Gashi v Commissioner of Taxation [2012] FCA 638 | Case summary

The figures for 1999 were to provide a base line only, the applicants' income in that year not being the subject of any assessment which is presently relevant. 10 As shown in the table, the Commissioner first took a snapshot of the total assets and liabilities of the applicants as at 30 June in each year from 1999 to 2006. That yielded a figure for the net assets of the applicants at each such year-end. In the row labelled "Increase" in the table, the Commissioner calculated the extent to which the net asset figure in a particular year exceeded the net asset figure for the previous year. The Commissioner then subtracted the applicants' non-assessable receipts over the course of the year in question, and added back items of specific expenditure, and outlays for subsistence, of which he was aware. That yielded an income figure for the year by reference to which the applicants were assessed for tax. As shown in the table, the Commissioner was also able to calculate the extent to which the applicants' income, calculated as explained here, had not been disclosed. Finally, the Commissioner "distributed" the total undisclosed income in each year 50/50 as between Mr and Mrs Gashi. 11 The Commissioner's approach as described above was challenged by the applicants at two levels. First, the idea that the Commissioner was entitled to throw a blanket over all of the assets of the Gashi family and to use the movement in those assets as a basis for inferring the existence of a partnership income for Mr and Mrs Gashi was resisted. Secondly, it was submitted that, in adopting this approach, the Commissioner failed to base his calculations of income on the relevant taxing provision of the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act"). It may be one thing, it was submitted, to infer the existence of inflows of some kind from changes in the asset position of the applicants, but that did not justify the Commissioner's assessment unless he identified the provision of the 1997 Act which would treat those inflows as taxable income. 12 The second point mentioned above is answered by reference to the facts of cases. In separate letters to Mr and Mrs Gashi which accompanied his original assessments of 26 March 2010, the Commissioner made it clear that, in each case and in each year, the assessment was of ordinary income pursuant to s 6-5(1) of the 1997 Act. The point must, therefore, be rejected. The first point mentioned above has, in effect, become subsumed in the applicants' own cases on the merits. The availability of the asset betterment method as a tool for use by the Commissioner is well-accepted: see Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63. In appeals of the present kind, it then becomes the obligation of the applicants, under s 14ZZO of the Administration Act, to prove that the Commissioner's assessments were excessive. They will not succeed in that task unless they can demonstrate that their true taxable incomes in the years in question were less than the income levels by reference to which the Commissioner assessed the tax that was payable by them: Commissioner of Taxation v Dalco (1990) 168 CLR 614. That is to say, it is not enough for the applicants to establish that the Commissioner's estimations were mistaken or erroneous in some or even many respects. It is necessary that they go further and establish what their taxable incomes actually were. If, in the course of that project, they demonstrate that they were not in partnership, and/or that their own incomes did not contribute to accretions in the assets of other members of the family, all well and good. But the bottom line question, as it were, will always be: what were the taxable incomes of the applicants? It is for them to determine how they will go about answering that question. The approach taken, and the assumptions employed, by the Commissioner will not be binding in that arena. 13 Mr Gashi's evidentiary case did not purport to establish what his taxable income was in any of the years 2000-2006. To the extent that that case did have a systematic dimension, it was provided by the evidence of John Kelly, a chartered accountant and registered tax agent. To the extent that his report, dated 13 July 2011, dealt with the position of Mr Gashi, it confined itself to attacking, in accordance with instructions given by Mr Gashi, the Commissioner's asset betterment calculations. Mr Kelly accepted that, from an accounting perspective, he would not use the asset betterment method to calculate the actual income of a taxpayer. He tried to use a more conventional approach to calculate Mr Gashi's income, but the information he was given by Mr Gashi was "copious and confusing", so he resorted to the application of such instructions as he had to attack the task which had been undertaken by the Commissioner. 14 Mr Gashi's own evidence was likewise largely concerned to challenge the Commissioner's asset betterment calculations, or to explain them in ways which would be consistent with him (Mr Gashi) having derived substantial sums from non-income sources. I shall refer to some of the main dimensions of Mr Gashi's evidence in this regard below, but, regardless of whether that evidence would be accepted, it was not of the character that would be necessary to found any, even approximate, conclusions as to the level of his taxable income in each of the years under examination. 15 I shall commence with Mr Gashi's (and, in one instance, Mrs Gashi's) real estate investments, the explanation for which is substantially tied up in a narrative of the Gashi family's story both in Australia and overseas. What I state below is taken from the evidence of Mr Gashi and, save to the extent indicated, should not necessarily be taken as representing findings which the court has made, or would make if the facts concerned were dispositive of any of the questions which arise in Mr Gashi's appeal. 16 Mr Gashi came to Australia from Kosovo in 1978 as a political refugee. Six months later, he secured employment as a sheet metal worker, in which position he worked 10, 12, 14 or even 16 hours a day. He worked at least six days a week, sometimes seven. He accepted whatever overtime was available. He was clearing around $450 a week. In 1979 he bought an apartment at 14 Eldridge Street, West Footscray, at a cost of $17,000. It was in that year that Mr Gashi married his now wife Manuela, who had migrated from Portugal. 17 In 1982, Mr Gashi secured employment in a power station in the LaTrobe Valley. He was again employed as a sheet metal worker, but, as I would interpret his evidence, his position was in the nature of a leading hand. There, he worked six to seven days a week if required, and up to 16 hours a day. In 1983, he purchased a property at 16 Tintern Drive, Springvale South for about $58,000. That sum was made up of the proceeds of the sale of the West Footscray property, of Mr Gashi's savings and of a small borrowing. The Gashis lived in the Springvale South property (while they were based in the LaTrobe Valley) for short periods only, such as, for example, during holidays. 18 They returned to Melbourne 1987. Mr Gashi sold the Springvale South property in 1988 for $135,000. He bought a block of land at 26 Lionheart Avenue, Taylors Lakes for around $40,000. Mr Gashi's intention was to build a house there for his family. By then, he was working not as a sheet metal worker but in a bakery. However, Mr Gashi's mother in Europe became ill, and, in late 1988, in order spend some time with his mother, he and his wife went to Germany to live, where they resided with one of Mr Gashi's brothers. Having been in Germany for about six months, they returned to Australia, intending to settle here permanently. However, one of their daughters was diagnosed with leukaemia, and the doctors told them that Germany presented better prospects for her treatment. Thus, in 1989, the Gashis returned again to Germany. 19 Mr Gashi purchased an apartment in Rastatt, Germany, for about DM330,000. Mr Gashi thinks that the rate of exchange at that time was about two Deutschmarks to the Australian dollar. He funded that purchase in part with money left over from the sale of the Springvale South property (after purchase of the land at Taylors Lakes), plus some savings that he had accumulated in his time in the LaTrobe Valley. While in Germany, Mr Gashi worked as a toolmaker, and also had a business enterprise of his own, in which he purchased cars, and car parts, in that country and took them to Albania (then recently relieved of communist control, and thus permitting such an enterprise) for resale. In this activity and in his employment as a toolmaker, Mr Gashi worked about 16 hours a day, earning in excess of the equivalent of $8,000 each month. The Gashis stayed in Germany for about eight years. 20 It was while Mr Gashi was in Germany this time that, according to him, he and his brothers received a substantial inheritance from the estate of his mother (who, I infer, must have passed away at some point in the early 1990's). This was in the form of land in Kosovo. However, at some point, Mr Gashi made it clear to his brothers that he did not intend to return to Kosovo to live. In the result, it was agreed between them that his brother Ali Arif Gashi would buy him out. Although the contract of sale was not executed until March 2004 (at which time the price was expressed in Euros: €335,000), Mr Gashi's evidence was that the consideration was paid to Mr Gashi, in three instalments, well before then. In his oral evidence, Mr Gashi said that the first instalment was in a sum the equivalent of $84,000, and that he lent this money to a person called Rustem Helshani, who was returning to Australia. In his witness statement (tendered on his behalf, without objection), Mr Gashi placed that transaction at about 1995/96. When Mr Gashi later returned to Australia himself, Mr Helshani repaid this loan, without interest. Mr Gashi placed the money into his account with the ANZ Bank. 21 In 1993, Mr Gashi advanced a sum equivalent to $130,000 to friend called Pashk Zalli, who was a builder who had come to Germany, but was returning to Australia. This money came from Mr Gashi's savings from his employment and car trading business in Germany. Mr Zalli was a builder, and the understanding was that he would use the money to build a home for the Gashis on their block of land at Lionheart Avenue, Taylors Lakes. Unfortunately, Mr Zalli used the money not for that purpose but in the purchase of a bakery in Sunshine. In 2003, Mr Zalli sold the bakery to someone called Joseph Gerbino, on vendor's terms. Over the period 2003-2005, Mr Zalli repaid Mr Gashi, with interest - a total of over $200,000. This money was deposited into Mr Gashi's various accounts with the ANZ Bank. 22 Mrs Gashi and the family returned to Australia in 1997. Mr Gashi returned in 1998. He claims to have brought with him, in his luggage (and undisclosed to customs) the sum of $170,000. He had converted the money into Australian dollars at a currency dealer in Albania. He went to the Australian embassy in Berne to renew his passport, and asked one of the officials what he should do with the money. The official said, "Just take it". In his oral evidence, he said that this money represented the second of three instalments paid to him by his brother as consideration for the land inherited from his mother's estate. However, in his witness statement, tendered after he had given his evidence in chief, Mr Gashi said that the money represented his accumulated savings from his earnings as a toolmaker and from the sale of second-cars and parts. 23 From his return to Australia in 1998 to late 2005, Mr Gashi worked, at the same time and for substantially the whole of this period as I understand his evidence, in three bakeries, one in Altona Gate, one in Glenroy, and the third in Altona. Over these three jobs, he worked 16 hours a day, seven days a week, and earned $2,800 per week. He also bought and sold cars, but in a very small way - earning about $30,000 a year from that. 24 At first after Mr Gashi's return to Australia, he and his family lived in rented premises in Keilor Downs. Then they bought a property at 1 Midland Way, Taylors Lakes, for $205,000. This was funded by $85,000 from the sale of the land in Lionheart Avenue, by $80,000 borrowed from the ANZ bank, and the remainder from savings. 25 In late 1999, Mr Gashi's brother Dan Gashi visited him in Melbourne with a delegation of Albanians living in Kosovo, the purpose being to solicit donations from Australians. While staying with Mr Gashi, Dan gave him the third instalment of the consideration for his share of the land which came to them from their late mother's estate, a sum of about $160,000. Mr Gashi lent this money to someone called Vlado Markovski. In early 2003, Mr Markovski repaid this loan, paying Mr Gashi a sum of about $190,000 to $200,000, which included interest. This repayment was by way of several cheques, which were deposited into Mr Gashi's account with the ANZ Bank. 26 In late 2000, Mr Gashi's brother Ali arranged a transfer of $209,500 to Mr Gashi, representing a gift by Mr Gashi's mother to her granddaughter Victoria, to be available to her upon reaching 18 years of age. The funds were deposited with a solicitor for her benefit. The following year, they were used to purchase a property at 3 Bayview Street, Altona, the price of which was $225,000. The property was placed into the name of Victoria and her mother Mrs Gashi (this arrangement being necessary, according to Mr Gashi, on account of Victoria's relatively young age at the time, her mother being a joint owner in the nature of a guardian). 27 The Gashis lived at Midland way until 2001, when Mr Gashi purchased a property at 39 Herbert Street, Parkdale for about $840,000. This was funded by the sale of Midland Way ($320,000), by about $90,000 of savings in an account in the name of his daughter, Victoria (of which account - as became clear during her evidence in court - she was unaware), by about $80,000 of Mr Gashi's own savings, and by $170,000 which Mr Gashi brought from Germany as described above. The balance was borrowed from the ANZ bank. The property was registered in the name of Mrs Gashi. 28 In July 2003, Mr Gashi purchased a property at 14 Palmerston Crescent, Taylors Lakes for the sum of $625,000. Before settlement, Mr Gashi had received the $200,000 from Mr Markovski referred to in para 25 above, and he paid this into the loan account maintained with the ANZ Bank in his and his wife's names. They borrowed about $400,000 from the bank to complete the purchase of Palmerston Crescent. This property became the family home, and the property at Parkdale was rented out. 29 In June 2004 Mr Gashi purchased a property at 8 Pollock Court, Delahey, for the sum of $160,000. This purchase was funded by an advance of $154, 232 from his ANZ Bank loan account. Six months later, he sold the property for $180,000. In his oral evidence, he claimed that he never received this money, "because the guy turned to be a junkie". However, he made no such claim in his witness statement. 30 In 2005, the Gashis purchased a unit for their daughter Samira at 17 Ross Street, Niddrie for the sum of $472,000. Save for the deposit, the purchase was funded by a loan from the ANZ Bank, on the security of the unit itself and the Gashis' property at Palmerston Crescent. Because Mr Gashi considered that Samira was too young to hold property in her own name, his insisted that Mrs Gashi be a joint registered owner. The unit was sold in 2009 for $650,000. 31 In April 2006, Mr Gashi's family company Gashi Nominees Pty Ltd purchased a coffee shop in Niddrie called Sam's Café for the price of $200,000. The purchase was funded by a loan from the ANZ Bank. Thereafter, Mr Gashi worked 16 hours a day, seven days a week, in the shop. Gashi Nominees later borrowed further sums of $150,000 and $10,000 for renovations and working capital. 32 Mr Gashi gave evidence of other property acquisitions and disposals, either in his own name or in the names of members of his family, but they post-dated the period with which this proceeding is concerned, and do not need to be considered. 33 A striking thing about Mr Gashi's evidence, as referred to above, is that it was not calculated to disclose the level of his income in any of the years in question, nor even to disclose particular transactions from which the generation of income should be inferred. Mr Gashi described himself as a property developer, but it is unclear whether that was a statement of his occupation as at the time of giving evidence or as at the times relevant in the proceeding. If it was intended to propose that Mr Gashi's real estate investments referred to above were the businesslike activities of a property developer, no such submission was made on Mr Gashi's behalf. Neither were the variously, manifestly disconnected, dots joined in a way that would reveal the existence of such a business. Rather, the evidence was directed to providing an explanation for the asset movements referred to in the Commissioner's asset betterment statement. As I have said, that approach is not responsive to the demands of s 14ZZO of the Administration Act. 34 As noted in para 19 above, one of the income earning activities in which Mr Gashi engaged in the years in question was buying and selling cars. His evidence that he earned about $30,000 a year from that activity was, however, both a casual and an approximate estimate, unvouched by any documentation. As to the car trading activity, Mr Gashi was examined in chief as follows: MR PARNCUTT: Now, I need to take you through a [sic] motor vehicles that you sold. Do you recall a Mercedes - a silver Mercedes that you purchased in about 2004? THE WITNESS: Yes. MR PARNCUTT: Yes. How much did you pay for that Mercedes? THE WITNESS: 2004. I think I pay 20. I am not sure. I think I pay 20. I am not sure. MR PARNCUTT: 20,000? THE WITNESS: Yes. MR PARNCUTT: But you're not sure. THE WITNESS: Because was a damaged car, so I had to repair. MR PARNCUTT: Do you recall a Mercedes B180E sedan 1993? THE WITNESS: Yes. MR PARNCUTT: How much did you pay for that? THE WITNESS: 16,000, I think. MR PARNCUTT: And where did you get the money from? THE WITNESS: That was from my saving and the money that I work with the cars. MR PARNCUTT: Did you purchase a BMW 320i coupe 2001? THE WITNESS: 2001. MR PARNCUTT: It was a blue one? THE WITNESS: Blue, yes. MR PARNCUTT: Yes. How much did you pay for that one? THE WITNESS: I think was 20 or 21. I'm not sure, sir. Was a damaged car. MR PARNCUTT: Did you repair the car? THE WITNESS: Yes. MR PARNCUTT: Well, I will ..... What did you do with the car? THE WITNESS: I trade it in through my Hilux. MR PARNCUTT: You traded it in for a Toyota Hilux? THE WITNESS: Toyota Hilux. MR PARNCUTT: Okay. What was the trade in price given to you for the car? THE WITNESS: 3000, my memory. MR PARNCUTT: Can you tell me about a VW Golf Tourer. THE WITNESS: Golf Tourer. A damaged car. $1000, I think I pay. I'm not sure. MR PARNCUTT: Do you know what year it was? THE WITNESS: I think was '76, '78. I'm not sure. I can't recall. MR PARNCUTT: What condition was it in when you purchased it? THE WITNESS: In a - damaged car. MR PARNCUTT: And how much did you sell it for? THE WITNESS: I think I sold for the same money, because I wouldn't be able to fix it or something. I'm not - really, I can't recall. That was too long. MR PARNCUTT: What can you tell the court about a Nissan Pathfinder 2000? THE WITNESS: Yes, I bought a damaged car and I fixed it. MR PARNCUTT: How much did you pay for it? THE WITNESS: I think I pay about 6000. I'm not sure. MR PARNCUTT: And what did you do with the vehicle? THE WITNESS: I have sold the vehicle. MR PARNCUTT: Did you sell it in the same condition? THE WITNESS: No, I did fix it and repair it. MR PARNCUTT: Can you tell the court about a BMW 318i sedan 1995? THE WITNESS: BMW, 1995. MR PARNCUTT: The black BMW. THE WITNESS: Yes, yes, yes. MR PARNCUTT: Well, can you tell the court about that? THE WITNESS: I bought it 6000 - $6000 I bought it. Yes. MR PARNCUTT: And what condition was it in? THE WITNESS: Not very good. Is just damaged. MR PARNCUTT: And what did you do with the vehicle? THE WITNESS: I have sold it, I think, or I don't - I'm not 100 per cent ..... MR PARNCUTT: What did you do with the proceeds from the sale of the BMW 318i? THE WITNESS: 31 MR PARNCUTT: From that vehicle. What did you do with the proceeds? THE WITNESS: The black one, yes? I think I sold that vehicle, I'm not sure, or - no, I think I have accident with that. I'm sorry. I apologise. MR PARNCUTT: What can you tell the court about a Toyota Rav4 five door? THE WITNESS: I have bought it and sold it to Frank. Rav4, I have bought and sold to Frank. MR PARNCUTT: And how much did you buy the vehicle for? THE WITNESS: 20,000. MR PARNCUTT: And how much did you sell it to Frank Ozbeyhun? THE WITNESS: Was 36. MR PARNCUTT: And what can you tell the court about a Nissan Pathfinder 2000? THE WITNESS: I bought that car and was damaged and fixed it. MR PARNCUTT: I beg your pardon? THE WITNESS: I bought the car and I - was damaged and I fixed it. MR PARNCUTT: And how much did you pay for it? THE WITNESS: 2000 was, yes, because I have two Pathfinders in that same MR PARNCUTT: Well, could you THE WITNESS: 2000 was 6000 and I'm not sure how much I sold it, because I got - I can't recall it. I got short memory, I think. MR PARNCUTT: Did you use any of the proceeds from the sale of motor vehicles to buy other motor vehicles? THE WITNESS: Yes, sir. Always I done that. … MR PARNCUTT: …, can you state anything to the court about a Mercedes ML? THE WITNESS: Yes. I bought to through the Mercedes company and I think I pay 75,000 and the sale of both Pathfinder 2002 or 2003 - I'm not sure which one was - that deposit I put it there and the rest of the money I took from my account or borrow, something like that. I can't remember everything. MR PARNCUTT: Well, do you recall anything about a BMW 2002? THE WITNESS: Yes. MR PARNCUTT: What do you recall? THE WITNESS: That the 2002 was damaged car, then I fixed it and I trade it in to that Hilux. For a taxpayer seeking to discharge the onus placed on him under s 14ZZO of the Administration Act, this testimony was quite inadequate for that purpose. 35 The other admitted income earning activity in which Mr Gashi engaged was in his three bakery jobs. He said that he earned $2,800 per week in these employments, but no single contemporaneous documentary record of that income was produced. He said that he had not been provided with group certificates by one of the relevant employers, but he likewise pointed to no other evidence such as might have assisted in the quantification of that income (such as bank deposits, for example). Mr Gashi's estimate that he earned $2,800 per week in these employments represents a much higher income than that which he returned in the years in which he did lodge a return. I do not accept it. As with his income from trading in cars, to provide a single weekly estimate of income by way of conventional wages over a seven-year period, unvouched by any record, is a completely inadequate way of making good the case which s 14ZZO of the Administration Act requires. I would add that no other witness was called to support Mr Gashi's evidence in these respects - neither the employers concerned, nor the two accountants which Mr Gashi engaged over the relevant period. 36 There is also some other, limited, evidence which suggests that Mr Gashi may have had remunerative activities in one of the years in question in addition to those which he was prepared to admit. On 6 February 2001 in the Magistrates Court of Victoria at Melbourne, Mr Gashi pleaded guilty to one charge of being in possession, custody or control of excisable goods, namely, a quantity of tobacco leaf, upon which excise duty had not been paid, contrary to s 117 of the Excise Act 1901 (Cth). The offence had been committed on 7 July 2000, at or near Craigieburn. On that day, Mr Gashi was apprehended while driving a hired station wagon, the rear compartment of which was wholly occupied by a large bale of tobacco leaf. The quantity and circumstances were such that the tobacco would not have been for Mr Gashi's own use, and he did not claim that it was. Rather, he said that the other occupant of the car had organised the collection of the tobacco from an address near Seymour (from where the tobacco had in fact been collected) and that he, Mr Gashi himself, had merely gone along for the ride. His mistake was, it was said, to be in the wrong place at the wrong time. I do not accept that evidence. When giving it, and when responding to questions about the tobacco generally, Mr Gashi was hesitant, evasive and manifestly uncomfortable. I find that he hired the car and used it to collect the tobacco from Seymour. As he pleaded in the Magistrates Court, he was in possession of the tobacco when apprehended. The inference that he had received, or would receive, payment for the tobacco, or remuneration for his efforts, is very readily available, and I have no hesitation in drawing it. The fact that the tobacco as such was seized by the police and later forfeited to the Commonwealth does not weaken the inferential case that Mr Gashi's mission was an income-earning one. Because he gave no truthful evidence about the circumstances, Mr Gashi was in no position to assert, and he did not assert, that the non-delivery of the tobacco to its intended recipient deprived him of any remuneration for his efforts. 37 Much of the trial was concerned with sums which the Commissioner included in the specific expenditure row of the table in para 9 above, namely, "funds sent overseas". The Commissioner had a schedule of many such transfers, each usually just below the $10,000 reporting threshold, from which, in the Commissioner's case, the existence of substantial unexplained income should be inferred. In his modifications to the Commissioner's asset betterment calculations, Mr Kelly included these transfers only to the extent that the customer ordering them was Mr Gashi (ie according to the bank records which the Commissioner had obtained). During the cross-examination of Mr Gashi, counsel for the Commissioner put to him that he had also been responsible for many more transfers, ostensibly made in the name of others. Mr Gashi denied it, and there was no evidence that he had been so responsible. In the result, a very considerable amount of the cross-examination of Mr Gashi ultimately came to nothing in terms of admissible, useful, evidence. 38 Mr Gashi did not claim complete ignorance of the many transfers which were on the Commissioner's schedule but of which he was not the ordering customer. His ability to have claimed complete ignorance would no doubt have been compromised by the circumstance that, in many of those cases, the international recipient of the funds was his brother Dan. Mr Gashi understood that Dan's reputation as a reliable point of destination for charitable donations made by members of the Albanian expatriate community in Australia had grown since the visit to which I referred in para 25 above. While I found Mr Gashi's explanations of the matters unconvincing, the fact is that he denied what was put to him during cross-examination, and the Commissioner led no admissible evidence on the subject. 39 By leading evidence from Mr Kelly which accepted the relevance of the overseas transfers ordered by himself, Mr Gashi effectively conceded that his income in the years in question included at least the sums there involved. But that limited concession went no way towards establishing what Mr Gashi's income in fact was in any of the relevant years. It went no further than to recognise that, from the unproven level of income that he did have, he made certain outlays. 40 In the result, I am left with no alternative but to find that Mr Gashi has fallen well short of establishing the amount of his assessable income in any of the years 2000-2006. He has, therefore, failed to show that the Commissioner's assessments were excessive within the established jurisprudence under s 14ZZO of the Administration Act. His appeal in relation to assessments of taxable income must be dismissed. 41 The Commissioner's case with respect to Mrs Gashi was neatly encapsulated in the following paragraph of submissions made on his behalf: The Commissioner may, in forming his judgment of the assessable income of a taxpayer, include income derived by other entities associated with a taxpayer: see for example, Dalco at 626-7; Eldridge v. Federal Commissioner of Taxation 90 ATC 4907. The Commissioner may identify a total amount of income and divide it equally between taxpayers: Eldridge v. Federal Commissioner of Taxation 90 ATC 4907 at 4911. Where this occurs it is not necessary for him to show that the taxpayers were engaged in a partnership for the purposes of section 92 of the ITAA 1936. The division of identifiable income merely forms part of the Commissioner's process of estimation and assessment. It remains incumbent on each taxpayer to establish that the assessment issued to him or her is excessive. That is all very well so far as it goes, and there is no suggestion that the Commissioner was not entitled to make an assessment by reference to that approach. But the present question is whether that assessment was excessive and, in relevant respects, whether Mr and Mrs Gashi were in partnership or in receipt of income jointly. That question is not answered conclusively against Mrs Gashi by reference only to the jurisprudence which is applicable at the level of the Commissioner. Let it be accepted that Mrs Gashi would not have discharged her onus of proof under s 14ZZO of the Administration Act merely by challenging particular aspects of the Commissioner's assessment (as Mr Gashi has done), the fact is that she has gone further and led evidence that she was not in partnership with her husband. 42 Mrs Gashi's evidence, and that of Mr Gashi, was that she was a housewife only, and played no role in whatever her husband's business dealings might have been. She accepted that she derived income from two properties, one of which was in her name, and the other of which (in Germany) was held jointly with her husband. The Parkdale property was also, it seems, made available as security for some other property investments which Mr Gashi made. However, it is quite clear that Mrs Gashi simply co-operated in whatever her husband sought of her, whether it be lending her name to a bank account, making her property available as security, or anything else. With respect to Mr Gashi's broader income-producing activities, whatever they may have been, I find that he and Mrs Gashi were not carrying on business as partners, and were not in receipt of income jointly. 43 Mr Kelly took an approach to the calculation of Mrs Gashi's income very different from that which he had taken in the case of her husband. In Mrs Gashi's case, he considered that he had sufficient information to calculate her actual income over the relevant years. He took into account social welfare receipts, rent and interest. The rent related both to the apartment in Germany which Mrs Gashi owned jointly with her husband and to the property at Herbert Street, Parkdale. Mr Kelly's report with respect to Mrs Gashi was tendered by her without objection. In final submissions made on his behalf, the Commissioner sought to criticise Mr Kelly for not having accompanied his report with all of the primary documents to which he had had reference, as required by para 2.4 of Practice Note CM 7. That was a valid criticism, but it was made too late. Not only was the report, and the details of Mrs Gashi's income which it contained, received into evidence without objection, Mr Kelly was not challenged on the correctness of those details while under cross-examination. Indeed, in one respect cross-examining counsel proceeded in a way that implied acceptance of the details: in criticising the approach which had been taken in the case of Mr Gashi, he held out the approach taken in the case of Mrs Gashi as an instance of how things should have been done. 44 Mr Kelly's calculations of Mrs Gashi's assessable income over the years in question yielded the following results: • 2000 - $14,607.88 • 2001 - $16,416.93 • 2002 - $27,971.36 • 2003 - $25,822.08 • 2004 - $44,182.53 • 2005 - $63,112.68 • 2006 - $58,520.85

Mr Kelly proceeded on the premise that Mrs Gashi had no deductions in any of those years, in which circumstances his evidence must be taken as a conclusion that her taxable income also was as set out above. 45 The Commissioner referred to a number of matters as providing a basis for the inference that Mrs Gashi earned more income than disclosed in Mr Kelly's report. He pointed out that Mrs Gashi was a joint account holder, with her husband, of bank accounts used to purchase properties at 15 Ross Street, Niddrie, 3/17 Ross Street, Niddrie and 3 Bayview Street, Altona. The first of these properties was purchased after the period which is relevant in this case, the second was sold after that period, and the third was the investment made (by Mr Gashi) in the names of Mrs Gashi and their daughter Victoria, for the benefit of the latter. No rational basis upon which Mrs Gashi might have beneficially derived assessable income from these properties, or from the resale of them, was advanced by the Commissioner. For myself, I cannot perceive any. As for the bank accounts as such, there is nothing in the material from which I could infer that Mrs Gashi had an independent source of income which funded deposits into those accounts from time to time. The strong probabilities are that she was a signatory to these accounts at the behest of, and for the convenience of, her husband. 46 Under cross-examination, Mrs Gashi also provided an affirmative answer to the following question: "You've been a joint holder of a line of credit under the Commonwealth Bank of Australia?" While the Commissioner referred to this in his written submissions as an example of Mrs Gashi having made "an admission against interest", no explanation of how the admission bespoke the derivation of income beyond that disclosed by Mr Kelly was proffered. 47 It was also put to Mrs Gashi under cross-examination that she offered properties which were registered in her own name - of which Herbert Street, Parkdale, was the only concrete instance given - as security for her husband's various property investments. In this regard, cross-examination of Mrs Gashi proceeded as follows: Q. Can you explain then why there is a reference to the ANZ Bank inquiring in relation to a real property mortgage account where you applied as principal for an amount of $156,000? A. I cannot explain that to you because I never purchased any property with my husband. The only property that I purchased with him is the house that I'm living and the house in Parkdale. I have no involvement with his business properties. I think you had five days to ask him all those questions. Thank you very much. Q. If you go up about halfway down that page? A. Yes. Q. You will see - to make sure we're on the right one, if you count down seven of those paragraphs ? Is that page 2841L? Yes, it is? A. Yes. Q. Count down seven of those paragraphs and you will see a figure of $800,000 at the end? A. Look, I cannot answer these. I cannot remember why he borrowed money and used me as a - I don't know, he mortgaged - I don't know, look, I don't know nothing about this. He done something, he done it all by himself. He used my name just because the house in Parkdale was just on my name. Q. All right? He mortgaged property to get his loans to buy property, okay. A. Yes, all right. Well ? But do not ask me any questions in relation to these properties because I had nothing to do with it, please, sir. Q. Well, I am just trying to ask you questions because on the face of it, there are some answers that appear to be needed and I just want to ask you this in light of what you have just said. Your husband, are you saying - or perhaps I should clarify. Are you saying to his Honour that your husband from time to time made applications in your name so that the Herbert Street property, for example, could be used as security? A. Yes, sir, yes. Q. And you agreed to that course of action? A. Well, he used to come home with the paper from the bank and say, "Can you sign this here because I need a loan to buy Ross Street, and you know, we're going to develop that and we're going to make some money and then buy another property." And of course I trusted him. Q. Yes? A. And I signed the documents. I'm not denying that. Q. No, no, I'm not ? A. That was the only involvement I had with the family business. Q. All right. So you agree when he made those requests you would agree to that? A. Pardon? Q. When Rasim asked you to do that, you agreed to do that? A. What else could I say? Q. Well ? A. I did agree because I've been married with him for 33 years and I trusted him. Q. Yes. I'm not suggesting you shouldn't have, Mrs Gashi. I'm just trying to establish ? A. I agree. I just told you that I did. Q. Good. All right. So you agree and you were prepared to help him in ? A. I didn't help him in any way, sir. Q. Well, you helped him by providing Herbert Street as security, didn't you? A. I help him by providing, by letting him mortgage my house so he could make some money. To the extent that the thrust of this evidence is that Mrs Gashi merely helped her husband because she was his wife and she trusted him, I accept it. There is nothing here from which the existence of some source of income other than that set out by Mr Kelly should be inferred. 48 So far as I can see, the only other matter to which the Commissioner pointed as disclosing income which was probably earned by Mrs Gashi in her own name related to a bank account in Luxembourg which she opened jointly with her daughter Victoria in 2001. Mrs Gashi said that she inherited the equivalent of $400,000 from her grandfather's estate. She was very approximate with respect both to the timing and to the amount of this inheritance: having first said that she inherited the equivalent of $470,000, she altered her evidence to set the amount at $400,000 when confronted with the details of bank deposits totalling the latter sum, and, having first said that her grandfather died in 2003, she altered that to place his death some time prior to February 2001 when confronted with those same records. 49 Those records were of deposits made into the Landesbank Schleswig-Holstein International SA in Luxembourg as follows: On 5 February 2001, a deposit of $A70,000 by Mrs Gashi's daughter Victoria. On 13 February 2001, a deposit of $A130,000 also by Victoria. On 20 April 2001, a deposit of $A200,000 by Mrs Gashi herself. The deposits were made into an account in the joint names of Mrs Gashi and Victoria. Mrs Gashi insisted that these deposits, taken together, represented her inheritance. Victoria Gashi, who also gave evidence, said that she had made the first two deposits on the instructions of her uncle Dan Gashi (Mr Gashi's brother), but was unaware of why this was being done or of any details of the transaction, or the source of the money, generally. 50 At some point, $A200,000 was withdrawn from the Luxembourg account. The reason for the withdrawal, according to Mrs Gashi, was that Mr Gashi required her to advance him a loan of that amount. What then became of the $A200,000, and what was Mr Gashi's purpose for the loan, were not exposed in the evidence. Neither was the date of the withdrawal, evidenced as it was only by a handwritten undated memorandum signed by Mrs Gashi. On the state of the evidence, I would have to find that, for at least part of the presently relevant period after 20 April 2001, the sum of $A400,000 was in the Luxembourg account in the names of Mrs Gashi and her daughter Victoria, and, for the remaining part of that period, there was the sum of $A200,000 in that account. 51 The source of the 2001 deposits in the Luxembourg account is highly controversial in the present case, and Mrs Gashi, while under cross-examination, was extensively challenged on the details of the relevant transactions. Ultimately, however, the Commissioner did not submit that this $400,000 should be treated as Mrs Gashi's income in 2000 or 2001. While I share the Commissioner's scepticism as to Mrs Gashi's evidence in relevant respects, the most probable alternative explanation is that the money was given first to Victoria and then to Mrs Gashi (directly or indirectly) by Mr Gashi, and may have represented income for him. That alternative explanation does nothing to displace Mrs Gashi's case that she earned no income in excess of that disclosed in Mr Kelly's report. 52 More difficult is the issue raised by the submission which the Commissioner did make in closing, namely, that the interest earned on this deposit in Luxembourg would - at least as to 50% - have been assessable income for Mrs Gashi in 2001 and subsequent years. The only evidence upon which he relied in this respect, however, was a single answer given by Mrs Gashi in chief, in which she explained her reason for depositing her inheritance in the bank in Luxembourg, namely, "that it was giving me better interest than in Portugal". Mrs Gashi was not cross-examined on this aspect of the matter, and, perhaps more importantly, nothing about this potential source of income was put to Mr Kelly. Indeed, no suggestion at all was made to Mr Kelly that there were sources of actual income derived by Mrs Gashi that were not covered in his report. There is, therefore, no evidence that Mrs Gashi actually derived (as distinct from anticipated) interest income from the Luxembourg account. In the circumstances, I am not prepared to hold that Mr Kelly's report was incomplete in this respect. 53 Save for the matters to which I have referred, and absent a finding in his favour on the joint income question, the Commissioner did not challenge Mr Kelly's statement of Mrs Gashi's assessable income in the years in question. Indeed, Mr Kelly was not cross-examined on his calculations at all. In the result, I would accept his evidence, and find that Mrs Gashi has established the actual level of her assessable income in each of the relevant years. She has, therefore, made good her case that the Commissioner's assessments were excessive. 54 Turning next to the matter of penalties, and commencing with Mr Gashi's situation, for the year ended 30 June 2000 the relevant provisions were ss 226G-226J of the 1936 Act. The Commissioner assessed Mr Gashi under s 226J because he took the view that the relevant tax shortfall was caused by intentional disregard of the 1936 Act by Mr Gashi or his tax agent. The evidence reveals that Mr Gashi then had a tax agent and that he told him what his income was. According to Mr Gashi, the agent did not include that income in Mr Gashi's tax return because the employers concerned (ie the bakeries) did not provide group certificates. Even if - as I have not found - Mr Gashi's income in the 2000 year were limited to the approximately $2,800 per week to which he admitted in this case, for a tax agent to have returned $17,466 only for the year provides an obvious basis for the Commissioner's conclusion that either Mr Gashi or the tax agent acted intentionally in relevant respects. It is unlikely that such an error was accidental. The agent was not called, in which circumstances I am not disposed to find, favourably to Mr Gashi, that the error was not intentional. As it happens, I have held that Mr Gashi has not displaced the Commissioner's conclusion that he earned much more than the annual sum that would represent $2,800 per week in the 2000 year, but the inference of intentional disregard in the returning of $17,466 applies equally in the circumstances in fact obtaining as the result of the determination of the present appeal. To the extent that Mr Gashi's appeal relates to penalties for 2000, therefore, it must be dismissed. 55 The matter of penalties in each of the other years in which Mr Gashi lodged a return - 2003, 2004 and 2005 - is covered by Div 284 of Sch 1 to the Administration Act. In each year, the Commissioner took the view that Mr Gashi had a "shortfall amount" because of false or misleading statements in the returns which he had lodged (s 284-75(1)), and that the shortfall amount resulted from his, or his agent's, intentional disregard of a taxation law (s 284-90(1), item 1). Thus the Commissioner assessed the administrative penalty at 75% of the shortfall amount. As in the 2000 year, Mr Gashi accepted that, on any view, there was a shortfall amount for each of these years. His explanations as to how that came about were no more convincing, and no more responsive to s 284-90, than were his explanations for the 2000 year, referred to above. The very modest levels of income returned in these years makes it improbable that the false statements admittedly made were made other than intentionally. Again, the tax agent was not called. I would apply the conclusions reached in the previous paragraph also to the years 2003, 2004 and 2005. 56 The Commissioner also applied the 20% uplift factor for which s 284-220(1)(c) of the schedule provides in the case of each of the years 2003, 2004 and 2005. He so proceeded because he took the view that, in respect of each year, the base penalty amount was worked out using item 1 of the table in s 284-90(1), and that a base penalty amount had been worked out under the same item "for a previous accounting period" (ie, in the circumstances of the present case, a previous fiscal year). The Commissioner now concedes that that was an error in relation to 2003 (since there was no previous year for which the base penalty amount was worked out under item 1), with the result that the penalty figure for Mr Gashi for 2003 should be $193,798 rather than $224,741 as shown in the table in para 2 above. 57 The only respect in which I had a reservation about the Commissioner's case on penalties related to the construction of s 284-220(1)(c) of the schedule, which provides: (1) The base penalty amount for your shortfall amount, or for part of it, for an accounting period is increased by 20% if: … (c) the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items for a previous accounting period…. The policy with which the paragraph appears to be concerned is the discouragement of subsequent defalcations, once a taxpayer has been subjected to an administrative penalty of a particular kind on a previous occasion. On one view, it would not induce to the implementation of that policy if the taxpayer were subjected to the s 284-220(1)(c) uplift for each of the second and subsequent years in circumstances where he or she received assessments from the Commissioner in respect of a series of years at the one time. The question is: does "for a previous accounting period" mean "in respect of a previous accounting" or "on a previous occasion"? Counsel for the Commissioner informed me that this question has not previously been addressed by the courts, but submitted that the former construction was the correct one. Counsel for the applicants did not engage with that submission. I am disposed to accept it. Whatever legislative policy is discernible here, the latter interpretation would involve something of a strain against the words actually used in the provision. I would hold that it was open to the Commissioner to apply the uplift factor to the penalty assessments in 2004 and 2005, notwithstanding that they were served on Mr Gashi at the same time, and at the same time as was the 2003 assessment. 58 For the years in which Mr Gashi did not lodge a return by the day required by the legislation - 2001, 2002 and 2006 - the Commissioner proceeded under ss 284-75(3) and item 7 in s 284-90(1) of the schedule. There seems to be no controversy as to the applicability of these provisions in the circumstances, with the result that Mr Gashi was properly assessed to administrative penalty at the rate of 75%. 59 With respect to those years, the Commissioner also applied an uplift factor of 20% pursuant to s 284-220(1)(e) of the schedule, on the basis that, in respect of each year, Mr Gashi was liable to a penalty under s 284-75(3) for a previous year. Consistently with how I have decided the questions arising under para (c) of s 284-220(1), but subject to a concession which the Commissioner made in respect of 2002, I would accept the correctness of his approach. That concession was there should have been no uplift for 2002, with the result that the penalty of $206,521 shown in the table in para 2 above should be amended to $160,973. The need for that amendment arose because, in his assessment of 31 August 2010, the Commissioner relied on subs (1), rather than subs (3), of s 284-75 in respect of the 2002 year. The Commissioner now accepts that this then became the first accounting period in respect of which Mr Gashi had a shortfall amount under item 1 of s 284-90(1) of the schedule, with the result that there was no basis for an uplift under s 284-220(1)(c) (and para (e) of the subsection was no longer relevant in the circumstances). 60 Turning to Mrs Gashi, the tax for which she was assessed in respect of the 2000 year included additional tax pursuant to s 163B of the 1936 Act. It was not suggested by her counsel that the requirements of that section were not satisfied in her case, but the actual calculation will have to be re-done in the light of the success of Mrs Gashi's appeal with respect to her taxable income as such. 61 The position with respect to the years 2001-2006 is more complex. It was not originally so, as the Commissioner's assessments of 26 March 2010 were based upon s 284-75(3) of the schedule, Mrs Gashi having, at that stage, failed to lodge returns by the required dates. However, the penalty assessments of 31 August 2010 were now based on subs (1) of s 284-75, on the basis that Mrs Gashi's returns of 2 June 2010 resulted in shortfall amounts, and those were due to false or misleading statements having been made by her or her tax agent in intentional disregard of a taxation law. The returns of 2 June 2010 were lodged by a tax agent. The income declared in them was well below the levels that a moment's thought would have revealed as Mrs Gashi's income for the years in question. No attempt was made on her part to defend those returns or, other than to say that she left the matter entirely to her accountant, to displace the circumstances so readily giving rise to the inference of intentional disregard. It was, of course, a major omission in Mrs Gashi's case that the accountant/tax agent was not called. I would, therefore, uphold the conclusion reached by the Commissioner under item 1 of s 284-90(1) in respect of the years 2001-2006. 62 From that point, the uplift which the Commissioner applied for the years 2002-2006, under s 284-220(1)(c) of the schedule followed as a matter of calculation, and there could be no quarrel with it. 63 Since I have upheld Mrs Gashi's challenge to the Commissioner's assessment of her primary tax in each of the relevant years, the assessment of penalty, including the uplift factor where relevant, will have to be re-done. That there will still be penalties is clear: the conclusion that, by reference to her returns of 2 June 2010, Mrs Gashi had a shortfall amount resulting from intentional disregard of a taxation law is not displaced by what I have decided in these reasons. 64 In disposition of the present appeals, I shall make orders giving effect to the limited concessions which the Commissioner made with respect to penalties and uplift in Mr Gashi's case, but otherwise dismiss his appeal. In Mrs Gashi's case, I shall require the Commissioner further to amend his assessments of her taxable income so as to correspond with Mr Kelly's calculations, and I shall direct him to recalculate additional tax under s 163B of the 1936 Act in respect of the 2000 year, to fix penalties for each of the years 2001-2006 in accordance with item 1 of s 284-90(1) of the schedule and, for the years 2002-2006, to give effect to s 284-220(1)(c) of the schedule. I shall lay out a timetable for the parties to make submissions as to costs. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.

Gashi v Commissioner of Taxation

At a glance

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Before

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Judgment (10 paragraphs)

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Legislation Cited (4)

Cases Cited (4)

Cited By (4)