D.PRESIDENT: My clear understanding was that Brightfull could not get funding and so it had - and so High Trade had to get the funding. THE INTERPRETER: No. Actually because the bank couldn't provide 100 per cent loan onto the project. THE D.PRESIDENT; What does that - what does that mean? According to this settlement statement, Westpac was advancing $2 million. That's more than 100 per cent. THE INTERPRETER: That's - the $2 million is the loan for buying the land and the construction. THE D.PRESIDENT: And who borrowed that $2 million? THE INTERPRETER: In the name Brightfull - the loan was in the name of Brightfull. However, the High Trade provide guarantor. High Trade and High Trade Construction provide guarantor. (emphasis added) 53 I have set out at [12]-[15] above, the various earlier pre-hearing explanations by the taxpayer and her husband as to the nature of her contentious receipts of the sums of $526,821.97 and $476,261.86 in October and November 2004. Those earlier explanations did not refer to Brightfull, even though it was the registered proprietor and vendor of units 4 and 6 in the Cronulla project. 54 Immediately after the last answer, quoted in [52] above, counsel for the Commissioner questioned the taxpayer and put to her an allegation that I have emphasised in the passage below, that is at the heart of her current complaint that the Commissioner failed to assist the Tribunal pursuant to s 33(1AA) of the AAT Act. The transcript of evidence in the Tribunal continued: MR KASEP: Ms Bai, why is High Trade loaning money to Brightfull then? THE INTERPRETER: Because High Trade want to provide help for the Brightfull's project development because the loan borrowed - the loan from the bank was insufficient. MR KASEP: Ms Bai, why is there not one record of any loan made to High Trade - by High Trade to Brightfull? THE INTERPRETER: There is record, and the High Trade kept all the records of Cronulla project construction and the records was kept in High Trade. And in April 2009, because of the search warrant, all the documents were seized by ATO and the documents was not returned and - was not returned. MR KASEP: Yes, Ms Bai. How was Brightfull repaying High Trade for this loan that we're just learning about? THE INTERPRETER: Based on the sales of the project. MR KASEP: I asked you some questions about this, and if I recall, you said Brightfull didn't get any from the - anything from the sales of the project. THE INTERPRETER: I mean, Brightfull didn't get any profit from the sales. Actually, the other day, my answer to this question was that this project was lost. THE D.PRESIDENT: Was a loss, I think. THE WITNESS: Was a loss. (emphasis added) 55 At the hearing of this appeal the taxpayer led fresh evidence of documents that she had obtained from her husband on 6 October 2013, after she had considered the Tribunal's reasons for its decision that it had made on 29 August 2013. She explained in her affidavit of 30 April 2014 in this appeal that, earlier, she had tried to obtain documents in a variety of ways before the hearing in the Tribunal including by the s 37(2) application. The taxpayer said that in April 2009 the Australian Taxation Office (ATO) had seized documents from six locations including her home and High Trade's offices. The seized documents included business records of Brightfull and High Trade and, she believed, these included Westpac documents concerning the loan arrangements for the Cronulla project in which Brightfull was the borrower and High Trade a guarantor. 56 The taxpayer's solicitor, Ms Luk, acted for her in the Tribunal on a no-win-no-pay basis. On 22 August 2011, Ms Luk brought the s 37(2) application that sought production of, among others, "loan agreements and other documents" relating to five companies including High Trade Construction Pty Ltd (High Trade Construction) and Brightfull, but not including High Trade. 57 The Commissioner filed affidavits in opposition to the s 37(2) application including one of 12 October 2011 by Alan Crowe, an acting director of the serious non-compliance business line of the ATO. He said that on 4 October 2011 he had instructed a member of his team, Kevin Short, to review the hard copy documents that the ATO still held that had been seized from the taxpayer's residence. 58 Mr Crowe said that following execution of the warrants, blanket claims of legal professional privilege had been made and that the ATO and AFP had engaged the Australian Government Solicitor (AGS) to act for them in respect of those claims. The AGS had copied all hard copy and electronic documents seized and provided copies of those to the ATO and Ernst & Young, who then acted for some of the persons whose documents had been seized. It is not clear on the evidence whether Ernst & Young also acted for the taxpayer. In addition, the AGS returned some of the documents and other items seized from the taxpayer's residence to Ernst & Young and an employee of the High Trade group and returned a filing cabinet to Ms Luk. 59 Significantly, Mr Crowe said that Mr Short had located, in the hard copies of documents seized from the taxpayer's residence retained by the ATO, two documents, being a contract for sale of land with various attachments and "a copy of a Westpac finance agreement for the purchase of land". There was no evidence that Ernst & Young had provided any copies of the documents or items seized under the search warrants that had been returned to them to either the taxpayer or Ms Luk. 60 On the first day of the hearing of this appeal, the Commissioner produced, in answer to a notice to produce, copies of a letter dated 12 December 2002 from Westpac to the taxpayer, as director of Brightfull, attaching an approved business finance agreement (the Westpac loan agreement), and a copy of the contract dated 24 October 2002 for the sale of the land the subject of the Cronulla project (the sale contract). 61 In the Westpac loan agreement, the bank offered Brightfull a bank bill business loan "[t]o assist with the purchase and construction of" the Cronulla project. The loan limit was $2 million at 7.25% for a 12 month term to be secured by a mortgage given by Brightfull over the Cronulla project land, a fixed and floating charge given by Brightfull over all its assets and uncalled capital, and guarantees by the taxpayer and High Trade. 62 In the sale contract, Brightfull was named as purchaser, "High Trade Company Legal Dept", as its solicitor and the price was $1.6 million. The sale contract included a guarantee and indemnity dated 20 October 2002 between High Trade, High Trade Construction, the taxpayer's husband and the vendors of the Cronulla project land, in respect of Brightfull's obligations to the vendors as purchaser. 63 The taxpayer withdrew her s 37(2) application after the Commissioner had filed written submissions based on the evidence. In those submissions the Commissioner argued, that first, the order sought "requires the Commissioner to consider millions of documents held in relation to each of the five companies and form a judgment about whether each record[s] or relat[es] to the making of payments to, or receiving of payments from" the taxpayer, her husband or a third person in respect of particularised transactions and, secondly, some of the documents sought had been seized by the AFP under search warrants and the AFP had subsequently provided them to the Commissioner. The Commissioner had contended that s 3ZQU of the Crimes Act 1914 (Cth) did not permit him to use those documents for the purpose of making an assessment. Accordingly, the Commissioner's submissions contended, s 37(2) of the AAT Act could not be used to compel him to use or make available any such documents seized under the warrants. 64 The taxpayer said in her affidavit of 30 April 2014 that, until the hearing in the Tribunal, the Commissioner had never suggested that High Trade had not provided a guarantee of Brightfull's liabilities to Westpac or that High Trade had not provided funding to Brightfull. She said that, had such a suggestion been made, she would have refined her s 37(2) application to seek those specific documents and also sought them from other sources. She said that, before the hearing in the Tribunal, she had telephoned her (ex)husband, Mr Zhang, in China and asked him if he could obtain any documents. He had told her that he had obtained electronic versions of documents seized by the ATO but that "the task would be huge" and that some files could not be read properly. She said that Mr Zhang had said that he would review the files whenever he had time. 65 The taxpayer said that, after the Tribunal had made its decision, she was very upset and rang Mr Zhang to tell him that the ATO did not accept that High Trade had guaranteed a loan for the Cronulla project. She said that Mr Zhang had apologised for stopping his searches. On 6 October 2013, he sent the taxpayer an email attaching the letter dated 12 December 2002 from Westpac to her that, in turn, attached the Westpac loan agreement. 66 The taxpayer also annexed to her affidavit of 30 April 2014: a copy of the guarantee and indemnity dated 20 October 2002 attached to the sale contract; a "deposit record" for Brightfull and documents recording payments to third parties, including the vendors, noted in that record. One payment, evidenced by a Westpac cheque for $160,000 in favour of the vendors drawn on High Trade's account on 22 October 2002, appeared to have been paid on or in respect of settlement of the purchase. Another payment was supported by an invoice to High Trade dated 29 November 2002 by LandMark White in respect of the Cronulla project land. That invoice had a handwritten notation "File Brightfull Folder" but matched an entry for a $4,400 debit on the "deposit record". Another such debit entry on 30 January 2003 matched a supporting Westpac bank cheque details record for a bank cheque for $331,364.15 purchased by High Trade on the following day in favour of the vendors. Another of those documents was the settlement statement for the sale contract dated 31 January 2003 that had been in evidence before the Tribunal and that it described at [31] of its reasons, that I have set out at [18] above. Another supporting document evidenced the payment of $780,000 by a cheque drawn by High Trade on the National Australia Bank on 6 February 2003 in favour of Brightfull; a copy of Brightfull's accounts for the year ended 30 June 2004. Those showed that its secured bank loans had reduced from $1,264,850 in the previous financial year to $878,059 while its unsecured loans had increased from $598,209 to $1,016,140.

(3) The procedural fairness issue - the parties' arguments 67 The Commissioner argued that even with the fresh evidence that the taxpayer tendered, she had not explained the character or circumstances of the two contentious receipts. For example, the Commissioner contended, there was no evidence of any loan or other agreement between High Trade and Brightfull to explain the flow of those funds, or any other coherent explanation as to why the 2005 assessment was made excessive by including them as assessable income. 68 The Commissioner submitted that the taxpayer's reference in her cross-examination quoted above to a loan relationship between High Trade and Brightfull had taken him by surprise in the Tribunal. He argued that such a relationship was not a matter that he could have been expected, consistently with s 33(1AA) of the AAT Act, to have arisen in the Tribunal proceedings. 69 The Commissioner contended that he had not used, and by force of s 3ZQU of the Crimes Act could not use, the documents seized under the search warrants in performing the functions of making an assessment of the taxpayer's income or assisting the Tribunal under s 33(1AA) of the AAT Act. He argued that although officers of the ATO had assisted the AFP in executing the search warrants, there was a "Chinese wall" within the ATO between those performing assessment functions and those assisting the AFP in its criminal investigations. He submitted that the taxpayer could have obtained the documents in the fresh evidence by pursuing her s 37(2) application in the Tribunal, but even at that stage in those proceedings she had not advanced the version of events that she gave in the passages in her cross-examination quoted above. 70 A principal litigator of the ATO, Barbara Zakos, said, on information and belief in her affidavit of 21 April 2011 in the Tribunal, that the physical size of all the documents seized under the warrants was in the order of two to three pallet loads and the electronic version of them, including operating systems and scanned copies, amounted to the order of 4 terabytes, or about 300 million pages. 71 The Commissioner argued that the sheer volume of this material demonstrated that he could not have known before the taxpayer in her cross-examination gave her explanation, involving loans between High Trade and Brightfull, what documents in the mass of material seized may have been relevant to be produced under his obligations pursuant to s 33(1AA) of the AAT Act. 72 The taxpayer argued that Mr Crowe's evidence showed that, in October 2011, the Commissioner was aware of the relevance of the two documents in the material seized from her residence that Mr Short located in October 2011, including the Westpac loan agreement and the sale contract. The latter included the guarantee and indemnity dated 20 October 2002. 73 The taxpayer argued that on the material before me, she had given two explanations of the circumstances in which the proceeds of units 4 and 6 of the Cronulla project came to be paid into her account; first, that High Trade was the beneficial owner of the Cronulla project and Brightfull was simply its nominee or, secondly, that advanced in her cross-examination in the Tribunal, that Brightfull was the legal and beneficial owner and High Trade had lent it money to carry out the Cronulla project. In either case, she argued, High Trade was the source of the two payments into the taxpayer's bank account that the Commissioner had included in her assessable income in the 2005 assessment. 74 The upshot of this, the taxpayer argued, was that, had the Commissioner provided to the Tribunal under s 33(1AA) of the AAT Act, the two documents that the Commissioner produced in answer to the notice to produce, it may have formed a different view as to her credibility, especially in [32], [39], [48] and [51]. That is because those documents corroborated her evidence that Brightfull was the borrower from Westpac and both High Trade and High Trade Construction had guaranteed its obligations. She argued that the Tribunal's view as to her credibility was an important, if not decisive, factor in its reasons for its not being satisfied as to the 2005 assessment not being excessive, both in relation to the Commissioner's power to amend the original 2005 assessment and to the correctness of including the sums of $526,821.97 and $476,261.86 in her assessable income for that assessment. 75 The appeal book filed in this Court included the comprehensive index in Pt B. That index listed four affidavits filed by the Commissioner as having been received in evidence by the Tribunal, being the affidavits (and annexures to them) of Ms Zakos of 21 April 2011, Mr Crowe of 12 October 2011, Kristy Alexander of 13 October 2011 and Rodney McKemmish of 17 October 2011. 76 The Commissioner submitted that those affidavits were all relevant to the s 37(2) application. He argued that, after the taxpayer abandoned that application, those four affidavits were no longer relevant and were not read or relied on in the substantive review proceeding in the Tribunal. He submitted that the four affidavits had not been received in evidence in the substantive hearing and the Tribunal had not given them exhibit numbers. The Commissioner submitted that those four affidavits had been included because "the Registry had apparently insisted upon the inclusion in the Appeal Book of all of the affidavits filed in the AAT proceedings". 77 The taxpayer argued that there was no evidence of the use or absence of use of the four affidavits in evidence in the substantive proceedings or of the Registry having required inclusion of the four affidavits in the appeal papers. She contended that the index to Pt B should be assumed to be correct in the absence of evidence to the contrary. On that foundation the taxpayer argued that all of the material in the four affidavits was before both the Commissioner and the Tribunal, and that the Commissioner should have assisted the Tribunal under s 33(1AA) by drawing to its attention the two documents he produced to the Court in answer to the notice to produce. She contended that counsel for the Commissioner should not have suggested to her in cross-examination or to the Tribunal that her oral evidence was the first time that there was any mention of a loan by High Trade to Brightfull and that there were no records of any such transaction. 78 She argued that the Commissioner's assertion to her in cross-examination in the Tribunal that there was "not one record of any loan made … by High Trade to Brightfull" had led to procedural unfairness because the Commissioner had the two corroborative documents in his possession that showed that High Trade had provided financial support, at least in the form of its guarantees, for the Cronulla project. Accordingly, she argued, the matter ought be remitted to the Tribunal, differently constituted because of the Deputy President's adverse view of her credibility, to consider whether she can establish that the 2005 assessment was excessive. However, the taxpayer did not lead any evidence to suggest (and I do not find) that when cross-examining her, counsel for the Commissioner had any awareness of the existence of the two corroborative documents that Mr Stone had located about one year before, in connection with the subsequently abandoned s 37(2) application.

(3) The procedural fairness issue - consideration 79 It is not necessary for me to express a final view on the procedural fairness issue. However, Ms Luk represented the taxpayer before the Tribunal and she had received the Commissioner's evidence, including the four affidavits on which the Commissioner relied, and Ms Luk acted, in relation to the s 37(2) application and its withdrawal. 80 I am not satisfied that the taxpayer was denied procedural fairness in the circumstances where she and her legal representative, Ms Luk, actually had the two documents on which she now relies in their possession at the time of the final hearing in the Tribunal. Those documents were available for use in those proceedings and the taxpayer could have deployed them in support of her case that the amended 2005 assessment was excessive. No doubt she, Ms Luk and, if he had ever seen or read them (of which there was no evidence) counsel for the Commissioner, may have forgotten about or overlooked the apparent relevance of those documents in a factually detailed, long and complex hearing in the Tribunal. There is no evidence that, first, the Tribunal ever had its attention drawn to the material in the four affidavits on which the taxpayer now relies at any time and in particular at the substantive hearing or, secondly, the Tribunal was asked to consider any part of those documents in its review. 81 In Assistant Commissioner Condon v Pompano Pty Ltd (2013) 252 CLR 38 at 99 [156] Hayne, Crennan, Kiefel and Bell JJ said (and see too: Eastman v Director of Public Prosecutions (No 2) (2014) 9 ACTLR 178 at 231 [166] per Rares, Wigney JJ and Cowdroy AJ): The rules of procedural fairness do not have immutably fixed content. As Gleeson CJ rightly observed (Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1 at 14 [37]) in the context of administrative decision-making but in terms which have more general and immediate application, "[f]airness is not an abstract concept. It is essentially practical. Whether one talks in terms of procedural fairness or natural justice, the concern of the law is to avoid practical injustice". 82 In my opinion, in the circumstances, I do not consider that the taxpayer suffered any procedural injustice, where both parties before the Tribunal had access to, but appear to have overlooked, the material here in issue. I would have rejected the procedural fairness ground for these reasons.

Conclusion 83 The Tribunal erred in the way in which it considered and applied the onus of proof to the taxpayer's challenge to the excessive nature of the Commissioner's opinion that there was fraud or evasion. 84 Accordingly, the appeal must be allowed and the challenge to the 2005 assessment should be remitted to the Tribunal to be heard and determined according to law. Having regard to the views that the Deputy President formed as to the taxpayer's credibility, it will be a matter for the President of the Tribunal to consider how the further proceedings on the review should be conducted. In my opinion, the Commissioner should pay the taxpayer's costs of the appeal. The parties should bring in draft orders to give effect to these reasons. 85 The taxpayer issued two notices to produce shortly before the hearing. The Commissioner applied to set aside the first and the taxpayer then abandoned it and issued the narrower second notice to produce. After argument on 13 June 2014, I ordered that the Commissioner produce documents in answer to it. In my opinion, the parties costs in relation to both notices to produce should be their costs in the proceedings. I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Administrative Appeals Tribunal Act 1976(Cth)

REASONS FOR JUDGMENT 1 This is an appeal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) from a decision of the Administrative Appeals Tribunal. The Tribunal considered that assessments for the 2003 and 2005 years should be varied and it set aside and substituted assessments for the 2004 and 2006 years that the Commissioner of Taxation had made in respect of the taxpayer's assessable income in those years: Tao Bai v Commissioner of Taxation [2013] AATA 612. During the hearing of the appeal the taxpayer confined her challenge to the assessment for the 2005 year. 2 In June 2009, the Commissioner had amended the taxpayer's 2005 assessment pursuant to s 170(1) item 5 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) after conducting a tax audit, on the basis that he had formed the opinion that there had been fraud or evasion. The amendment resulted in the taxpayer's taxable income being assessed at $1,183,395.

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