QTWG and Commissioner of Taxation (Taxation) [2019] AATA 2428 (24 July 2019)

1. In April 2005, QTWG registered an Australian Business Name (ABN), which I will call "QTWG Contractors", with the intention of starting a pest control business. He never did so and registration of the Business Name was cancelled in April 2008.[3] Later that year, in September, QTWG registered a company. I will call it "QTWG Contractors Pty Ltd". It continues to be registered and he is its sole director and shareholder. Its registered office is located at an address 65 Lake Drive, Cloud Hills and that is also its principal place of business.[4]

1. I have prepared tables summarising various aspects that I have found to have been established on the evidence. They reflect the more detailed analysis of the evidence that is set out in Attachment A to these reasons. The material in that Attachment is no less important and is part of my reasons. The tables attempt to give an overview of the facts as I have found them rather than the detail.

1. I begin with the properties of which I find that QTWG is, or has been, the registered proprietor. The table also sets out those persons, to whom I will refer in the course of these reasons and their relationship, whether personal, business or professional, with QTWG. Consistently with the obligations imposed on the Tribunal by ss 14ZZE and 14ZZJ of the TAA once QTWG had requested that the hearing be in private,[5] each person and property is identified by a pseudonym as is QTWG. The evidence on which I have made these findings is set out in Attachment A to these reasons and takes the form of QTWG's oral and written evidence and that of each of the people identified in the table except for his mother and his brother, Taylor, who did not give evidence.

Accountant of QTWG, Mr and Mrs WG and Christopher and Dorothy

Solicitor who has acted for QTWG and whom QTWG regards as a family friend

Wife of Christopher, sister in law of Mr WG and Aunt of QTWG

Husband of Dorothy, brother of Mr WG and Uncle of QTWG

Investment property owned by Christopher and Dorothy and on which they carried out renovations in July and December 2007

House owned by one of QTWG's brothers. From approximately 2008, the family home of QTWG, his wife and children

QTWG began building a house for himself and his family across 30 and 32 Daffodil Grove, Cloud Hills in 2008

Vacant land purchased by QTWG in September 2000 and transfer registered in March 2001

Purchased and title transferred to Mr and Mrs WG's son, William in July 1997

Family home of Mr and Mrs WG and their sons and, from approximately June 2005 until 2008 or 2010, also the home of QTWG's wife and their children

Registered office and principal place of business of QTWG Contractors from April 2005 to April 2008. QTWG Contractors Pty Ltd was registered on 22 September 2008.

In 1997, Mr WG purchased the property and the title was transferred from the vendor to Mr WG's son, William

Purchased by QTWG in January 2007 and he and his wife and children lived in it until it was sold in approximately 2008[6]

Purchased and transferred in May 1995 to QTWG, William and Taylor as joint tenants

In May 2006, subdivided into three lots. QTWG became the registered proprietor of Lot 1

1. Attachment A also sets out evidence relating to loans that QTWG and others have said have been made to him. In the following table, I set out those loans together with a note of the purposes for which they were said to have been made. I have also included the amount in QTWG's bank accounts following any deposit I have referred to.

Deposits in QTWG's accounts at or about same time

Land at 55 Wave Crescent, Solitude Bay jointly owned by QTWG, William and Taylor subdivided and QTWG became the registered owner of Lot 1

QTWG purchased 89 Milky Way, Cloud Hills as a home for him and his family.

Building supplies or to deposit in home loan account

During 2008, QTWG began building a house in the middle of 30 and 32 Daffodil Grove, Cloud Hills.

Transfer of 65 Lake Drive, Cloud Hills from William to QTWG

QTWG sold 89 Milky Way, Cloud Hills at some time during 2008 and they moved to a house owned by QTWG's brother at 12 Laureate Street, Cloud Hills

1. Mr and Mrs Vallon have lodged income tax returns declaring that they have, with the exception of Mr Vallon in respect of two income years, incurred a loss in each of them.[7] In the following table, I have set out the total amounts each lent, or attempted to lend, QTWG against the taxable income or loss each declared:

1. On the basis of the evidence of the accounts included in the T documents, I find that QTWG had the following bank accounts held for varying periods of time:

Common Fund Trading (later called National at call common fund A1 and then Cash Manager)

1. In the following table, I set out findings I have made regarding the transfer of amounts among the bank accounts held by QTWG. I have done so by reference to the deposits of the amounts identified by QTWG as loans and set out in the previous table. In doing so, I have reflected every amount identified by QTWG as a loan but have not attempted to reflect every payment or deposit into and every withdrawal from QTWG's various accounts. Rather, I have attempted to reflect the broad state of QTWG's accounts at and around the time he received the amounts he describes as loans:

Transfer from NAB...053 to, or other deposit in, NAB...151

QTWG's purchase of 89 Milky Way, Cloud Hills funded from NAB...151 and 245 and $56,000 from NAB...053

William transferred 98 Lake Drive, Cloud Hills to QTWG

$6,944.00 less deductions in the amount of $250: $6,694.00.

Commissioner's audit of QTWG's affairs using asset betterment test

1. The Australian Taxation Office (ATO) conducted an audit of QTWG's affairs in the income years from 2004 to 2011 using the asset betterment method.[8] In the course of that audit, the ATO identified five properties of which QTWG was the registered proprietor and about which it made various findings.

Transfer from unrelated third parties to William of 65 Lake Drive, Cloud Hills registered by Office of Titles Victoria (Titles Office).

Initially considered William to hold beneficial interest for QTWG.

Gift of natural love and affection. Stamped with $18,460[10] assessed on $380,000.00.

ATO accepted the William did not hold property beneficially for QTWG and reduced QTWG's Total Assets by $173,000 as at 30 June 2003.

Included as an asset for 2008 year and following at $380,000.[11]

Transfer to QTWG, William and Taylor as joint tenants.

The property was subdivided into 3 Lots.[13]

QTWG became the registered proprietor.[15]

1. The ATO also identified the following bank accounts and treated their balances as at 30 June in each year as QTWG's assets:[16]

Common Fund Trading (later called National at call common fund A1 and then Cash Manager)

1. During cross-examination, QTWG agreed with Mr Ure of counsel for the Commissioner that QTWG Contractors Pty Ltd held a Business Transaction Account with the Commonwealth Bank numbered CBA...392 (CBA...392). QTWG agreed that he operated that account and that, in all, he had six bank accounts in Australia. He believed that he did not have any more.[17] QTWG Contractors Pty Ltd has never lodged an income tax return or a Business Activity Statement.

1. The ATO determined that QTWG owned the following motor vehicles and trailers:

VicRoads stamp illegible. Seller signed on 21/02/2000 and buyer signed on 12/04/2000.[18]

1. In summary, the Commissioner issued the following assessments and amended assessments:

1. As the Commissioner made assessments of administrative penalties under Division 284, QTWG was able to object to it under Part IVC of the TAA.[25] The Commissioner issued assessments on the following bases:

(a) The Commissioner issued penalty assessments under s 284-75(1) of Schedule 1 of TAA on the following basis:

(i) neither exception provided for in ss 284-75(5) or 284-75(6);

(ii) the base penalty under s 284-90 is 75% of the relevant tax shortfall amount because QTWG intentionally disregarded the taxation laws; and

(iii) in relation to the 2005 and 2006 income years, the base penalty amount should be increased by 20% of the income tax shortfalls under s 284-220(1)(c).

(a) The Commissioner issued penalty assessments under s 284-75(3) of Schedule 1 of TAA on the following basis:

(i) the base penalty under s 284-90 is 75% of the relevant tax shortfall amount because QTWG intentionally disregarded the taxation laws by failing to give a return in those years;

(ii) in relation to the 2008 and 2010 income years, the base penalty amount should be increased by 20% of the income tax shortfalls under s 284-220(1)(e); and

(iii) there is no basis for any reduction under s 284-225(1).

1. The Commissioner also decided that there were no circumstances warranting either the remission of the penalties, or part of them, under s 298-20 of Schedule 1 of TAA or, under s 280-160, of the SIC on the additional amount of income tax assessed.

1. The issues in this case centred on the following:

(1) Did the Commissioner have power to amend the assessments of QTWG's taxable income in respect of the 2004, 2005 and 2006 income years?

(2) If he did have power to amend, were the assessments for the 2004, 2005 and 2006 income years excessive?

(3) Were all or any of the Commissioner's assessments for the 2007 to 2010 income years excessive?

(4) Were all or any of the Commissioner's assessments of shortfall penalty in respect of the 2004, 2005 and 2006 income years excessive?

(5) Were any, and if so which, of the Commissioner's assessments of penalty for failing to provide a document in respect of the 2007 to 2010 income years excessive?

(6) Should the Commissioner's penalty and SIC remission decisions have been made differently?

1. In summary, QTWG's case has four components. The first is that QTWG did not have any income earning activities in the first four years under review. The second is that the business that he conducted in the following three years was apparently awash with money but had very, very slim profit margins, if any. In addition, QTWG had a rental property that he owned outright but land tax and real estate agent's fees consumed 46% of the gross rental earnings. The generosity of his family and friends is the third component in QTWG's case. Five people have been prepared to lend him money and one transferred a property at 89 Milky Way, Cloud Hills to him. The loans and transfer of that property to him was the fourth component of QTWG's case.

1. The Administrative Appeals Tribunal Act 1975 (AAT Act) applies in relation to the review of reviewable objection decisions such as those made by the Commissioner.[26] Section 25(3)(c) of the AAT Act permits an enactment providing for applications to be made to the Tribunal to "... specify conditions subject to which applications may be made." During the relevant period, s 14ZZK of the TAA provided, in so far as it is relevant in this case:

"On an application for review of a reviewable objection decision:

(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b) the applicant has the burden of proving that:

(i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or

1. Putting aside proceedings under Part IVC of the TAA on a review or appeal relating to an assessment, the amount and all particulars shown on an assessment are correct.[27] That is the starting point and the burden placed on the applicant is to show that the assessment is excessive. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in Gauci v Federal Commissioner of Taxation[28] (Gauci):

" The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail."[29]

1. His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:

"... There is nothing inherently unfair in a provision which places the onus on the taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge."[30]

Standard of proof unaltered: balance of probabilities

1. Section 14ZZK does not alter the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.

1. The case of McCormack v Federal Commissioner of Taxation[31] illustrates the nature of a taxpayer's task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of ITAA36 as it was then in force. Gibbs J explained Mrs McCormack's task:

"... The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail."[32]

1. If all of the material facts were known and the amount of a taxpayer's taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.[33]

1. It is open to the taxpayer to attack the Commissioner's power to make an assessment[34] or the calculation of the amount of an assessment. If the taxpayer chooses to attack the calculation of the amount of the assessment:

"... mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment ..., the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. ..."[35]

1. Therefore, merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer's burden of proof under s 14ZZK(b)(i) in relation to an assessment for the burden is to prove that "the assessment is excessive". The point was made in Federal Commissioner of Taxation v Dalco[36] (Dalco):

"... A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. ..."[37]

1. A taxpayer and the Commissioner may agree to confine the extent of their disagreement. Brennan J explained this in Dalco:

" The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection."[38]

1. In making the assessment in Dalco, the Commissioner had relied on s 167(b) of ITAA36 as he had not been satisfied with the return furnished by Mr Dalco and could make an assessment of the amount upon which, in his judgment, income tax ought to be levied. That amount then became Mr Dalco's taxable income. The Commissioner had relied on the same provision in Gashi v Federal Commissioner of Taxation.[39] The Court explained a taxpayer's task when faced with an assessment made under s 167:

" A taxpayer who seeks to establish that a s 167 assessment based on the asset betterment method of calculation is excessive must positively prove his or her "actual taxable income" and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer: Dalco at 623-5 and Trautwein at 88. The taxpayer must show that the unexplained accumulated wealth was from non-income sources. The manner in which a taxpayer discharges that burden is not defined or specified - it varies with the circumstances: Dalco at 624.

So, for example, in Ma v Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 at 230, Burchett J said that, in seeking to establish that an assessment under s 167 was excessive, that burden may be discharged:

... [I]f a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. ...

Justice Burchett identified a number of steps - identification of sources of income, explanation of a taxpayer's activities and an explanation of the source or sources of a taxpayer's assets. The steps identified by Burchett J are not surprising. In addressing a s 167 assessment based upon an asset betterment statement, a taxpayer must account for an unexplained increase in assets. The taxpayer must explain the source or sources of those assets and then identify whether that source, or those sources, are taxable. Put another way, if the disclosed 'actual' taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive. And, of course, that unexplained increase in assets cannot be viewed in isolation - it must also take into account the expenditure during that period.

Consistent with that view, even if a taxpayer was able to prove that an item in the asset betterment statement was wrong or should not have been included, but did not adequately explain the source or sources for the otherwise unexplained increase in wealth, the taxpayer would not discharge the onus under s 14ZZO of the TAA."[40]

No burden of proof on Commissioner and no obligation to put forward material establishing a particular view

1. At [25]-[26] above, I have referred to passages from the judgment of Mason J in Gauci, in which he set out the consequences of a taxpayer's carrying the burden of proof. I refer also the case of Galea v Commissioner of Taxation,[41] in which Hill J said:

" To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. As is clear from Dalco_, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant's assessable income was at least a particular figure. The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by s 190(b) of the Act to show, that the assessment is excessive. The Commissioner's failure to establish a positive case, if that is what he sought to do, leaves the tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case._"[42]

1. The factual circumstances in Richard Walter Pty Ltd v Commissioner of Taxation[43] were somewhat akin to those in the case I must consider here in that the Commissioner took the position that loan or trust arrangements claimed by the taxpayer were shams. On that basis, the Commissioner assessed the amounts said to be the subject of those loan or trust arrangements to be income. The Judge at first instance had not accepted the evidence of the taxpayer's financial controller, and only witness, and took the view that there had never been any intention to repay the relevant payments claimed to be loans. Therefore, they were not loans. That left the taxpayer in the position of showing that the payments were something else that did not have the character of loans. There was no onus on the Commissioner to establish the true character of the payments. The Commissioner had taken the position that the loans were shams. Even then:

"... if it had been necessary to determine whether the so-called loan transactions were shams, the onus could not have been on the Commissioner to show what the real transaction was, of which the payments formed part. Once sham is alleged by the Commissioner, he may then come under some factual obligation to identify the real transaction for which it is contended that the apparent transaction is but a disguise: Coppleson v Federal Commissioner of Taxation (1981) 52 FLR 95. But as that case itself illustrates, that is in the overall context of the statutory imposition of the burden of proof on the taxpayer and does not place upon the Commissioner an onus of satisfying the Court that there was a sham.

The onus not being upon the Commissioner to show a sham, so too the onus can not be on the Commissioner to show what the genuine transaction was which is said to have been obscured by that sham.

As I have already sought to demonstrate, it was not necessary for his Honour to determine the matter by reference to sham in the sense of holding that the so-called loans were but a disguise for some other transaction. It was sufficient for his Honour to hold that the payments to Richard Walter were not loans. Once that finding had been made the question would then arise whether Richard Walter had satisfied the onus upon it of showing that the payments were not income."[44]

1. I would add that the imposition of the burden of proof upon the taxpayer removes any obligation on the Tribunal of the sort identified in Minister for Immigration and Citizenship v SZIAI[45] (SZIAI). That was an obligation to make an obvious inquiry about a critical fact, when that inquiry could easily be made.[46] Section 14ZZK of the TAA clearly places the responsibility for that entirely in the hands of the individual and removes it from the Commissioner and so, on review, from this Tribunal. Nothing else changes, though. The Tribunal's task on review continues to be to reach the correct or preferable decision. The rules of procedural fairness continue to apply if the Commissioner should choose to obtain further information.

Effect of burden when Commissioner amends assessment after being of opinion there has been fraud or evasion

1. Section 170 of ITAA36 provides that the Commissioner may amend an assessment in the circumstances set out in the table that forms part of the section. Subject to qualifications which do not apply in QTWG's case, the general rule is that the Commissioner may amend an assessment of an individual for a year of income within two years after the day on which the Commissioner gives notice of the assessment to the individual.[47] That general rule applies in Items 1 to 4 set out in s 170(1) of ITAA36. There is no time limit, however, if Item 5 applies. Item 5 provides that "The Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion."

1. The way in which the onus works was explained by described by Rares J in Bai v Commissioner of Taxation:[48]

" The taxpayer had to satisfy the Tribunal, on a review of an objection decision, that the Commissioner's opinion that there had been fraud or evasion was excessive, that is, she had the onus of proving that the Commissioner's opinion was objectively wrong in order to discharge her onus of negating the precondition for the exercise of his power to amend her assessment under item 5 of s 170(1) of the 1936 Act. If she had done so, then the whole amended 2005 assessment would have been set aside and the legal efficacy of the original assessment restored.

However, if the taxpayer did not establish that the Commissioner was wrong to have formed the opinion that she had not made a full and true disclosure, she could still challenge the quantification of her assessable income, and consequently her substantive liability, by satisfying the Tribunal that the Commissioner's assessment complained of was excessive."[49]

1. On appeal to the Full Court of the Federal Court where it was heard with appeals by three other appellants, Perram and Davies JJ, with whom Siopis J agreed on this aspect, considered the amendment power, albeit in the context of Mrs Binetter's appeal and not that of Ms Bai. In Binetter v Federal Commissioner of Taxation,[50] their Honours' concluded:

" In cases where the amendment power depends on the formation of an opinion by the Commissioner of fraud or evasion, the difference between merits review by the Tribunal and an appeal to the Court is that the Tribunal re-considers whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, whereas the Court will only interfere with the Commissioner's exercise of the amendment power if the Commissioner did not form the requisite opinion or the Commissioner's opinion that there was fraud or evasion is vitiated by some error of law: s 43 of the AAT Act; Shell Co of Australia v Federal Commissioner of Taxation [1930] UKPCHCA 1; (1930) 44 CLR 530 at 544-5; Jolly v Federal Commissioner of Taxation [1935] HCA 21; (1935) 53 CLR 206 at 212-4; Avon Downs Pty Ltd v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 at 360. Although the Tribunal re-examines whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, and is able to substitute its opinion for that of the Commissioner, the issue for the Tribunal is whether the taxpayer has discharged the onus of showing that the opinion that there was fraud or evasion should not have been formed, and therefore, that the statutory condition for the power to amend is not satisfied. Unless the taxpayer discharges that onus, the assessments are not shown to be excessive and the effect of s 14ZZK is that the Tribunal must affirm the amended assessments, such assessments having been made by the Commissioner in compliance with the statutory requirements: McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303; Millar v Commissioner of Taxation [2015] FCA 1104; (2015) 67 AAR 490. In Millar Griffiths J correctly held that on a merits review before the Tribunal, the onus of proof imposed by s 14ZZK places on the taxpayer the burden of disproving fraud or evasion."[51]

1. Evidence must be relevant and probative of the issues it addresses. Findings of fact must be made on those issues and those findings underpin my decision, for my decision must be based on them and not on mere suspicion or speculation.[52] Whether evidence is relevant and probative, will be determined in light of the issue and the character of the evidence. As an example, evidence from third parties might be relevant and probative if they were to corroborate statements made by an applicant to a medical expert regarding his ailments even if they could not otherwise be regarded in that light.[53]

1. Relevant and probative evidence must be weighed and considered both on its own and in the context of all the evidence that is relevant and probative on a particular issue before findings of fact can be made on that issue. The weight that is accorded to evidence may be influenced by the source from which it comes. Where a witness has an interest in the outcome of a proceeding because, for example, he or she is a party to the proceeding or the controlling mind of a company that is a party, regard may be had to the words from the judgment of Fullagar J in Pascoe v Federal Commissioner of Taxation[54] when he said:

" Where a person's purpose or object or other state of mind in relation to a

given transaction is in issue, the statements of that person in the witness box

provide, in a sense, the 'best' evidence, but, for obvious reasons, they must,

as Cussen, J., observed in Cox v. Smail ... [1912] VicLawRp 50; (1912) VLR 274 at 283_, 'be tested most closely, and received with the greatest caution.' In that case Cussen, J., after pointing out that states of mind in relation to acts done were generally complex, elaborately analysed the factors to be considered in determining whether an assignment of property by a bankrupt to a creditor had been made 'with a view to' giving that creditor a preference. ..._".[55]

1. In Federal Commissioner of Taxation v SNF (Australia) Pty Ltd,[56] the Full Court of the Federal Court described this passage as doubting whether Fullagar J:

"... advanced anything more than the caution - customarily applied by trial judges - that the evidence of witnesses who have an interest in the outcome of litigation needs to be approached critically."[57]

1. Evidence of this sort was also addressed by Hill J who decided both Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation[58] (Imperial Bottleshops) and Davis v Commissioner of Taxation[59] (Davis). In Imperial Bottleshops, his Honour said:

" A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be 'tested most closely, and received with the greatest caution': Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as 'prima facie unacceptable', cf McCormack v FCT [1979] HCA 18; (1979) 143 CLR 284 at 302 per Gibbs J; 9 ATR 610; 23 ALR 583."[60]

1. In Davis, Hill J applied these principles in evaluating evidence relating to whether an exemption for sales tax applied. It would apply if the goods - a yacht in that case - were mainly for long term leasing to another person in circumstances in which that other person would use it mainly in providing regular and scheduled sight-seeing trips. Hill J said:

" The words 'for use' require an investigation into the use to which the yacht is to be put by the exemption user. While, no doubt, that requires an investigation of purpose, and direct evidence of purpose may be given, the best evidence of purpose will, ordinarily, be found in the use to which the yacht is in fact put. As Fullagar J said in Pascoe v FC of T (1956) 11 ATD 108; (1956) 30 ALJR 402, in considering evidence of 'purpose' in the context of section 26(a) of the Income Tax Assessment Act 1936 evidence of the object to be pursued, that is to say the state of mind of the person claiming the exemption, will necessarily be the subject of careful scrutiny."[61]

1. The rule in Jones v Dunkel[62] was explained by Heydon, Crennan and Bell JJ in Kuhl v Zurich Financial Services Australia Ltd,[63] explained that:

"63 The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue. ...

64 The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. But the conclusion by the trial judge that the plaintiff - a party-witness - deliberately withheld evidence reflected a stronger reaction. It operated as a finding that there had been an admission. It could be inferred that the evidence was withheld, in breach of the witness's duty to tell the whole truth in answer to the question, because the plaintiff was conscious that success in the litigation would be rendered impossible or less likely if the material withheld were revealed. ..."[64]

1. Senior Member Fice analysed the rule in Jones v Dunkel in Confidential and Commissioner of Taxation[65] where he explained the circumstances in which the rule was formulated:

"23. Jones and Dunkel was a negligence case, where two trucks collided which caused the death of one of the drivers. The plaintiff was the wife of the driver killed in the accident and she brought an action in negligence against the driver who survived. The defendant driver was not called to give evidence and the Trial Judge gave directions to the Jury about the failure of the defendant to give evidence. The plurality found that the directions given by the Trial Judge were incomplete and Windeyer J, at 320, said that the Trial Judge should have given directions in accordance with the general principles stated in Wigmore on Evidence (3rd ed. (1940)) Volume 2, s.285, p.162 as follows:

'The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which made some other hypothesis a more natural one than the party's fear of exposure. But the propriety of such an inference in general is not doubted.'

Windeyer J, at 321, then referred to the decision of R. v Burdett (1820) 4 B. & Ald. 95 [106 E.R. 873] where Abbott CJ said:

'No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected." (2) And Best J. said: "Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just.'

24. The first thing to note is that there must be sufficient evidence adduced by the party which has the onus of proving its case to warrant a reasonable inference being drawn from that evidence in the absence of any explanation or contradiction. Where there is sufficient evidence to draw a reasonable inference from the party which bears the onus of proving its case, and the other party has in its power to rebut that inference or conclusion being drawn by evidence but chooses not to lead that evidence despite the witness being available to give evidence, if no explanation is provided for failure to call that witness, then a rational inference may be drawn that the evidence would not help that party's case."[66]

1. I respectfully agree with Senior Member Fice's analysis of the application of the rule in Jones v Dunkel. On my understanding of the rule in Jones v Dunkel, that inference can only be drawn once three things have been established. The first is that it is possible, on the evidence produced, to draw "... a reasonable and just conclusion against ..." the person seeking to prove the particular issue. In a merits review case of this sort, a "reasonable and just conclusion" would include a finding of fact that will not advance the interests of one party or the other. The second is that, "... the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends to be untrue, and the accused offers no explanation or contradiction. ...". When the case is that put forward in the context of merits review, the "accused" is the particular person whose interests will not be advanced by that finding of fact. The third matter is that the existence of the fact in issue is highly probable but its existence need not be established by irrefutable (or irrefragable) proof. It is enough that the party seeking to refute the fact has it in his or her power to rebut it by evidence.

Has QTWG shown that the amount of money for which taxation has been assessed exceeds his actual taxation liability?

1. This case is concerned with QTWG's personal liability to pay income tax and not with that of the business he ran under the name of QTWG Contractors or through the corporate structure of QTWG Contractors Pty Ltd. That said, QTWG has pointed to his business activities and the payments he received and the expenses he incurred as one element in establishing his income in the relevant years. He has done so without the benefit of a complete set of receipts for the expenses he has said that he incurred and without a complete set of invoices he rendered for the work he has said that he has undertaken and for which he has been paid. Quite apart from receipts and invoices, QTWG has not produced business records of any sort related to his business. The receipts he has produced show that he has paid for goods and services in cash.

1. It is not unlawful for him to do this and, if he chooses, he is quite entitled to operate his business on a cash basis. When it comes to his obligations under Australia's taxation laws, however, he exposes himself to a very high risk that he will not be able to establish what his business receives by way of payment for the services it provides and the expenses it incurs in providing those services and maintaining the equipment and infrastructure to do so. He faces the same risk in relation to identifying the income he derives from that business and when he does not produce records that identify that income. I accept that QTWG has attempted to estimate his income and expenses from his business but, in the absence of any sort of record-keeping on which to base his estimates, he does not provide a basis on which I am satisfied that the amount of money on which the Commissioner has levied taxation exceeds the amount of income he actually received.

1. I accept that the Commissioner has not included in the asset betterment calculations any amount that has been deposited in one or other of QTWG's accounts and that matches an amount for which QTWG has issued an invoice. Where amounts were paid by cheques but those cheques were dishonoured, he has not included those amounts. I have recorded them in the table at [10] and [13] above.

1. I will begin with the amounts that QTWG describes as loans to explain, at least in part, his accumulated wealth over a seven year period. The essential characteristics of a loan were considered by Edmonds J in Federal Commissioner of Taxation v Rawson Finances Pty Ltd:[67]

" The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B: ... Absent that obligation, the transfer of the money from A to B is something else - a gift, a payment by direction, a payment or repayment of an anterior obligation - but it is not a loan. The obligation of repayment is not proved by subsequent payment of the same amount, let alone a different amount, from B to A; that may be explicable by reference to another obligation or circumstance having nothing to do with the original payment from A to B. Rather, the obligation of repayment is proved by the terms of the contract under which the money was transferred from A to B."[68]

1. In analysing the evidence in the case before him, Edmonds J looked to the evidence for any obligation to repay the moneys said to be loans, whether, and particularly if the amount is substantial, the loan was secured by way of charge, lien, set-off or security, and the borrower's capacity to repay the loan. Apart from QTWGs' evidence and that of some of those said to have lent him sums of varying amounts, there is no objective evidence of this sort.[69] In considering the evidence of all of them, I have applied the principles in Imperial Bottleshops as set out at [43] above and those of Hill J in Davis set out at [44] above.

1. In the case of the amounts said to have been lent by Mr and/or Mrs Vallon, I am not satisfied that they were made as loans. There are three reasons for that. The first is the absence of any evidence of liquid assets, or of assets that have been liquidated, that would enable them to lend sums totalling $350,000 over the three years of income of 2006, 2007 and 2009. The second is that their income, as declared in their taxation returns, does not support their having the income to support their making loans of that size and on the conditions said by QTWG to be without interest and with an undefined period within which to repay them. Mrs Vallon's declared occupation as a property developer is the third reason. Payment for services of the sort offered by QTWG and his business as an earthmover is more consistent with the nature of the payments made to QTWG than with either Mrs Vallon or her husband loaning him substantial amounts of money. Although I make nothing of it in light of my three reasons, I note that neither Mr nor Mrs Vallon was called to give evidence to offer an explanation contrary to what appears on the face of the documentary evidence that I have.

1. Reference was made by various witnesses to the practice of lending money to family and friends. In the context of friends, for example, Samuel said that he was in the habit of loaning and giving large amounts of money to my family and friends. He did so without any documentation or without any specific agreement as to repayment. In the case of QTWG, he said that he lent him a total of $170,000 over approximately a 20 month period between February 2004 and 20 October 2005. Samuel's statements to that effect must be balanced against his failure to disclose the loans as debts when, on 13 April 2011, he failed to disclose them in the Statement of Affairs he completed following his bankruptcy. He was not obliged to disclose them as loans but, if they were loans, they had the character of debts that formed part of his bankrupt estate. He was obliged to disclose them. There may be many reasons why Samuel did not disclose them. At least one of them might be consistent with the amounts being loans that he would recoup at a later time. That, however, is idle and unsupported speculation in the face of a document that Samuel signed as correct after being advised of the penalties for making a false statement and in light of there being no evidence to suggest that he has approached QTWG since his bankruptcy for repayment of the amounts he states were loans. As the evidence stands, I am not satisfied that QTWG has established that the payments made to him by Samuel are anything other than income as the Commissioner included in his assessments.

1. Richard, who is the brother in law of QTWG's uncle, Christopher, spoke of its being a difficult thing for others in the room to understand their cultural background. In their culture, Richard said, people assist each other and that assistance is given on the understanding of loyalty. Usually, a short term loan is made and the money is given back. In the case of QTWG and the $120,000 that Richard has lent him, repayment has not occurred to date. QTWG's father spoke in similar terms but focused on the family.

1. Very respectfully, I note that many people lend other people money and do so for various altruistic reasons. Those reasons may, or may not, be cultural but one reason is no less valid than another. Whatever the reason, the recipient of the money cannot be surprised if the Australian Taxation Office looks at that money in the hands of the recipient. If, as the Commissioner has done here, the money is assessed as income, the problem that faces the recipient of money is to establish that it is a loan. QTWG may, as he has in this case, say that lending money in this way is consistent with his culture and that of those who have lent it to him but his culture is only one aspect that is relevant in determining the character of the money.

1. In the case of Richard, I find that he has not made any efforts to seek repayment of the sum of $120,000 he is said to have given QTWG on 14 April 2008. That was almost nine years before the hearing. Given his position in the family as the brother of the wife of QTWG's uncle and accepting that the WG family is close knit, it would be surprising if Richard did not know that QTWG was building a house even if he did not know he was said to be borrowing from others. It is difficult to understand that Richard would stand by without querying when he was to receive his money.

1. The same is true for Christopher and Dorothy and the money they gave QTWG. QTWG insists that all are loans but the balances in NAB...245 (the home loan account) and NAB...053 count against that. The sum of $35,000 would seem to have been paid immediately into NAB...245 on 24 December 2007 when there was a modest amount of approximately $1,356 in NAB...053. QTWG had previously made two lump sum payments of slightly lesser months on 5 November 2007 and 4 December 2007 into NAB...245. That fact does not make sense of why QTWG would borrow money to pay a lump sum into the home loan account. Paying a lump sum from a home loan account is usually a wise thing to do but borrowing to do so does not make the same sense. There is also no sense in borrowing money when one appears to have enough on the face of things. That is the position that QTWG seems to have been in when he says he was lent $100,000 by Mr Vallon and a further $80,000 by either Christopher or Dorothy. The balances in the accounts are shown in the table at [13] above. On the evidence I have been given, I do not accept that QTWG has established that the amounts he has said are loans are in fact loans. I am not satisfied that they are anything other than income.

1. The source of two of the three payments that QWTG made into his home loan account, NAB...245 in November and December 2007 is unexplained. They are the payments of $30,990 made on 5 November 2007 and $31,386 made on 4 December 2007. The payment of $39,894 made on 24 December 2007 into NAB...245 is only four or five thousand in excess of the amount of $35,000 he was given by Christopher on the same day. The amount Christopher gave him would seem to be the main source of the funds he paid into his home loan account on that occasion. I have already made findings about the amount of $35,000. In the absence of any evidence regarding the source of the other two payments, I am not satisfied that they are anything other than income as the Commissioner has identified in his assessment. I note that the source of one payment made into NAB...245 on 1 August 2008 and amounting to $2,186.25 can be identified as paid to QWTG Contractors Pty Ltd by a paving company. That would clearly be income in the hands of QWTG.

1. In the table at [13] above, the movement of money from account to account can be traced but where that money originated from is often more difficult. When I look at the transactions overall, I agree with Mr Ure's submission that QTWG effectively treated QTWG Contractors Pty Ltd as his alter ego. He has kept no records from which I can make any attempt to identify with any degree of comprehensiveness the various sources of monies paid into his various accounts or the destinations of those monies withdrawn from them.

1. I now move to the property situated at 98 Lake Drive, Cloud Hills that has been transferred to him by William. QTWG may say, as he does, that members of his family work for other members - as he has done for his family - and expects not to be paid for that work. That may be so and families do live under the one roof as QWTG has lived with his wife and children under the roof of his father, whom he says has fed and sheltered them. What is in issue is whether the property that has been transferred to QTWG by his brother, William is income in the hands of QTWG. The Commissioner has found that it is as he is entitled to do in light of ss 21 and 21A of ITAA36 when he comes to the view that they have been transferred to him in consideration of his services or as a non-cash benefit.

1. Mr WG did not give consistent statements when talking about the transfer of the property. In his statement, he said that he had encouraged William to transfer 98 Lake Drive, Cloud Hills because paying the expenses associated with holding it had become a source of frustration for him. Mr WG denied forcing William to transfer the property to QTWG when he gave his oral evidence and QTWG repeated the statement that William no longer wanted to pay rates and land tax for nothing. William said that he decided to transfer the property and was not influenced to do so by either his father or his brother. The reasons that were given for his doing so do not make a lot of sense.

1. If, as I accept, QTWG was using the land to park his trucks, he could have done so by arrangement with his brother without any transfer of the land. If William was finding the payment of rates and taxes burdensome, QTWG or another member of the family could have paid them. In QTWG's case, that would be consistent with his making use of the land. The fact that William and QTWG did not come to such an agreement and William simply transferred the property to his brother is consistent with Mr WG's evidence that decisions regarding property owned by members of the family are made for the benefit of the family. It is consistent with his evidence that family members are encouraged to think of the family and of those who could make greater use of property than they.

1. The transfer is also consistent with QTWG's evidence that he had to go with his father to work if his father went to work but did not receive any money for it. Later, he worked on his parents' new house in another suburb and again was not paid. The transfer is also consistent with QTWG's regarding as an insult a suggestion that his father would pay him money, or that he would accept money, in exchange for his labour. When it was put to QTWG that the reason for the property's being transferred to him was in payment or exchange for his labour, he did not address the property. Instead, he reframed the question in terms of never taking money from his father. His doing so is consistent with the description he and his father gave of the way in which their family works and with Richard's description of the culture they all bring with them to Australia. At the same time, that description is also consistent with QTWG's being paid for past labour and even on account of future labour. No money passed hands for that would be an insult but, on the evidence, a transfer of property for the benefit of the family members would not seem to be regarded in the same way. As Mr Hines submitted on behalf of QTWG, it was a matter of family relations and management of family assets.

1. These matters lead me to conclude that I am not satisfied that QTWG has satisfied his burden of proof that the transfer of 98 Lake Drive, Cloud Hills was a gift rather than a benefit intended to recompense him for his labour for his parents. As a benefit that can be, and has been, converted into money's worth by the Commissioner by reference to its value assessed for Stamp Duty purposes, the Commissioner has taken that course. QTWG has not challenged that approach and I find that it is an appropriate course.

1. In reaching this conclusion, I note that Mr Hines also submitted that I should consider the transfer of the property in light of testators' family maintenance laws (TFM laws) where a son who has worked all of his life on his parents' farm is not provided for in their wills after their deaths. Can it really be suggested, Mr Hines asked, that the son is obliged to include the value of the family farm as income if he recovers it under a TFM action. Under Victorian legislation, TFM actions are conducted under Part IV of the Administration and Probate Act 1958 (AP Act). The "eligible persons" in whose favour a family maintenance order might be made would include a testator's child whether because of particular age or disability criteria set out in paragraphs (b) and (c) of the definition of "eligible person"[70] or set out in paragraph (f) as a child not referred to in the other two paragraphs.

1. Under s 91A of the AP Act, the Court may have regard to:

"any contribution (not for adequate consideration) of the eligible person to -

(ii) the welfare of the deceased or the deceased's family".[71]

The wording of this factor does focus on any consideration received by an eligible person and its adequacy for the contribution made by that person. A family provision order might be made in favour of an eligible person on the basis, for example, that he or she has not received adequate consideration for his or her contribution given in the form of labour or for a capital injection of funds. This is not the case to consider what the taxation implications of that order might be but it cannot be automatically assumed that there would be no taxation implications.

1. The rental property that QTWG owned at Lot 1, 55 Wave Crescent, Solitude Bay is another venture in relation to which QTWG has not maintained any records. He has not produced any evidence from the agent he uses to collect the rent or of the expenses he has incurred since the property was leased. His estimate is that 46% of his rental income is consumed by those expenses but, in the absence of any records to support any of the assumptions he has made in putting forward his estimate, I do not accept that he has established that the Commissioner has levied tax on an amount of representing his net return from the rental of Lot 1, 55 Wave Crescent, Solitude Bay that is in excess of its actual net return.

1. In view of the matters I have dealt with in the previous paragraphs in this section of my reasons and those analysed in Attachment A, I am not satisfied that the amount of money on which the Commissioner has levied taxation exceeds the amount of income QTWG actually received.

Amendment of QTWG's assessments beyond time set by s 170(1) of ITAA36

1. As I have mentioned above, Item 5 of s170(1) of ITAA36 provides, without qualification, that the Commissioner may amend an assessment at any time if he or she is of the opinion that there has been fraud or evasion. The Commissioner's opinion is that QTWG has engaged in a course of conduct in relation to three returns he has lodged and his failure to lodge four others that amounts to evasion of his responsibilities to return his assessable income, and to do so accurately, so that the Commissioner may carry out his responsibilities as conferred on him by the Parliament under the taxation law. QTWG has given evidence regarding the course of events over the years in question and has called others to give evidence. Having regard to that evidence, QTWG has not satisfied me that he has met his burden of proving the absence of fraud or evasion. The deposits in his accounts do not reconcile with the amounts he included in his returns. His explanations for those amounts rely on their being loans but the existence of those loans is unsupported by any objective documentary evidence. He has understated his income and has presented amounts as loans without any documentary evidence or other evidence of them or of the terms on which they were made. His not lodging an income tax return in the 2007 income year is inconsistent with his earning over $9,000 interest on a term deposit in that year and so taking him over the threshold for the payment of tax. These are but examples of the shortcomings in QTWG's explanations regarding the characterisation of the deposits in his bank accounts and the outgoings as well as the acquisition of property. As I said, he has not satisfied me that he has met his burden of proving the absence of fraud or evasion.

1. Division 284 of Part 4-25 in Schedule 1 to the TAA imposes administrative penalties for statements, unarguable positions and schemes. Subdivision 284-B is concerned with penalties relating to statements. Some of provisions of that Subdivision were amended by Division 1 of Part 6 of Schedule 6 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010 (2010 Amendment Act) with effect from 4 June 2010.[72] Item 101 of Division 1 states that they "... apply in relation to things done on or after the commencement of those Divisions".

1. The Commissioner has assessed QTWG for penalty for false and misleading statements in his income tax returns for the 2004 to 2006 income years. As the statements were made in returns lodged well before 4 June 2010, the relevant provisions of Sub-Division 284-B are those that applied before they were amended.

1. The Commissioner has also imposed penalty for failure to give him a return by the day it was required to be given. QTWG's failure relates to the returns due for the 2007 to 2010 income years. When returns are due to be lodged depends on whether they are self-prepared or prepared by a tax agent. When prepared individually, the due date is 31 October following 30 June of that income year. When prepared by a tax agent who has been appointed before 31 October or to whom the taxpayer has transferred from another tax agent by 31 December, the taxpayer must lodge the return by 15 May of the following year or, in the case of limited circumstances, 5 June. That means that the returns QTWG was required to lodge for the 2007 and 2008 income years were due either by 31 October 2007 or 2008 respectively or by 15 May 2008 or 2009 or, at the very latest, 5 June 2008 or 2009. All of those dates were well before the dates the amendments to Subdivision 284-B came into operation. The same dates applied to the 2009 income year with the latest date for lodgement being 31 May 2010 if QTWG used a tax agent as he had in the past. That was also a date that preceded the amendments to Subdivision 284-B. In so far as the return for the 2010 income year is concerned, the amendments were in operation when the dates for lodgement fell due whether QTWG had chosen to lodge as an individual (31 October 2010) or through a tax agent (15 May or 5 June 2011 at the latest) and so well after 4 June 2010 when Subdivision 284-B was amended.

1. When is a taxpayer liable to pay an administrative penalty and in what amount?

1. As stated above, Division 284 of Part 4-25 of the TAA is concerned with the imposition of administrative penalties for statements, unarguable positions and schemes. I am concerned with only two of them.

A.1 Penalties for statements: 2004, 2005 and 2006 income years

1. I will begin with s 284-75(1) which relates to false or misleading statements and applies before its amendment by the 2010 Amendment Act:

"You are liable to pay an administrative penalty if:

(a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and

(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and

(c) you have a *shortfall amount as a result of the statement.

Note: Subsection 2(2) specifies laws that are not taxation laws for the purposes of this Subdivision."

1. Putting to one side the requirement that a statement be false or misleading in a material particular, I will first focus on what is required by a statement's being "... false or misleading ... because of things in it or omitted from it". The following principles may be relevant:

(1) " The word 'false' in the former s 223 means 'wrong': Reliance Finance Corporation Pty Ltd v FCT (1987) 18 ATR 224; 87 FLR 305; 87 ATC 4146. It is not necessary for the respondent to show that the statement was deliberate or fraudulent: FCT v Turner (1984) 15 ATR 379; 73 FLR 24; 84 ATC 4161.

In my opinion, the omission of assessable income derived by the appellant ... is to be treated as a false statement within the meaning of s 223(1)(a)(i).

The provisions of s 223 apply even if the appellant was ignorant of the accounting matters giving rise to the additional income ...".[73]

(2) "... The word 'wilfully' does not appear in the subsection. To read it in, would seriously undermine the effectiveness of the provision as a 'protection of the revenue', to use Fullagar's phrase. ..."[74]

1. What is meant by the expression "false or misleading in a material particular" (emphasis added) was considered by the Full Court of the Federal Court in Minister for Immigration, Local Government and Ethnic Affairs v Dela Cruz[75] (Dela Cruz) in the context of s 20(1) of the Migration Act 1958. In summary, that section applied to a person who had made a statement to an officer or person exercising powers under that legislation in respect of an entry or visa that was false or misleading in a material particular. The Full Court said:

"... The term 'material' requires no more and no less than that, the false particular must be of moment or of significance, not merely trivial or inconsequential.

... In the context of s 20(1), a statement will be false or misleading in a material particular if it is relevant to the purpose for which it is made .... A statement will be relevant to that purpose if it may - not only if it must or if it will - be taken into account in making a decision under the Act as to the grant of the visa or entry permit in respect of which the statement is made.

For present purposes, it is sufficient to say that a statement made to an immigration official by a person seeking to enter Australia, which conveys a false or misleading impression of the person or of his or her circumstances, would be false or misleading in a material particular. Immigration officials are entitled to seek and to be told the truth about a person applying to enter Australia, so that they may be in a position to evaluate the application made to them. They may consider it desirable to ask further questions about the subject matter of a statement made to them and, with answers to further questions, the statement may be more useful. But it does not follow that, without further questions, the statement is not material in the sense in which that word is used in s 20(1)."[76]

1. The principles established in Dela Cruz seem equally applicable in this case. A statement found to have understated taxable income is a false statement in a material particular. It is information that is required to calculate the net amount and so must be regarded as material information.

1. The third criterion is specified only in s 284-75(1) in its unamended form. It is that the statement results in a "shortfall amount". What amounts to a "shortfall amount" is the subject of s 284-80(1), which provides:

"You have a shortfall amount if an item of this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been."[77]

1. The table that follows sets out four situations in which a taxpayer has a shortfall amount. Only the first two, set out in Items 1 and 2, may be relevant. They provide:

"A *tax-related liability of yours for an accounting period ... worked out on the basis of the statement is less than it would be if the statement were not false or misleading."[78]

"An amount that the Commissioner must pay or credit to you under a *taxation law (other than the *Excise Acts) for an accounting period ..., worked out on the basis of the statement is more than it would be if the statement were not false or misleading."[79]

1. The expression "accounting period" is not defined in the TAA or in s 995-1(1) of the Income Tax Assessment Act 1997 (ITAA97) but reference to an accounting period is made in ss 18 and 18A of ITAA36. Section 18A makes provision for partnerships in particular circumstances but it is apparent from s 18 that an accounting period is a period of 12 months. Generally, that period will end on 30 June in each year but, with the leave of the Commissioner, may end on another day.

1. A "tax-related liability" is defined in s 255-1 of Schedule 1 of the TAA:[80]

"A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a *taxation law (including a liability the amount of which is not yet due and payable).

Note 1 See section 250-10 for an index of tax-related liabilities.

Note 2 A taxation law, or a provision of it, may be excluded from being applied to this Part. See section 265-65."[81]

1. Before its repeal by the Tax Laws Amendment (Transfer of Provisions) Act 2010 (TLATP Act),[82] Item 55 of s 250-10(1) provided that a "tax-related liability" included income tax that became due and payable under s 204 of ITAA36.[83] That liability is now provided for in Division 5 of the ITAA97 but it applies to income tax or shortfall interest charge that must be paid for the 2011 income year or a later year.[84] Section 204 continues to apply from 1 July 2010 to income tax or shortfall interest charge, to which Division 5 does not apply.[85]

1. The base penalty is calculated according to s 284-90 of Schedule 1 to the TAA. Again, this section was amended by the 2010 Amendment Act but, given that it applies in relation to things done on or after 4 June 2010, those amendments are not relevant in this case.[86] That follows from the fact that the statements made in the 2004, 2005 and 2006 returns were made on lodgement and so before 4 June 2010. Section 284-90(1) sets out a table in which each of ten situations is specified and a "base penalty amount" is attributed to each. The Commissioner has relied on the situation specified in Item 1 of the table. I have reproduced Items 1 to 3 below:

"Your *shortfall amount or part of it resulted from intentional disregard of a *taxation law by you or your agent"

"Your *shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a *taxation law"

"Your *shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law"

1. The expression "intentional disregard" seems to require no explanation and particularly so when it is found in the company of, as it is in Items 2 and 3, of "recklessness" and "failure to take reasonable care" describing other states of mind. To "disregard" something is "... to pay no attention to someone or something. ... to dismiss something as unworthy of consideration ...".[87] For disregard to be intentional, it is "... something that someone plans to do; an aim or purpose ...".[88] Therefore, if a taxpayer has a shortfall amount as a result of a taxpayer's electing to take a course of action that he or she knows is contrary to a taxation law, that would bring the taxpayer within the scope of Item 1. The same outcome would result if the election were that of the taxpayer's agent and not that of the taxpayer. This is clear from the words of Item 1 when it refers to the shortfall amount's having resulted from intentional disregard of a taxation law "by you or your agent" (emphasis added). That is true also of Items 2 and 3. Their language is clear but, if confirmation is required, it is found in the judgment of Gordon J in Commissioner of Taxation v White (No 2).[89]

1. The word "recklessness" has been considered in a number of cases. Some were gathered together by Senior Member McCabe in Re Dixon ATF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Taxation[90] when considering Item 2 of s 284-90(1) of Schedule 1 of the TAA:

"24. The taxpayer is liable to pay the penalty in this case if either he or his agent was reckless. Recklessness is not defined in the TAA, but it is has been discussed in a number of cases. In Reed (Albert E) and Co Ltd v London and Rochester Trading Co Ltd [1954] 2 Lloyds Rep 463, Devlin J said (at 475) recklessness 'means deliberately running an unjustifiable risk'. In Shawinigan Ltd v Vokins and Co Ltd [1961] 3 All ER 396 at 403, Megaw J said 'recklessness is gross carelessness' or 'a high degree of carelessness'. His Honour continued:

The only test, in my view, is an objective one. Would a reasonable man, knowing all the facts and circumstances which the doer of the act knew or ought to have known, describe the act as 'reckless' in the ordinary meaning of that word in ordinary speech?

25. That approach has been followed by the Tribunal in other cases. In Jones and Commissioner of Taxation [2003] AATA 84, I suggested at paragraph 26: 'recklessness means more than mere carelessness. It incorporates an element of rashness or heedlessness': see also Re Taxpayer and Commissioner of Taxation [2004] AATA 1304 at paragraph 94; Arrow Pearl Co Pty Ltd and Commissioner of Taxation [2005] AATA 340 at paragraph 98. Recklessness falls short of a finding of intentional disregard, where the taxpayer or the agent presses a claim they know to be wrong. Similarly, a finding of recklessness does not imply the applicant or his agent were dishonest: see Hart v Commissioner of Taxation (2003) 131 FCR 203 at 214 per Hill and Hely JJ."[91]

1. The same views were expressed earlier by Spender J in Hart v Commissioner of Taxation:[92]

" While it may have been wrong of Mr Hart to have relied on an "opinion formed in 1988', having regard to the 'subsequent trading history' in making a claim that a business was being conducted, in my opinion it is not properly to be regarded as 'reckless' to have persisted in a claim which was not the subject of any disputation at an earlier time, even accepting that the period of losses and the extent of them had not been as extensive as they were at a later time.

It is not reckless simply to make a claim that is erroneous. Nor, in my view, is it reckless to make a claim, 'knowing there is a real risk that the claim might be wrong;' cf the observations of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164; (2001) 46 ATR 347 at 364. If a jockey knows that in a horse race there is a real, as opposed to a fanciful, risk of serious injury or death involved in participation in the race, it would not be reckless conduct on the part of the jockey according to the proper meaning of the word 'reckless', to take part in the horse race. So, too, a driver in a Formula 1 motor vehicle race.

Recklessness consists in making a claim, not caring whether the claim is true or false. ..."[93]

1. His Honour was in the minority in that case but his statement of the applicable principles is consistent with those expressed by the majority, Hill and Heery JJ:

" There is a line between recklessness and dishonesty, and ... a finding of dishonesty is not necessary for a taxpayer to be subject to a s 226H penalty. Wherever a tax return includes deductions that are not allowable, a foreseeable consequence is that there will be a tax shortfall, particularly in a system of self assessment. But, in the ordinary case, the mere fact that ta tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established although there are some sections (eg s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than an intentional disregard of the Act (s 226J)."[94]

1. In deciding whether the principles had been applied by the trial Judge, the majority said:

" The primary judge did not explain, in terms, why the circumstances of this case fell within s 226H [recklessness], rather than, eg s 226G [failure to take reasonable care]. However, it is implicit in his Honour's judgment that the claim to the tax deduction was so tenuous, that if not due to an intentional disregard of the Act, it was only explicable on the basis of gross negligence in propounding the claim. A finding of gross negligence may be made in appropriate circumstances without the need for any subjective enquiry."[95]

1. Failure to take reasonable care is at the heart of Item 3. The shortfall amount, or part of it, must have resulted from a failure by a taxpayer or a taxpayer's agent to take reasonable care to comply with a tax law. The expression "reasonable care" is not defined in the TAA but it is clear that Item 3 requires an assessment of a taxpayer's actions, or those of the taxpayer's agent, alone.

1. Dowsett J considered the meaning of a provision similar in its terms to Item 3 of s 284-90(1) of Schedule 1 to the TAA when he considered s 226G of ITAA36 as it was previously enacted. He did so in Weyers & Anor v Federal Commissioner of Taxation[96] where he described what was required:

"... For the purposes of s 226G it is necessary to identify conduct falling short of that expected of a reasonable person in the circumstances. ..."[97]

1. Further consideration to this issue has been given by Greenwood J in Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2).[98] His Honour said:

" It follows as a matter of principle that the reasonable care test calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer's tax obligations. The test looks to whether such a person would have foreseen, as a reasonable probability or reasonable likelihood, the prospect that the action or step or the failure to act or to take an affirmative step would result in a shortfall amount and in determining that question, a relevant factual enquiry is whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law. At para 1.75 of the Explanatory Memorandum, the observation is made that a taxpayer who prepares his or her own Business Activity Statement would usually be taken to have exercised reasonable care if the taxpayer relies upon the advice of an accountant or lawyer (or both) whom the taxpayer could reasonably expect to provide competent advice on the relevant matter in issue.

At para 1.76, the observation is made that a taxpayer would be at risk of a penalty if the taxpayer was careless (that is to say, did not act reasonably) in presenting all of the relevant facts to an adviser and such failure materially affected the advice upon which the taxpayer sought to rely."[99]

1. The failure to take reasonable care with which Item 3 is concerned is the failure to take care to "comply with a *taxation law". To "comply" is to "... act in obedience to ..." it.[100] That is language that is different from that used in Item 2 where it is recklessness as to the operation of a tax law. When applied in the particular circumstances of a case, I do not consider that there is any difference between the practical application of the two expressions. Both require a consideration of the taxpayer's actions, or those of the taxpayer's agent, with reference to what the taxation law requires.

A.1.5 Did QTWG have a shortfall amount because of a situation described in Items 1, 2 or 3 in respect of the 2004, 2005 and 2006 income years?

1. Mr Hines submitted that I should not lightly find that QTWG has intentionally disregarded his taxation obligations or sought to evade the payment of taxation in a context in which money is paid from one family member to another. It is not implausible that a person might not realise that the gift of a house might give rise to a liability to pay tax. It was never put to him that he knowingly disregarded his obligations to pay taxation.

1. In this case, I find that the shortfall amount has resulted from his failure to characterise moneys received as income in his hands rather than as loans, to keep proper business records, to identify the source of moneys (other than loans) received in his hands and to separate moneys received and expenses incurred in the course of conducting his business from those in his personal life. He has blamed his failure to do so on his not having any "... schooling in running a business or any idea about how to do taxes and stuff."[101] When he got around to preparing taxation returns, the papers were missing and "it was just too hard to do." And he "... wasn't making big money anyway."[102]

1. Having listened to QTWG, I am satisfied that his shortfall amount resulted from his complete lack of care for his taxation obligations. Certainly, he acknowledged that he knew that he had to pay tax[103] but he saw keeping records and tax as being all too hard given his circumstances. He was more than just careless about attending to those matters. He did not attend to them and made no effort to attend to them. Money flowed around the family and their friends and he made no effort to check whether it would be regarded as a loan and made no effort to record transactions. He shifted money amongst his accounts just as readily. He had regular reminders when he received the statements for his HSBC...412 account for they showed debits as he had not lodged his Tax File Number with the ATO. They were debits for quite small amounts of money but they served as reminders as did the opportunity to provide his Tax File Number when he opened the account on 25 October 2006. That was before he lodged his returns for the 2005 and 2006 income years. His not doing so is consistent with any number of reasons including his not knowing the number at the time, not getting around to supplying it because the amount deducted was so small and his not wishing to be bothered with his taxation obligations.

1. The way in which he has managed his business and personal financial affairs supports my finding that this is not a case in which QTWG simply failed to take reasonable care to comply with the taxation law. His conduct was either intentional or reckless but where does the line between the two lie? It is one thing to say that he disregarded them and made no effort to comply with them and another to say that he intentionally disregarded the taxation law. While I agree with Mr Hines that I should not lightly find that QTWG has intentionally disregarded a taxation law, this is not a situation in which I am making an initial finding on the matter. The Commissioner has already made a finding and based his decision on it. Under s 14ZZK, QTWG then carries the burden of proving that the decision to impose a base penalty amount on the basis that it resulted from intentional disregard of a taxation law should have been made differently. When taken with the amount of the shortfall, his approach to his business and his taxation affairs leads me to conclude that the shortfall amount resulted from his intentional disregard of his responsibilities when completing and lodging his returns for the 2004, 2005 and 2006 income years. That means that the appropriate base penalty amount is 75% of the shortfall amount.

1. Section 284-220 of the TAA was amended by the 2010 Amendment Act but those amendments only apply in relation to things done on or after the commencement on 4 June 2010. The imposition of penalties occurred after that time and, arguably, they are "things done". In light of that, I will set out the relevant provision - s 284-220(1)(c) -in its unamended form but highlight the omitted words and include the substituted word in square brackets. Section 284-220(1)(c) of the TAA provided:

"The *base penalty amount for an accounting period is increased by 20% if:

(c) the base penalty amount was worked out using item, 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items for a previous accounting period [previously]; or

1. I will consider the provision in both its amended and unamended form for Mr Ure submits that the amendment makes no substantive difference and Mr Hines submits that it does. I will begin with the unamended form.

1. As the assessments for each of the three income years were issued on the same day, the question becomes whether it can be said that a base penalty amount was worked out for QTWG "for a previous accounting period". In relation to the 2004 income year, it was not worked out for a previous accounting period on any view for the 2003 income year has not come into play. For the 2005 income years, the 2004 income year was a "previous accounting period" because the Commissioner had not given leave to QTWG to adopt an end date of each accounting period as anything other than 30 June. In the same way, the 2005 income year was the previous accounting period for the 2006 income year. There is nothing in s 284-220(1)(c) that suggests that the Commissioner worked out a base penalty amount for a previous accounting period under, in this case, Item 1 at an earlier time. The words of s 284-220(1)(c) simply convey the requirement that a base penalty amount has been worked out "for a previous accounting period" (emphasis added).

1. The interpretation of s 284-220 was considered by Jessup J in Gashi v Commissioner of Taxation:[104]

" The policy with which the paragraph appears to be concerned is the discouragement of subsequent defalcations, once a taxpayer has been subjected to an administrative penalty of a particular kind on a previous occasion. On one view, it would not induce to the implementation of that policy if the taxpayer were subjected to the s 284-220(1)(c) uplift for each of the second and subsequent years in circumstances where he or she received assessments from the Commissioner in respect of a series of years at the one time. The question is: does 'for a previous accounting period' mean 'in respect of a previous accounting' or 'on a previous occasion'? Counsel for the Commissioner informed me that this question has not previously been addressed by the courts, but submitted that the former construction was the correct one. Counsel for the applicants did not engage with that submission. I am disposed to accept it. Whatever legislative policy is discernible here, the latter interpretation would involve something of a strain against the words actually used in the provision. I would hold that it was open to the Commissioner to apply the uplift factor to the penalty assessments in 2004 and 2005, notwithstanding that they were served on Mr Gashi at the same time, and at the same time as was the 2003 assessment."[105]

In dismissing the appeal from the judgment of Jessup J, the Full Court of the Federal Court did not consider s 284-220.[106]

1. I have had regard to the history of the legislation set out in the reasons of Senior Member Taylor SC in Picton Finance Limited v Commissioner of Taxation.[107] He refers to some major amendments made by the 2010 Amendment Act to Division 284 of Part 4-25 to the TAA that are not relevant in this case. Those amendments also ensured that the administrative penalty provisions applied to false or misleading statements that did not have to produce a shortfall in order for a taxpayer to be liable to an administrative penalty. Parliament did that by omitting s 284-75(1)(c).[108] The reason for doing so is set out in the

"The penalty is set to take account of the extent of the taxpayer's culpability and any behaviour that helps or frustrates the Commissioner's investigation after the statement is made.

The penalty is also based on the shortfall amount caused by the statement being false or misleading. That ensures that the penalty increases as the consequences become more serious. However, it also means that a statement that does not produce any shortfall amount is not penalised, even though it is false or misleading.

For such a statement, prosecuting an offence is generally the only remedy currently available.

The amendments extend the existing administrative penalty regime to cover false or misleading statements that do not directly produce a shortfall amount."[109]

1. The removal of the criterion that a false or misleading statement must result in a shortfall amount then set the backdrop for the amendment to s 284-220(1)(c). Again, this is explained in the Explanatory Memorandum:

"Under the amendments, the increase in a base penalty amount under section 284-220 applies if the taxpayer has a previous penalty of the same sort. This is a minor change from the current law (which increases the base penalty amount if there was a similar penalty for a previous accounting period). The change is necessary because false or misleading statements that do not lead to a shortfall amount will not always be related to an accounting period."[110]

1. The omission to an accounting period becomes apparent when it is understood that the false or misleading statement may not always be related to an accounting period. That said, the removal of the words "accounting period" removes a reference point that can be set in a time line as Jessup J did in Gashi. When regard is had to the ordinary meanings of the word "previously" and to the purpose of the administrative penalty regime, I do not think that the application of s 284-220(1)(c) in its amended form leads to a different outcome.

1. The purpose of the various administrative penalties and the sliding scales based on culpability is intended to give taxpayers incentive to take care in preparing and lodging their taxation returns. The ordinary meaning of the word "previous", of which the word "previously" is its adverbial form, means:

"... coming or occurring before something else; prior. ..."[111]

If a base penalty amount has been worked out under Item 1, 2 or 3 of s 284-90(1) in relation to an income year before it is worked out in relation to a later income year, that base penalty amount will have been worked out previously. The base penalty amount will be increased by 20% under s 284-220(1)(c). Where, as in this case, returns for different years are lodged on the same day, it is to be expected that the Commissioner will assess the earlier year first and then the later years. That he will do so is consistent with the purpose of the administrative penalties.

1. It might be argued that a taxpayer is not given an incentive to take care by facing just one administrative penalty for the first false or misleading statement and not an increase in the base penalty rate when, as in this case, he or she lodges returns late and together. Against that, it can be said that the taxpayer puts him or herself in the position of missing out on the lesson that one administrative penalty can give by lodging late. The way in which s 284‑220(1)(c) operates is to increase the base penalty period when a taxpayer already has a penalty of the same sort under Items 1, 2, or 3 of s 284-220(1)(c).

1. Having decided that a base penalty amount of the relevant type has been worked out for QTWG under Item 1 of the table in 289-90(1), s 284-220(1) gives me no discretion. I must increase the base penalty amount for the 2005 and 2006 income years by 20%.

A.2 Penalties for failure to lodge returns: 2007 to 2010 income years

(a) you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

(b) that document is necessary for the Commissioner to determine a *tax-related liability of yours accurately; and

(c) the Commissioner determines the tax-related liability without the assistance of that document."

1. In respect of each of the 2007 to 2010 income years, each of the criteria set out in s 284‑75(3) is satisfied. QTWG's failure to lodge them within the time required and the Commissioner's need to have returns in order to determine accurately his tax-related liability and his having determined that liability without them is not questioned.

110. What is questioned is the application of s 284-220(1)(e), which provides:

"The *base penalty amount for an accounting period is increased by 20% if:

(e) your liability to a penalty arises under subsection 284-75(3) and you were liable to a penalty under that subsection for a previous accounting period."

1. Submissions were made at the hearing to the effect of the amendments made by the 2010 Amendment Act were applicable. The amendment omitted the words "for a previous accounting period" and added the word "previously" after the words "you were" so that, with effect from 4 June 2010, s 284-220(1)(e) reads:

"The *base penalty amount for an accounting period is increased by 20% if:

(e) your liability to a penalty arises under subsection 284-75(3) and you were previously liable to a penalty under that subsection."

1. For the reasons I have given above in relation to s 284-220(1)(c), I have decided that they apply to QTWG's situation. Section 284-220(1) gives me no discretion. I must increase the base penalty amount for the 2008, 2009 and 2010 income years by 20%.

1. The Commissioner's power to remit a penalty under s 298-20 was not altered by the 2010 Amendment Act. It provides:

"(1) The Commissioner may remit all or part of the penalty.

the Commissioner must give written notice of the decision and the reasons for the decision to the entity.

Note: Section 25D of the Acts Interpretation Act 1901 sets out rules about the contents of a statement of reasons.

(a) the Commissioner refuses to any extent to remit an amount of penalty; and

(b) the amount of penalty payable after the refusal is more than 2 penalty units; and

Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

(c) the entity is dissatisfied with the decision;

the entity may object against the decision in the manner set out in Part IVC."

1. QTWG objected to the penalties on the basis that they were excessive and did not take into account his circumstances and the appropriate degree of culpability in those circumstances. Section 298-20 does not set out any criteria but the Commissioner has issued Practice Statements Law Administrations that address the imposition of administrative penalties and their remission. One, PSA LA 2012/5, is concerned with administrative penalties relating to false or misleading statements leading to a shortfall amount. That is the situation here in relation to the 2004 to 2006 income years. Another, PSA LA 2011/19 is concerned with administrative penalties relating to failure to lodge. That is relevant in relation to the 2007 to 2010 income years.

1. Beginning with PSA LA 2012/5, it sets out a broad principle that "If imposition of the penalty provides an unintended or unjust result ..." having regard to the particular circumstances, the penalty may be remitted in whole or in part.[112] Remission of the 20% uplift will usually be given where the base penalty amount is increased because two or more penalties were assessed at the same time, the entity has not been advised of a previous penalty (usually because of concurrent calculation) and the behaviour is not intentional disregard of the law.[113]

1. This approach is consistent with that taken by Deputy President Frost in Suburban Property Owner v Commissioner of Taxation.[114] The financial arrangements that underpinned the applicant's understanding of the income he should declare in the returns he lodged for the eight years in issue remained constant. He had no opportunity to modify his behaviour. Deputy President Frost said in that case:

"The evident purpose of the uplift is to provide an addition deterrent in respect of a taxpayer who has previously become liable to a penalty of this kind. However, in circumstances such as these, where one broad factual matrix applies to a number of tax years, and where amended assessments for those multiple years were made at or around the same time, a finding against the taxpayer in relation to the first income year should not count against the taxpayer in relation to subsequent income years when the taxpayer has had no opportunity to modify its behaviour in response to the finding."[115]

Deputy President Frost found that he could do nothing about the 20% uplift but he did take the effect of the uplift into account in remitting the penalty so that it was 50% of the shortfall for each of the years.

1. Paragraph 10 of PSA LA 2011/19 sets out three circumstances in which a penalty for late lodgement might be remitted. One occurs where failure to lodge was caused by circumstances beyond the taxpayer's control, those circumstances could not be predicted and he or she was not in a position to request further time to lodge. Even if remission is not justified on that basis, it may be that it is fair and reasonable to do so in all of the circumstances or if the imposition of the penalty produces an unjust result.

1. In QTWG's circumstances, I have found the he has intentionally made false statements leading to a shortfall. Certainly, penalty has been imposed at the base penalty rate in respect of the 2004, 2005 and 2006 income years on the basis of his making false or misleading statements. They have been increased or uplifted by 20% in respect of 2005 and 2006 as required by s 284-220(1)(c) but these are not circumstances in which either the base penalty or the uplift should be remitted. It is not a case in which QTWG has, for example, made the same misstatement in relation to each of his returns and done so in good faith. As the history of events shows, he has not simply omitted one type of income thinking that it was not assessable income. He has omitted various amounts from various sources from his returns and, for the 2004, 2005 and 2006 income years, returned only interest on his deposits.

1. There is no explanation why he has done this and I have found that his omission to return his assessable income is intentional. He has identified certain sums as loans but has not identified the basis on which they are loans other than the statements of those who have a close relationship with him or his family and who are said to have loaned various sums to him. On the evidence I have, I do not see any arrangements to repay them or to track their use. QTWG has dealt with them as his own without identifying any charge or surety on any property he has obtained or moneys he has spent or transferred and without any evidence of any suggestion that he must repay them. Even if I accept that he was unable to lease the property at Lot 1, 55 Wave Crescent, Solitude Bay until July 2008 and it only returned about 52% of the rental after expenses, he should have included that rental in the 2009 and 2010 income years.

1. Turning to the 2007 to 2010 income years, QTWG was aware that he had earned income in the 2007 to 2010 income years and yet he did not lodge returns. He was running a business and none of the circumstances put forward at the hearing persuades me that he should not be responsible for his failure to the full extent of the penalties imposed. He has embarked on a deliberate course of either understating his income or not lodging his returns at all. He now finds himself unable to satisfy the burden of establishing that he did not have any obligation to lodge or any circumstances justifying remittal. Certainly, the assessments were made at or about the same time but QTWG's decision not to lodge a return must be taken to have been made each income year. They do not arise out of any misunderstanding of a single fact affecting his decision each year other than a decision not to lodge a return.

1. For these reasons, I have decided that QTWG has not satisfied the burden of proof in relation to the imposition of the administrative penalties in this case.

1. The Commissioner has made concessions on a handful of matters throughout the course of these proceedings. He has conceded:
   • (1) The 1980 Mobile Caravan Reg O... should not have been taken into account in the asset betterment calculation in the 2008 income year. Material produced by VicRoads establishes that QTWG acquired it before the commencement of the 2004 income year and so before any of the income years in question in this case.
   • (2) The 1996 Mercedes Tipper Reg U...7 and the 1986 Mercedes Tipper Reg U...1 were both included in the Commissioner's asset betterment calculation in the 2008 income year. They should have been included in the 2007 income year.
   • (3) The Commissioner accepts that the cheque for $300,000 drawn by Mr Vallon and subsequently dishonoured should not have been included in the asset betterment calculation for the 2008 income year.

1. I accept that an asset betterment calculation carried out under the authority of s 167 of ITAA36 leads to the outcome that:

"... The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact."[116]

Latham CJ went on to say that the presumption that the amount and particulars of an assessment are correct is not:

"... excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or nearly right. I say 'as a general rule' because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the commissioner for further consideration."[117]

1. This is not a case in which there is no intelligible basis for the Commissioner's assessment but it is a situation in which there is clear evidence that the Mobile Caravan Reg O... and the $300,000.00 cheque should have been disregarded altogether. There is also clear evidence that the two Mercedes Tippers should have been included in the 2007 income year and not in the 2008 income year. That, and the Commissioner's concession leads me to conclude that the assessments should be amended to reflect those facts.

125. For the reasons I have given, I have decided to:

(1) remit that part of the objection decision dated 30 March 2015 in so far as it applies to assessments issued in respect of the 2007 and 2008 income years to the Commissioner to:

(a) exclude from the assessment for the 2007 income year the value assigned in the asset betterment calculation to the Mobile Caravan Reg O...;

(b) add to the assessment for the 2007 income year the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U...7 and the 1986 Mercedes Tipper Reg U...1;

(c) make a compensatory adjustment for the 2008 income year regarding the value assigned in the asset betterment calculation to the 1996 Mercedes Tipper Reg U...7 and the 1986 Mercedes Tipper Reg U...1;

(d) exclude from the 2008 income year the value assigned in the asset betterment calculation the sum of $300,000.00 that was presented to QTWG in a cheque that was subsequently dishonoured; and

(2) otherwise affirm the objection decisions relating to:

(a) assessments for the 2004, 2005 and 2006 income years and default assessments for the 2007, 2008, 2009 and 2010 income years; and

(b) administrative penalty assessments for each of the 2004 to 2010 income years.

1. I will divide my summary of the evidence relating to the issues in this case by years, or groups of years. In each instance, I will refer to the parties' submissions and to the applicable law.

1. QTWG said in his statement that he spent a lot of time outside Australia in 2003 and a significant part of 2004 travelling overseas. He could not recall precisely where he travelled but did produce a copy of his passport and a summary of the date stamps showing his entry into various countries. QTWG said that its entries were consistent with his recollection of travelling to Europe in approximately the middle of July 2003 and returning either at the end of October or beginning of November of that year. His recollection is that he left Australia again in June 2004 and returned in February 2005. I will set out his travel as he recalls it against the Passenger Movement records (PMR) kept by the Department of Immigration and Citizenship (DIC), as it was known at the time.

1. In light of its records, DIC calculated that QTWG was present in Australia for a total of 293 out of the 366 days in 2004.[120] Apart from meeting his wife in Montenegro "around 2004",[121] QTWG could not precisely recall where he travelled. He could recall returning to Australia with his intended spouse in February 2005 and they married later in 2005.

1. When asked where he obtained money to support himself when he was overseas, QTWG said that he "... would have got it from overseas."[122] He has a place to stay in Europe because it is like a second home to him. He knew how to make money overseas by, for example, working in a restaurant, a bar or as a labourer. QTWG said that he did not need to take money from Australia in order to live in Europe because he would be given money and food at work. All this happened 12 years ago, QTWG said, and he could not remember what happened.[123] He said that he would have taken money from Australia but how much and where it came from, he did not know.[124] QTWG denied earning money for his travel in 2004 by working casually in the building industry in Australia when he was at home during that year.[125] In re-examination, QTWG said that he did not believe that he had any obligation to pay Australian taxation on overseas' earnings. He holds dual citizenship and he brought nothing back to Australia. He would have earned enough to support himself while he was over there, he first said, but when asked to specify the maximum amount that he could have earned replied that it was "Nothing".[126] He then estimated that a person could easily earn €10,000 each month in the summer by running a little bar on the beach but he only worked if he needed money.[127] He himself had only earned €250 or €300 a month and then only in 2004.[128]

1. In the 2004 year, QTWG had two bank accounts with the National Australia Bank (NAB). Both are identified in the table at [12] above as NAB...053 and NAB... 595. On 20 February 2004, $30,000 was deposited to NAB...053.[129] That same sum was withdrawn on 30 April 2004.[130]

1. QTWG said that, in the 2004 year, his friend, whom I will call "Samuel", gave him $30,000 on or about 20 February 2004. This is reflected as a credit in the NAB...053 bank account on that day.[131] QTWG described his relationship with Samuel and their monetary dealings in the following passage, which refers also to two other amounts ($30,000 and $10,000) he received in the 2005 year and another ($100,000) in the 2006 year. He said in his statement dated 19 January 2017:

"77. ... [Samuel] has been a friend of mine for about 20 years. For a long time, until he eventually became bankrupt, ... [Samuel] gambled often and with significant amounts of money. I used to spend time with him at Melbourne's Crown Casino. ... [Samuel] said that he had a 'system' for winning certain games, such as roulette.

1. When at the casino, sometimes I and other friends of his, gave him money to gamble with together with his own. We then shared winnings, if any.
2. I recall that on a few occasions I might have contributed around $1,000 or so. On some of those occasions ... [Samuel] did very well, meaning that I received a significant payout.
3. Additionally, when ... [Samuel] was winning, he was very generous to those close to him. He would often hand over large amounts of money without much thought. When he handed over money that was not someone's share of gambling winnings, I believe he expected that those amounts would eventually be repaid, though these matters were not explicitly discussed.
4. I recall receiving the following amounts from him:

1. Each of these amounts was banked into my NAB at-call account .... Other than the last amount, which was paid by cheque, they were all given to me in cash.
2. Some of these amounts are best described as loans, others were shares of gambling winnings. Given the passage of time, I am not sure which were loans and which were gambling winnings. However, I believe that the first three amounts [totalling $70,000] were likely to be my share of gambling winnings and the last amount was likely to have been a loan.
3. No formal documentation of any kind recording any of our arrangements was ever entered into or discussed. While I did not keep track of how much ... [Samuel] lent me (as opposed to giving me my share of the winnings) if I am ever fortunate enough to be in the position to do so I intend to show him the same generosity that he showed me at that time."[132]

132. In cross-examination, the following exchange took place between Mr Ure and QTWG:

"... [T]here is a difference, isn't there, between a loan and just paying you some gambling winnings; do you agree? --- What's the difference?

The difference is that with a loan there's an expectation that he'll be paid back? --- He was going to be paid back until you guys took the property off, my house, off me and the earnings of my house. There was ... [Dorothy] going to be paid back, my uncle to be paid back, and certain loans to be paid back. That house was - then the bank was paid off - with that money I was going to pay off everybody, and I was going to go into another loan.

Do you mean to say that you would have paid back ... [Samuel's] first three payments to you as well? --- Pretty much, yes. That money was supposed to pay my aunties and uncle and ... [Samuel].

You were going to pay him the full $170,000 back? --- Yes.

It doesn't much matter whether they were loans or gambling winnings, they were all going to be paid back? --- Yes, absolutely, that's the idea."[133]

1. Samuel became a bankrupt on 10 March 2011. He was discharged from bankruptcy on 21 April 2014.[134] As required under the Bankruptcy Act 1966 (Bankruptcy Act), Samuel completed a Statement of Affairs on 13 April 2011. In signing it, he declared that the particulars set out in it were correct. Immediately before the box he was required to sign was a note advising him that s 267(2) of the Bankruptcy Act provides that a person must not sign a declaration that the person knows is false. The penalty for that offence was 12 months' imprisonment. Samuel did not include any gifts of cash to QTWG but nor was he required to for the Statement of Affairs required only gifts in the previous five years to be declared.[135] Under the item entitled "Money Owed to you", Samuel did not nominate any person who owed him money. In response to the question "Do you have any debts owed to you?", Samuel put a cross in the box marked "No".[136]

1. In a Statutory Declaration made on 18 November 2015, Samuel stated that he had lent the following amounts to QTWG. There was no written agreement between them and interest was not charged and there was no agreement as to when QTWG would repay the money:

1. In his statement made for the purpose of these proceedings, Samuel confirmed that he had made the loans on or about the four dates set out in his Statutory Declaration. He said that, at the time, large amounts of money passed through his hands. At the time, he was gambling and had significant windfalls. Through the period, he would have had up to $5m in and out of his possession. Of the loans made to QTWG, he said:

"8. The Loans were agreed upon during informal conversations. I don't recall the exact location or time of each request, but it would have likely been while we were out socially and instances in which we visited the Casino together. ... [QTWG] was well aware of my financial situation and I presume he sought the Loans from me because he knew that I had large amounts of disposable cash and also because I was in the habit of loaning and giving large amounts of money to my family and friends.

1. Throughout this period and whenever money was advanced, ... [QTWG] told me that he would repay the Loans when he was able to.
2. For the most part the Loans were paid to ... [QTWG] in cash. I recall that one of the Loans for $30,000 was paid by cheque although I do not recall which one.
3. When I loaned money to family and friends during this period I would rarely bother to formally document them nor did I propose to charge interest on any of them. Times were good for me and I wanted to share in my good fortune with those close to me. Whilst I expected the loans I made to be repaid, I was not in desperate need of money in this period so I did not make a huge effort to seek repayment on all of them.
4. Specifically, I don't recall that interest on the Loans to ... [QTWG] was ever discussed nor was any time agreed for repayment. ... [QTWG] was my friend and I did not view the Loans as a business transaction. As far as I was concerned, he needed help and I was in a position to offer him that help (as I was with many others who asked for it).
5. Even though we never agreed on a particular repayment date, I had no doubt that ... [QTWG] would eventually repay me what he owed. I still believe he will do the right thing by me, he always has."[138]

1. Samuel stated that it had been difficult for him to identify the loans he had made to QTWG from bank statements because he had made them in cash. A further difficulty in identifying them was caused by the fact that there were many transactions for similarly large amounts around that time.

1. These matters were addressed further during Mr Ure's cross-examination of Samuel. QTWG had told him that he needed money but did not tell him why he needed it, Samuel told Mr Ure. As to why he had not recorded the sum of $170,000 in his Statement of Affairs as a debt owed by QTWG, Samuel said:

"Well, I was going to tell you, when I did go through bankruptcy I was going through a bad, bad time in my life, right? And there's a lot of things that I probably can't even recall, you know, at the time. I am a lot better than what I was at the time, but - yes, I - there's probably a lot of things that I haven't mentioned in my declaration that I may have forgotten, because I was going through a bad patch in my life. Do I have to remember every single thing? Because I'd taken a lot of money off people as well, in the past, and I'm not proud of it."[139]

1. Later, Samuel explained that he had not been sure how far back he had to go. He thought that he had been told to remember things from the previous six years or, perhaps, it was the previous four or five years. He could not remember exactly. In preparing the Statement of Affairs, he had assistance from the man or woman at the place he had attended to help him with his gambling addiction.[140]

1. As is apparent from the table at [127] above, QTWG spent approximately seven and a half months outside Australia in the 2005 income year. The records from which the table is compiled show that he was in Australia for 137 days in the 2005 income year and that accords with QTWG's memory. During that time, he and his fiancée participated in an engagement ceremony and celebrated their engagement. QTWG said that his father paid for their engagement celebrations.

1. QTWG married his wife in approximately June 2005. At first, he lived with his parents, Mr and Mrs QTWG and his two younger brothers, Taylor and William. They all lived at his parents' former home at 65 Lake Drive, Cloud Hills and, as the house was large enough to accommodate them all comfortably, QTWG and his wife continued to live there after they had started their own family. As a result of his living arrangements, QTWG said that he did not have significant living expenses as his parents provided for his needs as well as those of his wife and, ultimately, three children.

1. On 8 April 2005, QTWG arranged for the business name "QTWG Contractors" to be registered in his name. He also had an Australian Business Number (ABN) from 15 February 2005.[141] At the time, QTWG said, he had the idea of starting a pest control business but his idea never went anywhere.

1. When asked about his earnings in the 2005 year, QTWG replied that he did not know whether he had worked in that year. He did not start working in earthmoving until 2007 or 2008. It is his position that he did not earn any income in 2005. How could he, he said, when he was overseas for seven months of the year. During this time, however, there were three deposits in QTWG's NAB...053 bank account. A sum of $2,500 was deposited on 22 February 2005,[142] a sum of $30,000 on 15 March 2005,[143] a sum of $10,000 on 9 May 2005[144] and a sum of $100,062 on 20 October 2005.[145] I have set out QTWG's explanation for these deposits at [131] above.

1. He lived at home and paid for neither food nor board. During that time, he was married and QTWG agreed that he would have spent money but just that which was in his accounts. He did not, however, know where to look to find those withdrawals.

1. QTWG said that he and his wife and their three children continued to live with his parents, who provided for them all.[146]

1. In the 2006 year of income, QTWG received the fourth loan from Samuel. It amounted to $100,000. He could not recall the reason he gave to Samuel when asking for the loan. He agreed with Mr Ure that it might have been to start a business. QTWG also agreed that the accounts showed that he paid the sum of $100,000 into a bank account so that he could show that he could earn interest. Earning interest was an important criterion in his planning to apply for a loan. QTWG held a term deposit in NAB... 595 from 22 January 2005. On 22 April 2005, it accumulated interest leading to a total of $140,317.22 being rolled over into a further term deposit. Rolling over the accumulated principal and interest continued but, on 22 November 2005, a further sum of $104,000 was added to the term deposit. QTWG agreed in cross-examination that the sum of $104,000 included the sum of $100,000 given to him by Samuel.[147]

1. Also in cross-examination, QTWG agreed that he had asked Samuel for a loan of $100,000 to help him to purchase the property at 89 Milky Way, Cloud Hills or perhaps to purchase another property. As matters turned out, he reinvested his term deposit for a further 13 months or so. With the accumulation of interest, the term deposit amounted to $254,106.62 on 21 April 2006.[148] Mr Ure drew QTWG's attention to [84] of his statement, which is set out at [131] above. QTWG agreed that he had said that he would show Samuel the same generosity that he had shown him and also agreed that he had not repaid the amount of $100,000 that he had been lent by Samuel. In light of that, Mr Ure suggested, the money was more likely to have been payment for some services he had undertaken for Samuel. QTWG denied that suggestion as entirely false and untrue. He also denied that he and Samuel had been engaged in developing property.[149]

1. On 27 July 2006, William, Taylor and QTWG entered a partition agreement regarding the land at 55 Wave Crescent, Solitude Bay and three separate titles were registered as a consequence. Up until that time, the three brothers had held the land jointly. One of the properties was transferred to QTWG on 24 July 2006.[150]

1. In his statement, QTWG said that he and his wife and their three children continued to live with his parents, until he moved to house at 89 Milky Way, Cloud Hills. He bought that house for $565,000[151] and the sale settled on 3 January 2007. He moved to it with his family sometime during 2007 after he had renovated and painted it.[152] When he was asked whether he had spent some money doing the house up, QTWG replied "Possibly, yes."[153]

1. QTWG agreed that he obtained a loan to purchase the house at 89 Milky Way, Cloud Hills. NAB...245 was opened on 6 December 2006. It is a home loan account showing that, on 3 January 2007, QTWG drew down a loan of $368,955.60 together with various government fees and charges, which included stamp duty. In all, he drew down $402,150.51.[154] The transfer of the property was registered on 13 January 2007.[155]

1. Given that the purchase price of the property was $565,000, QTWG agreed that he had to find another $196,000 over and above the home loan in order to fund the purchase price. He found $140,000 of that sum by terminating the term deposit held in NAB...595 before maturation and depositing $263,491.69 in NAB...151 on 29 December 2006. That left a balance of $264,751.70 as he previously had $1,260.00 in that account.[156] On 3 January 2007, QTWG transferred $140,161.99 from that account leaving a balance of $111,589.71 after receipt of $7,000 from the home loan account, NAB... 245.[157] After payment of that amount, a further $56,000 had to be found to fund the purchase price of the house. QTWG said that it was possible that he had paid that amount out of his own funds but that he did not know.[158] Beginning in February 2007, the monthly repayments of $2,970 on the home loan were debited from NAB...151 and credited to NAB...245.[159]

1. At that time, QTWG agreed with Mr Ure that. In the 2007 year of income, he was 33 years of age and married, had been employed for 12 years, been overseas three times for up to seven and a half months at a time, held three blocks of land, owned two trucks, had $248,000 in a term deposit and was not working. QTWG told Mr Ure that he did not understand how this could be because he is Australian. QTWG said that he, on the other hand, is:

"... European and we work as a family. We - ever since I can remember, since I was a kid, there were - I lived with my five uncles and five aunties all in one house, from a very young age. I was brought up by all my aunties and my mother, and all my uncles. We lived - that's the way we lived, and I know you don't understand that sense of family and understanding how we work, and I don't blame you, because, you know, after all, you haven't experienced that sort of lifestyle.

So, you're saying that's a lifestyle that permits you not to work for three financial years? --- Yes, well I just got married. My family's well off, and I didn't work. What's the problem?"[160]

1. When applying on 25 October 2006 to open an account with HSBC, QTWG stated that his Job Title was that of "sub-contractor" and that his personal annual income was between $20,000 and $30,000.[161] He deposited a sum of $2,000 to open the account. QTWG stated that his primary source of income was "Investment Income". Another option that he could have chosen was "Dependent on family members". QTWG said that he, even though he said in his statement and at the hearing that he was dependent on family members:

"... No, you're not going to tick that box. Logically you're not.

... Even if I was, I don't know, but you're - I wouldn't have ticked it anyway."[162]

In answer to my question, QTWG said that a person would not tell the bank that he was being supported by his parents because that would mean he would not have been able to get any money from it.[163]

153. QTWG said that during cross-examination, which then continued:

"So you just make a false statement to the bank? --- Possibly, yes.

Would you do that to the tax office. --- Well, you would know if I am or not. Why would I do that?"[164]

1. QTWG acknowledged that he had not given HSBC his Taxation File Number (TFN) but denied that he had omitted to do so in order to avoid the ATO's becoming aware of it. When Mr Ure pointed out to him that debits were made from the interest he was paid and asked him whether that should have made him think that he should be paying tax, QTWG replied: "This means nothing to me now and it meant nothing to me then. I don't know what this means. ...".[165]

1. On 24 April 2007, the sum of $149,316.86 was withdrawn from QTWG's HSBC...412 account and sent by telegraphic transfer outside Australia.[166] QTWG said that he had "No idea" where the money went.[167]

1. QTWG put forward in his Amended Statement of Facts and Contentions dated 19 January 2017 that his solicitor, whom I will call "John Vallon", and/or his solicitor's wife either gave him on trust or lent him the sum of $100,000. They did so on 18 January 2006. On 13 December 2006, Mr and Mrs Vallon gave him a further $150,000, QTWG said, either on loan or on trust. QTWG agreed that he had deposited that amount in HSBC...121 on 13 December 2006.[168]

1. On 1 August 2008, and so in the 2009 income year, Mr and Mrs Vallon, QTWG stated, gave him either on loan or on trust a further $100,000. I will return to this in relation to the 2009 year of income below.[169]

1. QTWG's aunt, Dorothy, said in her statement dated 20 December 2016 that she had lent him $35,000 on or about 24 December 2007. They had done that because QTWG had asked her husband for the money because he needed it to buy building materials for the house that was under construction at Daffodil Grove, Cloud Hills. QTWG told her husband that he intended to sell his house at 89 Milky Way, Cloud Hills in the relatively near future and that he would repay them from the proceeds of the sale.[170]

1. Dorothy attached a copy of a Duplicate Statement from her bank showing a funds transfer of $35,200 into her account on 24 December 2007. Before that deposit had been made, the balance of the account was $4,471.12. The withdrawal by cheque for $35,000 was also made on 24 December 2007.[171] She thought that she would have signed the cheque as she is responsible for administering her family's day-to-day finances.

1. In his statement, QTWG said that, on or about 12 October 2006, he bought a 1996 Mercedes Tipper with a registration of Reg U...7 for $15,000. QTWG said that he spent a few months fixing it up for readiness as a tipping truck. For a further $15,000, he bought another truck being a 1986 Mercedes Tipper with a registration of Reg U...1. That was on or about 24 January 2017. He said that he spent a few months fixing up that truck as well. Initially, he continued, he used the tipping trucks to build a foundation and footings for the house he built on the middle of his property located at 30 and 32 Daffodil Grove, Cloud Hills. Other than that, he did not do much with the trucks as he was not in Australia consistently for the next couple of years.

1. In giving oral evidence, QTWG said that it was his recollection that he paid $10,000 for each of the trucks rather than $15,000. He was "pretty sure" that he paid for them in cash. He did not spend all of his time fixing them up.[172]

1. QTWG did not lodge a taxation return for the 2007 income year although he agreed that he had earned interest amounting to over $9,000. The tax free threshold for the 2007 income year was $6,000. When asked whether he had provided insufficient information to his accountant, who prepared his returns, QTWG replied: "Possibly, yes." He could not recall that his accountant had stated in an objection that he had not earned any income in 2007 greater than the tax free threshold. QTWG denied making any false statement to the ATO.

1. In his statement, QTWG said that he started to think about going back to work in late 2007. In light of his experience as an employee, he did not want to return to work as an automotive engineer and decided that he wanted to start running an earthmoving business. It was something that he could do with his mechanical knowledge and training and did not require too much investment. He also thought that he would be able to use his family contacts to obtain business. Initially, he did not have much income.[173]

1. In his statement, QTWG said that he was paid at an hourly or daily rate and reimbursed tipping fees. Until 30 June 2010, he estimated that he had earthmoving work every other business day. As a rule, he used only one of his trucks but kept the other for the odd large job that required two. Registration of those trucks amounted to $4,000 each year. QTWG said that he paid for the registration of his trucks in cash because cheques are not accepted by the registration authorities. At most, he used the second truck one out of every four business days. He hired drivers at $150 per day to drive the second truck or if he needed to be elsewhere. As at 30 June 2010, he charged $77 per hour for the work. That amount included GST.[174]

1. QTWG attached to his statement all records that he had for the 2008 year of income. The total of the amounts shown on the invoices he issued for QTWG Contractors was $5,346 inclusive of GST. Expenses, for which he had receipts, amounted to $44,008.73.[175] He agreed that he had paid each of the expenses in cash[176] and that, in addition, he had paid wages in cash. As he had used drivers for about 31 days in the year and paid $150 per day, he had paid a total of $4,650 for wages. After the deduction of those wages, he estimated that he had made only $21,483 from his business.[177]

1. Mr Ure explored with QTWG the question of how he paid the wages and the expenses when there appeared to be no relevant withdrawals from his bank accounts. QTWG said that it obviously came from his business; he had not pulled it "out of a hat".[178]

1. At the time, QTWG Contractors held the ABN shown on the invoices and receipts but was not registered for GST.[179] The receipts he has produced indicate that they were settled in cash and QTWG confirmed that was so.[180] The invoices he produced referred to only one client, for whom he had moved dirt. Invoices for the rest of his clients for whom he had moved dirt had gone missing, he said. The invoices must have been in a folder separate from those taken by Victoria Police, he assumed.[181] QTWG could not give an estimate of how many clients there had been but there "... would be obviously more than one, yes."[182]

1. In 2008, QTWG started building a house on two properties that he owned at 30 and 32 Daffodil Grove, Cloud Hills. He had bought one of the blocks when he was 18 years of age. His father put him as a guarantor for the first block and QTWG paid for it while working. His mother provided the money to pay for the block of land located next door to the first.

1. QTWG said that he built the house with his own hands. The basement took over a year to dig out. That is why he acquired the tipper trucks. A photograph taken in December 2009 shows a partially constructed house on the property. A photograph taken in April 2014 shows what appears to be a completed house with landscaping and a third taken in 2016 shows the same property from the air.[183] QTWG agreed that he had spent money on materials and that it was "considerable money".[184] He had not kept any records of his expenditure and queried why he would need to do so when he was building his personal home.

1. QTWG also constructed buildings at 55 Wave Crescent, Solitude Bay with his two brothers, William and Taylor. They had partitioned the title in 2006[185] and built three warehouse spaces that were ready for lease in 2008. QTWG said that he had no idea how much he had spent on building the warehouses. In any event, he had not paid for them directly. His parents paid for the factories and he built them. He finished building them at some time before the end of the 2008 year of income.[186]

1. QTWG was asked about his statement to the effect that he had not engaged in paid work for the previous three years. He responded that the work on the warehouses had not come into his mind because he was working for the family. No payment is made when working for the family although he was "... fed and housed and whatever."[187] QTWG was recalled to explore this further and the following exchange took place between him and Mr Ure:

"So wasn't the position on Wednesday that you did do work for your family - construction work? --- I did do work, yes, but it's not as in work because I'm living in my parents' home. You can't just sit around and laze while my father is feeding me. You're putting it in a way that - out of context; whereas I am - you can't just sit around at home doing nothing while your father's feeding you. Of course, if my father goes to work, I have to go with him, you know, but I don't get any financial - I don't get any money out of it. Isn't that what this is all about here? You're asking me if I - the way I'm taking is: am I getting paid by my father? No, I am not."[188]

Mr WG confirmed that this was the way the family worked. It is a very close family and family members do not have a custom of paying each other.[189]

1. The property at 98 Lake Drive, Cloud Hills was transferred to QTWG on 21 April 2008,[190] who appears from the transcript to have said that he paid for it.[191] This is an occasion on which the typed word does not reflect the tone in which the exchange took place. The tone used by QTWG was one of incredulity and the extract from the transcript must be read with that in mind and with his later evidence that the property at 98 Lake Drive Cloud Hills was gifted to him:

"I'm going to be suggesting to the Tribunal that it should find that you did give value for that property? --- I paid for that property.

You gave value either to your brother or to your father, and that's the reason why they transferred to you such a valuable property? --- I gave money to my brother or to my father you're saying? Is that what you're saying?

It's also possible isn't it that you performed some work for your father, he was also involved in the building industry? --- Do you really think that I would work for my father and take money off him? I still do things for my father today, I would never take money off my father for my labour. That's an insult."[192]

1. The property at 98 Lake Drive, Cloud Hills is a vacant residential block, which QTWG used to store his trucks, tools and other equipment. So that his trucks would have a secure surface on which to park, he spread a 150mm layer of crushed rock all over the property. He paid for the crushed rock but did not have a record of the purchase, he said. He also bought a kit for a shed and poured a concrete slab on the property so that the shed would sit on it. The costs of pouring the concrete slab were met by him but he did not have any record of the expenses he incurred. His tools and other equipment were stored in the shed.[193]

1. Mr WG said in his statement that he had bought 98 Lake Drive, Cloud Hills for his son, William, in or about mid-1997. At the time, he was gravely ill and concerned about William's welfare. Mr WG wanted William to have something over and above the share that he would otherwise receive under his will on his death. Therefore, Mr WG purchased 98 Lake Drive and nominated William as the transferee. Mr WG said that he told William that the land was a gift from him but that he could not find any documents in relation to the purchase other than an invoice for the conveyancing costs. It had been Mr WG's wish that William would eventually build a home for himself on 98 Lake Drive, Cloud Hill. Despite his urging his son to do so, William never did build a house and the property lay empty for more than ten years. Mr WG said in his statement:

"By about early 2008, it seemed fairly clear to me that the various property holding expenses were becoming a source of frustration for ... [William] and I encouraged him to transfer the property as a gift to ... [QTWG] so that it could be put to some useful purpose. ... [QTWG] was keen to develop ... [98 Lake Drive, Cloud Hills], and I wanted the property to be of some benefit to the family rather than a burden."[194]

1. In cross-examination, Mr WG said that he had not forced William to transfer the property to QTWG. William voluntarily gave it to QTWG.[195]

1. William said that he decided in 2008 to give the property at 98 Lake Drive, Cloud Hill to QTWG. He could not recall having discussed it with his father or with his brother, QTWG before he made his decision. He never received payment for the property and nor was he promised anything in return for giving it to QTWG.[196]

1. QTWG's evidence was that the property was transferred to him because his brother did not want to pay rates and land tax for nothing. He himself was using the land to store his trucks and he planned to build a home on it. As he was using it, QTWG said, the property was transferred to him. QTWG could not think of any other reason why William would transfer the property to him. He agreed that the property would have fetched approximately $380,000 on the open market. That was the basis on which he paid $18,000 in stamp duty on the transfer. Had his brother sold the property, QTWG said, that would have put pressure on him to purchase another property. The property had been a gift to William from their father so that he could build a home and start a family. Had the roles been reversed, QTWG doubted that he would have sold the property either:

"... being that it was a gift, I didn't earn it, as such; why would I put my brother in a situation to go out and spend more money on another property?"[197]

1. QTWG said that the possibility of his leasing the property had never been considered. When it was suggested that it was illogical for William to sell the property simply because he was incurring rates and land tax, QTWG and Mr Ure had the following exchange:

"You don't know my brother's character. He's not really interested in those material things, he's interested in his science and - he's very highly educated. I don't know what sort of schooling you've done, but I guarantee you he has done - he has done his honours and he has gone up to uni, right up until the age of 35 or so, and doing all sorts of - I don't know what you call it, but he's very highly educated.

So it's your position that he's highly educated but he doesn't make rational financial decisions? --- No, he doesn't. He's actually - he could earn hundreds of thousands of dollars a year, but he chooses to work at ... as a chef. That's what he enjoys to do, and its supports what he desires in his life."[198]

1. QTWG said that he had never thought that his brother's gift to him of 98 Lake Drive, Cloud Hills might be income. He did not expect to receive financial reward for doing work for his parents at the house in which they now live nor for the work that he did on a house of his mother's. I find that the house was next door to the house in which QTWG now lives at 12 Laureate Street, Cloud Hills i.e. 14 Laureate Street, Cloud Hills.[199] The work he did for his mother involved his digging foundations and a side cut in approximately 2013.

1. Apart from loans to which I have referred above and will refer, QTWG made cash or cheque deposits in NAB...245 during the 2008 income year. These were in addition to the usual monthly repayments of $2,970 transferred from NAB...151. From 30 June 2008, those monthly payments were replaced with fortnightly payments of half the amount and continued to be transferred from NAB...151 to NAB...245:[200]

1. Three further withdrawals of some significance were made from NAB...151 in the 2018 income year. With regard to the first and last, QTWG could not explain what he withdrew the money for. The amount withdrawn on the second occasion is only a little more than the Stamp Duty of $18,460 levied on the transfer of 98 Lake Drive, Cloud Hills from William to QTWG. The transfer was dated 21 April 2007, the withdrawal made on 24 April 2008 and the Transfer of Land generated on 5 May 2018 with a notation that the Stamp Duty had been paid. The withdrawals from NAB...151 were:[201]

1. Mr Vallon explained the circumstances in which he had also made out cheques for $300,000 and $270,000 to QTWG with the intention of lending him those funds but the cheques had been dishonoured. He had written the first cheque on or about 6 June 2008 and the second on or about 15 August 2008. In both instances, the sums were intended to be made as loans on the same terms as the initial loan. Both cheques bounced when funds he had expected to receive from other sources did not eventuate and he had insufficient funds in his account to honour the cheques. Mr Vallon noted that none of the loans that he had made to QTWG had been repaid.[202]

1. In late 2007, QTWG said that he needed a lot of money to purchase materials in order to build his house. He did not want to borrow from banks because he did not want to pay interest if he did not have to. Therefore, he thought it best if approached his family and close friends within his community to see if they would lend him money to assist with his costs. He is very close to his uncle, whom I will call Christopher. QTWG approached his uncle late in 2007 for a loan because he felt that he had already received too much from his parents. They discussed the matter at the home of his uncle and aunt. QTWG told his uncle that he was planning to sell 89 Milky Way, Cloud Hills and would repay the loan from the proceeds of that sale. Christopher told his nephew that he would discuss the matter with his wife, Dorothy, and, soon after, either he or his wife gave QTWG a cheque for $35,000.

1. Dorothy has produced a bank statement showing a withdrawal for the sum of $35,000 on 24 December 2007. Christopher stated that he gave that money to QTWG on 24 December 2007. In cross-examination, QTWG said that he thought that he had used the money to buy building materials but he "possibly" accepted that he had deposited it into his home loan account. He said that he was:

"... trying to reconstruct everything that happened so long ago and where the money could have come from, right. I don't know the exact, exact details. I'm trying to reconstruct everything. Obviously - you tell me what I've done with it. I don't know."[203]

1. In response to QTWG's question, Mr Ure directed his attention to an amount of $39,894.00 deposited in NAB...245, which is the home loan account. It was marked "Cash and/or Cheques Deposit". I take that to mean that the deposit took the form of both a cheque and cash, for other amounts credited to NAB...245 are marked "Cheques Deposit", which I understand to mean that the deposit consisted solely of a cheque or cheques.[204] QTWG said that he was surprised that it was suggested to him that the sum of $39,894 might include a cheque given to him by his aunt and uncle. The cheque is not for the correct amount. QTWG suggested that it might be money from the business.[205]

1. In approximately April 2008, QTWG said in his statement, he approached Dorothy's brother, whom I will call Richard, for a loan of $120,000. QTWG regarded Richard as a good friend and he often saw him at the house of Christopher and Dorothy. The conversation was likely to have taken place at the home of Christopher and Dorothy. QTWG asked for $120,000 and said that he undertook to repay the loan when he sold 89 Milky Way, Cloud Hills. Richard gave him a cheque for $120,000 and QTWG said that he used the cheque to buy building materials for the construction of his house.[206]

1. The loan from Richard was explored with QTWG in cross-examination. When asked whether Richard was in property development at about the time that he lent the money, QTWG replied that he did not know. He believed that Richard was a real estate agent and did not know that he was developing a property at the time. Richard might have told him but he could not recall.

1. QTWG said that he was "pretty sure" that he had used the sum of $120,000 borrowed from Richard to purchase building materials. His attention was drawn to his trading account, NAB...053 where it showed a deposit of $120,000 credited to the account on 14 April 2008. Other smaller amounts are added until 6 June 2008 when a deposit of $3000,000 was added to the account. That entry was reversed when Mr Vallon's cheque for $300,000 was dishonoured.[207] At that time, the balance of the account remaining was $133,183.08. A further amount of $100,000 was deposited on 1 August 2008 and another, which was made out by Mr Vallon and subsequently dishonoured, for $270,000 on 15 August 2008.[208] The balance of NAB...053 was $236,533.51 after the dishonour. Putting aside a deposit of $80,000 on 8 September 2008[209] and a transfer to NAB...151 of $78,720 on the same day, only two withdrawals were made from the account in the period up to 30 June 2009. Those amounts were for $10,934.88 on 1 October 2008 and $10,810.80 on 31 October 2008.[210]

1. Mr Ure suggested to QTWG that he had not used the loan from Richard in April 2008 to purchase building materials for 30 and 32 Daffodil Grove, Cloud Hills. QTWG drew his attention to withdrawals amounting to something over $60,000 made from the account in September 2009. Mr Ure pointed out that the withdrawals had been made a year and five months after he had been lent the money by Richard and suggested that, at the time, he already had enough to fund the construction of the house. QTWG replied that he had not had enough funds and the exchange between him and Mr Ure continued:

"... I needed - I needed more money, I saw a chance to ask for the money and I did.

How did you identify the chance to ask for the money? --- Well, he was doing well, he had - he was living well so clearly he had the funds to help me out.

But you didn't know anything about his property development? --- No."[211]

1. Richard made a statement and gave evidence regarding the sum of $120,000.[212] QTWG is two or three years older than Richard but he is Richard's nephew by marriage. Between 2007 and 2008, Richard said, he was involved in property development as an owner builder. He did not operate through a corporate body. At the time, he had access to funds from a loan he had negotiated and he also had settlement monies once he sold the property. QTWG approached him for a loan to assist him in building at 30 and 32 Daffodil Grove, Cloud Hills. The money would be repaid from funds that QTWG would receive from the sale of his property at 89 Milky Way, Cloud Hills, QTWG told him. He drew the cheque on 2 April 2008 on the account held with the ANZ Bank in his name and that of his wife. Richard did not think that there had been any document to record the loan. Given their family ties and their ties with their community, they did not expect that they would need to. Although 89 Milky Way, Cloud Hills has been sold, QTWG had told him that the ATO had taken the proceeds.[213] Although disappointed, he expects that QTWG will repay him when he can. In giving evidence, Richard said that he has only ever known QTWG to work in the tipping business.

1. In cross-examination, Richard insisted that he lent the sum of $120,000 and that it was not a payment made as part of some business transaction. In the 2008 income year, Richard's tax returns reported his taxable income as $65,986.[214] Richard agreed that this was so and that, in the years between 2004 and 2008, his taxable income ranged from $55,000 to $65,000 or so. Although the loan of $120,000 was about double his taxable income in any year, Richard said that, based on the sale of a property he had developed, it was probably not such a stretch to lend QTWG $120,000.

1. Richard agreed that it could potentially be the case that he had also lent his sister, Dorothy, $242,000 in the same years. If he did not draw the funds from the settlement monies, he would have obtained a loan from a bank. He could not recall. As for requiring interest to be paid, he definitely had not required that QTWG pay him interest. Richard said:

"... It's a difficult thing for you to understand with the culture background, and I can appreciate that, but in saying that, with the way we assist one another, and I know you'll bring on the factor of loyalty point of view, but on a short-term basis, in particular with ... [QTWG], which was the case, which has dragged on, unfortunately, it was all basically short-term loan, get the money back. And unfortunately, not the case with ... [QTWG] at this point in time."[215]

1. A portion of the money had to come from the proceeds of his property development, Richard said, because a bank would not have lent him that amount on his salary.[216]

1. QTWG registered three box trailers in the 2008 income year. He said that he had built them and had sent two overseas. The third he uses to transport equipment.[217]

1. QTWG decided to incorporate a company and applied for its registration on 22 September 2008. He called it QTWG Contractors Pty Ltd.[218] From that time, he issued invoices in the name of the company but did not otherwise change the way the business was run. He never formally transferred the business from his own name to that of the company and did nothing to fulfil his duties as an officer of the company. QTWG stated that he was unaware that the company might incur taxation obligations separately from him. Until approximately 12 March 2009, QTWG continued to treat the money paid on the company's invoices was his own money and he paid its expenses from his own money. On or about 12 March 2009, QTWG opened a bank account with the Commonwealth Bank of Australia in the name of QTWG Contractors Pty Ltd. That is account CBA...392.[219] From that point on, he used that account as his general account.[220]

1. QTWG produced all the receipts and invoices for expenses that he could find. The expenses shown in those invoices totalled $69,059.53 inclusive of GST.[221] QTWG described those invoices as not being complete; "... there's a heap of other stuff that I can't get. There's a lot of other stuff that I can't get. There's a lot of other stuff, yes."[222] QTWG could not estimate how many invoices were missing. On his estimate of having engaged a driver for 63 days at a daily rate of $150 in the 2009 income year,[223] QTWG paid $9,450 to his drivers. Registration of the two trucks amounted to $4,000. QTWG also estimated that he had paid between $150 and $200 for fuel for each eight hour day and, on average another $20 per hour in use for miscellaneous costs such as maintenance, tyres and repairs. QTWG estimated that his net earnings after expenses in the 2009 income year were $43,659.00 made up by adding (126 days x $281 daily profit for the first truck) and (63 days x $131 daily profit for the second truck).[224]

1. All receipts for expenses showed that the goods were paid for in cash. They included a number of receipts for the purchase of fuel at Mobil. The highest amount paid was $1,376.05[225] with amounts over $200 appearing regularly. The vehicles for which the fuel was purchased are not identified. QTWG estimated the cost of fuel needed to operate each of his trucks for an eight hour day averaged $175.[226]

1. Looking at the period from 1 July 2008 to 8 September 2008, the invoices produced by QTWG reveal cash receipts of $19,135.03. In the period from 1 July 2008 to 7 September 2008, no funds were credited to NAB...151. From 8 September 2018 to 31 October 2008, a total of $ 100,464 was transferred from NAB...053 to NAB...151. In that same period, cheques totalling $ 108,464 were drawn from NAB...151. Where cheques were drawn on NAB...151 for the same amount as that deposited, they were drawn on the same day as the deposit. They appear in the following table:

1. In that same period, QTWG continued to make scheduled repayments of NAB home loan account NAB...245. He also deposited amounts in NAB...245 that were over and above the amounts needed to make those scheduled repayments. Those amounts totalled $23,181.25 and were deposited on the following days and in the following manner:

1. A cheque for $80,000 was deposited in a bank account (NAB...053) in QTWG's name on 8 September 2008. Immediately before the deposit, the balance of the account was $238,142.83. A cheque for $78,720 was withdrawn on the same day leaving a balance of $239,422.83.[239] Three further withdrawals were made in the 2009 income year and they are referred to at [13] and [198] above. The expenses, for which QTWG, had invoices in that same period are referred to at [198] above.

1. QTWG agreed that a cheque dated 27 July 2008 for the sum of $2,186.25 was deposited in NAB...245 on 1 August 2008.[240] The cheque had been drawn by a paving company and made out to QTWG Contractors but the word "Contractors" has been crossed out and the name "... [Q]..." written above it. QTWG said that he deposited the cheque in NAB...245, which his home loan account, without adding the name "Q". He had deposited other cheques in that account without doing that. Although it was not put to QTWG, I note that the invoice that would seem to relate to the payment for they are for the same amount and the body invoiced is that on whose account the cheque was drawn, bears a date of 20/06/04. Its number is shown as Invoice No. 20062008.[241] The invoice is for tipping fees relating to 26.5 hours at a rate of $82.50 per hour. A sum of $198.75 was shown as the amount of GST.

1. QTWG's attention was drawn to a cheque for $3,304 by another client. The cheque was dated 20 February 2009 and relates to an invoice numbered 10112008 and dated 10 November 2008. The invoice stated that the sum was made up of 33 hours of time on site at a rate of $88 per hour. A sum of $264 was included as GST. The sum of $3,304 was deposited in CBA...392, which was the business transaction account for QTWG Contractors Pty Ltd.[242] That account also shows a deposit of a cheque for $704 on 27 May 2008. This cheque is dated 19 May 2009 in payment of an invoice dated 19 May 2009. That invoice is numbered 19052009. It is for 8 hours of tipping at $88 per hour and includes an amount of $64 as GST.

1. Annexure QTWG-9 to QTWG's statement contains other invoices for work done by QTWG Contractors but the amounts shown on their faces do not match deposits made in QTWG's bank account or the account of QTWG Contractors. When Mr Ure suggested to QTWG that they could not be matched because he had been paid in cash, QTWG responded that he had never received cash in his life and refused to receive cash. He rejected the possibility that the cheques had been made out to his wife and banked in her name. He could not remember having had a cheque made out to his wife and did not think it had happened.[243] When it was put to him that a cheque for $4,224 had been made out to his wife, he said that he did not know why it would have been. He did not know what to say about it. That amount and the drawer of the cheque matched the details shown on invoice numbered 07012009 on QTWG Contractors letterhead.[244]

1. In the 2009 income year, QTWG produced invoices for expenses totalling $69,059.53 inclusive of GST. He said in his statement that that was the total of the expenses "... for that year for which ... [he] could find receipts ...".[245] All were paid in cash.[246] One invoice dated 4 December 2009 issued by a tool company shows an Air Staple Gun and "staple 12.9MM x 12MM long 800 series 10000 box paslode". QTWG explained that this was a nail gun. When asked how it fitted in with earthmoving, he replied: "It doesn't."[247] When it was put to him that his answer meant that it was not a business expense, he replied: "Well, kind of."[248] He denied that he was running a construction business as well as an earthmoving business but said that "this stuff here was purchased when I was building my house."[249] He said that the wet and dry vacuum bought from the tool company was used to clean his trucks as was the paint brush, which he used to clean their vents.[250]

1. None of the amounts shown on invoices produced by QTWG matches the amounts deposited in this period but there are cheques made out to QTWG Contractors in the 2009 year of income. Including cheques I have just referred to, those cheques and, where identified, the accounts into which they were paid are:

1. QTWG said in his statement that he estimated that the warehouse at 55 Wave Crescent, Solitude Bay, was rented out from about July 2008 after it had been lying vacant for some time.[253] He estimated that the rental agent's fees and land tax payable on the warehouse consumed 46% of his rental income.[254] The fees and the land tax amounted to, he guessed, $13,000 per year and were paid from an annual income of $28,000. QTWG did not produce any documents regarding either the rent he received or the expenses he incurred in relation to 55 Wave Crescent, Solitude Bay.[255] He said that his rental agent did not provide rental statements to him but would send him a cheque endorsed with its own letterhead.[256]

1. During cross-examination, Mr Ure asked QTWG about the money he had been given by Mr Vallon and the dishonoured cheques, one of which he had given on 1 August 2008 and so in the 2009 year. Mr Ure suggested that, by the time the 2009 income year arrived, Mr Vallon was likely to ask him for some form of documentation relating to the loans. QTWG rejected that idea. In summary, he said that it was logical that the money given to him by Mr Vallon was a loan and not a payment for work done. What work could he do, he asked, that would earn him the amount of money Mr Vallon had given to him. One just had to look at the properties owned by Mr Vallon at the time to realise that there was not enough earthmoving involved to earn QTWG the sort of money paid to him by Mr Vallon. He did not know that Mr Vallon's wife was involved in property development.[257]

1. QTWG agreed with Mr Ure that he had borrowed the sum of $80,000 from his uncle and aunt in the 2009 income year. He had done so because he needed a lot of money to purchase materials to start building his house. He did not want to borrow money from a bank and pay interest on the loan. In any event, he generally disliked banks and thought it best to see if his family and close friends in his community could lend him some money. The deposit of $80,000.00 is shown as a deposit in NAB...053 on 8 September 2008.[258] At the beginning of that income year, he had almost $134,298.24 in that account and, at the end of that year, the account balance was $236,092.68.[259] The Commissioner asserts that QTWG had ample assets at the time to fund the construction of his house but, when regard is had to the house that QTWG actually built,[260] I do not think that, even ten years ago in the 2009 income year, that funds approaching a quarter of a million dollars would have been sufficient.

1. On 15 August 2008, John Vallon and Mrs Vallon gave him a further $270,000 in the form of a cheque but the cheque was subsequently dishonoured. QTWG agreed in cross‑examination that there are no loan documents in place supporting the loans. His explanation for their absence was that Mr Vallon was a family friend. He had known Mr Vallon all of his, QTWG's, life.

1. In a letter dated 27 November 2015, Mr Vallon confirmed that he had paid various amounts to QTWG. He described QTWG as "... a long-standing loyal client of my law firm ...". Mr Vallon wrote:

"In or about January, 2006 ... QTWG informed me that he needed some financial assistance and requested that I lend him $100,000. Given our mutual trusted relationship I acceded to that request and advanced the requested money to him on or about 18 January, 2006.

The loan was made simply on the basis of a handshake. There was no formal agreement entered into and no interest would be claimed. We did not fix a time for repayment as the purpose of the loan was to provide financial assistance - but repayment was expected by me and understood by ... [QTWG] to be made within a reasonable time.

A further loan of $150,000 was made on or about 13th of December, 2006 on the same terms as the initial loan.

A final (third) loan of $100,000 was made on or about 1 August, 2008 on the same terms as the initial loan. The third loan was drawn out of my wife's account but my wife had nothing to do with the loan and was not a party to it. In fact, over the years we (my wife and I) had developed the practice of simply treating that account (from which the third loan funds were drawn) as my account, notwithstanding it was in her name. Whenever I needed her signature I would request it and she would supply it.

In total $350,000 in loans were made to ... [QTWG] as explained above."[261]

1. Mr Vallon also wrote about two further cheques that he had given QTWG. He said that they:

"... were meant to be loans but did not eventuate as follows:

1. $300,000 from a cheque written from my account on or about 6 June, 2008; and
2. $270,000 from a cheque written from my account on or about 15 August, 2008.

In both instances, the two cheques were intended to be made as loans on the same terms as the initial loan and in both instances the cheques bounced because funds I anticipated from other sources did not eventuate.

As it turned out, that is fortuitous because to date, none of the loans have been repaid. I have previously provided you with the banking details that support the abovementioned information."[262]

1. In cross-examination, QTWG said that he told Mr Vallon that he needed the money because he wanted to build a home of his own. At the time, he acknowledged, he had more than $248,000 in a term deposit. When asked whether the sum of $100,000 could represent payment for services or some business, he questioned what work he could do for Mr Vallon that would warrant the payment of $100,000. He agreed that Mrs Vallon is involved in property development but, when asked whether that had anything to do with the money paid to him, replied "I don't know."[263]

1. In the years of income between 2005 and 2008, Mr Vallon and Mrs Vallon submitted separate returns. The taxable income each declared in those years, together with the expenses Mrs Vallon claimed in respect of her business activities, is shown in the following table next to the loans Mr Vallon identified in his letter dated 27 November 2015:

1. Dorothy also stated that she and her husband had lent QTWG the sum of $80,000 on 8 September 2008. That was the day she had signed a cheque. Again, she attached a copy of a Duplicate Statement from her bank showing a funds transfer of $80,000 into her account on 8 September 2008 and a withdrawal by cheque for $80,000.[278] Before the transfer of funds into the account, the account balance had been $121.11. It returned to that figure after the withdrawal of the $80,000.[279]

1. QTWG did not lodge an income tax year for the 2010 income year. At audit, the Commissioner formed a judgment that QTWG's taxable income for that year was $26,845.00.[280] In his objection, QTWG stated that his correct taxable income was less than $6,000.00, being the tax free threshold. When he prepared his witness statement for these proceedings, QTWG estimated that the net profit made from his two trucks in the 2010 income year was $43,659. He estimated that on the same basis as he did for the 2009 income year and I have set that out at [196] above. In addition, he estimated that he earned approximately $28,000 each year from the rental of 55 Wave Crescent, Solitude Bay less expenses such as agents' fees and land tax amounting to approximately $13,000 each year. As mentioned previously, he has no records relating to the property.

1. QTWG said that the money he received in respect of the invoices issued by QTWG Contractors was paid into CBA...392. QTWG Contractors Pty Ltd, in whose name the account was opened, does have an ABN but, neither it nor QTWG is registered for GST. In re-examination, QTWG said that he started depositing payments into the company bank account, rather than his personal account, because, on the basis of what others had told him, he thought that it was a better way to do it.

217. The entries in CBA...392 show the following deposits in the 2010 income year:

1. The total debits in the 2010 income year were $80,814. Account CBA...392 was $343.28 in credit at the end of the year.[283]

1. As for expenses, QTWG said that all expenses were paid in cash but he could not estimate how much they had been. He found receipts for expenses totalling $27,720.82 inclusive of GST.[284] Each is a receipt for a cash payment. QTWG also estimated that he used his first truck for 126 days of the year and his second truck for 63 days. His estimate of the expenses of doing that were $150 a day for a driver if the second truck were used, $160 operating costs per eight hour day (averaged over time and including maintenance, tyres and repairs) and between $150 and $200 per day for fuel. Taking the minimum amount of those expenses and the figures of 126 days when he drove the truck and 63 when he engaged a driver, his expenses would amount in the 2010 income year to $39,060[285] when he drove it and $28,980[286] when he hired a driver. That is a total of $68,040 in out of pocket expenses.

1. Apart from those relating to the purchase of fuel, the expenses referred to in the previous paragraph do not appear to be reflected in the invoices QTWG has annexed to his witness statement at QTWG-10 in relation to the 2010 income year. Many of the receipts are from Bunnings which, as a matter of common knowledge, does not offer a service centre for motor vehicles of any kind. They are largely illegible. Those that are legible relate to equipment purchased by QTWG Contractors but of a sort that would seem largely unsuited for truck maintenance e.g. an Air Nailer Bradder 65MM ... Hitachi, a Bit Drill TCT Masonry SDS+ Bosch and a Saw Circular ... Makita. Putting aside the purchase of fuel and road tolls and registration, the amounts shown on those invoices add up to approximately $8,000. Added to QTWG's estimate of expenses for his two trucks, that means his total expenses incurred under the name of QTWG Contractors was in the order of $76,000.

1. When Mr Ure put to him that the withdrawals from CBA...392 were insufficient to pay for the expenses reflected in the expenses shown at QTWG-10 to his statement, QTWG said that he would have borrowed from his parents.[287]

1. During the 2010 income year, there were a number of relatively small amounts from, in the main, Australian Government Families, credited to NAB...053. There was also one large deposit by cheque of $25,000 on 18 December 2009.[288] Starting on 11 September 2009, the account shows a number of large withdrawals. Among them, and allowing for three that were reversed in February and March 2010, there are approximately 18 amounts of $1,500 transferred to NAB...245 as loan instalments. The other withdrawals are not identified. Allowing for the amounts credited and those withdrawn, the balance of NAB...053 went from $236,092.68 on 1 July 2009 to a debit of $7,080.67 on 30 June 2010. If I ignore the relatively small deposits and having regard only to the starting balance and the deposit of $25,000, that would mean that QTWG withdrew $168,173.35 in the 2010 income year. Of that sum, approximately $27,000 can be identified as paid for loan instalments to NAB...245.

1. I will call QTWG's accountant "Raisley". He made a statement regarding events relating to the Commissioner's amended assessments issued to his client and the course of the objection process. Until he received the amended assessments, Raisley said in giving evidence, he was not aware of any business activities, including a tipping business, carried on by his client.[289] Raisley is also the accountant engaged by Mr WG, Mrs WG, Dorothy and Christopher but has not been engaged by Richard.

1. In respect of each of income years 2004 to 2010, Raisley signed a statement that he did:

"1. Certify this document and any attached documents, have been prepared in accordance with the information supplied by the individual identified in this request and in the attached documents.

1. State that I have received a declaration from the individual identified in this request and in the attached documents, stating that the information provided in each document is true and correct.
2. State that I am authorised by the individual identified in this request and in the attached documents, to submit this objection request to the Commissioner."[290]

1. Raisley believed that he would have the necessary declaration from QTWG regarding the truth and accuracy of the information provided in each document but did not produce it. He believed that QTWG had given his firm written authority to proceed but did not produce that authority. He said that he used some pro forma objections that he had used on previous occasions for members of QTWG's family. Those pro forma notices were based on notices previously prepared by a tax lawyer known to Raisley. Essentially, they covered all potential grounds for objection. Raisley said that he turned to those pro forma objections because, around October 2014, he had stil been unable to find all of the information that he was seeking and was becoming increasingly concerned that the ATO would commence recovery action.

1. The objection lodged in respect of the 2007 income year stated that "The Taxpayer's correct taxable income for the year of income was less than the tax free threshold."[291] Raisley agreed that he had not made this statement on the basis of instructions or a declaration given to him by QTWG. He did not agree that it was a false statement, though. It was a statement based on his firm's assessment. They did not have the evidence and so could not come up with an opinion as to what QTWG's income would actually be.[292] QTWG never told his firm that his income was below the tax free threshold, Raisley said.[293] Raisley adopted the same method in relation to the objections lodged in respect of the 2008, 2009 and 2010 income years.[294] Raisley saw the objection as leading to an internal review by the ATO followed by discussions between it and him. He never felt that he had to correct his statement about income being below the tax free threshold because:

"... Look, I think you try and leave yourself open as to what the possible figure could end up being, so you've just - you've come up with, like, a figure and you work with that. I mean, if you've got nothing to work with, what do you do? Tell me what would you put in there?"[295]

1. The objection lodged for the 2006 income year states that "The Taxpayer's correct taxable income for the year of income was $11,745.00."[296] Raisley said in cross-examination that they:

"... based this on what was lodged on the tax return that we lodged. That's how we established this $11,745 income, that's what actually was lodged in that particular year.

You established the income by reading his tax returns? --- No, that's by what records we had at the time when they were lodged.

Did you review those records before you lodged the objection? --- Yes, we did, we just checked what we had on our system."[297]

1. Dorothy said that she was aware that QTWG has always been working with something to do with trucks, or driving trucks, and tipping. She was not aware that he had been involved in any other work activities or money-making activities in the 2004 to 2010 income years. Dorothy was aware that, at one time, QTWG was building a house at Daffodil Grove, Cloud Hills. She was also aware that he owned another house at 89 Milky Way, Cloud Hills and her husband told her that QTWG was planning to sell it.

1. Dorothy and her husband, Christopher, undertook some renovations to a property they owned at 11 Star Crescent, Cloud Hills. Dorothy agreed that she had probably written a number of cheques between July and December 2007 paying for renovations on that property. In December 2007, her husband, Christopher, lent QTWG the sum of $35,000. A cheque for that amount was drawn on a cheque account held by Christopher and Dorothy at Westpac (Westpac...21). The cheque was dated 24 December 2007 and was described in Westpac's records as "Loan to ... [QTWG]".[298] Dorothy said in cross-examination that the loan had nothing to do with the renovations that she was undertaking about this time. It was not correct to suggest that she paid QTWG money because she had business dealings with him. None of the other amounts that she paid to him was connected with her renovations. None of the other payments made to those sharing QTWG's surname were made to people involved in her renovations. She said that she lent money to QTWG "Because he's family." and not because of any business she had with him.[299]

1. Christopher, Dorothy's husband, said that he was not aware of any business or profit‑making activities undertaken by QTWG. He acknowledged that he had lent QTWG $35,000 on 24 December 2007 and a further $80,000 on 8 July 2008. Christopher said:

"The cheques that I gave my nephew were strictly for the build to do his house - for the house, along, and I was promised by him that he will return my money when he sells ... [89 Milky Way, Cloud Hills]. That was only a loan and nothing else."[300]

1. Christopher said that he would be disappointed if QTWG had not used the loans for building his house at 30 and 32 Daffodil Grove, Cloud Hills. He acknowledged that, at the time he made the payments to QTWG, he probably would have been undertaking work on his own investment property but denied that there was any connection between the payments and the renovations. QTWG did not work for even a day on the investment property renovations, Christopher said. He continued:

"... They're loans - to put it shortly, it's our tradition, if you do trust someone - of course I'm not talking about someone from outside but close in family, you do that to help. And you do that without interest at all. So you trust, you loan the money, and you hope that they keep their word. And that's how we do things, when we can."[301]

He would not do that for anybody in need of financial assistance, though; only for his family.

1. In giving evidence, Mr WG said that his son, QTWG, had asked him for money to start a business. In particular, he wanted to buy trucks and asked for $10,000, $15,000 or $5,000 at one time or another. Mr WG did not know what business his son intended to start or of any business his son was undertaking in the 2004 to 2010 years of income. His son did not work with him in the building industry although he worked with him in building a house and in renovating a property he, Mr WG, owned.

I certify that the preceding two hundred and thirty two (232) paragraphs are a true copy of the reasons for the decision herein of Deputy President S A Forgie

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

[1] When QTWG requested that the hearing of his application be in private, the Tribunal was required to hold it in private by virtue of s 14ZZE of the Taxation Administration Act 1953 (TAA). A private hearing does not lead automatically to the de-identification of the applicant. That is the effect of Scott v Scott [1913] UKHL 2; [1913] AC 417; [1911-1913] All ER 1, which Senior Member Fice and I applied in the context of s 39T(4) of the Industry Research and Development Act 1986 (IRD Act) in RACV Sales and Marketing Pty Ltd and Innovation Australia [2012] AATA 386; (2012) 57 AAR 268; (2012) 129 ALD 32 at [235]- [249]; 113-119. Unlike the IRD Act, the TAA requires de-identification of the applicant because s 14ZZJ modifies s 43 of the Administrative Appeals Tribunal Act 1975 by adding s 43(2D) for the purpose of the review of certain decisions made by the Commissioner. The effect of s 43(2D)(a) is that the Tribunal must not identify the applicant when it has not conducted a proceeding for the review of a decision in public.

[2] T documents; T1 at 20-21 and T38 at 617

[3] Current & Historical Organisation Extract of Australian Securities and Investment Commission (ASIC); Exhibit A; Annexure QTWG-3

[4] Current & Historical Organisation Extract of Australian Securities and Investment Commission (ASIC); Exhibit A; Annexure QTWG-1

[5] The parties have been given a Legend identifying the properties and persons for whom I have used pseudonyms.