The objection decisions are allowed in part such that the penalties for shortfalls are remitted to the extent that the remaining penalties are reduced to 40% of the shortfalls in each of the applicants' net amounts and income tax returned for each of the respective tax periods and income years under review.

2. The Tribunal does not have jurisdiction to review the respondent's decision not to remit shortfall interest charges.

................[Sgnd]............................................

TAXATION - BURDEN OF PROOF - where applicants failed to disclose cash sales - whether burden of proving sales discharged by expenditure-based reconstruction or evidence regarding percentage of cash sales in the restaurant industry - whether witness possessed relevant expertise - penalties for shortfalls - assessment of base penalty amounts - penalty for possession of Electronic Sales Suppression Tool - whether remission of penalties appropriate - whether Tribunal has jurisdiction to review decision not to remit shortfall interest charge

Taxation Administration Act, s 14ZZK; Schedule 1, ss 280-170, 284-75(1)(b), 284-220(1)(b)

Anglo American Investments Pty Ltd (Trustee) [2022] FCA 971

Beta Leigh Pty Ltd v Commissioner of Taxation [2024] AATA 596

Commissioner of Taxation v Cassaniti [2018] FCAFC 212

Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust [2023] FCAFC 19

Confidential and Commissioner of Taxation [2013] AATA 112

Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) [1949] HCA 25; (1949) 79 CLR 296

Imperial Bottleshops Pty Ltd v Commissioner of Taxation [1991] FCA 276

Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50

Suburban Property Owner and Commissioner of Taxation [2012] AATA 394, [92].

1. The applicants, Ms Thi Hoa Huynh and Mr Van Han Nguyen, are a married couple. At relevant times, they operated a suburban Chinese food restaurant.
2. Although customers paid by both credit card and cash, the applicants acknowledge that they disclosed only a small proportion of the cash takings to the Australian Taxation Office (ATO). Consequently, the ATO issued assessments of shortfalls in GST (net amounts) and income tax, along with penalties and shortfall interest charges (SIC).
3. Their case is complicated by various factors. One is that the applicants failed to keep proper records of cash they took from the restaurant's daily takings to pay expenses. Another is that they are unable to produce the exercise book in which they say they recorded cash sales.
4. Additionally, the business possessed what was referred to as a DDA point-of-sale device. That device is an "electronic sales suppression tool" (ESST) as defined in taxation legislation. The penalties include a penalty for possession of an ESST device. The Commissioner does not allege the DDA device was used to suppress records of sales from which returns were prepared.
5. However, Ms Huynh admits she deleted an indeterminate number of entries - amounting by value to around half the total entries - that had been recorded by the DDA machine. The ATO accessed back up data recorded by the DDA machine which it used to assess GST and income tax shortfalls. The shortfalls assessed are based on the difference between the sales as recorded in the DDA machine before the deletions and the amounts disclosed in the partnership's GST and income tax returns.
6. The applicants say the deletions were made because there were many sales recorded in error. They say they did this on the advice of their then longstanding accountant. The accountant, who was summoned to give evidence, denies giving that advice.
7. The assessments were made outside the usual statutory time limits for amendments which do not apply where there is fraud or evasion. The Commissioner formed an opinion that the returns were attended by evasion. Hence, a threshold issue is whether the applicants have proved there was no evasion. Another issue is whether the Tribunal has jurisdiction to review the assessment of SIC.

1. The applicants objected against the Commissioner's assessments of net amounts (GST), income tax, penalties and interest.
2. It is the Commissioner's decisions disallowing the objections against the GST, income tax and penalties that are before the Tribunal for review. For the reasons set out below, the Tribunal does not have jurisdiction to review the decision not to remit SIC.

1. The amended assessments of net amount relate to the quarterly tax periods commencing 1 July 2015 through to 30 June 2016 and the 2017 annual tax period.
2. The taxable supplies returned and the additional amounts and shortfalls assessed, including administrative penalties, are as follows:

1. The taxable supply numbers in the table above are GST-inclusive. Hence, the tax shortfall is 1/11th of the GST-inclusive amount of additional taxable supplies. The penalties were calculated at 75% of the shortfalls but uplifted by 20% for the second and subsequent tax periods.

1. The Commissioner assessed Ms Huynh for additional income tax by adding to her returned taxable income the amounts of the additional taxable supplies set out in the table above, after excluding the GST component. The same process was applied to assess Mr Nguyen for additional income tax.
2. Penalties were applied at the rate of 75% of the shortfall for the 2016 income year but uplifted by 20% for the 2017 income year.
3. The resulting amounts are as follows:

1. The proceedings have an unfortunate history.
2. Although Ms Huynh has resided in Australia since 1989 and has some understanding of spoken English, she preferred to give evidence through an interpreter. On the third day of the hearing, which commenced in November 2024, it emerged that there were irregularities in the interpreter's work and concerns regarding the accuracy of his interpretations. The hearing was adjourned and, with the agreement of the parties, a new interpreter reviewed the recording of the evidence given to that point and marked up the transcript with revised interpretations of some of the evidence.
3. The delay caused by this turn of events was compounded by the need to accommodate the applicants' subsequent decision to change the solicitors they instructed to represent them and their counsel. That in turn led to the applicants' application, which I allowed, to advance a new "expenditure-based reconstruction" submission - detailed below - as the primary basis on which the applicants would seek to discharge the burden of proving the assessments are excessive and what amounts should have been assessed.
4. Having regard to this context, I also allowed various requests for extensions of time for the parties to comply with directions for filing closing submissions and to determine whether they wished to be heard by way of final oral submissions. The upshot of all this is that, although the hearing commenced in November 2024, the matter did not become reserved until December 2025. I record my appreciation of the clear and detailed written closing submissions provided by both parties' representatives which have greatly assisted in finalising this matter.

1. The applicants bear the burden of proving the assessments are excessive and what amounts should have been assessed: Taxation Administration Act 1953 (Cth) (TAA), s 14ZZK.
2. In respect of the primary tax liabilities for GST and income tax, the Commissioner confined the issues in dispute to whether the applicants have proved there was no evasion and the amount of the cash sales. The Commissioner did not put the applicants to proof that they had no other sources of income than those disclosed in their returns or of their business expenses and input tax credit claims.
3. In determining whether the applicants have discharged the burden of proof, I apply the following principles, as previously summarised by this Tribunal's predecessor:

(a) Facts may be found based on oral evidence alone. There is no barrier to a fact being found on the uncorroborated evidence of an applicant. There is no requirement that direct evidence by oral testimony or affidavit may only be accepted if corroborated.

(b) However, self-serving statements should be closely scrutinised.

(c) Where a taxpayer has received funds or incurred costs that are not clearly or fully explained in contemporaneous records, the taxpayer may face a challenge in satisfying the burden of proof without corroborating evidence.

(d) However, even in such cases, oral or written evidence of the taxpayer is not to be regarded as prima facie unacceptable. While it will often be prudent to put forward corroborating evidence, taxpayers are not obliged to call all material witnesses or produce all material documents.

(e) The standard of proof is the balance of probabilities. An applicant that succeeds 'in weighing down [the] scales ever so slightly' in the applicant's favour will discharge the burden of proof it bears.

[26] . . . the observations of Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation noting that informality can and often does attend the formation of legal relations in small business. . .

[27] That is not to say there is any special or lesser standard of proof for a small business. Where informality is present, 'much can depend on the credibility one affords the accounts given by participants and, where they exist, representations in business records created under their supervision or with their approval'.

[28] The Tribunal can only make findings of fact based on the evidence put before it and, where necessary, its relevance explained. Mere assertions will not suffice . . .

[29] Further, the process of finding facts needs to consider the evidence led through the lens of what was, or could be expected to be, capable of being led. As already noted, that does not mean an applicant is obliged to produce every relevant document or potential witness. However, where relevant evidence that could be expected is not produced, that is a relevant factor for the Tribunal to consider.[1]

1. The applicants accept that GST and income tax were understated in their returns.
2. However, they argue the amounts assessed by the Commissioner are excessive on two bases. The first is that there was no evasion as the Commissioner asserts and therefore the Commissioner was out of time to make the assessments. Alternatively, if they fail to prove there was no evasion, the amounts that should have been assessed are those calculated using their "expenditure-based reconstruction" method.
3. It follows that, on the applicants' case, there would either be no penalties for shortfalls because the primary tax assessments, being out of time, would fall away or any base penalty amounts should be assessed by applying the appropriate percentage rate of penalty to shortfalls based on their calculations of their sales figures.
4. Alternatively, the applicants argue that they provided all relevant information to their accountant and are therefore entitled to the benefit of the "safe harbour" provisions.[2] On this premise, also, no administrative penalties would apply in respect of these shortfalls.
5. If, contrary to these submissions, base penalty amounts would apply, the applicants say their conduct means the appropriate penalty rate would be 25% for failure to take reasonable care, rather than the 75% for intentional disregard of the law that was assessed.
6. The applicants accept that the 20% uplift as assessed would apply if, contrary to their submissions, there would be base penalty amounts in respect of GST for the tax periods from 1 October 2016 and in respect of income tax for the 2017 income year. They do not deny that the ESST penalty for possession applies.
7. However, the applicants argue that any penalties should be wholly remitted. They also argue that any SIC should be remitted.
8. The Commissioner's position is that the applicants have not proved: that there was no evasion; the amount of the cash sales for each tax period and income year in dispute; that the safe harbour applies; that they did not intentionally disregard the law; or that it is appropriate to remit penalties to any extent. The Commissioner also submits that the Tribunal does not have jurisdiction to review the SIC; on this premise, remission of SIC would not arise for consideration in the proceedings.
9. The following issues must therefore be determined:

(a) Have the applicants proved there was no evasion in the relevant periods?

(b) Have the applicants proved the assessments are excessive and what amounts should have been assessed? As the reviews were argued, this issue becomes: Have the applicants proved the amounts that they say were the partnership's cash sales for each relevant tax period and income year.

(c) Have the applicants proved the assessments of administrative penalties are excessive and what amounts, in any, should have been assessed? This requires consideration of these questions:

(i) Have the applicants proved the conditions for application of the safe harbour apply?

(ii) Have the applicants proved the shortfalls did not arise from intentional disregard of the law?

(iii) Have the applicants proved the penalties for GST or income tax shortfalls should be remitted wholly or in part?

(iv) Have the applicants proved the ESST penalty should be remitted wholly or in part?

(d) Does the Tribunal have jurisdiction to review the assessment of SIC and, if so, should SIC remitted wholly or in part?

1. Before considering these issues, it is appropriate to set the scene by summarising the applicants' approach to the case and the evidence.

THE APPLICANTS' SUBMISSIONS IN SUMMARY - PRIMARY TAX

1. The applicants accept that, to discharge the burden of proof, they must prove the actual amount of their sales for each relevant period.
2. Before their change of legal representation, the applicants' case was that their cash sales comprised 15% of the reported sales, drawn from their bank statements which recorded sales paid for electronically. That percentage was based on Ms Huynh's estimate and a witness who purported to provide expert evidence to that effect.
3. However, after they had given their evidence, as noted earlier, the applicants sought and I allowed leave to rely on an alternative "expenditure-based reconstruction". This expenditure-based reconstruction became the primary basis for the applicants' submission that they had discharged the burden of proving the amounts of their cash sales in each relevant tax period and income year.
4. Having pivoted to their expenditure-based reconstruction as the primary basis of their case, it is not altogether clear what part the submission that cash sales could be quantified as 15% of electronic sales now plays in the applicants' case.
5. In their closing submissions, the expenditure-based reconstruction is described as "the more comprehensive and reliable measure of actual receipts" and the 15% method as "a valid and evidentially supported cross-check confirming that the Applicants' true taxable supplies and income were materially lower than those derived from the Commissioner's DDA-based reconstruction".[3]
6. However, in their contentions regarding the actual amounts of taxable supplies for each period, the applicants present the amounts derived by multiplying electronic sales by 15% as a further alternative rather than a mere cross-check of whether their cash sales were materially lower than the Commissioner's assessed amounts.[4]

1. In their closing submissions, the applicants describe the basis of their expenditure-based reconstruction as follows:

142. The basis of the reconstruction is that, in circumstances where there were no unexplained deposits or increase in assets or wealth, and the Applicants' only source of income was from the Restaurant and Ms Huynh's rental income, the aggregate expenses of the Applicants must reliably equate to their Restaurant and rental income for that period.

2. Applying this logic, the applicants totalled the business and personal expenditure amounts drawn from their bank statements as a starting point. They then point to oral evidence that cash takings were applied to pay staff, buy additional business supplies and meet household expenses.
3. Wages of $92,008 and $93,558 were reported in the partnership income tax returns for 2016 and 2017 respectively. The applicants submit that the evidence supports an inference that additional wages of $63,368 and $68,090 were paid in cash in 2016 and 2017 respectively. Those additional amounts, the applicants say, imply an equivalent amount of additional gross income. In respect of income tax, this additional imputed income would be wholly offset by corresponding additional deductions for the wages paid in cash which were not claimed in their returns.
4. Additionally, the applicants identify an amount of $29,140 each year said to represent additional cash expenditures on personal and household expenses. This amount is derived from a personal living expenses questionnaire completed by the applicants during the ATO audit.
5. Aggregating these amounts, the applicants arrive at total expenditure (business and personal) amounts for each year. For 2016, they subtract rental income derived by Ms Huynh and the GST component, calculated as 1/11th of the remaining expenditure, then add back $7,500 which is the amount of cash banked in the 2016 income year and taken to be from cash sales. A similar calculation is undertaken for 2017, except that there were no cash bankings in that year.

1. These calculations result in assessable income of $632,958.75 for the 2016 income year and $745,266.41 for the 2017 income year. After allowing for the deductions that were returned and accepted by the Commissioner, and deducting the additional wages said to have been paid in cash, the applicants arrive at net income for the partnership of $119,719.75 for 2016 and $207,254.41 for 2017.
2. On this basis, the applicants' primary submission is that their income for income tax purposes is as follows:

1. The applicants put forward two alternative calculations of the partnership's net income which would flow through to Ms Huynh's and Mr Nguyen's taxable income.
2. The first alternative excludes a deduction for the estimate of wages paid in cash. That would result in the partnership's taxable income being the higher amounts of $183,087.75 for 2016 and $275,344.41 2017.
3. The second alternative would derive the partnership's additional cash sales by multiplying the recorded electronic sales (extracted from the partnerships' bank statements) by 15%, resulting in the partnership's net income being $161,650.78 for 2016 and $275,344.41 for 2017.

1. For GST purposes, the applicants that cash sales would approximate 15% of electronic sales, with an upper limit of cost of sales of 35% based on a benchmarking study cited by their witness, Ms Kerswell. From that percentage, and totalling the reported cost of sales and revised revenue estimates, they derive estimates of annual taxable supplies.
2. For the tax periods in the 2016 year, these are apportioned in accordance with the proportion of reported expenses incurred in each tax period, taken from the monthly debits to the applicants' business bank account.
3. Applying these calculations, the applicants say the partnership's taxable supplies were as follows:

1. Aside from documentary evidence, which included bank and credit card statements and the personal expenditure questionnaires referenced above, the Tribunal received evidence from the following witnesses:

(a) Ms Huynh; > > (b) Mr Nguyen; > > (c) Ms Tina Huynh, who is the applicants' niece; > > (d) Ms Kristy Kerswell, a business valuer; > > (e) Ms Dzung Tran, the applicants' former accountant.

2. The applicants and Ms Tina Huynh provided witness statements. Ms Kerswell provided a written report. Ms Tran was summoned to give evidence.
3. The following summaries of their evidence are mainly drawn from the Applicants' Closing Submissions which, to the extent extracted below, I consider to be fair summaries of the evidence.

1. Accept where otherwise indicated below, I generally accept the evidence of Ms Huynh as summarised below.
2. Ms Huynh was a partner in the restaurant business with Mr Nguyen.[7] Her primary role was in the front of house, where she took orders, worked as a cashier, served customers, and managed the daily purchasing of supplies.[8] She described herself as having limited English and formal education, explaining that she arrived in Australia in 1989 after spending time in refugee camps in Cambodia and Thailand, and that she can understand only about half of a conversation conducted in English.[9] These language limitations, she said, meant that she relied heavily on her accountant and on others to explain official correspondence and business obligations.[10]
3. Ms Huynh said in her first statement that she used a black-covered A4 exercise book, which she referred to as the "Notebook", to record daily takings.[11] At the end of most days, she would count the cash and EFTPOS, subtract the float, and record the totals in the Notebook.[12] Receipts for supplies purchased were also kept.[13] She estimated that cash sales were usually between 15 and 20 per cent of total sales.[14] That cash was used to pay staff and buy supplies, with the balance banked every two or three weeks.[15] She said that these routines were affected by personal strain: her two sons suffer from chronic illness requiring daily medication, and her husband worked long hours as the chef.[16]
4. She said the Notebook was misplaced after the sale of the restaurant in June 2019, most likely left behind in a cupboard at the premises.[17] She estimated that the restaurant's actual sales would have been about 15 per cent higher than those reported to the Commissioner.[18] For the reasons set out below, I do not accept that this estimate is sufficiently reliable to establish the extent of the applicants' cash sales. Ms Huynh also explained that by the time of the audit, she was suffering pain and swelling in her leg, which later required hospitalisation, and that these health issues, together with her son's depression following his girlfriend's death in 2016, left her distracted.[19]
5. The restaurant installed the DDA point-of-sale system in 2014 which Ms Huynh said was to send printed orders in Chinese to the kitchen.[20] Ms Huynh said she used the system for ordering, but that it was not an accurate record of sales.[21] She gave evidence that she frequently entered duplicate orders, family meals, or made technical errors.[22] I accept that Ms Huynh made errors but I am not persuaded such errors were necessarily of the magnitude indicated by the backup data. During the audit, Ms Huynh said her accountant, Ms Tran, told her the DDA data should be "cleared" to match the reported figures, and on that advice, she contacted the supplier and learned how to void sales.[23] For the reasons set out below, I am not persuaded that Ms Tran gave that advice. While Ms Huynh confirmed that deletions occurred she said she could not recall the details, citing stress and health pressures.[24]
6. In cross-examination, Ms Huynh went further, admitting: "after a while, I really could not remember what, but I just erased it randomly in order to make the figures as close or match the figures given".[25] Ms Huynh said she trusted Ms Tran's instructions completely because she did not understand the accounting software or the language used in official ATO letters, and believed she was simply following professional advice. As already indicated, I do not accept the premise of this evidence - that Ms Tran advised Ms Huynh to delete entries so that the recorded sales matched those returned.
7. In oral evidence, Ms Huynh maintained that she recorded the cash takings in the Notebook.[26] She conceded, however, that she sometimes failed to record cash taken during the day for supplies or wages: "sometimes if I was in a hurry, I did not record it".[27] She said that she left the Notebook behind when the business was sold and that subsequent attempts to recover it failed.[28] She also said that she had used more than one Notebook over the years, keeping earlier ones in bags in the corner of the restaurant.[29]
8. Ms Huynh acknowledged that she never gave the Notebook itself to the accountant but said that paperwork and figures were given to the accountant.[30] Ultimately, she accepted that cash sales were never fully or accurately recorded in the Notebook.[31]
9. In relation to her personal finances, Ms Huynh accepted that she travelled with her family to Japan and Korea in January 2017 and was shown Mastercard statements with cash transfers in the months prior to that trip. She said she could not remember making specific repayments.[32] She also accepted that insurance payouts totalling about $39,500 were received in 2017 and recalled other accident-related payouts, though apparently without precise recollection of timing or amounts.[33]
10. In re-examination, Ms Huynh said explicitly that her accountant told her the Notebook and the DDA data did not match and instructed her to delete entries "so it matches the figures that [the accountant] reported".[34] I do not accept this evidence for the reasons indicated below. She also specifically said that in the relevant years she had no other sources of income other than rental income and income from the Restaurant.[35]

1. Accept where I indicate otherwise, I generally accept the evidence of Mr Nguyen as summarised below.
2. Mr Nguyen was a partner in the restaurant with Ms Huynh. He worked primarily in the kitchen, preparing barbecue meats, organising ingredients for chefs, and assisting with cleaning when necessary.[36] The business employed a main chef and two to three assistants, usually two at night and one during the day, with Mr Nguyen himself working alongside them.[37]
3. In his statement, Mr Nguyen said that his wife was responsible for recording daily sales in an A4 hardcover book (i.e. the Notebook), while he retained receipts from market purchases and delivered quarterly papers to the accountant.[38] For the reasons indicated below, I do not accept that there was a Notebook that accurately recorded sales. Mr Nguyen said the Notebook remained at the restaurant, and he said when he returned after the sale of the business in 2019, he could not find it.[39]
4. Mr Nguyen recalled that in 2014 the business purchased a DDA cash register. He said the machine was unfamiliar to his wife, who made many mistakes entering orders, and that it was not used to record sales but only to transmit orders in Chinese to the kitchen.[40] After the audit commenced, he said his wife told him the accountant had advised her to delete incorrect entries, and she contacted the supplier to learn how.[41]
5. Mr Nguyen elaborated on what he said was his longstanding reliance on his accountant, Ms Dzung Tran, whom he had used since his first job in Australia more than twenty years earlier.[42] He said that he had very limited English, could not read or write it with confidence, and therefore depended entirely on his accountant to prepare and lodge the Business Activity Statements and income tax returns.[43] He said he would simply deliver handwritten summaries of quarterly takings and receipts, pay whatever amount the accountant said was due, and had never been told there were any issues with the information provided.[44]
6. Mr Nguyen also described that when the audit commenced, he first learned of it from his accountant, who asked if they had made any recent purchases and mentioned their new car.[45] He said he had little or no direct communication with the ATO, and that during later meetings with the accountant and the ATO, he could not understand what was being said due to his limited English.[46] He added that the accountant did not explain the importance of the Notebook when asked for it during the audit, and that he had not appreciated its significance at the time.[47] He testified that he thought the audit was because he bought a new car, but later realised, after being told by his counsel, that it concerned under-reporting of cash sales.[48]
7. Mr Nguyen said that after the audit began, Ms Dzung Tran ceased acting for them without explanation, despite having been their accountant for more than twenty years.[49] He and his wife then engaged another accountant, Ms Vivien Tran, whose office was nearby and used by family members.[50] Following her advice, they also contacted solicitors at Waterhouse Lawyers to deal with the audit.[51]
8. Mr Nguyen also described personal pressures, including his wife's health, their sons' chronic medical conditions, and the stress that he said contributed to their decision to sell the business in 2019.[52]
9. Mr Nguyen said his sources of income in the relevant years were limited to rental income and income from the Restaurant.[53]
10. In cross-examination, Mr Nguyen said that the business employed two Chinese chefs who alternated shifts, one working three days and the other four days per week.[54] He agreed they worked around eight hours per day, sometimes longer if customers remained.[55] He said his wife paid the kitchen hand, while he paid the chefs and recorded their hours in a book kept in the kitchen: "I had a book that I'm responsible to record for those two persons ... I left it in the kitchen with me".[56] He said that he recorded hours only, not amounts paid, except when additional hours were worked.[57] He said that when the Restaurant was sold, he left the books behind: "When I sold the restaurant, I was so happy, I don't think those books are necessary, so I just left them at the restaurant".[58] I do not accept that Mr Nguyen considered the books to be unnecessary; it is inconceivable that a person in the hospitality industry for several years would not understand that records must be retained for taxation purposes.
11. In relation to wages, Mr Nguyen estimated that chefs were paid about $27 to $28 per hour.[59] He confirmed that his wife handled the front of house, sometimes assisted by nieces Tina and Ngoc, and that he never served customers.[60]
12. In relation to sales recording, Mr Nguyen said his wife or Tina would count the till at night. If his wife left early, Tina would close and record the takings. He said: "I don't know how to use that [register], so my wife would be the main person, and then next would be Tina".[61] He gave evidence that each quarter he would take figures to the accountant, having added up EFTPOS and cash separately: "On a page, they would have the day, the month, the year and also the day of the week and then the amount from EFTPOS, and the amount from cash".[62] He then totalled the three months and delivered a piece of paper with those figures to the accountant.[63] For the reasons set out below, I am not persuaded that Mr Nguyen provided Ms Tran with accurate sales information.
13. Mr Nguyen said that before the DDA system, orders were written by hand and carried to the kitchen.[64] He said the DDA machine was later introduced because it was more practical: it printed orders in Chinese for the chefs. He said that he relied on the English and dish numbers on the printouts to prepare ingredients.[65]

1. With no disrespect intended, but to distinguish her from Ms Thi Hoa Huynh, I refer to Ms Tina Huynh as Tina. I accept that Tina gave honest evidence. Nothing in her evidence or presentation gave me reason to consider that she did not.
2. Tina said that she is the niece of Ms Thi Hoa Huynh.[66] She first came to Australia in 2008 to study in high school, and between 2015 and 2017, she worked as a waitress at the Restaurant. She said she returned to work at the Restaurant after starting a family and, at the time of her statement, was again employed part-time as a waitress.[67]
3. Tina's evidence was that her duties involved waiting tables, cleaning, and taking customer orders. She said she used the cash register system to enter orders, but said she often made mistakes: "If I made a mistake with a customer order, I would not delete the order from the system. I would just put another order through again and I would go to the kitchen and tell them that the order was wrong". She said that sometimes she did not use the register at all but instead wrote orders down on a note and took them directly to the kitchen.[68] In cross-examination, she confirmed this, saying she had been shown how to use the machine by her aunt but was never trained to use all its functions. She said she sometimes made mistakes with orders or had to write them by hand.[69]
4. Tina stated that no one ever asked her to delete sales from the register, and she did not recall seeing anyone else do so. In cross-examination, she was taken through the POS screen displays in the Tribunal Book. She said that she never used the "void item" or "discount" functions and said she did not know how those functions worked.[70] She said she sometimes used the "customer name" function and sometimes entered table numbers.[71]
5. Tina gave evidence about the recording of daily takings. She said that when her aunt left early, she would count the cash in the register, obtain the EFTPOS totals, and write those amounts in the Notebook: "Sometimes when my aunty went home early from the restaurant, I would write down the sales for the day in my aunty's notebook. I would take the total amount from the EFTPOS machines and count the cash ... and then write these amounts in the book". In cross-examination, she said she remembered stapling a slip with the EFTPOS totals to her cash count and leaving it in the till for her aunt.[72] She said she never relied on the sales amounts from the register itself, because mistakes were common.[73]
6. Tina said she recalled the Notebook being kept at the restaurant but could not now remember what it looked like.[74] In re-examination, she was asked about an inconsistency between her statement, which recorded that she sometimes wrote sales into the Notebook, and her oral evidence that she did not. Her reply was that "because this happened a long time ago ... I really don't know. It's been such a long time".[75]
7. Tina said she usually worked three hours after school on two or three weekdays and every second weekend, with occasional longer shifts when her aunt (Ms Huynh) left early.[76] She said she was paid in cash at around $17-18 per hour and that she wrote her hours into a staff book kept at the restaurant.[77] She said that her cousin also recorded hours in that book.[78] She said the book only recorded hours, not payment amounts.[79]

1. Ms Kristy Kerswell, a certified property valuer and certified business valuer, was engaged to provide an expert benchmarking report concerning the restaurant.[80] She confirmed in examination-in-chief that she prepared the report and adopted it as her evidence.[81]
2. Ms Kerswell's instructions were to consider what proportion of the restaurant's sales would be expected to be cash; what benchmarks applied to such a business; and whether the revenue reported by the partnership aligned with those benchmarks.[82] She relied on extracted financial data from the 2015/16 and 2016/17 tax returns, electronic sales records, and industry sources, including the Jarot Business Values newsletter and IBISWorld restaurant benchmarking data.[83]
3. In her report, Ms Kerswell opined that suburban restaurants of this kind typically took 10-15 per cent of revenue in cash.[84] Applying that range to the reported electronic sales ($548,915 in 2016 and $623,908 in 2017), she reconstructed total sales of $609,906-$645,782 for 2015/16 and $693,231-$734,009 for 2016/17.[85] She further opined that it was "unlikely" that the business could have achieved the Commissioner's assessed sales of $1.278m and $1.428m in those years, as that would imply cost of goods sold of only 16-17 per cent, well below industry benchmarks.[86] By contrast, reconstructed figures within the 10-15 per cent range aligned with the expected 33-35 per cent COGS benchmark.
4. In cross-examination, Ms Kerswell accepted that her report did not list all of the documents she had been provided with, including the partnership returns, but said she regarded the omitted list as a summary of the same data.[87]
5. Ms Kerswell's experience in valuing restaurants was tested. She explained she had participated in the valuation of around a dozen restaurants early in her career (2017-18), mostly suburban and some Asian, though she obtained her certified business valuer qualification only in 2022.[88] In those early valuations she often worked under supervision, with a senior valuer signing off on the reports.[89]
6. She was challenged on the foundation for her 10-15 per cent cash sales estimate. She said it came from her experience (of what she described as the "industry standard"), which included calling around to colleagues and getting "second opinions".[90] She acknowledged that there is no published industry standard for cash takings, and that her figure was not derived from a formal forensic exercise nor from any calling around to colleagues as part of her work on the report in this case.[91] She agreed that her model used cost of goods as the principal benchmark and defended that approach because, she said, cost of goods fluctuates the least.[92]
7. I accept that Ms Kerswell provided honest evidence. I discuss the reliability of her evidence below.

1. Ms Dzung Tran was the external accountant engaged by the partnership to prepare its BASs and income tax returns. She had been a registered tax agent since 1985, holds a Bachelor of Business Studies from Swinburne University, and operated a small suburban practice providing individual, company, and partnership accounting services.
2. Ms Tran said she had acted for Mr Nguyen and Ms Huynh for many years, having first met Mr Nguyen "in 1980-something ... it's just [a] small community".[93] She understood their business to be a restaurant and described Mr Nguyen as "very good in roast pork" and the business as "quite successful in that".[94]
3. She said the applicants usually attended her office together "maybe end of the quarter" to deliver a plastic bag of records for preparation of the BASs.[95] The bag typically contained bank statements, tax invoices, and occasionally "the roll, cash register roll".[96] They did not keep formal books, so she or her assistant entered the figures into Excel or MYOB to compile the BASs and year-end returns.[97]
4. In relation to sales, Ms Tran said her process each quarter was to review the bank statements and invoices and then ask the applicants how much of their takings were in cash and how much was by EFTPOS: "I had to interview them - how much is cash sale, how much is EFTPOS". She said she had never been given or seen the daily "Notebook" described by Ms Huynh.[98] That is consistent with the evidence of Mr Nguyen that figures were taken from the Notebook and written on a piece of paper which he then gave to Ms Tran.
5. Ms Tran said she understood that many small restaurant clients paid expenses directly from cash takings and did not maintain detailed records: "Most Asian business ... the cash they will spend on cash - pay expense by cash".[99] After completing each financial year, she returned all original records and later destroyed her working papers in accordance with the five-year retention rule.[100] Ms Tran accepted that, for some small businesses, she needed to estimate cash takings where no records existed: "I had to interview them and estimate the cash component - ask them how many per cent you take in cash".[101] She said this was common practice and that, in the partnership's case, "they tell me some and I estimate".[102] She agreed that the applicants' voluntary disclosure, described below, "Maybe [was estimate] ... I don't remember".[103]
6. When the ATO commenced its audit in 2018, Ms Tran said she assisted the applicants and "just supply whatever ATO require".[104] She said she advised them that "if the sale is not correct, you have to voluntarily disclose that the sale is wrong".[105] She prepared the voluntary disclosure using the figures discussed with them, explaining that EFTPOS amounts were verified through the bank while cash sales depended on what the applicants told her: "I rely on verbally from their declaration".[106]
7. Ms Tran said she did not know anything about the DDA machine and had simply accompanied the applicants when ATO technicians inspected it.[107] Although she provided the ATO with the model number when asked, she said she had never had a conversation with Mr Nguyen or Ms Huynh about the machine and denied telling anyone to delete or alter sales. When it was put to her that she had advised deletions, she responded, "I don't tell Ms Huynh to delete anything ... I'm telling the truth".[108]
8. Ms Tran was also asked about her later dealings with the applicants' lawyers in October 2023. She accepted that she received their email but did not reply, saying, "I just don't like to talk to them ... I feel just with no point to speak with them".[109]
9. When shown the 2017 BASs, Ms Tran accepted that "there was no cash sales" recorded, which she acknowledged was "unlikely".[110] She said the most likely explanation for the absence of cash sales was that the applicants told her what the cash sales were, but she forgot to put them down.[111] Later in the cross-examination, Ms Tran confirmed it was more likely that she used the bank statements as the only basis on which to prepare the BASs.[112]
10. Although I accept that Ms Tran generally gave honest evidence in accordance with this summary - she was prepared to give evidence contrary to her interests, acknowledging that she most likely prepared the returns from the bank statements - her evidence was unsatisfactory in some respects as discussed below.

Observations regarding some aspects of the evidence

1. This case has a curious feature. The parties' submissions address various controversies in some detail - whether Ms Tran advised the applicants to delete sales from the DDA records; whether and how an exercise book recording sales was maintained; and whether the applicants provided a piece of paper recording cash sales to Ms Tran.
2. Upon close analysis, though, for the reasons set out below, I have found resolution of these controversies does not play a determinative role in the decision-making required.
3. In that regard, rather than confining himself to a submission that the applicants' evidence is unreliable or insufficient to discharge the burden of proof, the Commissioner invited the Tribunal to make a positive finding that Ms Huynh's and Mr Nguyen's evidence was untruthful in at least two respects. I have not found it necessary to make such a finding.

1. One respect in which the Commissioner says the applicants should not be believed relates to contradictions between their evidence and the evidence of their former accountant, Ms Tran. Ms Huynh says she deleted sales from the DDA records on Ms Tran's advice so that the recorded sales would match the sales reported in the partnership's GST returns.
2. Ms Tran denied giving that advice. That such advice would be given by a registered tax agent strikes me as improbable for a number of reasons.
3. First, it is tantamount to an allegation that Ms Tran advised to the applicants to embark upon a course of action that would likely constitute commission of a criminal offence and would certainly be contrary to her professional duty to act with honesty and integrity. Secondly, it would be irrational for Ms Tran to have given such advice in the circumstances. The most rudimentary review of the applicants' returns and records was always going to reveal that they had not disclosed cash sales - regardless of the sales recorded in the DDA. Apart from the amounts totalling $7,500 that were banked in the 2016 income year, the applicants disclosed no cash sales in their returns. It would have been obvious to any auditor that cash sales had not been reported properly.
4. Further, the applicants' returns were not prepared from the DDA records but rather from bank records of receipts from electronic sales. The level of those sales was unequivocally established in the banking records from which the returns were prepared. Deleting sufficient sales so that the DDA records matched the amounts returned would simply beg the question of the level of cash sales in any case.
5. Additionally, why would Ms Tran put her professional standing at risk by providing such clearly inappropriate advice? It is plainly not a case where, for example, there might be a temptation to provide misguided advice in order to retain a major client. The applicants were running a small local business and engaged Ms Tran for the provision of basic taxation services. It is conceivable that Ms Tran may have advised that incorrect entries should be corrected but not to simply make extensive random deletions in the way Ms Huynh admitted had occurred.
6. Having regard to those circumstances, I am not persuaded that Ms Tran gave the advice to alter the DDA records to the extent that they would match the amounts returned. Whether Ms Huynh was deliberately dishonest in her evidence in that regard or mistaken I need not decide. That is not of direct relevance to the issues to be resolved in this case. The returns were not prepared from the DDA data. The Commissioner does not seek to make a positive case that the sales were as per the DDA data. Rather, the Commissioner simply submits, as he is entitled to, that the evidence does not discharge the applicants' burden of proving the amount of the partnership's cash sales. It is no part of the applicants' case to rely on the DDA data. To the contrary, they say it was unreliable.

1. The applicants referred to an exercise book, in which they said they recorded cash and EFTPOS sales, as the Notebook. As indicated earlier, they have not been able to produce the Notebook. It may be that there was more than one exercise book used over the period in dispute.
2. There were some contradictions in the evidence regarding the Notebook. However, in the end, it is of less significance than the attention it received in the hearing and in submissions might suggest. That is because the applicants' evidence is not that each sale was recorded in the Notebook. Rather, it was the cash remaining at the end of each day of trading less the opening float that was recorded. In other words, the net cash for the day. Tina gave similar evidence.
3. I say "net cash" because the evidence is, as indicated earlier, that cash removed from the daily takings/float was used to pay suppliers and wages. It follows that, even if it or they were available, the Notebook/s would not provide evidence of the daily cash sales.
4. That being so, it also follows that any piece of paper prepared from the Notebook by the applicants for Ms Tran as a record of the cash sales would also be inaccurate. The cash sales would be understated at least to the extent of the cash removed from the register to pay suppliers and wages.

1. Another respect in which the Commissioner says the applicants should not be believed relates to the applicants' evidence that they provided details of cash sales to Ms Tran to enable the preparation of their activity statements. The applicants' evidence is that the cash sales were recorded in the Notebook and that the totals of the cash sales for each quarter were derived by adding the cash sales recorded in the Notebook.
2. The applicants rely on the evidence extracted above to the effect that the most likely explanation for the absence of cash sales was that the applicants told Ms Tran what the cash sales were, but she forgot to include them. As the evidence extracted above also shows, Ms Tran went on to say that it was most likely that she prepared the BASs from the bank statements.
3. In relation to this issue, I have found the evidence of both Mr Nguyen and Ms Tran to be unsatisfactory.
4. Mr Nguyen would have the Tribunal accept that he visited Ms Tran on eight separate occasions with a piece of paper recording cash sales but Ms Tran deliberately or negligently failed to include the cash sales in the five activity statements and two income tax returns that she prepared and , instead, she interrogated the bank account statements to identify the proceeds of electronic and cash sales. It strikes me as unlikely that Ms Tran would have made the same mistake over and over again. It is not a complex exercise and it is a matter of common experience and uncontradicted evidence that a restaurant would have cash sales in addition to electronic sales. Ms Tran herself gave evidence to this effect and as to her experience of Asian restaurant operators removing cash from daily takings to pay for expenses.
5. Further, the evidence that the piece of paper with cash sales recorded was given to Ms Tran differs from Ms Huynh's response to an ATO record-keeping questionnaire completed during the audit. In response to a question as to the material the applicants provided to their accountant to prepare activity statements, the applicants nominated only three records - tax invoices, bank statements and "payroll list". There is no mention of a record of cash sales. Recalling that the amounts returned as sales in the BASs matched the EFTPOS and cash bankings, that evidence is consistent with the apparent basis on which the returns were prepared; that is, from the bank statements.
6. On the other hand, Ms Tran's evidence is also curious. Ms Tran gave evidence of needing to interview clients and estimate cash sales, and that she had a clear memory of doing so with the applicants.[113] And yet no cash sales - apart from the $7,500 banked in 2016 - were disclosed in the returns.
7. Ms Tran agreed it was unlikely that the applicants told her there were no cash sales. At one point, as indicated above, Ms Tran put forward the possibility that she overlooked cash sales: "Maybe I put down, but when I actually do the work I didn't put it." But later she appeared to accept that it was more likely that she did not receive information about cash sales and prepared the returns from the bank statements:

So in that circumstance, it's more likely, isn't it, that you didn't get any information, or ask for any information or overlooked information from the clients, and you just took the bank statements and you used those as the only basis upon which the gross sales were calculated --- Yes.

8. Given Ms Tran's evidence that she discussed cash sales with the applicants, it is curious that no cash sales were disclosed in 2017 and only $7,500 in 2016 in the activity statements that she prepared.

HAVE THE APPLICANTS PROVED THERE WAS NO EVASION IN THE RELEVANT PERIODS?

1. Evasion requires more than mere avoidance of tax or withholding of information or provision of misleading information. Some blameworthy act or omission is required. However:

[an] intention to withhold information lest the Commissioner should consider the taxpayer is liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.[114]

2. Intentionally omitting income without a credible explanation would also constitute evasion.[115]
3. There is no question that the applicants have understated their taxable supplies and assessable income. They admit as much, although they deny that the understatements were as great as the assessments imply. For two years, the applicants failed to report any cash sales other than the aggregate amount of $7,500 that was banked in the 2016 income year.
4. Have the applicants proved they did not intentionally omit the cash sales or provided a credible explanation for failing to disclose those sales?
5. The applicants' Closing Submissions do not address the evasion issue. The Applicants' Statement of Facts Issues and Contentions relevantly contends that:

the conduct identified at audit does not amount to "fraud" or "evasion". The opinion purportedly formed by the Commissioner at audit is not supported by the facts when they are properly characterised. In particular, the DDA System was not used as a financial reporting tool and was not used to supress sales. The applicants used a manual reporting system for their sales. Any omission of reported sales or income was due to an inadvertent oversight. Having regard to all of the circumstances, there was no planned and deliberate action or dishonest intention to deceive the Commissioner as to the true sales figures of the restaurant or the taxable income of Ms Huynh and Mr Nguyen. (Footnotes omitted.)

6. The difficulty with this contention is that it merely asserts that the omission of sales was due to an inadvertent oversight. It does not provide an explanation of how the oversight occurred, let alone a credible explanation.
7. On their own evidence, the applicants used a system which was bound to result in cash sales being omitted. That process, if the applicants' evidence is accepted, involved providing their accountant with information regarding purported cash sales that did not reflect the actual sales because they were net of significant amounts withdrawn from the cash takings to pay amounts of wages and to meet other expenses.
8. On the other hand, it is not a case where the applicants have simply provided incorrect information to their accountant and instructed the accountant that the information is correct. Ms Tran gave evidence, which I accept, that she had a clear memory of speaking to the applicants regarding cash sales. There is no suggestion from Ms Tran that she was instructed to include only sales data extracted from the bank statements as ultimately occurred.
9. However, the applicants have been in business for some years. The started the restaurant in 2012 and had run a takeaway outlet before that.[116] It must have been obvious that they were not recording gross sales when they were removing cash from the takings for wages and other expenses. They offered no evidence to explain whether or how they came to believe that system was appropriate. Other than seeking to shift the blame to Ms Tran, the applicants offered no substantive evidence to explain how their sales came to be understated. In the absence of further evidence, it would strain credulity to accept that they simply overlooked cash sales. Based on the numbers produced in their submissions, substantial amounts of cash were withdrawn to pay wages and other expenses. In the absence of an explanation for how, even on their own case, they came to give their accountant sales numbers that it must have been obvious were understated, and to a significant degree, I am not persuaded that they have a credible explanation for understating their sales.
10. It follows that I am not persuaded the applicants have proved there was no evasion in relation to any of the relevant tax periods or income years.

HAVE THE APPLICANTS PROVED THE AMOUNTS THAT THEY SAY WERE THE PARTNERSHIP'S SALES FOR EACH RELEVANT PERIOD AND INCOME YEAR.

1. The applicants' "expenditure-based reconstruction" presents as a detailed set of calculations resulting in precise numbers for the applicants' taxable supplies and income for the relevant tax periods and income years. In reality, though, it produces no more than a series of estimates based on a number of assumptions or estimates.
2. There can be no doubt that the output of the method is, as mentioned, a series of estimates. Putting aside whether an estimate, even if proved, would be sufficient to discharge a taxpayer's burden of proving the amounts that should have been assessed, there are several difficulties with the applicants' submissions.
3. Some of those difficulties arise from the timing of the applicants raising this alternative basis for attempting to prove their case. That did not occur until after they had given their evidence and following some seven hearing days. The consequence is that there are aspects of the method that rely upon evidence on which the applicants were not cross examined. It is not surprising that such cross examination did not occur because the evidence was not relevant to the applicants' case as identified in their Statement of Facts Issues and Contentions, which relied upon the evidence said to establish that cash sales were 15% of electronic sales.
4. An example is provided by answers the applicants gave in their response to the personal expenses questionnaire on which the applicants now seek to rely to establish their personal expenditure. That document was not tested in cross examination. It was not relevant to the applicants' case as identified at that time. There can be no doubt the numbers presented in the document are estimates, as the same totals were entered for both of the relevant income years.
5. Similarly, a significant outgoing that features in the applicants' calculation of total expenditure, which is the foundation from which their method purports to calculate total income, is wages said to have been paid in cash. The evidence on which the calculation of wages is based arose in cross examination but not in respect of its use as the basis for an expenditure-based reconstruction. There was, for example, no cross examination in relation to additional hours that Tina said she worked every second weekend. Further, the estimates of wages appear to bear no relationship to individual tax periods nor take into account busy periods or times when, according to Ms Huynh's evidence, she was on holidays or tending to her sick children when additional wages would have been incurred.
6. The assumptions regarding personal expenditure are particularly significant. This is, after all, a case where cash was removed from the takings of the business without a proper record being maintained of the amounts or of the purpose for which the cash was removed, and the applicants admit that the cash was used at least in part for private, non-business purposes.
7. Further, the applicants present as a married couple with children living a modest lifestyle in which the business takings are fully expended on business and personal outgoings. Yet there is a large, unexplained variation between what is said to have been, or more accurately an estimate of, their personal expenditure between the 2016 and 2017 income years. Further, the expenditure that is identified in the submissions from the bank statements appears to rely upon characterisations undertaken by the author of the submissions; there has been no opportunity for the Commissioner to test the validity of those characterisations.
8. Additionally, the estimates for GST purposes employ a benchmark as the basis for arriving at the values for taxable supplies. A benchmark by its very nature is the product of an averaging exercise. The purpose of a benchmark is not to establish actual costs or income but for use as a comparison with actual performance.[117] Ms Tran's evidence that the restaurant had done well from pork sales suggests it may have performed above an industry average.
9. For these reasons, I am not persuaded that the applicants' "expenditure-based reconstruction" is sufficiently reliable to produce a reliable estimate of the applicants' taxable supplies and assessable income. It certainly does not produce the applicants' actual taxable supplies or assessable income.

1. The applicants' alternative method is described in their submissions as follows:

Under this method, the 15 per cent up lift is applied to the total sales reported in the lodged BASs to estimate unrecorded cash turnover.[118]

2. In respect of the 2017 income year, this description is consistent with the "Results of the calculation" section of the applicants' submissions which posits the 15% uplift being applied to reported taxable supplies of $636,283 (GST-inclusive) producing additional cash sales of $95,442.45, leading to total reconstructed sales of $731,725.45 (GST-inclusive). These calculations may be proved as follows: $636,283 plus ($636,283 x 15%) = $731,725.45 which equates to $636,283 plus $95,442.45 = $731,725.45. Removing the GST component of the additional sales - by multiplying $95,442.45 by 10/110 - results in the applicants' (alternative) proposed additional taxable supplies and assessable income of $86,765.86 and additional GST of $8,675.89.
3. The same does not hold true for the applicants' calculations for the 2016 income year for which the applicants state:

171. For the 2015-16 year, reported taxable supplies totalled $591,455 (GST-inclusive). Applying a 15 per cent uplift produces an additional $81,218.25 in cash sales, giving total reconstructed sales of $672,673.25 (GST-inclusive). Removing the GST component from the additional cash sales equates to $73,834.77 of assessable income. There is a GST shortfall of $7,383.48.

1. On my calculations, 15% of $591,455 is $88,718.25, not $81, 218.25. That may be cross checked by expressing $81,218.25 as a percentage of $591,455, the percentage derived in that way being approximately 13.7%. Consistently with the apparent logic of the applicants' submissions, the 15% uplift for the 2016 income year should be applied to the reported sales less the reported cash sales of $7,500 - that is: ($591,455 less $7,500) x 15% = $87,593.25, which also does not match the applicants' figure of $81,218.25 in additional cash sales.
2. While I am unable to reconcile these numbers, I have proceeded on the stated premise of the applicants' (alternative) methodology; that is, that reported electronic sales should be uplifted by 15% to arrive at total sales. That is consistent with the Applicants' Statement of Facts Issues and Contentions which, at [26], contends that "the true value of sales of the business is reported sales plus 15% to reflect cash sales inadvertently not reported".
3. The applicants' submission that cash sales could be either calculated as, or cross-checked by, multiplying the accepted electronic sales by 15% is based on two aspects of the evidence.
4. The first is evidence of Ms Huynh that "around 15-20%" of sales were in cash. Ms Huynh elaborated upon that evidence by stating that it is "based on usual daily sales on the weekend of $1,700 - $2,000 around $400 would be in cash."
5. The difficulty with Ms Huynh's evidence is that the example on which she bases her 15-20% estimate does not support her estimate. $400 as a percentage of $1,700 is a little over 23.5%. $400 as a percentage of $2,000 is 20%.
6. Additionally, for the reasons indicated earlier, the applicants' case appears to be that cash sales were 15% of electronic sales not 15% of total sales. That is, the reported electronic sales should be marked up by 15% to arrive at total sales. Presenting Ms Huynh's estimate of the cash component of weekend trading as a percentage of non-cash sales produces even higher percentages. Based on total sales of $1,700, cash sales of $400 as a percentage of non-cash sales of $1,300 ($1,700 - $400 = $1,300) is 30%. Based on total sales of $2,000, cash sales of $400 would be 25% of non-cash sales of $1,600 (that is, $2,000 minus $400).
7. The other evidentiary basis for cash sales being 15% of non-cash sales submitted by the applicants is Ms Kerswell's report. There are, in my view, a number of barriers in the way of acceptance of Ms Kerswell's opinion as a basis for concluding that the applicants have discharged their burden of proving the total amount of their sales in each tax period and income year would be the reported electronic sales marked up by 15%.
8. First, the report does not express an opinion regarding the cash sales for each of the four quarters in the 2016 year. There is no basis in the report for determining the cash sales for each quarterly tax period. At best, only an estimate could be made.
9. Secondly, there is a question regarding the base to which Ms Kerswell says the 15% calculation is to be applied. In that regard, Ms Kerswell states:

I would expect the cash sales of the business to be in the vicinity of 10% to 15%.

10. That statement suggests Ms Kerswell intended to convey that cash sales would be in the range of 10% to 15% of total sales. That is the natural reading of the sentence. But the applicants' case is the cash sales would be 15% of electronic sales which would generate a lower total for cash sales than if cash sales were 15% of total sales.
11. Thirdly, Ms Kerswell's report acknowledges that "the percentage of cash transactions can vary significantly between restaurants". This underlines that the 15% calculation is at best an approximation.
12. Fourthly, while Ms Kerswell states that the proportion of cash sales is lower in CBD locations than in suburban locations before concluding that the subject restaurant would take the "standard amounts of cash for a suburban restaurant", the foundation for the opinion that the applicants' cash sales would be in the vicinity of 10%-15% is not otherwise stated in her report.
13. As outlined earlier, this issue was explored in cross examination. Ms Kerswell confirmed that there is no published standard for the proportion of cash sales in the restaurant industry. Other than reference to a practice she had some years earlier of calling around colleagues in the valuation business or business brokers and accountants, Ms Kerswell was unable to state how she came to hold the opinion that 10% to 15% of sales in the industry were cash sales at the relevant time; or, as she asserted, "industry standard". She was unable to recall whether she had ever interrogated the records of any restaurant business and obtained information that confirmed that view. She did not refresh her opinion by calling around any colleagues to verify her view before preparing her report for these proceedings.
14. Fifthly, there were aspects of Ms Kerswell's evidence that raised questions regarding some of the detail included in her report. It appears that in conducting her benchmarking exercise, Ms Kerswell adopted GST-inclusive figures for sales and GST-exclusive figures for expenses. As Ms Kerswell agreed, that inconsistency would affect the outcome of her benchmarking exercise.
15. Further, Ms Kerswell relied upon cost of goods sold figures returned by applicants to carry out her benchmarking exercise. The applicants' cost of goods sold is the lynchpin of Ms Kerswell's benchmarking exercise - other significant expenses, such as wages, were not benchmarked. The rationale for that approach appeared to be that businesses, including the applicants, would seek to maximise their GST input tax credit claims and therefore would not understate their cost of goods sold. However, the applicants admitted that they purchased supplies using cash from the restaurant's takings and not all acquisitions would have borne GST. The applicants' total cost of goods has not been established by the evidence.
16. Finally, Ms Kerswell's evidence does not support the claim that she is an expert in respect of this subject matter. Ms Kerswell is a "certified business valuer" and a "certified property valuer". Her answers to cross examination questions indicated that she qualified as a certified business valuer in 2022. Her experience with restaurants appears to have amounted to about a dozen valuation exercises, mostly undertaken under supervision some years earlier before she became qualified. About nine of those were suburban restaurants. While Ms Kerswell expressed a firm opinion that 10-15% is an "industry standard" for the proportion of cash sales at a suburban restaurant, she could only identify as the basis of that opinion calling around colleagues at a time when she was in the early stages of her career, around eight years previously, and had not completed her qualifications. In any case, there is nothing in the evidence to establish that those qualifications would equip the holder of a business valuer certification with the expertise to express an opinion on the proportion of cash sales in the restaurant industry, let alone in respect of the applicants' particular restaurant.
17. None of this is to suggest that Ms Kerswell is not good at her work; it is simply that the experience Ms Kerswell was able to identify as relevant to the question of the level of cash sales in the applicants' business does not qualify her as an expert in that subject matter. And her report did not reveal sources of information in support of the opinion she expressed other than calls to an indeterminate number of unidentified persons some years ago.
18. For these reasons, I am not persuaded, based on either Ms Kerswell's report or the evidence of Ms Huynh, that the applicants' cash sales were, as they assert, 15% of their electronic sales. There is, in my view, no satisfactory evidentiary foundation for such a conclusion.

HAVE THE APPLICANTS PROVED THE CONDITIONS FOR APPLICATION OF THE SAFE HARBOUR APPLY?

1. Under s 284-75(6)(b) in Schedule 1 to the TAA - known as the "safe harbour" provision - a taxpayer is not liable for administrative penalties in respect of tax shortfalls where they have relied on the services of a tax agent, if they satisfy certain conditions.
2. One of those conditions is that the shortfall does not arise from intentional disregard of the law or recklessness on the part of the agent. For the reasons discussed below in relation to the base penalty amounts, I am satisfied that Ms Tran did not intentionally disregard the law. However, on the evidence before the Tribunal I am not satisfied that her unexplained omission of cash sales from the returns was not the result of recklessness. Ms Tran's own evidence accepts that she was familiar with the treatment of cash sales by restaurants and that she simply did not include cash sales in any of the returns she prepared (other than the $1,700 banked in 2016). The omission, in all of the returns, remains unexplained.
3. In any case, a key eligibility condition of the safe harbour is that the applicants gave the tax agent - Ms Tran - "all relevant taxation information". That expression is not defined but must include sufficient information for the tax agent to prepare the relevant return accurately.
4. The applicants cannot satisfy that condition. By their own admission, they did not provide Ms Tran with details of all their sales. Even if it is accepted that each quarter, as they maintain, they provided Ms Tran with a piece of paper listing sales figures, the amounts cannot have been correct. That is because, on their own evidence, the cash recorded in the exercise book at the end of each day did not include cash removed to pay wages and other expenses. There does not even seem to have been a record of the amount of wages paid in cash, only the extra hours worked.
5. The Applicants' Closing Submissions attempt to overcome this difficulty by noting that they provided Ms Tran with invoices, bank statements and other documents and that there is no evidence that Ms Tran sought other information. There are two problems with that submission.
6. The first is that it was up to the applicants to adduce whatever evidence they considered necessary to discharge their burden of proof. Absence of evidence that Ms Tran sought further information does not assist the applicants.
7. Secondly, and more importantly, s 285-75(6)(b) imposes an absolute requirement that the taxpayer has provided all necessary information. It is not satisfied by, for example, a belief that all necessary information has been provided or because the tax agent did not seek further information (even if that were established by the evidence).
8. Accordingly, I am not persuaded that the applicants are entitled to the benefit of the "safe harbour".

HAVE THE APPLICANTS PROVED THE SHORTFALLS DID NOT ARISE FROM INTENTIONAL DISREGARD OF THE LAW?

1. The administrative penalty regime (for non-scheme penalties) has been summarised in this way:

4. By s 284-90 in Schedule 1 to the Taxation Administration Act 1953 (Cth) ('TAA'), Parliament has prescribed penalties in what has been described as 'gradations of increasing severity in terms of conduct by a taxpayer or his, her or its agent which has resulted in a tax shortfall'. > > 5. Thus, failure to take reasonable care, recklessness and intentional disregard of the law attract base penalty amounts of 25%, 50% and 75% respectively of the relevant tax shortfall. The applicable base penalty amount is increased by an uplift of 20% where, relevantly, a penalty has previously been applied. > > 6. The authorities establish that 'intentional disregard' requires: > > inter alia, an understanding by the taxpayer of the effect of the relevant legislation or regulations, an appreciation by the taxpayer of how that legislation or regulation applies to the circumstances of the taxpayer, and finally, deliberate conduct of the taxpayer so as to flout the [Act or regulations]. > > 7. The object of the administrative penalty legislation is stated to be to provide a uniform administrative penalty regime to apply to entities that fail to meet their obligations under taxation laws. Implicitly, it is to encourage voluntary compliance with taxation obligations. > > 8. Under s 298-20 in Schedule 1 of the TAA, the base penalty amount may be wholly or partly remitted where, having regard to all relevant circumstances, it is appropriate to do so.'[119] > > (Footnotes omitted.)

2. The penalties imposed by s 284-90(1) may be triggered by relevant conduct of either the taxpayer or the taxpayer's agent.
3. I am satisfied that Ms Tran did not intentionally disregard the law by preparing the returns without including cash sales (other than the aggregate amount of $7,500 in the 2015/16 year). There is no reason for her to have done so. As events have demonstrated, failing to disclose cash sales would inevitably be revealed by an audit. It would have been foolhardy and contrary to self-interest for Ms Tran to deliberately do so.
4. The applicants assert that their conduct is properly characterised as exhibiting lack of reasonable care. It is an undisputed fact that the applicants' returns were lodged without disclosing any cash sales other than the aggregate amount of $7,500 included in 2015/16. There is no evidence that fully and satisfactorily explains how that came to occur. Ms Tran agreed she must have prepared the returns from the bank statements even though they did not include the cash sales.
5. The applicants say the non-disclosure was inadvertent but do not explain how it occurred. They seek to lay the blame with Ms Tran because, they say, they provided her with the piece of paper each quarter with sales listed. But even assuming the pieces of paper were provided as they say, the figures provided could not be correct as they did not include cash removed from the takings to meet wages and other expenses. Further, there is no evidence that the applicants checked and approved the returns before they were lodged.
6. The applicants made much of their limited skills in English and lack of sophistication. I accept that they had challenges with English and were not sophisticated businesspeople. However, they had been in business for some years and the issues in this case do not arise out of lack of sophistication or from business complexity: The applicants simply needed to keep an accurate record of their sales, provide that to their accountant and ensure the returns prepared by their accountant included the correct sales figures. They did not do so and they have not adequately explained why not.
7. In any case, the application of a base penalty may arise because of the conduct of a taxpayer's agent. Based on her evidence, it was known to Ms Tran that Asian restaurants may have issues with cash; in particular, cash takings being drawn upon to meet outgoings.
8. It was never going to be possible for Ms Tran to include the precise amounts for cash sales in the returns she prepared as those amounts could not be determined due to the applicants removing cash from the takings and recording only the net amount of cash remaining at the end of each day of trading. For this reason, Ms Tran said she had a policy of estimating cash sales in discussion with clients in this situation. And as already noted, Ms Tran gave evidence that she specifically recalled discussing this with the applicants.
9. Yet the cash sales were not included in the returns. If that error had occurred once or twice, I might be more readily persuaded that it resulted from lack of reasonable care. But it occurred repeatedly, across five activity statements and two income tax returns. I am unable, on the basis of Ms Tran's evidence, to be satisfied that the understatements were the result of mere lack of reasonable care.
10. The returns were wrong and clearly so. There is simply insufficient evidence, indeed no specific evidence at all, to explain why that occurred. For the reasons discussed above in relation to whether the applicants have proved they did not engage in evasion, and the further reasons set out above, I am not satisfied the applicants have proved the shortfalls did not arise from intentional disregard of the law.
11. It follows that the base penalty amount is to be calculated at 75% of the shortfalls. The applicants accept that the base penalty amounts are increased by the 20% uplift provided in s 284-220(1)(c) in Schedule 1 to the TAA for the tax periods commencing after 30 September 2015 and for the 2017 income year.

HAVE THE APPLICANTS PROVED THE PENALTIES FOR GST OR INCOME TAX SHORTFALLS SHOULD BE REMITTED WHOLLY OR IN PART?

1. Section 298-20 in Schedule 1 to the TAA bestows a discretion upon the Commissioner, and therefore this Tribunal on review, to wholly or partly remit penalties imposed by the Act.
2. The discretion is unconstrained in its terms and there are no prescribed (mandatory) considerations required to be taken into account by the decision-maker. However, the discretion must be exercised for a proper purpose and in accordance with the objects of the TAA. The object of the TAA's penalty regime is:

to discourage a taxpayer (either by itself or its agents) from engaging in an intentional disregard of a taxation law, recklessness and a failure to take reasonable care in the making of statements to the Commissioner about the material particulars.[120]

3. The question the Tribunal is required to ask itself has been stated as follows:

In exercising the discretion under s 298-20(1) to remit, the Tribunal [is] required to ask itself, having regard to the evidence, what were the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care [here, intentional disregard of the law] in making the statement to the Commissioner that might explain the conduct the subject of the penalty and what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that notwithstanding the imposition of a penalty on the taxpayer by the Administration Act on the footing of a failure to take reasonable care [here, intentional disregard of the law] in making the statement, the penalty ought nevertheless be reduced either in whole or in part, . . .[121] > > Or simply: > > whether the decision-maker is satisfied having regard to the taxpayer's particular circumstances that it is appropriate to remit penalty in whole or in part.[122]

4. For example, a decision-maker might determine that it is appropriate to remit a penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate).
5. These judicial statements indicate that I must have regard to the circumstances surrounding the applicants' reckless failure to disclose their cash sales. The difficulty is that, as already indicated, the applicants have not explained that conduct, other than to say it was inadvertent. They do not explain how the failure occurred and what circumstances justify its characterisation as inadvertent. Unassisted by judicial commentary, I would have concluded, on that basis, that the applicants have not discharged the burden of proving any remission is appropriate.
6. However, in Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust,[123] the Full Federal Court unanimously stated:

The Tribunal stated that it had no evidentiary basis "to consider whether remission to any extent would be appropriate in the circumstances": at T [180]. It emphasised that "there is no evidence that [CSS] through [its director] or its tax agents engaged at all with the statutory requirements for GST-free supplies of bullion". The power in s 298‑20 of Sch 1 to the Taxation Administration Act 1953 (Cth) to remit a penalty is constrained only by the purposes and object for which the power is conferred: Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 at 521 [193] (Greenwood J). In determining whether to remit a penalty, the Tribunal is not confined only to considering the circumstances surrounding the failure on the part of the taxpayer or its agent to exercise reasonable care or to not act recklessly in making the statement to the Commissioner that might explain the conduct the subject of the penalty. It is also relevant to consider what circumstances, on the evidence, ought to be taken into account in determining, as a matter of discretion, that, notwithstanding the imposition of a penalty on the taxpayer on the basis of a failure to take reasonable care or acting recklessly in making the statement, the penalty ought nevertheless be reduced either in whole or in part: Sanctuary Lakes at 524 [209] (Greenwood J).[124]

7. Those remarks suggest that, notwithstanding the absence of evidence concerning the circumstances giving rise to the applicants not disclosing their cash sales properly, I should nevertheless consider what other circumstances, on the evidence, ought to be taken into account to determine whether the penalty should be wholly or partly remitted. I proceed on that basis.
8. In that regard, the applicants put forward various factors said to warrant full remission. I reproduce the relevant submissions below in full, along with my responses.[125]

273 . . . Relevant considerations include proportionality, culpability, cooperation, compliance history, remedial conduct, and whether the penalty would otherwise be unjust or excessive . . .

1. Other than "remedial conduct" in the context in which it is raised in this matter as discussed below, I accept that those are relevant considerations.

274 Even if the penalties were correctly imposed and uplifted, the circumstances justify substantial, and in this case, complete remission. The Applicants are small, > > unsophisticated taxpayers who operated a family restaurant under difficult personal and financial conditions. They relied entirely on their registered tax agent, provided her with all relevant records, and lacked the education or English proficiency to verify her work or understand their obligations.

2. I accept that the applicants operated a small business and are, relatively speaking, unsophisticated, uneducated and lacking proficiency in English, and had the additional burden of caring for unwell family members. Additionally, Ms Huynh was herself unwell during this period, spending some days in hospital.
3. In relation to the lack of sophistication and education, the concepts relevant to this matter are not complex or sophisticated. The applicants simply needed to disclose all their sales. They did not do so. I do not accept that their lack of sophistication is relevant to that failure. They had been in business for some years. They must have known that GST is payable on all their sales and that all sales must be included in their income tax returns.

275 There is no evidence of deliberate concealment, wealth accumulation, or extravagant spending. The Applicants' lifestyle and financial position were modest and consistent with the reconstructed income figures. The shortfalls arose from informal systems, language barriers, and the accountant's handling of information, not from a conscious attempt to evade tax.

4. I agree that there is no evidence of wealth accumulation or extravagant spending. That has not been alleged. Absence of wealth accumulation or extravagant spending may be relevant to determination of primary tax liabilities in some cases. I do not understand, and nor have the applicants explained, how this is relevant to remission considerations.
5. Consistent with my finding that the applicants have not proved there was no intentional disregard of the law, I do not accept that the applicants have established that the shortfalls did not arise from a conscious attempt to evade tax. I do not understand, and again the applicants do not explain, how absence of conscious evasion would be relevant to whether a base penalty for lack of reasonable care, as they submit should apply, should be remitted.
6. I accept that the shortfalls arose in part from informal systems. But that shortcoming is of the applicants' own making. Again, sophisticated systems were not required - just a proper record of sales. Language barriers and lack of business sophistication did not prevent the applicants from maintaining such records and accurately advising their accountant of their sales.
7. It is not altogether clear what the applicants mean by "the accountants handling of information". It is clear, though, that Ms Tran was aware of the need to include cash sales in her calculations for the returns - she said she had an explicit memory of discussing this with the applicants. In circumstances where the applicants relied upon Ms Tran to prepare the returns, I consider this to be a relevant factor. The imposition of an administrative penalty may arise because of conduct of either a taxpayer or their agent - in other words, taxpayers do not escape exposure to penalties because the relevant errors were errors of their agents (unless, unlike this case for the reasons I have given, the "safe harbour" applies). However, that the conduct of the agent was a contributing factor may be a relevant consideration for remission purposes.

276 The Applicants cooperated throughout the audit and subsequent proceedings, produced all requested documents, and did not obstruct or delay the process. Any misstatements have already been corrected through amended assessments, substantial primary tax, and interest.

8. I do not accept that this is an accurate characterisation of the applicants' conduct in relation to the audit. While they may have produced materials when requested, it is not to be overlooked that Ms Huynh deliberately deleted more than half of the sales recorded by the DDA machine and failed to disclose that she had done so until the ATO audit was well advanced.
9. Additionally, that the understatement of taxable supplies and assessable income has been corrected through the amended assessments and interest is, in my view, irrelevant to whether penalties should be remitted. The correction is a function of the taxation laws and the Commissioner's enforcement of those laws. It is not a circumstance surrounding the misstatements.

277 On proportionality, an additional and important factor is that the Tribunal has before it evidence establishing that, even if the Commissioner's position on the assessments is upheld, the correct amounts of taxable income and taxable supplies were likely significantly lower than those on which the Commissioner based the penalties. In those circumstances, the penalties - calculated on materially overstated shortfalls - would operate punitively rather than proportionately. Full remission is therefore warranted as a matter of fairness and justice.

10. I accept that it may be the case that the assessments - which must stand because the applicants have been unable to prove their true cash sales - overstate the liability that would have applied if the true level of cash sales could be established. The Commissioner's assessments imply that cash sales comprised more than 50% of total sales. Even in the relevant years - before the Covid epidemic accelerated the move away from cash - common experience casts doubt on whether the cash sales would have been at that level. On the other hand, Tina's evidence establishes that not all sales were recorded by entry in the DDA machine; she wrote some down on a piece of paper she took to the kitchen.
11. But even if the assessments are based on an overstatement of sales, I have no means of estimating the extent of the overstatement of what would be the true liability if the cash sales were known.

278 Ms Tran's subsequent refusal to assist the Applicants or their lawyers further supports remission. The Applicants have lost their business, and there is no evidence of any ongoing pattern of non-compliance.

12. I do not understand, and again the applicants do not explain, why Ms Tran's refusal to engage with their lawyers supports remission. Perhaps it is implicit in the submission that the outcome of their case would have been different if Ms Tran had assisted them. But Ms Tran gave evidence and the applicants had the benefit of counsel in respect of her evidence.
13. In any case, this submission has the same difficulty as the submission regarding the potential overstatement of sales reflected in the assessments. I have no way of knowing what, if any, difference any such co-operation would have delivered, and certainly no way of quantifying it.

279 Any penalties imposed on the Partnership, Ms Huynh, and Mr Nguyen should be fully remitted under section 298-20 of the TAA. Having regard to their limited education, language barriers, reliance on professional advice, cooperation, and the fact that the correct shortfalls were materially lower than those assessed initially, the retention of penalties would be disproportionate and inconsistent with the proper exercise of the remission discretion.

14. This paragraph largely repeats the asserted basis for remitting penalties referencing matters I have addressed above.
15. Having regard to the discussion above, the factors which I accept could support a conclusion that some remission is appropriate in all the circumstances relate to the proportionality of the penalty amounts and the engagement with Ms Tran. On the other hand, Ms Huynh deleting sales from the DDA record and, more particularly, not advising the ATO that she had done so until the audit was well advanced, counts against the applicants' case for remission. There is no obvious explanation for that conduct that does not imply seeking to prevent the ATO finding out the true extent of the original entries in the DDA machine. Ms Huynh's explanation that she was afraid to advise the ATO does not explain the deletions.
16. The aggregate of the penalty amounts payable constitutes a very substantial burden relative to the size of the applicants' business. However, it does not follow that it would be unreasonable and unjust, and therefore inappropriate, for any penalty to apply as the applicants submit. Without more, it would be inconsistent with the object of the penalty regime for the Commissioner, or the Tribunal on review, to wholly remit penalties in circumstances where taxpayers, who are experienced in business, omitted almost all of their cash sales without a proper explanation of why that has occurred. That would send an inappropriate message to the business community and, contrary to the object of the penalty regime, would encourage, rather than deter, conduct Parliament has sought to discourage.
17. The position in relation to Ms Tran is more complex and nuanced. The applicants did not, even taking their evidence at its highest, provide Ms Tran with information from which she could have prepared accurate returns. On the other hand, they did meet with Ms Tran, discuss cash sales and entrust her with preparation of the returns. They were entitled to assume Ms Tran would have included an estimate of cash sales; in other words, to assume that at least some level of cash sales additional to the $7,500 that was banked would have been added.
18. In relation to the base penalty amounts for the tax periods after 30 September 2016 (GST shortfalls) and the 2017 income year (income tax shortfall), I am persuaded the 20% uplift should be remitted. This is not a case where a taxpayer has embarked upon the same or similar behaviour again after being penalised on an earlier occasion for that conduct. The shortfall arises out of a single source: the failure to disclose all cash sales.[126] Remission to that extent is not inconsistent with the objects of the penalty regime identified above.
19. Remission to that extent would leave the following penalty amounts in relation to the GST shortfalls.

1. Remitting the 20% uplift for the penalty for the income tax shortfall for the 2017 income year would leave the following penalty amounts:

1. In summary, after remitting the 20% uplift in full, the applicants would still be facing a combined penalty amount in the order of $550,000. That is a substantial amount by any measure relative to the size of the business. On the other hand, the base penalties of 75% were imposed by Parliament for good reason - to encourage the lodgement of accurate returns and discourage intentional misstating of taxation liabilities in returns. They are not to be remitted without a proper reason.
2. The Commissioner pointed out that, based on the applicants' own submissions, they must also have failed to meet PAYGW obligations in relation to wages paid in cash and, presumably, superannuation obligations. The payment of wages in cash without maintaining proper records and meeting statutory obligations is a serious matter. Aside from the failure to meet statutory obligations, it facilitates and encourages evasion by employees who might be minded to not disclose the income in their own returns.
3. However, that is a matter for whatever separate compliance action, including assessment of penalties, the Commissioner may consider appropriate. I do not take into account the failure to meet PAYGW or superannuation obligations in the context of whether there should be any further remission of penalties in respect of GST and income tax arising out of the failure to disclose cash sales.
4. Taking full account of the seriousness of failing to disclose cash sales and the objects of the penalty regime, I consider that an effective combined penalty in the order of $550,000 lacks proportionality in the context of a small business with an annual turnover, even assuming the basis of the Commissioner's to be correct, of less than $1.5M.
5. Doing my best to honour the deterrent objects of the penalty regime, but taking into account all the circumstances, including the high absolute level of penalty for a small business; the trust the applicants placed in Ms Tran; and the shortcomings in their own conduct, I have come to the view that it is appropriate to remit the penalties to a rate of 40%. That takes into account that the applicants took some steps towards compliance by engaging an accountant, although failing to provide her with accurate data. In my view, that decision is not at risk of sending the wrong message to these taxpayers or small businesses generally. It remains a very substantial penalty and a warning against not disclosing properly cash sales in GST and income tax returns. It also takes into account Ms Huynh's conduct in deleting sales from the DDA record, with Mr Nguyen's knowledge, without advising the ATO in a timely way.

HAVE THE APPLICANTS PROVED THE ESST PENALTY SHOULD BE REMITTED WHOLLY OR IN PART?

1. The ESST penalty for possession of the DDA machine is $6,300. The principles governing remission of penalties are set out above in relation to remission of shortfall penalties.
2. The applicants submit that it would be unjust for them to bear this penalty when they were not aware of the machine's sales suppression capability when they acquired the machine; and did not acquire or use it for that purpose or to obtain a financial benefit.
3. All of that may be accepted. However, the partnership through Ms Huynh deleted an extensive number and value of sales - more than half the sales initially entered into the machine - without advising the ATO. I infer that was for the purpose of hiding the true state of the original record of the sales even if that record was inaccurate.
4. No reasonable explanation has been provided for doing so other than the evidence that Ms Tran advised that it should be done, which I have rejected. Even if it is accepted that entries were made in error, Ms Huynh's evidence was not that she merely deleted entries said to have been made in error. Rather, she deleted entries randomly to cause the DDA record to match the sales disclosed in the partnership's returns.
5. In my view, it would be inconsistent with the object of the imposition of the penalty for possessing ESSTs for the penalty to be remitted when a taxpayer has used the machine's capacity for manipulation of sales to mislead the ATO. That is so whether or not the machine was used to suppress sales at the time the relevant returns were prepared. To remit the penalty in those circumstances would not serve the purpose of discouraging possession of ESSTs.
6. Accordingly, I am not persuaded that the applicants have made a case for remission of the ESST penalty.

DOES THE TRIBUNAL HAVE JURISDICTION TO REVIEW THE ASSESSMENT OF SHORTFALL INTEREST CHARGE (SIC) AND, IF SO, SHOULD SIC REMITTED WHOLLY OR IN PART?

1. Under s 280-170 in Schedule 1 to the TAA, the right to object against a decision not to remit SIC on an amount of additional income tax is confined to circumstances where the amount of the charge that is not remitted is more than 20% of the additional amount.
2. The Commissioner's Statement of Facts, Issues and Contentions sets out the amounts of SIC charged in respect of Ms Huynh and Mr Nguyen for each of the 2016 and 2017 income years. The amounts do not exceed 20% of the respective income tax shortfalls for either applicant for either of the relevant income years.
3. On that basis, there could be no objection against the Commissioner's decision not to remit the SIC, and therefore no objection decision capable of being reviewed by the Tribunal. The applicants made no submissions regarding the jurisdiction issue in their closing submissions, nor did they assert any error in the numbers stated by the Commissioner.
4. Accordingly, I accept the Commissioner's submission that the Tribunal does not have jurisdiction in respect of the SIC issue.

1. It follows from the reasons set out above that the objection decisions disallowing the objections in full should be set aside and replaced with a decision allowing the objections in part, but only to give effect to the reduction in the assessments of penalties for shortfalls in GST (net amount) and income tax to 40% of the respective shortfalls.

[1] Beta Leigh Pty Ltd v Commissioner of Taxation [2024] AATA 596, [25], citing Imperial Bottleshops Pty Ltd v Commissioner of Taxation [1991] FCA 276; Commissioner of Taxation v Cassaniti [2018] FCAFC 212, Anglo American Investments Pty Ltd (Trustee) [2022] FCA 971, [54].

[2] Taxation Administration Act 1953 (Cth), Schedule 1, s 284-75(6)(b).

[3] Applicant's Closing Submissions, [175].

[4] For example, at Applicants' Closing Submissions, [216].