1. All 3 stakeholders (the Child Care Service, the Educators, and the parents) voluntarily decided to engage and operate within the statutory framework imposed by the FAL. Each had a financial interest in doing so because each (for different reasons) benefitted from the subsidies which were paid by the Commonwealth. By agreeing to engage with the FAL, all 3 became subject to certain rights and obligations arising under the legislation. The most impactful of these fell upon the operators of the Child Care Service as the body which assumed ultimate responsibility under the FAL for compliance with the legislation in the provision of child care services.
2. While the Applicants are correct to observe that they were entitled to run their private business under the FAL, and I agree in the Minerology sense that the FAL did not oblige the Child Care Service to enter into particular agreements or contracts with Educators and parents, it nonetheless imposed obligations upon them which needed to be observed. I am not persuaded the model they have contended for in these proceedings is consistent with the propositions I have outlined above. One example of this is the Applicants' proposition that the parents were not liable to the Child Care Service for the total child care fees charged, a proposition which runs contrary to s 43 of the Assistance Act. Another is their contention that the Child Care Service was entitled to report in good faith to the department whatever was reported in the Weekly Timesheets by parents and Educators without taking steps to ensure the data it was receiving was correct.

The Applicants' own evidence does not support their contentions

1. BHMH and NQWK told the Tribunal that they understood and at all times were focussed on complying with the FAL in the Child Care Service's operations. I am not prepared to infer that BHMH and/or NQWK were not compliant with the FAL and I do not have to do so because in addition to the concerns I have identified above, the Applicants' own evidence and records as presented to the Tribunal did not establish or align with the propositions for which they were contending.
2. I have already pointed out the gaps in BHMH and NQWK's evidence, the inconsistencies between that evidence and the records of the Child Care Service, the records from the education session in 2014, and BHMH's own admission that the Child Care Service could control the fees set.[285]
3. The Applicants' model had relied on the 'Contracts' as evidence that the parents and Educators independently contracted with each other. A central plank of this proposition was that as part of these 'Contracts,' the Educators struck fees with the parents.
4. I have already found that I am not persuaded that the Educators controlled fee-setting. I have also found I am not satisfied that fees were set with parents by Educators. I will return to that shortly.
5. Whether a contract exists is a question of fact.[286] Labelling a document a contract will not of itself determine whether a contract has been formed.[287] I accept that where there is no evidence or insufficient evidence to confirm a wholly written contract, or there is evidence to suggest it is partly or wholly oral, it is permissible to consider the surrounding circumstances to infer the necessary elements.[288] I accept this can include publicly known facts or matters which are commonly understood.[289]
6. What is significant is that evidence is required.
7. The 'Contracts' before the Tribunal comprised different versions of the document and did not all contain evidence of the essential element of consideration (the fees to be charged). Another difficulty was that many provided for information to be completed about 'Gap Fee Payment Made Direct to Educator by ....', but in many, not all cases, this information had not been completed.[290] In one example exhibited to BHMH's affidavit, this was marked as 'not paid'.[291] These differences were also not explained by the Applicants.
8. The Applicants chose not to lead evidence about how the 'Contracts' were negotiated between the parents and Educators such that a partly oral, partly written contract could be inferred to have arisen between the parents and the Educators. The Applicants argued the business model meant the Educators were free to set whatever fee they wished, but this contention was contradicted by BHMH who conceded under cross-examination that the Child Care Service could control the fees.[292] It was also contradicted by the Factsheet which BHMH and NQWK conceded they had seen, understood and acknowledged on 6 August 2014.[293]
9. The suggestion that it was the Educators who unilaterally engaged the parents via these 'Contracts' was also not borne out by the evidence before the Tribunal.
10. While I accept that the Applicants should not be required to call every conceivable witness or produce every conceivable record about this process,[294] their difficulty in this instance (as I have already noted) is that their contentions were contradicted by or did not align with the contemporaneous documents which were before the Tribunal, other than the Brochure (which I have found to be unreliable). In circumstances, and particularly where the Applicants relied on BHMH and NQWK's bare assertions, I was not persuaded.
11. As to the 'Contracts' themselves, these bore the Child Care Service's logo and I infer this, in addition to the process described in the Manual, would have created a strong impression for the parents signing it that they were contracting with the Child Care Service. The Manual and the Educator interviews also suggested involvement by the Child Care Service in the signing of these documents, reinforcing my view that the 'Contracts' were an adjunct to the enrolment process - which was designed to be managed by the Child Care Service (as provided for by the Manual).
12. As I have already noted, the records of interview with the former Educators were problematic for the Applicants. These were small in number but very detailed and they contradicted the Applicants' contention that the Educators contracted independently with the parents and set their own fees. From these records and other evidence, I infer that many of the Educators were vulnerable themselves - migrants with limited education and command of the English language. These were not sophisticated business operators. I acknowledge their limited understanding of the business operations and that some time had passed such that their recollections in the interviews may have been less accurate than they were in the years in dispute (2014-2016). However, it was for the Applicants to lead evidence to displace their recollections. They elected not to do so.
13. I accept that the Educators were engaged as contractors by the Child Care Service. In saying this, I am acknowledging that their employment relationship was that of a contractor (not an employee) and this impacted how they were paid. The Educator Application Forms and the Checklist (attaching the Policies) inform my understanding of the nature of their engagement with the Child Care Service.
14. The Respondent submits, and I accept, that these arrangements are not limited to these 2 documents but must be evaluated by considering all the relevant circumstances under which the Educators were engaged. This includes the obligations arising under the FAL. The Respondent argued, and I also accept, that the Educators were not permitted to act as independent principals under the FAL. The Manual adopts a consistent approach as did the Service's policies which constrained them. It tends to support the Respondent's view that the Educators were engaged and given authority to represent the Child Care Service in their dealings with parents but were not principals who were free to contract with the parents independently.
15. The Applicants submit that the Child Care Service acted as agents for the Educators. For the reasons I have given this was not supported by the evidence. For example, there is no available evidence that the Educators authorised the Child Care Service to act on their behalf.[295] More fundamentally, I have difficulty with the suggestion that the Educators had authority in that environment to give such authorisation.[296]
16. To the extent it is necessary to characterise the Educator's relationship with the Child Care Service, the evidence suggests the Educators were engaged to provide services on behalf of the Child Care Services and under its banner.
17. I am not persuaded on the evidence that the Educators' status as contractors of the Child Care Service meant they were not subject to its direction. To answer some particular submissions from the Applicants:[297]

(a) the Applicants allege staff counter-signed the 'Contracts' - to my mind the better explanation on the evidence and in light of the Manual is that Child Care Service had an obligation to oversee the provision of care and to ensure the form was completed;

(b) the Applicants alleged Educators chose their own hourly rate (fees) - I have found this not to be strictly the case on the evidence. There were restrictions; and

(c) the Applicants questioned why parents were required to notify both Educators and the Child Care Service if ceasing care if the Educators were not principals - again to my mind this is explicable by good practice (and the Manual) which required both parties to be informed.

1. I believe the better view on the evidence is that the Educators operated as something akin to agents for the Child Care Service. They had some limited authority to represent the Child Care Service, but at all times had agreed and were obliged to abide by its policies and to 'speak well of it'. They had authority to engage parents in providing service but were subject to regular supervision by the Service's coordinators. They were permitted to act on behalf of the Child Care Service to engage with parents and to provide child care services to them. They had no right to independently collect subsidies from the department on behalf of the parents. They were obliged to comply with the processes set out in the Child Care Service's Manual and its policies. They were obliged to use the Child Care Service's documents.

1. I acknowledge that the Child Care Service represented to the Educators in the Manual that they could set fees and collect and keep the gap payments (with some restrictions). The Applicants contended that the Child Care Service could not be said to have any responsibility for gap payments because they were paid to the Educators. Having made this contention, the Applicants have led no evidence about how gap payments were managed. It was as if the Applicants had no knowledge about that side of their operations. The former Educator interviews tend to contradict their evidence, while the Manual suggests that the Child Care Service did not completely absolve itself from collection of gap payments because it made clear that the Child Care Service could assist Educators to recover them, if required.[298]
2. I find it inconceivable that the Applicants could have had no knowledge of these matters, given the Child Care Service's obligations under the FAL and particularly given its reporting and receipting obligations. However, in the absence of evidence other than BHMH and NQWK's assertions, the Tribunal is not in a position to be certain what actually occurred. That leaves me unpersuaded.
3. While I accept the Child Care Service may have permitted or required the Educators to collect the gap payments, as part payment for their services, I don't accept this proves the Educators were contracting with parents independently of the Child Care Service or that the Child Care Service had no interest in the gap payments.
4. The FAL created liability from the parents to the Child Care Service for the total child care fees charged - i.e., including the gap payments. Section 43 of the Assistance Act refers to liability for 'care provided by an approved child care service'. The FAL does not refer to liability between a parent and an Educator. I cannot agree with the Applicants' submission that there is any basis for the words in s 43 to be read differently to infer that the liability to which it refers was a liability to the Educators.
5. I also draw support for this view from Simpson Networks, where the subsidies were necessarily calculated on the basis of the total child care fees charged for care by the service. As the Full Court observed, there the purpose of the fee reduction policy was to 'reduce the liability incurred.'[299]
6. The evidence from the Spreadsheets shows that the Child Care Service represented to the department that liability had been incurred to it for the total child care fees charged. I am not prepared to infer that BHMH and NQWK, or the Family Trust, sought to mislead the department in those reports or failed to report accurately. It therefore was necessarily the case that they were, in good faith, reporting the total liability incurred by each parent. The question of whether a parent had or had not paid their gap payment at the time of reporting and whether it was the Child Care Service or the Educators who would collect them is not relevant to the question, which is whether the liability was incurred under the FAL (see 43(1)(c) of the Assistance Act).

1. To the extent it is required, I am persuaded on the evidence (including the rights and obligations arising under the FAL) that the parents, upon enrolling their children with the Child Care Service, each entered into legal and binding arrangements[300] with the Child Care Service. Under these arrangements, the parents agreed to pay the total child care fees per hour of care per child and the Child Care Service agreed to provide child care services which would be undertaken by the agreed Educator contracted to the Child Care Service. In return for a parent agreeing to pay the total child care fees, the Child Care Service conditionally agreed to facilitate the payment of the CCB and any CCR as per the fee reduction option under the FAL which reduced the amount the parent owed. I say conditionally, because any payment would depend upon the parent's eligibility for CCB by the fee reduction option and possibly CCR. It would also depend upon their incurring liability to the Child Care Service for a session/s of care. Finally, the parents, in enrolling their child/ren, were agreeing to pay fees - a debt which would be recoverable.
2. The Applicants, who had instead contended for contracts between the parents and the Educators, argued there was insufficient evidence to determine the terms of any contractual arrangement arising from the arrangements between parents and the Child Care Service.[301] They point to an 'arrangement' as different in substance to a contract and an agreement which is something less than a binding contract. In support of this argument, they refer to authorities including Federal Commissioner of Taxation v Lutovi Investments[302] and Newton v. Federal Commissioner of Taxation[303]:

In the context of s. 260 an arrangement is something less than a binding contract or agreement, something in the nature of an understanding which may not be enforceable at law (Newton v. Federal Commissioner of Taxation). A similar view has been taken of an arrangement falling within s. 80B (5) (see K. Porter & Co. Pty. Ltd. v. Federal Commissioner of Taxation (1974) 1 NSWLR 536, at pp 542, 544 ; Federal Commissioner of Taxation v. Students World (Australia) Pty. Ltd. [1978] HCA 1; (1978) 138 CLR 251 ). It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it. But in our view it is not essential that the parties are committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it.[304]

1. The Applicants also argue that the Respondent is seeking to impermissibly elevate the role of the FAL to suit his construction of the arrangements between the parties as contractual.
2. The Respondent (unsurprisingly) disagrees. He points to authority which suggests the term 'arrangement' is one which can have a wide meaning.[305] He referred to principles of statutory construction arguing that they did not suggest that the FAL imposed the requirement for a written contract upon the parties, but instead imposed an 'arrangement' for provision of care in circumstances where there was a mutual understanding of binding terms between parents and the Child Care Service - the payment of child care fees in return for services provided.
3. Both parties have referred the Tribunal to the accepted principles for statutory construction to assist it to infer the proper meaning of the term 'arrangement'.[306] The Applicants submitted, and I accept in theory, that the FAL is a beneficial regime, and there may be a need to read the word 'arrangement' in a different manner which is not so 'overly prescriptive'.[307]
4. However, this cannot mean that the Tribunal is permitted to invent or infer meanings where the words in the legislation are plain. That must be the starting point followed by consideration of the beneficial purpose, and it is only where there is ambiguity, that such a purpose may become relevant.
5. In this case, the word arrangement in s 219A does not appear to be open to ambiguity. It is referring to the arrangement which arises between a parent and an approved child care service upon enrolment:

(2) A child is enrolled by an individual for care by an approved child care service if the individual enters into an arrangement with the service for the provision of care to the child by the service.

1. That arrangement could take a slightly different form for each service but implies what I have described - a mutual agreement for the payment of child care fees (which are subsidised) in return for services provided. There is no suggestion it cannot be binding and give rise to an obligation to pay for the services provided. I cannot agree that such a construction would inevitably and impermissibly read words into the legislation.[308]
2. I am satisfied in this instance that there is evidence before the Tribunal that the arrangement gave rise to a binding agreement or the means by which one could be inferred from the following circumstances:[309]
   1. The versions of the Enrolment Form signed by both parties as evidence of an arrangement between the parties for the purposes of s 219A of the Administration Act and in which a parent/guardian acknowledged:

A person with lawful authority of the child referred to this enrolment form,

1. Declare that the information in the enrolment form is true and correct and undertake to immediately inform the [Child Care Service]/Educator in the event of any change to this information
2. Parent has fill [sic] in contract and has agree [sic] to follow the fee payment structure and policies

(a) The acknowledgement of allocation of the parent to a selected Educator, both as noted on the Enrolment form and via the 'Contract';

(b) the obligations and processes under the FAL, which necessarily informed the arrangement and established each party's financial rights and obligations; and

(c) the Child Care Service's enrolment process, including allocation of an appropriate Educator, agreed to by the parent, and agreement of the associated fees per hour per child.

275. The Respondent has submitted, that the arrangement between the Child Care Service and a parent that was contemplated by s 219A of the Administration Act, and the liability contemplated by s 43 of the Assistance Act, was of an enforceable nature. The terms of this arrangement were that parents would incur liability for child care fees in return for receiving child care services. I am persuaded that such terms could be considered contractual even if they were not reduced to specific written terms.[310] Both parties to the arrangement understood they needed to comply with these terms in order to access CCB and CCR under the fee reduction option and this included payment of the total child care fees charged (less any subsidy).

1. The FAL did not specifically require the Child Care Service to enter into written contracts with each parent. Rather, compliance with the FAL was essential to access the promised subsidies. Under the FAL, an enrolment occurred in circumstances where s 43 of the Assistance Act imposed liability for the child care services on the parents once a session of care was provided. There was no suggestion that fees could not be recovered if not subsidised and/or paid.
2. When assessed in their totality, I am persuaded that these arrangements reveal the necessary elements of an offer - of enrolment (by the Child Care Service), acceptance - by the Parents (acknowledged when they signed the enrolment form, certainty of terms (as I have outlined above) and consideration - acceptance by the parent of the fee payment structure and policies and the fees advised for the selected Educator, and a mutual understanding that the parent will incur liability to the Child Care Service for sessions of care (i.e. a recoverable debt)).
3. The evidence the Applicants led around the enrolment process was sparse, highly contrived and conflicted with their own contemporaneous records (which I have preferred). Those records disclose an enrolment process which is broadly compatible with the FAL and which all revolves around the Child Care Service as the operator. The records tend to support the Respondent's contention that a parent enrolling their child with the Child Care Service was primarily engaging with the Child Care Service as the approved provider and would have understood their liability to lie with the Child Care Service.
4. The Spreadsheet compiled by the department also discloses the undisputed amounts the Child Care Service reported.[311] In making these reports each fortnight, I am persuaded that the Child Care Service was confirming for the purposes of s 43 of the Assistance Act that the necessary liability had been incurred by parents for the total child care fees charged for the relevant session/s of care by the service. In other words, the Child Care Service was reporting that a recoverable debt had arisen between it and the parent/s.
5. The department used the data reported by the Child Care Service each fortnight to calculate the CCB and CCR to be paid to the Child Care Service under the FAL for the relevant session of care - i.e., a percentage of the total child care fees charged. This fits with the characterisation contended for by the Commissioner because in paying the subsidies, the department needed to be confident that the reported amounts were 'owed' by the parent to the approved service - the Child Care Service.
6. I do not accept that in making these findings, the Tribunal is inevitably led to the conclusion or a finding that the Applicants and/or the Family Trust have or have not failed to comply with the FAL. As I have noted, the FAL serves to inform the Tribunal as to the circumstances in which the Child Care Service, the parents and the Educators engaged with each other. To the contrary, in reaching my decision on this matter and evaluating the facts of the case, I have understood and relied upon the evidence of BHMH and NQWK that at all times they understood and strove to comply with their obligations under the FAL.

1. The Applicants contended that the Respondent's construction of the arrangements between the Child Care Service and the Educators in respect of the gap payments was hypothetical and unrealistic, but in any event, effectively meant the Child Care Service must have assigned any interest the Respondent alleged it had in the gap payments to the Educator, to be recovered by them as part of their contractual fees for their engagement by the Child Care Service. This, the Applicants contended, had tax consequences which undermined the Respondent's position because it must inevitably mean that the Child Care Service had given away any right it had to these payments before it received them.[312] Thus, said the Applicants, the Family Trust could not be taxed on the gap payments and the total child care fees charged were not assessable to the Family Trust.
2. The Respondent disagrees. He contends the necessary pre-conditions to such an arrangement did not exist in the present case and in particular, because on the facts of this case, there was no present right to the gap payments for the Family Trust to have assigned.[313]
3. The statutory obligations in the FAL required liability to be established between a parent and the Child Care Service for the total child care fees charged as a pre-condition to payment of the CCB. The FAL made no provision for that liability to be assigned to a third party. To the contrary, the framework under the FAL was built around the assumption that the approved service provider would have responsibility for the payments. The Applicants have not led any evidence to the contrary. As I have noted, they have led no evidence around collection of the gap payments.
4. The Respondent's decision relies on the facts in this particular case which included the Family Trust's choice of accrual accounting and the framework of the FAL, and in particular, the preconditions for payment of CCB and CCR under the FAL. Those facts do not establish the necessary pre-conditions for an assignment of any interest the Family Trust had to a third party.
5. Further, as I have noted, what little evidence there was about the gap payments was conflicting. I was not certain that the Child Care Service had not collected some gap payments or in some cases, collected receipts for gap payments paid by parents to Educators.

Summary of conclusions about the total child care fees charged

1. For the purpose of this decision, it is important to record the findings which flow from the reasons I have given.
2. I have found at [87] the various amounts agreed by the parties.
3. I am satisfied that the Child Care Service managed and oversaw the enrolment process
4. I have found at [116], that while the Educators had some latitude with fees, the Child Care Service ultimately controlled the total child care fees imposed on parents.
5. I am persuaded that parents entered into a binding and enforceable arrangement with the Child Care Service on enrolment which required them to pay child care fees in return for child care services.
6. I am persuaded that parents incurred liability to the Child Care Service for those fees in return for receipt of sessions of care as confirmed by the signed weekly timesheets and as reported to the department.
7. I am persuaded that the amounts reported to the department by the Child Care Service are as reported by the department in the Spreadsheet.
8. I am not persuaded on the evidence that the Educators contracted as principals with the parents.
9. I am not persuaded on the evidence that the parents incurred liability to the Educators.

Are the total child care fees charged by the Child Care Service income in the hands of the Family Trust?

1. The primary question in this proceeding is whether the total child care fees charged (comprising both the payments of CCB and any CCR and the gap payments) were income derived by the Family Trust and distributed to the Applicants for the purposes of s 6-5 of the ITAA 97.
2. The Applicants' task was to persuade the Tribunal, on the balance of probabilities, that the total child care fees charged were not income of the Family Trust which operated the Child Care Service. The Applicants' case depended upon the Tribunal accepting their proposition that the Educators contracted with parents such that the total child care fees charged were income of the Educators - i.e. that the parents incurred liabilities to the Educators and any payments were income of the Educators.[314]
3. I have not accepted that proposition. Instead, I have found that the parents incurred a liability to the Child Care Service for the total child care fees charged when they signed the Weekly Timesheets and further that the Child Care Service staff then entered the data on the CCMS and reported it to the department.
4. The Respondent relied on the Family Trust's use of the accrual accounting process to infer that at this point, the Family Trust had derived income representing the total child care fees which were owed to it for the relevant session/s of care provided (regardless of any physical payment).
5. I accept that the use of accrual-based accounting processes does not automatically or solely determine when income is derived.[315] I also accept that BHMH and NQWK told the Tribunal they did not recover payments from the parents and that there is also very limited and uncorroborated evidence before the Tribunal as to how the gap payments from parents were collected/managed. It was for the Applicants to persuade the Tribunal about those arrangements and they have not done so. In any event, the question of liability under the FAL did not depend on whether or not recovery had occurred.[316] The Respondent in his decision had determined that liability was sufficient for accrual accounting purposes because at a particular point in time a recoverable debt[317] arose and income had been derived.[318] The evidence does not persuade me otherwise. In fact it allows me to pinpoint when that liability arose because the FAL provided that it would be incurred and then needed to be reported at specific points in time.
6. I am persuaded that Family Trust, in reporting those amounts to the department, was confirming as required by the FAL, that liability had been incurred by the parents for child care services provided. The liability being reported was a liability incurred to the Child Care Service under the FAL for the total child care fees charged. As such, the Family Trust was reporting that a recoverable debt had arisen against the parents in question for the total child care fees charged for the sessions of care provided. It follows that for accrual accounting purposes, the Family Trust (as the operator of the Child Care Service) had by this point 'derived' income arising from a recoverable debt but had not recovered the debt owed to it. That much was necessary to trigger payments of CCB and any CCR to the Child Care Service by the department as a subsidy specifically designed to reduce (but not extinguish) the parents' liability.
7. The Applicants have contended that the Respondent's decision is open to challenge because the balance of the fees was not recovered. I am not persuaded by the argument on the evidence presented. Regardless of what was and wasn't recovered from parents by way of fees and regardless of whose job it was to recover the gap payments, the Family Trust, as operator of an approved child care service, derived income from the parents by reason of the liabilities which arose under the FAL and were reported to the department as owing, as evidenced by the Spreadsheets. The reported liabilities were for the total child care fees charged.

1. For completeness, I note that income of the Family Trust included the amounts of operational support funds received in the amount of $3,722,550 (as reported in the Family Trust's returns), as well as an additional amount of $1,408 in gross interest identified by the Applicants during the course of these proceedings.[319] These do not appear to be in dispute.

Balance of the subsidies paid to the Child Care Service

1. On the advice of Mr Knoblanche, the Applicants had not sought to contest that the balance amounts in the CCB Transfer Account for each year was (regardless of the outcome) income of the Family Trust.[320] For completeness, I note these are included in the income of the Family Trust but are also not in dispute.

1. The Applicants had referred at the commencement of the hearing to s 52-150 of the ITAA 97. This provides that payment of a child care benefit, or family tax benefit (to a parent), is exempt income for the purposes of income tax. To the extent the Applicants later sought to clarify that the provision was not relied upon by the Applicants as a ground of their applications but served to aid as to the overall legislative framework, I accept that submission. It was not disputed that the parents were the beneficial owners of those payments.[321]

Was any assessable income offset by allowable deductions?

1. The Applicants have acknowledged their onus in respect of deductions. They contended if they were successful in persuading the Tribunal about the characterisation of the total child care fees, then by means of their evidence, they had discharged their obligation to prove the deductions claimed by the Family Trust, as reported in its returns. I have not been so persuaded.
2. In the alternative, the Applicants argued that if they were unsuccessful on the characterisation issue, they had nonetheless successfully proved their pre-existing deduction claims and further, that the amounts paid by the Family Trust to the Educators should now be properly treated as allowable deductions for the purposes of s 8-1 of the ITAA 97.[322]
3. The Respondent contends that the Applicants' case in respect of deductions fails on 2 grounds - there is insufficient evidence to prove the elements of s 8-1 of the ITAA97 in respect of their claims and there is insufficient evidence to substantiate their claims in respect of any payments made to the Educators.[323]
4. To be frank, there appeared to be a complete misalignment between the parties in their various understandings about deductions.
5. At Objection, the Respondent, in determining the allowable deductions for each year in dispute:

(a) determined any losses or outgoings which he found met the requirements of s 8-1 and related to payments to the Educators for the Family Trust should be reduced by 30%; and

(b) disputed 'approximately $400,000' of other 'business expenses' claimed'[324] but adopted a conservative approach to all outgoings of the Family Trust (subject to review and accepted all the adjustments made) and allowed this amount in the Objection Decision. The Respondent then reserved his right to put the Family Trust to proof on these expenses on review.[325] He has maintained that position throughout this proceeding, including following the provision of MFI-4 to the Tribunal.

1. Despite this, the Applicants appear to have assumed there is little dispute around the deductions. I will address first, the ABA and the records issue before turning to the deductions in detail.

1. Before the Tribunal were the financial statements of the Family Trust, copies of ledgers, and the tax returns for each of the Applicants. The Applicants gave evidence about their returns and NQWK, as bookkeeper, gave evidence about the ledgers. Finally, Mr Knoblanche gave evidence about how the returns and the financial report were prepared and presented the ABA for BHMH and NQWK (but not HYDW).
2. The Applicants contend that the ABA supports their contention that both BHMH and NQWK had no unexplained wealth.[326] Consequently, they argue that the only issue to be determined in these proceedings is whether the total child care fees charged were income of the Child Care Service.
3. I have already observed that while I accept these documents were prepared in good faith, they:

(a) were not prepared by an independent expert;

(b) did not involve the interrogation of primary records;

(c) were prepared in a manner which is wholly reliant upon instructions from BHMH and NQWK;

(d) assumed the correctness of the characterisation of the total child care fees charged which has now been found to be incorrect; and

(e) appear to assume the correctness of the amounts claimed from the department based on the reported total child care fees charged, which I cannot accept.

1. It follows that the ABA rises no higher than the records and instructions provided to Peak and Mr Knoblanche.[327] It also follows that the ABA has not taken account of the total child care fees charged.
2. In the circumstances, I am not persuaded that the ABA provides a sufficient accounting of BHMH and NQWK's position to discharge their onus.

Records relating to the operation of the Child Care Service

1. The lack of records relating to the operations of the Child Care Service added to the Applicants' difficulties in discharging their onus of proof for the income side but it also impacted on this side of the ledger. I have not accepted BHMH's explanations about what happened to these records, and I have not preferred the uncorroborated evidence given by BHMH and NQWK which attempted to describe the day-to-day operations of the Child Care Service as complete or qualified. It is difficult for the Applicants to counter the records of the department's investigation, the Spreadsheet, or the Educator interviews without producing full records of what transpired between them, the Educators, and the parents. Without such records and absent any evidence from Educators or coordinators who checked the Weekly Timesheets and parents and Educators as to the total child care fees charged and the collection and treatment of the gap payments, I could not be confident about the deductions associated with the payments to the Educators. Nor could I be confident as to the income of the Family Trust or by means of the resulting distributions, the income of the Applicants. This is particularly relevant to my assessment of the 30% reduction which is relevant given my findings on the income side.

1. The Respondent formed the view from the evidence he had gathered during his investigations, that there was a material basis to doubt whether child care services had in fact been provided for all the sessions of care reported to the department and resulting in CCB and any CCR payments to the Child Care Service.[328] That evidence which arose from the department's investigations and the interviews with former Educators was before the Tribunal.[329] The Respondent did not dispute that he had been required to take a 'broad brush approach' in landing on a 30% reduction based on these concerns but contended it was consistent with the default methodology process and defensible.[330] While he is required to demonstrate the process deployed for the purpose of his decision, the Respondent is not required to be able to identify the Applicants' deductions with absolute precision.[331]
2. The Applicants did not lead any evidence which challenged the Respondent's reasons for the 30% reduction. That is to say, they did not lead evidence which challenged either the department's investigative records or the former Educator's records of interview which were both before the Tribunal or contest the size of the percentage reduction. They had not sought to challenge the department's findings in 2014 and did not contest the cancellation of the approval under the FAL.
3. The Applicants otherwise contended there were sufficient records before the Tribunal to explain their expenses [332] and in any event, they contended the Respondent had conceded the amounts reported to the department.[333] I cannot accept the Respondent has made any such concession. He only proposed it be agreed or found by the Tribunal that 'the total "Fee Charged" amount entered by [the Child Care Service] for the relevant years was as shown in the Departments records'.[334] He did not agree the full amounts recorded in the CCMS were allowable deductions and absent records maintained that the Applicants had not discharged their onus.

1. Based on the available evidence, I cannot be confident that the CCB and any CCR received by the Child Care Service was based on reports of total child care fees for child care services which were actually all provided.
2. It was for the Applicants to persuade me that the 30% reduction was incorrect. The Applicants have not led evidence to contradict the evidence which questions whether the services were provided or the basis for the 30% reduction. In such circumstances, I am in no better position than the Respondent in considering the question of the deductions and am not in a position to be satisfied that there is a basis to disturb the Respondent's decision on these deductions.

1. The Applicants instructed Mr Knoblanche to prepare the Financial Report but otherwise do not appear to have addressed the question of whether the $3,319,955 in expenses are properly characterised as deductions under s 8-1 of the ITAA 97.
2. The Respondent has conceded amounts at MFI-4 which are reflected in Table 1 in these reasons with the reservation that he does not concede that the amount of $3,319,955 is wholly deductible.[335] However, he has not identified what the exact amount is which is disputed from this global amount. The Tribunal is left to infer it might be the roughly estimated amount of $400,000 from objection (see below).
3. The Applicants appear to have (incorrectly) assumed this amount is agreed and the matter is not in dispute. They have produced Mr Knoblanche's evidence, but he conceded he had not examined all primary documents (such as receipts) and had relied on his clients' instructions in putting that together. Likewise, the original financial records for the Family Trust do not constitute primary records.
4. In his Objection Decision, the Respondent relevantly used the following method to find the entire amount of $3,319,955 as allowable deductions subject to review on the following basis:[336]

Rely on the accounting records and tax returns prepared by Peak Partnership in respect of all other outgoings of the Trust including the tax reconciliations prepared each year to adjust for timing differences and other non-deductible expenditure (e.g. entertainment and private use of motor vehicles etc). Our forensic analysis of bank records called into question the deductibility of some further $400,000 of transactions, but following the interview with officers from Peak Partnership, we have determined to adopt a conservative position and accept all of the adjustments they have made - other than the apportionment of educator payments in (D) above. (If judicial review of this objection decision is sought, the Commissioner notes in the interest of transparency that he will put the taxpayer to proof on these further matters in those proceedings.)

1. In the absence of evidence which would allow the Tribunal to assess those expenses, I am unable to be satisfied on the balance of probabilities that the business expenses have been substantiated. However, my understanding from what has been presented to the Tribunal is that this ultimately means the amount of $3,319,955 remains undisturbed.

Have the Applicants established that the assessments were excessive?

1. In light of the above, it follows that my answer to this is 'no'. I am not persuaded on the evidence and the submissions of the Applicants that the assessments were excessive.

Have the Applicants established their taxable income?

(a) provided sufficient evidence to demonstrate that the total child care fees charged were not income of the Family Trust. I have not accepted that proposition;

(b) established the other income of the Family Trust and any deductions. I have not been persuaded to depart from the Respondent's objection decision in so far as it applies to either the income or the deductions side of the ledger and have pointed to the lack of records and evidence which would support such a decision;

(c) demonstrated the income of the Family Trust was as set out in its tax returns for the years in dispute. In light of my findings, I cannot accept these were correct; and

(d) demonstrated the income of each of the Applicants was as set out in their tax returns for the years in dispute. Consequent upon (c), I cannot accept that the returns for each of the Applicants for each year in dispute were correct.

1. The Family Trust resolutions had the effect of distributing in each year in dispute, its net income to each of the Applicants.[337] It follows that the appropriate share of the net income which applies for each Applicant, once the allowable deductions have been applied, is income in their hands for the years in dispute.[338]
2. I have already observed that HYDW demonstrated very little personal understanding of her tax position as reported in her returns. It very lately became apparent that distributions were not made to her and as such her asset position has been misrepresented.

The recent decision in SNA Pty Ltd and Commissioner of Taxation

1. In supplementary submissions, lodged after the final hearing day, the Applicants sought to draw to the Tribunal's attention to the recent decision of the Federal Court in S_.N.A Group Pty Ltd v Commissioner of Taxation_ [2025] FCA 240 ('S.N.A') where at [115] Logan J made the following observation:

The cases I have cited above (and those referred to in them) about inferring the existence of contracts in circumstances of great informality in business show that the informality of relationships between entities in the Coronis group are hardly unique. Perfection in documentation does not dictate eligibility to a deduction under s 8-1 of the ITAA1997. The disparity in financial resources and a related ability to conduct taxation appeal proceedings either in this Court or in the Administrative Review Tribunal between many in small business and the Commissioner is great. Of course, the informality of inter-entity relationships within the Coronis group made for challenges in discharging an onus of proof. But great injustices can be visited upon those in small business or who have retained those habits, if the Commissioner does not bring to bear at the audit stage an understanding grounded in the realities of commerce.

1. The Commissioner of Taxation has subsequently filed an appeal against the primary judgment in S.N.A.[339]
2. The Respondent sought leave to lodge supplementary submissions responding to the Applicants' submissions. He argued that in this case, the Child Care Service had a positive statutory obligation to create and maintain records. He also submitted that S.N.A could be distinguished from this case given the Applicants in this case did not allege a course of conduct which could be used to infer an agreement in the absence of documentary records evidencing a contract and in such circumstances, the observations made by the primary judge in S.N.A cannot assist.
3. S.N.A. was a case which concerned the denial of deductions by the Commissioner of Taxation. His Honour's observation was made drawing on prior authorities, including observations made by Allsop J in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, at [369] and the following from Kennett J in Chiodo v Silk Contract Logistics [2023] FCA 1047, at [8]-[9] in the context of determining whether a driver providing cartage services was an employee or a contractor and his Honour was required to characterise the employment relationship:

Where there is not a written contract, the identification of the parties' contractual rights must proceed somewhat differently but the fundamental task is the same: the parties' contractual rights and obligations are to be ascertained and characterised. The question remains what the parties' legal rights and obligations were, rather than how they behaved in the performance of their contract (Secretary, Attorney-General's Department v O'Dwyer [2022] FCA 1183; 318 IR 216 at [29]-[33] (Goodman J)). However, that distinction obviously becomes more complicated where the contract is not written and its terms are to be inferred in whole or in part from the parties' conduct. The terms of an oral contract may not be limited to express terms; terms may be inferred from the circumstances, including a course of dealing between the parties, or implied where necessary for business efficacy: Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; 406 ALR 678 at [21]-[22] (Kiefel CJ and Gageler J).

Where there is no written contract and no evidence of a particular conversation in which a contract was formed orally, evidence of the parties' conduct must necessarily be considered in order to draw inferences as to whether the meeting of minds necessary to create a contract has occurred and what obligations they have thereby undertaken (see Personnel Contracting at [177] (Gordon J, Steward J agreeing)).

1. In the present case, the Respondent has alleged the parents were liable to the Child Care Service for the total child care fees charged for services provided. The Applicants disagreed and bore the onus of convincing the Tribunal that this was incorrect . In seeking to discharge their burden, they did not contend that there was no written record of the agreement they allege existed between the parents and the Educators or a partly written, partly oral record.[340] Instead they have relied on the 'Contracts' and submitted that,

they prove by their evidence, corroborated by contemporaneous documents, how the FH Family Trust earnt its money, and that it at no point had an enforceable debt against the Parents for the total childcare fee payable.[341]

1. The Applicants made a forensic decision not to lead evidence which could have informed the Tribunal about any circumstances surrounding these documents (the 'Contracts' and the Checklist), but chose not to do so.
2. To the extent there was any absence of records or evidence in this proceeding it has arisen in circumstances which are different to S.N.A because the Applicants made a decision not to lead evidence about that matter or alternately because, they had not retained records of the business but had lost or destroyed them.

The Applicants' complaints about procedural issues

1. The Applicants raised a number of complaints about the conduct of the Respondent in the course of these proceedings, namely:[342]

(a) that relevant documents had been withheld from them in that the Respondent had not lodged 'all documents relevant to the decision' with the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act (1975) (Cth). The documents to which the Applicants particularly referred by way of this complaint were records of the Child Care Service;[343]

(b) the Commissioner unreasonably insisted on putting the Applicants to proof throughout the proceeding; and

(c) the Commissioner's case evolved throughout the proceeding, often, without notice to the Applicants.

1. In respect of the last of these, the Applicants made submissions which referred to the Respondent's obligation under s 56 of the Administrative Review Tribunal Act (2024) (Cth) ('the Tribunal Act') which replaced the former s 33(1AA) of the Administrative Appeals Tribunal Act 1975 (Cth). They contended that the Respondent was not permitted or should not (in light of his obligation to assist the Tribunal under s 56 of the Tribunal Act) change his pleaded argument without adequate notice to the Applicants.[344]
2. I acknowledge that these proceedings have had a long gestation. Statements of Facts, Issues and Contentions (SFICs) and the Applicants' evidence were lodged in 2023.
3. While I accept, the Respondent's pleaded position appears to have matured over the course of the proceedings in respect of the contractual argument, it was fairly disclosed in the Respondent's objection decision, and his SFIC does not foreclose the argument as developed.[345]
4. The Respondent had also consistently contended for the position he adopted at hearing in respect of the FAL and I note there had been substantial and often aggressive correspondence flowing between the parties on the issue prior to the hearing. While I accept the Applicants do not agree with the Respondent's position, I do not accept they had no notice of it.
5. In the circumstances and given the protracted time in reaching a hearing[346], it would have been useful to have amended SFICs from both parties ahead of the hearing. Both have alleged changes in each other's cases as they were argued.[347] I note that the Applicants sought by consent of the Respondent and were granted leave mid-hearing to amend their grounds of objection.
6. I also note that the Applicant acted on their complaint about the Tribunal documents well in advance of the hearing and additional Tribunal documents were lodged with the Tribunal prior to the hearing of the applications. That appears to have addressed that issue.
7. The Applicants have also taken particular issue with one sentence in the Respondent's closing submissions.[348] The wording is unfortunate. The Applicants have focussed upon it. I have not had regard to it.
8. Ultimately, the parties were afforded 7 days for the hearing of evidence and 2 days a few weeks later for their closing submissions, plus an opportunity to lodge written submissions and supplementary submissions. Both sides were represented by experienced counsel and solicitors. I can find no reason to suggest that the Applicants have not had a fair opportunity to put their best case before the Tribunal.
9. That said, the Respondent is a model litigant and is bound by the Legal Service Directions 2017 (Cth) and particularly Appendix B to the Directions. To the extent that the Applicants consider that they have any proper basis to suggest that the conduct of the Commissioner of Taxation has not abided by his obligations in the conduct of these proceedings, that is a matter about which they may write to the Commissioner of Taxation or the Office of Legal Services Coordination in the Attorney-General's Department.

Conclusion, primary tax (BHMH, NQWK and HYDW)

1. On the evidence presented to the Tribunal, and for the reasons I have given:

(a) I am satisfied that the total child care fee charged was assessable income of the Family Trust (which operated the Child Care Service) and by virtue of the distributions made to them in the financial years 2014-2016, shares of this income is income of each of the Applicants;

(b) I am not persuaded that the Applicants have discharged their onus to demonstrate that the Respondent's Objection Decisions were excessive;

(c) I am also not persuaded that the Applicants have established what their actual income was or should have been for the years in dispute; and

(d) I am not persuaded the Applicants have discharged their onus in respect of this exercise.

1. The Respondent submits, and I understand that the findings I have made require recalculation of the primary tax owed by BHMH, NQWK and HYDW in accordance with the amounts at Annexure A and may require further amended assessments to issue to the Applicants. Whatever action needs to be taken can be taken by the Respondent pursuant to s 14ZZL(1) of the TAA.
2. The appropriate order in light of this is variation of the decisions under s 105 of the Tribunal Act.

1. The Respondent had issued penalty assessments to each BHMH and NQWK at the rate of 50% for each of the disputed years under s 284-75(1) of Schedule 1 to the TAA on the basis that they had shortfall amounts resulting from statements which were false or misleading in a material particular resulting from recklessness as to the operation of the tax laws.[349]
2. The Respondent contended that the conduct relied upon in determining that the behaviour was reckless included:

(a) that it was conceded that there was no intention to pay the amounts to HYDW in accordance with the 2014 Resolution, the 2015 Resolution and the 2016 Resolution of the Family Trust; and

(b) not providing proper substantiation to Peak of:

1. the obligations that existed between the Child Care Service and the Educators, and the Child Care Service and the parents, which formed the foundation of the entitlement to receive CCB payments from the department;
2. the amounts received by the Family Trust from the department; and
3. the amounts paid to Educators.

1. Before the Tribunal, the Applicants reserved their position on an allegation that the increased penalty notices issued to BHMH and NQWK were invalid because the Respondent had already determined that no penalty applied but did not advance it.

The Tribunal's role in considering the penalty issues

1. The Respondent has suggested in submissions that the Tribunal, in considering the penalty issues, 'stands in the shoes of' the Respondent. I note that consistent with its objectives which include independence and fairness,[350] the Tribunal generally exists to provide an independent and fair mechanism for review of government decisions.
2. I say 'generally' because that task is modified in the tax context given the operation of s 14ZZK of the TAA. Just as on the primary tax issues, BHMH and NQWK bear the onus of persuading the Tribunal that the Respondent's Objection Decisions on penalty should be set aside.

1. The term 'recklessness' in the context of tax penalty was considered by the Full Court of the Federal Court in Hart v Commissioner of Taxation[351] per Hill and Hely JJ. Their Honours observed:[352]

Recklessness is a concept well known to the law, particularly in the fields of tort and criminal law. In those fields, recklessness will usually be found to have been established if the person's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. In some contexts a subjective test is applied, but in others the test is objective.

In BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164; (2001) 46 ATR 347 at 364 Cooper J made the following observations in relation to recklessness in the context of s 226H: Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.

1. Practice Statement Law Administration 2012/15 also states that:[353]

Recklessness assumes that the behaviour in question shows a disregard of the risk or indifference to the consequences that are foreseeable by a reasonable person. However, the entity does not need to actually realise the likelihood of the risk for it to be reckless.

1. BHMH and NQWK contend that the penalty assessed for each of them should either not have been imposed or, if the Tribunal finds a tax shortfall existed, should be imposed at a lesser rate, or remitted for the following reasons:[354]

(a) BHMH and NQWK's conduct did not constitute recklessness - both had complied with the FAL and the department's policies in their conduct of the Child Care Service; and > > (b) both lodged income tax returns for the disputed years and in respect of those returns, and in this, they argued: > > 1. they took reasonable care in lodging them and had adopted a consistent approach - i.e. they were not recklessly indifferent; > 2. the positions they took in their returns were reasonable in the circumstances and given the debate about the income of the Family Trust; > 3. both used a tax agent (Peak) which took reasonable care in preparing their returns and they had supplied all necessary information to Peak; > 4. Mr Knoblanche, who gave evidence on behalf of Peak, had not identified any reason to doubt the accuracy of the information provided to Peak by BHMH and NQWK; and > 5. the Family Trust's 'bookkeeping practices were meticulous,'[355] demonstrating they took appropriate care and further, that BHMH and NQWK 'applied careful consideration to how their income should be reported.'[356]

2. The Respondent submitted that the penalty imposed should be maintained. He submitted the following conduct suggested recklessness:

(a) despite knowing their obligations under the FAL, both BHMH and NQWK chose to run their business in the way they did; > > (b) they failed to properly substantiate for Peak, their obligations under the FAL and, the amounts they received from the department and paid to Educators; > > (c) they failed to seek advice about how they should report income and expenditure of the Family Trust; and > > (d) different amounts were reported to the department to obtain the subsidies to what was reported to the Australian Taxation Office.

1. For the reasons which follow, I am not persuaded on the evidence that the Applicant has demonstrated that the penalties imposed were excessive and should be reduced.
2. First, as to whether any advice was sought from Peak about the treatment of the total child care fees charged, I prefer the evidence of Mr Knoblanche to that of NQWK.[357] NQWK contended under cross-examination that advice had been sought from Peak about this issue, but that assertion was not supported by any contemporaneous records, and had not been mentioned in her own affidavit.
3. Mr Knoblanche conceded he did not have day-to-day contact with BHMH or NQWK during the years in dispute but had been Ms Marsh's supervisor. Further, he had undertaken a detailed review of the client files before giving evidence. He was firmly of the view that no such advice had ever been sought from Peak.[358]
4. I am satisfied that the risk presented by their treatment of the total child care fees charged was foreseeable by BHMH and NQWK prior to the lodgement of the first of the returns for both the Family Trust and BHMH and NQWK.[359] By that time , BHMH and NQWK had familiarised themselves with the FAL (on application for approval) and had attended the education session with the department.[360] At that session, they had been warned inter alia that it was the Child Care Service, and not the Educators, who were responsible for enrolment, reporting, fee setting and collection.[361] There is no evidence that BHMH or NQWK did anything about this advice from the department, including raising it with Peak or seeking advice. To the contrary, NQWK told the Tribunal that she and BHMH explained to Peak how the CCB payments were to be treated prior to Peak's preparation and lodgement of the tax returns for 2014.[362] Mr Knoblanche also told the Tribunal, and I accept, that the couple 'was very strong on their view that what they were presenting us with is what they were taxed on'.[363]
5. What was reported to the Respondent in those tax returns was inconsistent with the weekly reports lodged by the Child Care Service with the department. BHMH and NQWK would have been aware that under the FAL, the amounts reported to the department directly affected the subsidies paid to the Child Care Service. While the approach Peak adopted in each of the 2 years' subsequent returns was consistent with the first year's return, that does not make their approach 'reasonable', or persuade me that in all the circumstances they took 'reasonable care'.
6. I also do not agree that the Tribunal can be assured from Mr Knoblanche's evidence that he was satisfied with the information given by BHMH and NQWK to Peak. Mr Knoblanche's evidence under cross-examination in respect of the financial statements prepared for the Family Trust was that the work performed by Peak was subject to a disclaimer, 'we are not required to verify the reliability, accuracy or completeness of the information provided to us'.[364] Further, in its letter of engagement, Peak warned BHMH and NQWK that it 'was going to rely on the records the clients provided to Peak Partnership' for the purposes of preparing the tax returns.'[365]
7. Next, I acknowledge that NQWK was quite transparent in her use of different ledger and bank accounts for different payments associated with the Child Care Service.[366] Her approach to the ledgers and accounts was consistent with BHMH and NQWK's explanation to Peak of how the CCB payments were to be treated. However, in the circumstances, I am not satisfied this negates a finding of recklessness in circumstances where NQWK was put on notice by the department about matters which should have caused her to reflect and take advice on the system of accounts she had established.
8. The available evidence suggests that NQWK did not possess any formal qualifications or expertise as a bookkeeper, that she worked alone, and, as I infer from the evidence, that she 'learned on the job' by asking questions of Ms Marsh.[367] I cannot identify any evidence which would support the Applicants' assertion that the bookkeeping undertaken in this case was 'meticulous' but even if it was, that does not mean it is correct or absolve the Applicants' from their obligation to reflect on what the department told them and take professional advice.

1. BHMH and NQWK had submitted that should the Tribunal form the view that they did not take reasonable care (as opposed to having been reckless as to the operation of the tax laws),[368] they should be protected from penalties under the safe harbour provision given they had used Peak to prepare and lodge their returns.
2. I have declined to reduce the penalty imposed at 50% for recklessness. However, even if I am wrong in that finding, the evidence suggests that BHMH and NQWK failed to provide all relevant tax information to Peak.[369] In that regard, I refer to and rely upon the fact that BHMH and NQWK attended the educational session conducted by the department on 6 August 2014 but it appears from email records that they did not inform Peak of the department's advice and instructions because Mr Knoblanche told the Tribunal, and I accept, that the first Peak knew of the tax issue was sometime after the Respondent's audit commenced, in May 2018.[370]
3. There was also no evidence before the Tribunal that BHMH and NQWK ever gave Peak a proper accounting of the compliance issues arising from the department's investigation in 2014, or the true circumstances which led to their approval being cancelled.

1. The Respondent has a broad discretion[371] to remit part or all of the penalty imposed[372] where he is satisfied, having regard to the particular circumstances of the taxpayer, that it is appropriate to do so.
2. The Tribunal, in considering whether penalty should be remitted, must consider the facts of the particular case, but it is open to the Tribunal among other things to remit if satisfied that imposition of penalty provides an unreasonable or unjust result. It may also be appropriate on particular facts where an unintended result arises.[373] The question of whether a taxpayer has adopted a reasonably arguable position may in some cases also be relevant to the question of whether to remit.
3. A relevant consideration is whether there are circumstances which 'could be regarded as mitigating the taxpayer's behaviour in some way.'[374]
4. I have already found that the position adopted by BHMH and NQWK was not reasonably arguable. In this, I particularly refer again to the education session conducted by the department on 6 August 2014, well before the first tax returns were lodged.
5. BHMH and NQWK asserted that it was appropriate to remit because 'the Commissioner ignored attempts by BHMH to assist the audit process by providing information'[375] once they became aware of it. They have not referred the Tribunal to evidence which supports this contention.
6. BHMH and NQWK also asserted that the Respondent, in issuing the amended assessments, ignored the Family Trust's expenditure which exceeded the amounts claimed as deductions. The Applicants bore the onus to persuade the Tribunal that the amended assessments were excessive, addressing both sides of the ledger. The Respondent had allowed deductions but found that the reduction of 30% was appropriate on the basis that he was not confident he could accurately conclude they had all been incurred or were connected with the family day care services provided.
7. I have also acknowledged that despite some reservations, the Respondent erred on the side of caution and allowed approximately $400,000 in deductions at Objection.[376]
8. I have made findings in respect of the deductions issue (above). In doing so I have concluded that the Applicants have not discharged their onus in respect of the deductions issue. I have noted the Applicants made a forensic choice not to lead evidence to address the 30% reduction.
9. It is not otherwise clear how either of these submissions mitigate BHMH or NQWK's culpability in respect of the positions they have taken.
10. I cannot identify any other circumstances in this case which would warrant the remission of the penalty imposed.
11. On this basis, I am not persuaded there is a basis to remit the penalty imposed upon BHMH and NQWK.

1. I have found that for each of the relevant years, the total fee charged is the assessable income of the Family Trust.
2. I am not persuaded there is a basis to disturb the Respondent's decisions on penalty in respect of BHMH or NQWK.
3. I appreciate the penalty will need to be recalculated in light of my decision on the primary tax decisions relating to BHMH and NQWK. Whatever action needs to be taken can be taken by the Respondent pursuant to s 14ZZL(1) of the TAA.

3, 4, 5, 6, 7, 10, and 11 February, 3 and 4 March 2025

Table 2 - comparative net income amounts for the Family Trust

As contended for by the Respondent at hearing [377]

[3] Practice Statement PS LA 2006/7 which explains how and when the Commissioner of Taxation may inter alia issue multiple assessments for the same underlying amount of income tax to different taxpayers where there is doubt as to where the true tax liability lies. Where the Commissioner of Taxation issues alternate assessments, he is not to undertake 'double recovery' of the tax assessed, but instead will only recover the ultimate amount from one or more of the entities assessed.

[9] The Company was incorporated on 12 December 2011 and was deregistered in August 2016. The Tribunal understands that the Australian Securities and Investment Commission reregistered the Company at the request of the Respondent.

[10] The Family Trust was settled by trust deed dated 12 December 2011.

[12] Hearing Book Tab 11.77, Tab 11.78, Tab 11.79 pages 5657-9.

[13] The resolutions in favour of BHMH and NQWK otherwise remained the same for each year in dispute. Ibid.

[14] The child care industry is co-regulated by the Commonwealth and the States and Territories.

[15] The department was relevantly called the Department of Education, Employment and Workplace Relations (DEEWR) at the time when the Child Care Service applied for approval. Machinery of government changes meant that at different times during the years in dispute, different departments had responsibility for the FAL, including Department of Social Services, Department of Education, Department of Education and Training and Department of Education, Skills and Employment (DESE). Throughout these reasons I have simply referred to these collectively as 'the department' for ease of understanding.

[16] Formerly the Department of Human Services, and since 2019 known as Services Australia. This is an executive agency within the social security portfolio. For ease of reference, I shall refer to this entity as 'the services department' throughout these reasons. The services department administered the child care management system (CCMS) via which child care services were required to report under the FAL. The Department of Social Services is the executive department within the social security portfolio. Where necessary in these reasons I shall refer to it as DSS.

[19] In these reasons, the term 'session of care' has the meaning given by the Assistance Act, s 3 which relevantly defines the term to have the meaning given by a determination in force under the Assistance Act, s 9 - i.e. a session of care determination.

[21] Ibid, s 49. While it is the parent who is eligible to claim the CCB, if they are able to proceed by way of fee reduction option, the approved child care service can reduce the fees which would be charged in anticipation of receipt of the subsidy which will be paid (Administration Act, s 219B).

[22] Assistance Act s 41 which provides 'an individual may be eligible for child care benefit by fee reduction for care provided by an approved child care service' and s 43 which provided that 'an individual is eligible for child care benefit by fee reduction for a session of care provided by an approved child care service...'. See also Secretary, Department all of Education and Training v Simpson Networks Pty Ltd [2019] FCAFC 239 at [101].

[23] The parent pays total child care fee charged by the approved child care service minus any CCB.

[25] Transcript of hearing 6 February 2025, page 47, lines 21-23.

[27] Administration Act, s 3 defined 'an approved child care service' to include an approved family day care service.

[28] Assistance Act, ss 42 and 43 and in particular, s 43(1)(c) which makes clear that whether or not the liability has been discharged is irrelevant.

[29] The Applicants also referred the Tribunal to the primary judgement in Simpson Networks v Secretary, Department of Education and Training [2019] FCCA 804; 344 FLR 200 at [43] per Egan J on that basis that it was not disturbed by the FCAFC decision. There Egan J stated ' "[s]ection 43 does not stipulate by what means a 'liability to pay for the session' might arise." As will be seen, the Applicants rely upon the argument that s 43 does not stipulate liability to the Child Care Service.

[31] Assistance Act, ss 57EAA, 57EA and 57F provided for quarterly and annual payments of CCR.

[34] Administration Act, s 219QC in respect of weekly payments of CCR where the parent had elected to have CCR paid to the service.

[36] Hearing Book Tab 6 [25]-[26]; Tabs 6.11 and 6.12.

[37] Ibid [24], Tab 7, [23]-[24].

[39] Hearing Book Tab 6 [25]-[26]; Tabs 6.11 and 6.12.

[40] Hearing Book Tab 7 [25] - NQWK told the Tribunal the costs of any materials provided were offset against the payments made to Educators from the subsidies received.

[41] TR 98/1 | Legal database.

[42] Ibid, [9]. See also Henderson v Federal Commissioner of Taxation [1970] HCA 62; (1970) 119 CLR 612.

[44] Ibid, [27].The Commissioner of Taxes (South Australia) v. The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69; (1938) 63 CLR 108 and at 155 ('Carden's case').

[45] Hearing Book Tabs 11.1, 11.2, 11.3, 12.1 and 12.3.

[46] Hearing Book Tabs 11.209, 11.210 and 11.211.

[47] Hearing Book Tabs 6.108, 12.2 and 12.4.

[49] Hearing Book Tabs 13.900, 13.901, 13.902 and 13.903. By consent of the parties, extracts of each document were exhibited to the Tribunal.

[50] Administration Act, ss 219F(2) and 219(G).

[52] Only the name of the Applicants' accountant, Mr Knoblanche, and his firm, Peak Partnership Pty Ltd ('Peak'), has been disclosed in these reasons.

[53] [2018] FCAFC 212; (2018) 266 FCR 385; 109 ATR 119 ('Cassaniti') at [88].

[54] Commissioner of Taxation v Ross [2021] FCA 766; (2021) 85 AAR 194, [48] ('Ross').

[55] [2018] FCAFC 212; (2018) 266 FCR 385; (2018) 109 ATR 119 at [88].

[56] [1983] 1 NSWLR 1; (1983) 13 ATR 825; (1983) 70 FLR 447; (1983) 44 ALR 607; 83 ATC 4015.

[57] Woellner, Robin; Zelter, Julie --- "Satisfying the Taxpayer's Burden of Proof in Challenging a Default Assessment- the Modern Labours of Sisyphus?" [2014] JlALawTA 11; (2014) 7 Journal of the Australasian Law Teachers Association 119 referring to K Wheelwright, 'Taxpayers' Rights in Australia' (1997) 7 Revenue Law Journal 226, 235-6, 237; Ross, [48(9)].

[59] [2021] FCA 766 at [66]; [2021] FCA 766; 174 ALD 77 at [48].

[60] [2013] FCAFC 30; (2013) 209 FCR 301, [61] - [67].

[61] [2014] FCAFC 29; (2014) 141 ALD 529, [12].

[62] [2014] FCAFC 29, [12].

[63] [2019] FCAFC 116; (2019) 267 FCR 169.

[66] The Respondent referred to Carden's case at 152-4. At 155, Dixon J referred to Federal Commissioner of Taxation v Thorogood [1927] ArgusLawRp 80; (1927) 40 CLR 454 per Isaac J.

[67] ITAA 97, ss 10-5 and ITAA 36, s 97.

[68] Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation [1965] HCA 58; (1965) 14 ATD 98; (1965) 114 CLR 314 at 318.

[69] Applicants' closing submissions at [119]. The Applicants rely on PepsiCo. Inc v Commissioner of Taxation [2024] FCAFC 86; (2024) income tax [2024] FCAFC 86; 303 FCR 1 (PepsiCo) at [41]. They argue that the contracts in this case are similarly explicit to exclude the possibility that the Family Trust would have constructively received the total child care fees charged.

[70] The Respondent referred to Spriggs v Commissioner of Taxation [2006] HCA 53; (2009) 231 CLR 1 at [74] ('Spriggs') but see also [56].

[71] The Respondent referred to Spriggs at [54]. At [55] the Majority referred to Federal Commissioner of Taxation v Day [2008] HCA 53; (2008) 236 CLR 163 at [33].

[72] Spriggs at [75]; Clough Limited v Commissioner of Taxation [2021] FCAFC 197; (2021) 114 ATR 1 at [45], [52]-[63].

[73] MFI-3 - Aide Memoire: Respondent's Summary of the Family Assistance Laws. The Applicants did not endorse but abided MFI-3 which is to say they did not dispute its correctness but nor did they concede its relevance to the issues in these proceedings.

[74] [2018] HCA 31, (2018) 264 CLR 382.

[75] The Respondent argued with reference to Colvin J in Shell at first instance at [44], [69], [70], [89]-[94] that the Tribunal should not construe or give force to a construction of a dealing which was contrary to a statutory provision, noting the Full Court of the Federal Court's approval of the approach taken by Colvin J on appeal. Commissioner of Taxation v Shell Energy Holdings Australia Ltd (2022) 288 FCR 193; [2022] FCAFC 2.

[76] Respondent closing submissions at [190]-[195].

[78] [1978] HCA 43; (1978) 142 CLR 1.

[79] [2003] WASCA 288; (2003) 27 WAR 574; at [22]-[26] per Parker J.

[80] [2021] HCA 30; (2021) 274 CLR 219 at [118]- [131].

[81] Applicant closing submissions at [163]- [164].

[82] The Applicants argued that in Shell, at [114] per Colvin J, the question of whether the particular integer was taxable was in dispute which is in contrast to the present case where the tax status of the CCB is not relevant to the dispute.

[83] Via the Education and Care Services National Law (Queensland) and the Education and Care Services National Regulations (Queensland).

[84] Tweddle v FCT [1942] HCA 40; (1942) 180 CLR 1 at 7. The Applicant also referred in some detail to Commissioner of Taxation v La Rosa (2003) 129 FCR 444 at [21] per Hely J, and Case J17 77 ATC 150, alerting that both served to warn that the Tribunal would inevitably be required to determine whether the Applicants had failed to comply with the FAL, should it entertain consideration of their rights and obligations under those laws. They disputed the relevance of Shell because there, Colvin J was considering whether subsequent commercial arrangements could be said to retrospectively alter a pre-existing set of circumstances which were dictated by Commonwealth and State legislation.

[85] Transcript of hearing 4 February 2025, page 69, lines 19-21; Transcript of hearing 6 February 2025, page 16.

[86] MFI-4 and Applicants' closing submissions [34]-[35].