A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.[24]

Importantly, in Imperial Bottleshops, there was substantial, corroborating evidence from two employees of a supplier to the taxpayer and six current or former employees of the taxpayer. In addition, the statement of wealth did not show unexplained accumulations of assets that were inconsistent with the taxation position asserted by the taxpayer. The corroborating evidence, together with a rational reason for an absence of records, allowed Hill J to form a view that the taxpayer should be believed.[25]

1. The second concerns the limited circumstances in which inferences can be drawn. They can be drawn from observed facts. Mere assumptions, guesswork and speculation are not accommodated in the process of arriving at conclusions.[26] There must be a body of evidence that might reasonably sustain a relevant finding of fact or permit the Tribunal to draw an inference.[27]
2. In cases where the burden of proving an assessment is in issue, two things are possible: first it may be the case that the amount of the assessment made by the Commissioner may not be the true taxable income and tax payable determined by applying the Assessment Acts to the taxpayer's circumstances if adequate proofs were available, and, second, a taxpayer may well be giving an honest account in his her or its evidence, but the evidence does not demonstrate that the assessment is excessive in the requisite sense.
3. In the present case, the Applicant has not discharged the burden on her as noted above.[28]

1. The Applicant contends that there is no fraud where there is a subjective belief in the truth of the relevant statement (or tax return), that evasion requires either a finding of behaviour that keeps the Commissioner in the dark or a blameworthy act and that it entails:
   • (a) something more than avoidance, or the mere fact of non-payment; and
   • (b) more than mere withholding of information or furnishing of misleading information;
   • (c) that evasion falls between innocent mistake, and the intention to defraud;
   • (d) omitting income from a return, or wrongly claiming a deduction (intentionally or otherwise) without any credible or excusable explanation for either;
   • (e) an enquiry as to whether a taxpayer has acted honestly and reasonably in relation to his public obligations;
   • (f) a conscious act of will by the taxpayer beyond an accident or mistake;

and refers to a range of cases that have addressed what constitutes evasion and contends that none of the positive findings of evasion apply to her circumstances because:

(g) the Applicant has limited education background and limited command of the English language;

(h) it is not possible for her to enter into any systematic scheme to defraud the Commissioner;

(i) in the decided cases relied on by Commissioner there was a presumed business activity that would generate an income that is proportionate to the amount that was assessed by the Commissioner;

(j) the amended assessable income was far too large and hence would be unreasonable or excessive for a Nail Technician, like the Applicant;

(k) the Commissioner has failed to establish that there was a business that would generate a realistic income;

(l) the sources of the funds in question have been established;

(m) importantly, that a failure to discharge the burden under s 14ZZK of proving an assessment is excessive does not equate with a failure to discharge the burden of proving there was no fraud or evasion or, in relation to penalties, that there was no intentional disregard of a taxation law.

1. The propositions in paragraphs (a) to (g) above may be true. However, those in paragraphs (h) to (m) do not resolve the case in favour of the Applicant. This is not a case where the Commissioner has pointed to a particular behaviour and asserted that that constitutes fraud or evasion. If he had, the principles in the Denver Chemical[29] decision, and the decisions that have followed or applied that decision,[30] may be enlivened.
2. This is a different case where the Commissioner, relying on Bai[31], says that the Applicant bears the onus of showing that, on the balance of probabilities, there was no fraud and evasion. In the Commissioner's words:

...In circumstances where the applicant is unable to discharge her burden of showing that the amended assessments are excessive and the source of the funds deposited in to her bank accounts and presented at the casinos remains unexplained, the applicant will have failed to discharge that burden.

It follows that, the question of whether there was fraud or evasion will depend upon whether the applicant's evidence as to the source of the funds is otherwise accepted.[32]

1. The decision in Bai was the subject of the appeal decision in Binneter & Ors.[33] Perram and Davies JJ begin to the effect that a taxpayer carries the onus of showing that there was no fraud or evasion[34] or that the Commissioner had not formed the requisite opinion,[35] and explain that there is no onus on the Commissioner to show that the assessment was correctly made,[36] and that while this Tribunal can re-examine whether, on the evidence before it, there was fraud or evasion, and can substitute its opinion for the Commissioner's, the issue for this Tribunal is whether the taxpayer has discharged the onus of showing that the fraud or evasion opinion should not have been formed. If a taxpayer does not do that, the amended assessments stand.[37]
2. The manner in which a taxpayer would achieve such a goal in an income case depends on the particular circumstances. A taxpayer could demonstrate there was no omission of income and therefore no avoidance of tax. Alternatively a taxpayer could demonstrate that the amounts, while assessable, were not included in assessable income returned for a reason that shows that while there was a shortcoming, it was a shortcoming that fell short of a blameworthy act in the Denver Chemical[38] sense.
3. Provided the Commissioner has formed the requisite opinion, in an income case, the effect of the Binneter decision, and those on which it is based, may well be to make a fraud or evasion finding unchallengeable independently of the challenge to the assessability of the relevant amount. If that is so that is not a matter that the Tribunal can alter. Thus the Applicant's contention at paragraph [29(m)] above, in the present circumstances, and notwithstanding the possibility noted at paragraph [27] above, cannot be accepted.
4. Where the character of an amount remains unestablished, the taxpayer has not proven the amount is not assessable, it is difficult, if not impossible to:
   • (a) form any view as to the level of shortcoming, if there be one;
   • (b) form a view as to whether there has been an innocent mistake or a blameworthy act; and
   • (c) say that the taxpayer has demonstrated that there was not fraud or evasion.

1. Whether an assessment is invalid cannot be agitated in this Tribunal: [39] and in any event the assessment would be valid unless the Futuris[40] principles apply. Futuris principles do not apply here.
2. Further, the Law Administration Practice Statement PS LA 2007/24 relied on is not a binding ruling. Even if it were not followed, and it is not necessary to embark upon an enquiry addressing that question, the Commissioner would not be acting beyond his power.

1. The considerations concerning the approach to challenging the fraud or evasion opinion[41] apply to the penalty imposition. The failure to demonstrate that the amounts were not assessable as income means the level of seriousness of any shortcoming has not been established and whether there was reasonable care or otherwise, or more serious shortcomings have not been established or disproven as the case may be. Similarly, whether the safe harbor rules apply has not been established.
2. Again, in an income case this may make the penalty unchallengeable independently of the substantive assessment challenge. Again, if that is so, it is not something the Tribunal can alter.

1. The Tribunal affirms the decisions under review.

I certify that the preceding 40 (forty) paragraphs are a true copy of the reasons for the decision herein of F D O'Loughlin, Senior Member

......................[sgd].....................................

[1] An income year being the 12 month period ending on 30 June 2016.

[2] The Respondent Commissioner of Taxation of the Commonwealth of Australia.

[3] The Income Tax Assessment Act 1936 (Cth).

[4] The Taxation Administration Act 1953 (Cth).

[5] Administrative Appeals Tribunal Act 1975 (Cth).

1. [6] Commissioner of Taxation v Dalco (1990) 168 CLR 614, 621 per Brennan J with whom Mason CJ and Dawson, Gaudron and McHugh JJ agreed and 631 per Toohey J. McAndrew v Commissioner of Taxation [1956] HCA 62; (1951) 98 CLR 263.
2. [7] Trautwein v Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63, 87 per Latham CJ, Moreau v Commissioner of Taxation [1926] HCA 28; (1926) 39 CLR 65, 70 per Isaacs J.

[8] Trautwein above, 87 per Latham CJ, Dalco above, 621 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.

[9] Trautwein above at 112 per Dixon and Evatt JJ, Dalco above, 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed, 631 and 633 per Toohey J.

[10] Trautwein above at 87 per Latham CJ.

[11] Trautwein above at 88 per Latham CJ.

[12] Trautwein above at 103/4 per Starke J., Dalco above at 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.

[13] The Income Tax Assessment Act 1997 (Cth) and the 1936 Assessment Act.

1. [14] Trautwein above at 111 per Dixon and Evatt JJ., Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed and 626 per Deane J and 631 per Toohey J_, George_ v Commissioner of Taxation (1952) 86 CLR 183 at 201 per Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ.
2. [15] The 1936 Assessment Act and the Income tax Assessment Act 1997 (Cth).
3. [16] Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81, 89 per Mason J (in the minority but not on this point, see Dalco above per Brennan J at 624).
4. [17] Vu v Commissioner of Taxation [2006] FCA 889, 9 per Finn J., Galea v Federal Commissioner of Taxation (1990) 21 ALD 722 per Hill J.

[18] Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.

[20] Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.

[21] See Federal Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74; (2011) 193 FCR 149, 81- 82 per Ryan, Jessup and Perram JJ and their explanation of the remarks of Fullagar J in Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402, 403.

1. [22] See Davis v Commissioner of Taxation [2000] FCA 44; (2000) 171 ALR 654, 47 per Hill J.

[23] Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation 91 ATC 4546.

[25] Imperial Bottleshops, 4554-4555.

1. [26] See Tisdall v Webber [2011] FCAFC 76; (2011) 193 FCR 260, [128] per Buchanan J, with whom Tracey J agreed.

[27] See Tisdall, above, at [127] per Buchanan J, with whom Tracey J agreed.

[29] Denver Chemical Manufacturing Co v C of T (NSW) [1949] HCA 25; (1949) 79 CLR 296

[30] Examples are CEO Customs v JMI Trading Pty Ltd [2000] VSC 537 at [27] to [30] per McDonald J, Saffron v F. C. of T. (1993) 93 ATC 4456, Ludwigs Canberra Bond Cellar Pty Ltd v Sheen (1982) 46 ACTR 13 at 20 Gallop J, F. C. of T. v Australian Petroleum Suppliers Pty Ltd [2003] VSC 240 at [11] & [12] Bongiorno J, Parry v F. C. of T. 2004 ATC 2333 at [51] & [52], Comptroller-General of Customs v Parker [2006] NSWSC 390; (2006) 200 FLR 44 (NSWSC) at [117] & [118] Simpson J, and Evans v F. C. of T. 89 ATC 4540 at 4554 Hill J.

[31] Bai v FCT [2015] FCA 973 at [34].

[32] Commissioner's Outline of Submissions at [31]-[32].

[33] Binetter v Commissioner of Taxation [2016] FCAFC 163. The relevant decision concerning fraud or evasion and the burden of disproving it being the joint decision of Perram and Davies JJ. Siopis J agreeing in these aspects of the joint reasons.

[34] At [2016] FCAFC 163 [80].

[35] At [2016] FCAFC 163 [81].

[36] At [2016] FCAFC 163 [92].

[37] At [2016] FCAFC 163 [93].

[38] At (1949) 79 CLR 313 Dixon J.

[39] Kennedy v AAT [2008] FCAFC 124; (2008) 168 FCR 566.

[40] F. C. of T. v Futuris Corporation Limited [2008] HCA 32; (2008) 237 CLR 146 at [23]- [25]

[41] Paragraphs [28] to [34], particularly paragraph [31].