South Seas Holdings Pty Ltd (Trustee) v Commissioner of Taxation [2025] FCA 848

PRACTICE AND PROCEDURE - where affidavit deposed in earlier Family Court proceedings referred to in reasons - consideration of application of Part XIVB of the Family Law Act 1975 (Cth) - held no basis for suppression or redaction of part of reasons

South Seas Holdings Pty Ltd (Trustee) v Commissioner of Taxation [2025] FCA 848 | Case summary | Zoe

[47]

Four taxpayer entities associated with Mr Vanda Gould, a former tax accountant, claimed deductions for interest and management fees allegedly incurred in particular tax years between 2001 and 2014. Assessments were issued by the Commissioner of Taxation on the basis that the taxpayers were not entitled to the deductions claimed. On the basis of the Commissioner's opinion that there had been 'fraud or evasion' by the taxpayers, the Commissioner maintained that there was no applicable time limit in respect of the assessments. The taxpayers were assessed for penalties. The Commissioner also determined that shortfall penalties should not be remitted.
Three of the taxpayer entities were trusts. The Commissioner issued assessments to the trustee of each trust on the basis that the income earned (after disallowing the deductions) was assessable to the trustee under s 99A of the Income Tax Assessment Act 1936 (Cth) (ITAA36).
The taxpayers lodged objections to the income tax assessments, the penalty assessments and the decision not to remit shortfall penalties. After the objections were lodged, the Commissioner made determinations under Part IVA of the ITAA36 to the effect that the deductions, if otherwise allowable, should not be allowed because the tax benefits afforded by the claimed deductions had been obtained in connection with a scheme carried out for the dominant purpose of enabling the taxpayer to obtain that tax benefit.
In 2019, the objections of two of the taxpayers were wholly disallowed and the objections of the other two taxpayers were substantially disallowed.
In January 2020, the taxpayers exercised their statutory rights to appeal to this Court. Orders were made for the four appeals to be heard together with evidence in one proceeding being evidence in the others. The final hearing of the four appeals was conducted as a single hearing.
The income tax years for each of the four taxpayers ended at 30 June. In these reasons, I will identify a particular tax year by referring to the year in which the tax year ended. So, for example, I will refer to the income tax year that commenced on 1 July 2001 and ended on 30 June 2002 as the 2002 tax year. I will also use the description tax year to refer to a period ending on 30 June in the nominated year.

[48]

The taxpayers say that there was a proper legal basis for the deductions in the form of valid and enforceable contractual arrangements. For the most part, those arrangements are said to have been put in place by Mr Gould acting as a director of both the entities who were party to the arrangement (in the case of trust entities, as a director of the corporate trustee of the trust). Consequently, Mr Gould is a critical witness in the appeal.
As to the claimed interest deductions, the taxpayers say that the interest was paid in respect of genuine loans that were made for business purposes and the amounts of interest paid were reasonable in that they represented less than the interest that would have been charged between parties dealing at arms' length. As to the claimed management fees, the taxpayers say that the fees were charged for services actually provided to the relevant taxpayer and were reasonable in amount. As to all the deductions for interest and management fees, they say that the entries in the relevant accounting records reflected those arrangements and should be accepted as evidence of them. They also contend that there was a proper basis for the other deductions.
The case for the taxpayers is put on the basis that imperfections, anomalies and inconsistencies in the evidence of Mr Gould were to be expected given the passage of time and the fact that the accounting records were not pristine was consistent with their authenticity.
The taxpayers also claim that the opinion held by the Commissioner to the effect that there had been fraud or evasion that justified assessments extending back to 2001 was formed without any proper foundation.
The Commissioner says that the taxpayers did not incur the interest and management fee obligations and that entries made in the books of account for the taxpayers (and related entries in the books of account for other entities) did not reflect the reality of underlying transactions. Rather, the disputed amounts are said to be no more than movements of funds between various entities under the control of Mr Gould with the funds being moved solely for tax purposes. Amongst other things, this is said to be supported by an analysis to the effect that many of the contentious amounts were a kind of balancing item that ensured there was little or no taxation liability (after allowing, in relevant cases, for enough income to ensure that all available franking credits could be offset against income). The descriptions of most of the contentious amounts in the accounts as 'interest' or 'management fees' is said to have been allocated subsequently and, in effect, to involve the application of contrived labels.
There are some further issues raised by the appeals. As to two of the taxpayers, it is also said that alleged tax losses in years before 2001 (calculated by taking into account alleged interest expenses) are not established and consequently are not a basis for any deduction in subsequent years. Also in dispute is (a) whether Mr Gould's family trust made losses in years prior to and including the 1997 tax year which could be applied to reduce net capital gains in the 2012 and 2014 years; and (b) whether the family trust received deemed dividends in the 2014 tax year and whether the Commissioner's decision not to exercise the statutory discretion to treat those deemed dividends as frankable can be overturned.
As will emerge, there is a considerable degree of obscurity in Mr Gould's own account of what occurred in the conduct of the financial affairs of the taxpayers and other entities controlled by him. In part, this is due to the deliberate and elaborate steps taken by Mr Gould to conceal the extent of his involvement in various offshore entities. His explanation for this conduct was to the effect that he wished to avoid the aggravation. In effect, his position was that he would rather keep the arrangements secret than try and justify them to the Commissioner.

[57]

The taxpayers have the onus. They must prove that the assessments are excessive: s 14ZZO of the Taxation Administration Act 1953 (Cth). Although the Commissioner has raised various affirmative reasons as to why the deductions should not be allowed, at the end of the day the taxpayers will fail if they have not affirmatively established the factual and legal basis for the deductibility of the amounts claimed.
There is no special burden upon the taxpayer. The degree or standard of proof is that which applies in civil proceedings generally: Commissioner of Taxation v Cassaniti [2018] FCAFC 212; (2018) 266 FCR 385 at [88] (Steward J, Greenwood and Logan JJ agreeing).
Ordinarily, discharge of the onus born by the taxpayer on a statutory appeal after assessment and unsuccessful objection will require the taxpayer to prove the extent of assessable income as well as all deductions claimed, including their deductibility as outgoings incurred for a business purpose (as well as any other amounts affecting the assessable income). However, to the extent that there is an issue as to income in the present case it is the subject of agreement reached between the parties during the hearing. The terms of that agreement are described later in these reasons. One aspect of that agreement is that where deductions for interest paid by the taxpayers were not upheld then corresponding amounts recorded as income earned (whether paid or accrued) by any of the taxpayers who were said to have earned that income is not to be included in the taxpayer's income.
Beyond that, there was no issue between the parties as to the other amounts in the accounting records of the taxpayers affecting the taxation payable by them in the relevant years (save for the capital gains tax issues and the issue about carried forward losses to which I have referred).
Therefore, the main issue on which the parties are joined is whether the deductions for interest and management fees had been properly claimed by each of the taxpayers. In addressing that question it may be relevant to consider whether the interest earned was recorded as assessable income by any party and in what circumstances because that would be relevant to whether there was a genuine borrowing in respect of which interest was paid. Otherwise, the income side of the taxation affairs of the four taxpayers is not in issue.
During the relevant period, the affairs of the taxpayers were tied up with those of other Australian entities controlled by Mr Gould as well as other Australian entities controlled by Mr Leaver (noting that, in the case of the Gold Trust, Mr Raptis had an interest). In addition, there were also dealings with overseas entities. The extent to which those overseas entities were conducted at the direction of Mr Gould in his own interests is contentious. The significance of these wider dealings is that they are relied upon by the taxpayers to support the claimed deductions and by the Commissioner to challenge the credibility of Mr Gould's version of events concerning the affairs of the taxpayers. In effect, the Commissioner says that regard to those dealings when taken together with other aspects of the evidence casts very considerable doubt upon Mr Gould's account, which was to the effect that there were both loans on which the taxpayers had incurred interest and a proper basis to charge management fees.
The Commissioner has no burden to demonstrate what actually occurred. If the taxpayers fail to discharge their burden by reason of the unreliability of the account given and the absence of other evidence as to what was actually going on in the relevant dealings then the taxpayers' appeals must fail.

[58]

The taxpayers sought to discharge their onus by evidence from Mr Gould and from the contents of accounting statements received as business records. As to the latter, whilst the tax accounts for the taxpayers were in evidence as well as general ledger information, there was little by way of any contemporaneous records as to the dealings which were said to provide the basis upon which interest charges had been raised or management fees charged. As to the basis for the interest charges and the management fees, as well as the alleged business purposes that were said to justify those deductions, all depended upon the account given by Mr Gould.
Evidence was also given by Mr Benjamin Jones, a lawyer who had worked under the supervision of Mr John Hyde Page, a barrister who had acted for the taxpayers. Mr Jones undertook an analysis based upon the accounting records. He was not a participant in any of the historical events that bear upon the taxation liabilities of the taxpayers. The analysis sought to demonstrate that relevant amounts deposited into the bank accounts of the taxpayers had been used to conduct their affairs. The evidence was relied upon to support a contention that the interest charges had been imposed on principal amounts that had been used for income‑producing purposes.
The taxpayers also called in aid expert reports from Mr Paul Hyde Page and Mr Russell Good (in addition to the evidence of Mr Jones) to support submissions to the effect that the interest amounts charged were reasonable. However, that evidence is only of relevance to the taxpayers' case if the assumed foundation for that evidence is established, namely that there were actually loans in place, that the loan amounts were used for income-producing purposes and that the amounts paid were bona fide interest payments. As to the reasonableness of the management fees, the only evidence was from Mr Gould.
In written opening submissions, a case was put to the effect that the accounting entries in the records of the taxpayers were a sufficient basis to conclude that there were loan contracts in existence and that the amounts claimed as interest were deductible. However, in closing, counsel for the taxpayers accepted that in order to succeed (that is, in order to discharge the onus born by the taxpayers) it was necessary for the Court to be persuaded to accept both Mr Gould's evidence and the accounting records. The concession was properly made. The accounting records as to interest and management fees claimed as deductions were obscure. The charges were made at irregular intervals. For the most part, they were implemented by end of year adjustments supervised by Mr Gould. The only evidence as to the basis upon which those adjustments were made came from Mr Gould. This was not a case where the books and records were demonstrated to contain entries as to interest claimed and management fees that were recorded in the ordinary course of keeping the accounts for a business and of a kind that may be said to speak for themselves. The only evidence to support the claim that the interest and management fees were outgoings incurred for a business purpose came from Mr Gould.
Therefore, the whole of the case of each of the four taxpayers depended upon the credibility of the testimony of Mr Gould.
The Commissioner undertook a measured and detailed attack on Mr Gould's credibility. Mr Gould was cross-examined on his account over eight days. Key aspects of the Commissioner's case were put to Mr Gould in specific terms. He was taken through the documentary records relied upon by the Commissioner to impeach his account. The credibility of virtually the whole of his account of what had occurred was challenged. He was given ample opportunity to respond. In closing, the Commissioner relied upon different aspects of Mr Gould's testimony to support a submission that he was not a witness of credit and his testimony could not be relied upon. I will return to those matters in due course.

[59]

In these reasons, I will begin by considering some submissions advanced for the taxpayers concerning the approach to be taken when considering the accounting records received in evidence in the proceedings. After that I will address briefly the authorities relied upon by the taxpayers as to the deductibility of interest.
Then I will address key respects in which Mr Gould's evidence concerning the claimed deductions for interest and management fees lacked credibility. I do not seek to be exhaustive. There is no need to be. Mr Gould's evidence was lacking in credibility at almost every turn. For reasons that follow, I find that no reliance can be placed on any aspect of his version of events. That finding is sufficient to dispose of the taxpayers' appeals concerning the deductions claimed for interest and management fees. It also has significance for other aspects of the appeals.
Although strictly unnecessary given my view as to the evidence given by Mr Gould, I will then deal briefly with the evidence of other witnesses. I will first explain why the analysis of Mr Jones was flawed. I will also explain why the expert evidence is of no assistance in reaching conclusions as to whether the various interest deductions claimed by the taxpayers were reasonable in amount.
After that I will deal with the issue raised in respect of two of the taxpayers concerning carried forward losses. I will then outline the issues concerning capital losses and deemed dividends. I will also deal with a trivial issue, not yet mentioned. It concerns an alternative claim that an interest expense of $8,000 is not deductible because interest withholding tax was not paid.
Having dealt with those matters, I will summarise the consequences for the individual deductions claimed by the taxpayers.
As the taxpayers have failed to establish the deductions claimed there is no need to consider the case relied upon by the Commissioner in the alternative to the effect that there was a Part IVA scheme which meant that the deductions could not be claimed (which was advanced by the Commissioner only if any of the deductions were otherwise found to be valid). Claims of the existence of a Part IVA scheme are difficult to deal with in the alternative in cases where they rely upon the characterisation of events and dealings that have unfolded over many years and, as here, require the Court to posit different conclusions to those which have been reached. For those reasons, even if the concession had not been made by the Commissioner, having regard to the conclusion I have reached as to the deductions, in the interests of overall efficiency and avoidance of further delay in delivery of these reasons, I would not have addressed the Commissioner's alternative claim.
I will then deal with the claim that the Commissioner's opinion that there had been 'fraud or evasion' by the taxpayers was not validly formed.
Finally, I will address the aspects of the appeals that sought to challenge the penalties imposed.

[71]

I will begin by seeking to extract from his inconsistent account, Mr Gould's version as to what went on when it came to the loans that financed the business activities of the taxpayers (and other entities with which Mr Gould was involved). It is the credibility of this overall account that is at the heart of the interest deductions claimed by the taxpayers. To be clear, in this section I am recording Mr Gould's version of events. I am not to be taken to be making findings (save to the extent that I identify various entities or expressly identify matters as either not being in issue or agreed by Mr Gould).
It was said for the taxpayers that since the 1970s, Mr Gould and entities with which he was associated provided accounting, financial and investment services. Over time, he established various private entities including the taxpayers.
Mr Gould, together with Mr Leaver, arranged finance for their various Australian private entities. Funds were borrowed from the Cheung Wah Bank Ltd in Samoa and Swire Investments Limited in the United Kingdom. From about March 1995, their overseas borrowings were consolidated through an Australian in-house financing entity that was said to operate as a private banker for the private interests of each of Mr Gould and Mr Leaver.
During the relevant period, there were four offshore entities that, at various times, were said to be the source of funds for business activities undertaken by Mr Gould through Australian entities controlled by him. Those offshore entities were Chemical Trustee Limited, Normandy Finance and Investments Limited, Hua Wang Bank Berhad and Derrin Brothers Properties Limited (together, the Offshore Funders). By the time of trial, there was no issue that each of those entities was ultimately controlled by either or both of JA Investments Limited and MH Investments Limited, companies incorporated in the Cayman Islands.
Mr Peter Borgas was the person ostensibly conducting the affairs of JA and MH. At all relevant times, a company controlled by Mr Borgas operated a corporate services business based in Neuchatel in Switzerland. Mr Gould agreed that he was introduced to Mr Borgas because Mr Borgas offered a service of providing directors and shareholders for offshore companies for clients. He also agreed that when he first dealt with Mr Borgas that was the nature of the service that he sought from him.
A significant issue in the proceedings was the extent to which Mr Borgas acted at the direction of Mr Gould when it came to the affairs of JA and MH (as well as the various entities, including the Offshore Funders, that were controlled by those two companies). As will emerge, Mr Gould's evidence was to the effect that Mr Borgas 'owned' the Offshore Funders and controlled those entities for Mr Borgas' own benefit and for the benefit of Mr Borgas' family. Mr Gould maintained that his own interest in JA and MH, described as the 'appointor', was a tenuous one which enabled him to suggest what should occur in the conduct of the companies, but always subject to Mr Borgas' ultimate ownership and control. Mr Gould also gave evidence to the effect that his close personal friendship with Mr Borgas meant that he made suggestions to Mr Borgas that were accepted by him, but Mr Gould maintained that Mr Borgas could ignore those suggestions and, on the account given by Mr Gould, there were times when he did. However, as will emerge, Mr Gould's evidence as to the nature and extent of his involvement in the affairs of JA, MH and the Offshore Funders was far from consistent.
Each of Chemical Trustee, Normandy Finance and Derrin Brothers were entities that were administered by Lubbock Fine, a London firm that provided administration services for companies. A key person at Lubbock Fine was Mr Hasmukh Vara.
It is common ground that Mr Gould had considerable dealings over many years with each of Mr Borgas and Mr Vara. Mr Gould maintained that he did so on behalf of clients of his accounting practice or in circumstances where he made requests of Mr Borgas to arrange finance for the private business activities in Australia of Mr Gould and his associates which was then provided through the Offshore Funders.
As to Hua Wang Bank, it was based in Samoa and was managed through an offshore corporate service provider called Asiaciti Trust Group headquartered in Singapore with offices in other jurisdictions including Samoa. Hua Wang Bank did not have shareholders. It was a creditor-controlled entity. Under local law, it was controlled by the holder of a security rather than shareholders. The holder of that security was JA.
As has been mentioned, on Mr Gould's account, throughout the relevant period there were arrangements in place whereby an Australian company controlled by him acted as a form of private banking entity for various business activities that were conducted in Australia by each of Mr Gould and Mr Leaver. Initially, the private banking entity was said to be CVC Fund Managers Pty Limited (CVC I). Later, the relevant entity was allegedly changed by novation of the loans to CVC Investment Nominees Pty Ltd which came to be renamed Sub Prime Nominees Pty Ltd in 2008 (CVC II). There were no documents for the novation, just accounting entries which were said to reflect the novation of the loans. Finally, it was said that a number of years later there was a further novation to a different company with the same name as the first (CVC III). By that time, CVC I had been deregistered. In what follows in these reasons, I will at times refer to the CVC entity as a generic term to ascribe to the entity that, on Mr Gould's version of events, from time to time, was undertaking the private banking function. Where it is necessary to identify which of the three entities was involved, I will enumerate which entity.
Mr Gould's case was that the CVC entity was from time to time owed debts by private entities controlled by Mr Gould and also by Mr Leaver's own Australian private entities. His evidence was that he acted on the understanding that loan arrangements could be made and changed orally between senior people making agreements to that effect. Mr Gould's affidavit evidence was to the effect that there were various loans between the Australian private entities controlled by each of Mr Gould and Mr Leaver and 'it was common for these loan arrangements to be re‑organised between the entities'. On Mr Gould's account 'these loan arrangements were created and managed ... through oral agreement between the relevant persons'. However, Mr Gould's oral evidence about the alleged loan arrangements and the changes made to them was to the effect that he directed the affairs of his Australian entities and that the alleged loan arrangements as between those entities were matters that he decided. In effect, he made the arrangements by acting in different capacities and those arrangements were what came to be recorded in the accounts.
As to these matters, in oral opening submissions, counsel for the taxpayers referred to the alleged loans that were said to give rise to interest obligations as often involving decisions rather than actual conversations. It was said that references to agreement being 'oral' should be understood on that basis.
As to the amount of interest paid under the alleged loans, Mr Gould's evidence was to the effect that he and Mr Leaver would discuss the inter-company debts and orally agree on how much interest was payable and any novation of debts. He said this occurred shortly prior to 30 June of each year. Indeed, he was emphatic that this was the case because, on his version, he needed to arrange the cash to pay the interest to the Offshore Funders. On his affidavit account, the accounting staff were told of the agreed arrangements which they implemented by updating the accounts and effecting transfers of funds. These matters reinforce the foundational significance of the credibility of Mr Gould's account for the taxpayers' appeals.
In his affidavit evidence, Mr Gould said that his approach as to these loan arrangements was that the CVC entity needed sufficient funds to meet its own obligations and 'each of John Leaver's and my Australian private entities would make payments of interest to the group banking entity by reference to the sums our respective entities had borrowed'.
It was Mr Gould's evidence that towards the end of the 2001 income year, he decided to simplify the intra-company debts within his private companies. He said that, at that time, debts owed to CVC II by various entities within his private group of companies were all novated so that they were owed to the Family Trust. The Family Trust took on the debt that had been owed by those companies to CVC II. In consequence, his case was that from that point there were amounts due by Mr Gould's private entities to the Family Trust and a single debt owed by the Family Trust to CVC II. Thereafter, on Mr Gould's version of events, the Family Trust operated as the lender to private companies associated with Mr Gould. Over the relevant period he claimed that the extent of the loans provided by the Family Trust to his Australian private entities increased to the tens of millions. However, beyond generalities, there was a distinct lack of evidence about the use to which those funds were put.
The arrangements between the Family Trust and the private companies were undocumented. The arrangements between the Family Trust, the CVC entities and the Offshore Funders were said by Mr Gould to have been documented, although certain key documents were not produced in evidence. Mr Gould said that those documents had been in existence but could not be found.
It was Mr Gould's evidence that, at the end of each tax year, he determined the amount of interest to be paid to the Family Trust by his private companies. His evidence as to how that overall amount was determined was not entirely consistent. In broad terms he said that he needed to make sure there were enough funds in the Family Trust to meet the payments to be made to the Offshore Funders and that he had regard to (a) the capacity of each of his private entities to pay; (b) the amount of interest that was fair and reasonable for each entity to pay in the circumstances; and (c) the tax effectiveness within the group of a particular entity paying an amount of interest. At times he said that he determined the rates. At other times he said that the rates were set after discussion with his staff.
There was no suggestion that there were established terms as to the rate of interest or the time for payment of interest. In effect, on his account, after agreeing matters with Mr Leaver, Mr Gould's share of the interest obligations to the Offshore Funder at the time was met by the Family Trust charging interest to certain of the private companies controlled by Mr Gould in amounts that were determined by Mr Gould each year. The evidence of Mr Gould as to the way in which this occurred was vague and generalised. He maintained that the amounts involved were reasonable but offered no evidence as to their calculation or the method by which the interest amounts had been ascertained. He simply insisted, in general terms, that they were reasonable and reflected a reasonable charge for the use of the funds which had been obtained through the CVC entity from overseas. He gave no details of how that assessment was undertaken. Again, these aspects of the case expose why the credibility of Mr Gould's account is key.
Mr Gould also said that when CVC II was replaced by CVC III, new overseas funding was arranged with Derrin Brothers. On his account, CVC III used the funds that it borrowed from Derrin Brothers to make a loan to CVC II. He said that CVC II then used those funds to repay its debt to Normandy Finance and that CVC II repaid its debt to CVC III by novating its receivables (which were payable to CVC II by Mr Gould and Mr Leaver's Australian private entities) to CVC III. On Mr Gould's version of these events, by those dealings CVC III became the private banker in place of CVC II and the source of the overseas funding from Normandy Finance was replaced by funding from Derrin Brothers.
The case with respect to Education Corporation as trustee of the Gold Trust was different. That is because its borrowings were not through the Family Trust but came directly from Chemical Trustee. However, Mr Gould's evidence was to the effect that there were genuine loan arrangements in place and the amounts claimed as interest deductions were determined by him. This version of events was also challenged. It is only the evidence of Mr Gould that was advanced to support the claim that there was a genuine loan for business purposes in place.
It was said that the Gold Trust invested in and received rental income from commercial property. The case for the Gold Trust was opened on the basis that in 2001 Mr Gould asked Mr Borgas of Chemical Trustee for a loan of $1 million to purchase real estate in Surfers Paradise. The loan was provided and interest was paid.
It was also said that in November 2008 there was a further loan of $15 million. It was said to have been sought and advanced in the same way as the $1 million loan and was also for the purchase of a commercial property in Surfers Paradise. Mr Gould deposed that he decided that the Gold Trust should invest in the property and that he thought it would be possible to get a loan from Chemical Trustee. He said that he contacted Mr Borgas who said that Chemical Trustee could lend the money and a cash transfer was arranged to the solicitors for the Gold Trust. Mr Gould deposed that the investment did not proceed and that as a result he decided to repay the funds to Chemical Trustee in November 2009 (a year later).
Mr Gould also said that in February 2009, Chemical Trustee advanced a further $900,000 in relation to the prior purchase of a property in Broadbeach. The property was said to have been purchased in 1999 using funds borrowed from St George Bank. Again, Mr Gould said he contacted Mr Borgas to borrow funds to pay out the St George Bank loan. Mr Gould said he spoke to Mr Borgas and asked for a further advance of $900,000. He said that Mr Borgas said that Chemical Trustee would lend the Gold Trust the money and a cash transfer was organised.
The same form of dealing was said to have occurred in 2010 to obtain funds from Chemical Trustee to repay a loan that had been provided by Suncorp Metway. Mr Gould said he made the call to Mr Borgas who agreed that Chemical Trustee could lend the money and a cash transfer was arranged.
On the basis of those matters deposed to by Mr Gould, he maintained that the interest deductions claimed for monies paid by the Gold Trust to Chemical Trustee were for loan advances that had been used for income producing purposes.
It can be seen that the case for the Gold Trust depends upon Mr Gould's evidence as to what occurred in relation to the amounts received from Chemical Trustee.
It was accepted by the taxpayers that the relevant loan arrangements had features of informality, a characteristic which was said to be unremarkable in any instance where the relevant entities had common controllers or were closely held. Examples were given of the kinds of 'informality'; specifically, there being no written loan agreement, common changes to the loans (such as by novation) and changes to interest rates and amounts. It may be accepted that loans and obligations to pay interest may be created in an informal way and that dealings between related entities may explain a lack of documentation. However, the issue in these proceedings is not so much about informality but rather whether there were any real loans at all, even allowing for the legal possibility of effective loans being brought into existence in an informal way.

[73]

The case advanced by the taxpayers as to the management fees that were charged was very opaque. There was no consistent charging of management fees. The deductions claimed as management fees were ad hoc and were sought to be justified by reference to Mr Gould's account of what had occurred. It was said that the fees were charged to give effect to end of year decisions made by Mr Gould. His evidence as to how and when that occurred and his evidence as to the extent to which staff acting under his supervision were involved was not consistent. Mr Gould made references to working papers. Despite the management fees being effected by end of year adjustments there were no annotations in the accounts as to the basis for those adjustments. There was no evidence in the affidavits of Mr Gould suggesting there had been some form of documented basis for the fees.
The written opening submissions for the taxpayers were to the effect that there was 'less documentary evidence for the management fees than for the loans and interest liabilities', but that it was 'plain' that the payments made were compensation for the management of each entity. There was no indication in the submissions as to the nature of the services that might have been charged for by one entity to another. As will emerge, Mr Gould gave a generalised account about the management fees. In his account, there was no suggestion of any basis for the determination of the amounts that had been charged. There were no management fee agreements. There was no coherent explanation as to why fees were charged in particular years and not others.
The initial affidavit evidence of Mr Gould about management fees was vague and generalised. He said that during the period 2001 to 2014 he personally performed work in relation to the Australian private entities that he controlled. Some of that work was said to be accountancy but a great deal of it involved making decisions as a company director. He also said that he supervised work done by the accounting staff in his accounting practice that related to the activities of the Australian private entities. As to this work by him personally, Mr Gould claimed that it was appropriate for a fee to be charged as the work was being done in a corporate or trust capacity. He said that he referred to these fees as management fees. However, it 'was not the case that these fees invariably related to management fees as such'. Rather, Mr Gould said they were for 'everything I did in connection with the entity that was charged a fee'.
Mr Gould's affidavit evidence was that as he was in a position to bind both entities and 'at certain points' he made a decision either to transfer funds from one entity to another 'intending that the transfer would satisfy the amount of the fee' or inform his accounting staff to enter the fee into the accounts. Precisely how it might be that one entity might be entitled to charge such a 'management fee' to another for things done by Mr Gould in respect of the affairs of that other entity was not described.
Mr Gould also deposed that when the fees were charged his motive went beyond ensuring that his work was remunerated and said that: 'Frequently an aspect of my motivation would be to create the rationale for moving a sum of money between two of my Australian private entities so that it would be available to the recipient entity'.
A number of the management fees claimed by the taxpayers were charged by Melbourne Corporation. Mr Gould described Melbourne Corporation as an entity that he had used 'from at least the 1980s as an entity which invested in Australian property' and shares quoted on the Australian stock exchange. Those fees were charged to the Family Trust and, in one instance, to Philadelphia.
The accountancy work that Mr Gould did after he retired from Gould Ralph in 1996 was generally done through Melbourne Corporation. From the 1990s, the staff of Mr Gould's accountancy practice were employed by Melbourne Corporation.
There were also modest fees charged by Golden Investments Pty Limited to the Family Trust late in the relevant period.
The management fees claimed by the taxpayers to be deductible were as follows:

[77]

Mr Gould's oral evidence was to the effect that he had a practice of establishing interest and management fees prior to the end of each financial year. His affidavit evidence was to the effect that he had conversations with Mr Leaver about those matters shortly prior to 30 June of each year. He resisted the proposition that any discussion about those matters occurred after 30 June when the assessable income and allowable deductions apart from interest and management fees were known.
Early in his oral evidence, Mr Gould said that it was absolutely essential for interest to be charged to various Australian entities before 30 June each year because the major debt 'coming into' the CVC entity 'was always due to be paid by 30 June'. That is to say, on Mr Gould's account the CVC entity had an obligation to pay interest to the relevant Offshore Funder by 30 June each year and, consequently, the CVC entity needed to be put in funds in order to meet that obligation. (Mr Gould's account concerning the Gold Trust borrowing from Chemical Trustee was somewhat different and has been addressed above).
Mr Gould said that after agreeing with Mr Leaver the share of those charges that was to be charged to Mr Gould's Australian entities, he arranged for interest to be charged to his Australian entities so that there would be cash to pay the interest. He described the 'dominant purpose' of the interest charges as being to address the 'fundamental problem' that he had which was that he had to 'get the money together to pay the interest'.
Further, Mr Gould's account was to the effect that it was necessary to work out 'where we were going to get the money from' to meet the annual interest obligation to the relevant Offshore Funder. On his version of events, it was the extent of that obligation and its pressing nature that determined how much had to be charged to Australian entities by way of interest and when those amounts were determined. He said that 'the amount we had to find to pay was basically sort of determined by reference to what the obligation was [that is, the obligation of the CVC entity to the Offshore Funder]'. Further, he said that 'the rate of interest broadly was determined by the amount of interest which was ultimately payable to [the Offshore Funder]' and gave him 'sort of a guide as to what would be fair and reasonable in terms of each of the companies that were involved in paying some proportion of that obligation'.
Mr Gould said that sometimes some companies paid more than other companies so there were 'slightly different rates applicable'. He rejected the proposition that a considerable part of what was said to be interest payable by the CVC entity to the Offshore Funder was actually funded by drawdowns on other sources of overseas funds. His response was to the effect that there would be an occasion when that occurred 'to actually pay debt' but maintained that by the interest charges to the various Australian entities including the taxpayers he was looking to meet the obligations to pay interest to the Offshore Funder.
Therefore, Mr Gould's evidence was to the effect that, broadly speaking, the interest obligation on the part of the CVC entity to the Offshore Funder was passed through to those Australian entities who had the use of those funds in their business activities. That is to say, the interest charges claimed by the taxpayers as deductible expenses reflected actual interest charges by the Offshore Funder to the CVC entity (being the entity acting as the private banking entity for the companies who had the use of the funds) allocated to those Australian entities who sourced their funds from the private banking entity with the charges to the Australian entities being reasonable in amount.
In the case of the Gold Trust, Mr Gould said that there were obligations to pay interest to Chemical Trustee (one of the Offshore Funders) when invoices were provided. On his account, Chemical Trustee was an arms' length party who had advanced funds by way of loan and there were interest charges paid by the Gold Trust on those borrowings.
Later, during his cross-examination, Mr Gould gave a different account of how the interest to be paid by the various Australian entities was determined. It was in the following terms:

[79]

This revised version was to the effect that before 30 June each year Mr Gould was looking to find entities under his control that could pay cash to cover the interest due to the Offshore Funder and then he looked to how much interest that entity could pay. Then, after that was done, he would 'have a look at it and make sure it was reasonable'. Precisely how that reasonableness assessment was undertaken was never indicated by Mr Gould. As has been mentioned, at times he said that there would have been working papers showing the calculations but those papers were no longer available. I will say more about this aspect of Mr Gould's evidence later in these reasons. However, it was not the specific calculations that Mr Gould was being asked to provide. Rather, it was some evidence of the process or methodology by which the interest was determined to be reasonable. Given the detail of his evidence about other aspects of the financial affairs of the taxpayers (and other companies) the absence of any specific evidence about how the amount of interest charges and management fees were calculated was stark. The inconsistencies in his account also caused me to doubt its reliability.
Having recanted his initial evidence to the effect that the rate of interest payable to the Offshore Funder was used as a sort of guide, Mr Gould gave no indication at all as to the sources used for rates or by what standard or rubric he identified whether the rate of interest was reasonable. That was so even though his revised version was to the effect that much higher rates (and very different rates) were used for different Australian entities. The only explanation proffered by Mr Gould for that course seemed to be the fact that some entities were able to pay more than others. That is no foundation for establishing that the rates were reasonable, especially in the context of evidence that the amounts were not charged with any type of consistency and, in those years when they were charged, they were charged at levels that had the consequence that little or no taxation was required to be paid.
In due course I will refer to the expert evidence of Mr Good which demonstrated the extreme variability in the effective interest rates that were reflected in the interest charges when applied to the debt balances shown in the accounts for the taxpayers.
In substance, Mr Gould did not dispute the fact that the amount of the interest charges consistently operated to ensure that there was little or no tax liability in the tax year in which they were claimed. In particular, he did not suggest that there might be other aspects of the financial affairs of the taxpayers which explained why the tax returns might consistently indicate little or no tax was payable despite the fact that interest was paid in some years and not in others and the amount of interest that was charged varied considerably. Nor did Mr Gould dispute that the tax consequences were part of the equation when considering the amount of those interest charges. Rather, he insisted that the interest liabilities were in respect of financial accommodation genuinely provided to the taxpayers and that they were reasonable in amount. In those circumstances, the claimed tax outcomes for all the taxpayers over a number of years counts strongly against the credibility of Mr Gould's version of events concerning the way in which the amounts of interest were established.
There were further problems with Mr Gould's revised version. Some of the interest charges were incurred on an accruals basis and therefore did not generate any cash that could be used to pay the alleged interest obligations to the Offshore Funders. Mr Gould also accepted, eventually, that some of the alleged interest due to Offshore Funders was paid by increasing the overall loan amount said to be due. Accordingly, Mr Gould's evidence to the effect that the interest was charged to ensure there was cash to meet 30 June interest obligations to Offshore Funders did not accord with the financial records that were relied upon by the taxpayers.
Mr Gould's evidence as to when the interest was determined (and the way in which that was done), namely in order to find cash to pay the Offshore Funders before 30 June each year, assumed particular significance because it was deployed repeatedly by Mr Gould to reject the Commissioner's position as to when the interest amounts were determined. Part of the case advanced for the Commissioner was that the interest charges (and management fees) were set well after 30 June each year at a time when the tax returns for the Australian entities were being determined and that the interest amounts (and management fees) were simply labels given at that time to amounts that were required as deductions in order to ensure that no tax was payable. That is to say, the Commissioner contended that the charges or fees were not real but were amounts that were determined by reference to the extent of the tax liability that would arise if there was no available deduction. Mr Gould maintained that the interest was determined before 30 June each year because there was a need to obtain that cash to be able to pay interest to the Offshore Funders. As has been explained, that evidence did not square with the taxpayers' own records.
Mr Gould gave a general account about sharing the costs of providing accounting and management services. His evidence in this regard was most unconvincing and appeared to be an attempt, after the event, to provide some form of general explanation to justify the management fees.
As to management fees, Mr Gould's evidence was that they were charged to reimburse Melbourne Corporation for costs that it was incurring for the benefit of all companies in the group. As he said: 'every one of these companies was actually enjoying benefits which were being provided by Melbourne Corporation' and the costs of providing those benefits had to be reimbursed. In providing that answer he said that 'the issue of taxation would have been a factor in my mind, of course'. Mr Gould was asked to explain what he meant by that statement. He responded:

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At the heart of Mr Gould's account to support the interest charges was his evidence that the Offshore Funders (controlled by JA and MH) provided arms' length funding with an obligation to pay annual interest by 30 June of each year that had to be met through funds raised by interest being charged to the taxpayers (and his other Australian entities).
Although these proceedings concern interest deductions claimed by the taxpayers (each taxable Australian entities), the nature of the Offshore Funders (and their source of funds) assumed considerable significance because of the pivotal part they played in the account given by Mr Gould as to how the alleged interest deductions arose. On Mr Gould's evidence, borrowings to fund the business activities of the Australian entities controlled by him (including the taxpayers) came from the Offshore Funders. On his version of events, the obligation on the part of the CVC entity to pay interest to the Offshore Funders gave rise to the need to charge interest to those Australian entities who ultimately received the benefit of those funds. Further, as has been explained, at times, Mr Gould indicated that the interest charged to those Australian entities who ended up with the use of the funds broadly reflected the extent of the charges incurred by the CVC entity.
In the case of the Gold Trust, as has been explained, the interest claimed was said to be the subject of invoices issued by Chemical Trustee, a party that was allegedly being conducted at arms' length, to Mr Gould and Mr Raptis.
Mr Gould accepted that the Offshore Funders were controlled by JA and MH. No case was advanced by the taxpayers to the contrary. Rather, the focus of the contest concerning JA and MH was on whether Mr Gould directed the conduct of those entities in his own interest. Of course, if Mr Gould directed the affairs of JA and MH in his own interest then issues would arise as to the character of the funds available to those entities that were provided to the CVC entity and to the Gold Trust, particularly as to whether they were funds under the control of Mr Gould and held for his benefit that were simply directed by him to be paid into his Australian entities.
Significantly, the taxpayers made no attempt to explain the interest deductions on the basis of some form of borrowing by the taxpayers that arose independently of the character of the funds sourced from the Offshore Funders. Put another way, the allegation that funds had been borrowed at prevailing rates of interest from the Offshore Funders as entities that were not conducted by Mr Gould in his own interest was an essential plank in the case advanced by each of the taxpayers as to why there were genuine loans by the taxpayers on which they had been charged interest.
If these aspects of the case advanced by the taxpayers are not accepted then that supports the Commissioner's contention to the effect that the funds that came into the CVC entity and the Gold Trust from the Offshore Funders were simply overseas funds at the disposal of Mr Gould that were being funnelled into his Australian entities. However, it is not necessary for me to make affirmative findings as to whether that was so or indeed to reach conclusions as to all of what actually occurred in relation to JA and MH when it came to the provision of funds. It is enough if I reject Mr Gould's account. If I do so, the taxpayers have not established the basis upon which they contend I should conclude that the alleged interest amounts are deductible. There being no other alternative basis advanced by the taxpayers upon which to sustain those deductions, their appeals as to those amounts must fail.
Mr Gould maintained that the conduct of the affairs of JA and MH and the various offshore entities under their control was entirely a matter for Mr Borgas. He maintained that Mr Borgas was the beneficial owner of those entities.
Mr Gould accepted that he provided suggestions to Mr Borgas as to what might be done in conducting the affairs of the various offshore entities and sometimes Mr Borgas accepted those suggestions. However, the main thrust of his account was that these communications reflected their long-standing friendship and the confidence that Mr Borgas placed in Mr Gould and did not indicate that the relevant offshore funds were under the control and direction of Mr Gould.
It was not in issue that both JA and MH were established with Mr Gould being the 'appointor', an office referred to in the articles of association of each of the companies (which, for present purposes, were expressed in the same terms). Much attention was focussed upon the nature and extent of the authority conferred upon the appointor when it came to the conduct of the affairs of JA and MH. Mr Gould's version was that the appointor's office was held at the whim of the shareholders in each company (when they became companies with share capital). Initially, the sole shareholder was a nominee company controlled by Mr Borgas. Later, Mr Borgas was the shareholder. At all times, Mr Borgas and members of his family were the directors of each of JA and MH.
Mr Gould explained his involvement in the affairs of JA and MH in different ways. The account was not consistent nor was it coherent or logical, for reasons I will explain. Although Mr Gould's evidence was often given by reference to the arrangements that pertained to JA, he accepted that the same arrangements applied to MH as those that applied to JA (and the case for the taxpayers was conducted on that basis).

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Mr Gould agreed that at all material times Mr Borgas lived and worked in Switzerland where he was the principal of a business and that 'fundamentally' he provided corporate services that included providing the directors and shareholders for offshore companies. The business was called Anglore SARL. Mr Gould gave evidence that Mr Borgas was not an Australian resident (though he was originally from Australia) and had been admitted as a solicitor in the United Kingdom (but had not practiced there). Mr Gould accepted that Mr Borgas charged his usual fees for holding offices for JA and MH.
Mr Gould also agreed that Mr Borgas was paid fees for providing the service of being the director and shareholder of the offshore companies (that is, JA and MH as well as Chemical Trustee and the other Offshore Funders). Mr Gould was cross-examined about his involvement in setting those fees as well as the apparent inconsistency between Mr Gould's evidence that Mr Borgas charged his usual service fees for being a director and shareholder of those companies (which were matters that he discussed with Mr Gould) and his evidence that Mr Borgas was acting in his own interests in respect of the conduct of the affairs of those companies. The incoherence in this evidence was obvious. There was no logical reason for Mr Borgas to be charging fees to the Offshore Funders for providing to them the services of being a director and shareholder when, on Mr Gould's account, he was acting in those capacities in his own interest and not on behalf of others. On the other hand, charges of that kind made sense if Mr Borgas was undertaking his usual business of being a director and shareholder of offshore companies for a client for a fee.
As to the amount of such fees charged by Mr Borgas, initially Mr Gould said that he would 'possibly' have had a discussion with Mr Borgas about the fees he was charging to the offshore companies. Then he gave evidence that Mr Borgas would have told him the fee that he wanted for that year and Mr Gould would have agreed by saying 'okay, that's fine'. Mr Gould then said that Mr Borgas would agree and approve Mr Gould's fees if he had fees coming out of a company like Chemical Trustee and tried to characterise the fees charged by Mr Borgas for acting as a director and secretary in his own interest as being of the same character. Obviously, they were not. Mr Gould then changed his evidence to say that they did not talk about the quantum of fees charged and that Mr Borgas told him things as a matter of courtesy. Mr Gould then said that the reason he was involved in discussions about matters like the fees that Mr Borgas charged for being a director of the Offshore Funders was that he (Mr Gould) needed to know what was going on so that if Mr Borgas died, he could work out how to deal with his family. Mr Gould then gave the following evidence:

[89]

Despite Mr Gould's insistence that the activities of the Offshore Funders were conducted for the personal benefit of Mr Borgas and his family and that Mr Gould had no personal interest in JA and MH, it was not Mr Borgas who arranged the establishment of JA and MH as the entities that controlled this financing business. Rather, it was Mr Gould who dealt with Australian tax counsel with a view to setting up a structure for the purpose of ensuring that JA and MH would not be connected with Australia in a way that would make them liable to Australian tax law.
As to the actual steps taken to establish JA, Mr Gould maintained that it was created on the instructions of senior counsel with expertise in Australian tax law, although he (Mr Gould) was 'involved in the creation of it'. He also said that Mr Borgas was 'aware of what was going on'. This is strange language to use if indeed, as Mr Gould maintained elsewhere in his evidence, the structure was established as an entity which carried on activities and held assets for the personal benefit of Mr Borgas and his family.
Significantly, Mr Gould did not explain his own involvement in the establishment of JA and MH as being undertaken for Mr Borgas as a client. Rather, his account gave varied explanations as to the nature, extent and reasons for his involvement in establishing those entities.
Mr Gould gave some rather confused evidence to the effect that the overseas entities also acted in some form of trustee capacity for Mr Gould's clients. This evidence was given as part of his explanation as to why he had concerns about not having control over JA and MH (see below).
However, the overall thrust of Mr Gould's evidence was to the effect that he dealt with senior counsel in Australia with whom he had a long standing working relationship and that senior counsel provided him with advice about the structure and how it would work having regard to tax precedents in Australia. Precisely why Mr Borgas (a resident of Switzerland conducting a business in which he charged fees to his clients for acting as a director and shareholder of companies in places outside Australia) was interested in establishing a company in the Cayman Islands to be conducted in his own interests in this way was not explained by Mr Gould. At one stage in his evidence, confronted with the apparent inconsistency between the nature of the business of Mr Borgas and the notion that Mr Borgas was the beneficial owner of JA, Mr Gould simply said that sometimes Mr Borgas ran a business of holding shares and directorships for other people and sometimes he held things for himself. This does not explain the entanglement of both these things in one entity (to the extent that Mr Gould said that client monies were involved) nor why Mr Borgas, a Swiss resident, might want Mr Gould in Australia to arrange for an entity to be incorporated in the Cayman Islands for the personal benefit of Mr Borgas after taking advice from Australian tax counsel and guided by views as to Australian tax law affecting Australian residents (when Mr Borgas was not an Australian resident).
Nor did Mr Gould explain why he might arrange for his own clients' monies to be directed into an entity that was also being conducted for the personal purposes of Mr Borgas. Indeed, as is explained below, Mr Gould's evidence as to the nature of those arrangements and how they might be described as trust arrangements was quite vague and unconvincing. In any event, to the extent that it descended into any detail, that evidence was confined to client monies in relation to overseas superannuation funds. Mr Gould gave no evidence at all of any other respect in which JA or MH dealt with his clients' monies. The evidence about the superannuation funds is addressed separately. As is there explained, Mr Gould's evidence about the arrangements as to the overseas superannuation funds of his clients does not explain why Mr Gould would have been an appointor under the articles for JA and MH nor his concerns about control of those entities. Indeed, on Mr Gould's account, the activities of the overseas superannuation funds were undertaken through other entities and did not involve Mr Borgas.
Suffice to say, Mr Gould failed to give any satisfactory account as to why it might be that he was instrumental in establishing JA for the personal benefit of Mr Borgas in circumstances where it was Mr Gould who was to hold the office of appointor for reasons to do with Australian taxation law, yet Mr Gould had no personal interest in the affairs of JA (and, in due course, MH).
Further, Mr Gould referred to the advice from senior counsel as 'our legal advice'. He referred to 'my senior counsel who I worked with in those days'. When it was put to Mr Gould that JA was 'created for your purposes and/or for the purposes of your clients', Mr Gould answered 'I mean, certainly that was a factor in it, but it was also [Mr Borgas'] purposes as well. It was, you know, a joint arrangement that we had'. Although he initially referred to Mr Borgas as 'being aware of what was going on', later (after being challenged as to his reasons for being concerned about losing control of JA) he elevated the involvement of Mr Borgas in the incorporation of JA by giving the following answer: 'I don't deny that I was intimately involved in it, but equally, you know, Peter Borgas was intimately involved with it too'.
Mr Gould initially said it was senior counsel who made the arrangements to incorporate JA. He disagreed with the proposition that he gave those instructions. When asked about who paid for the incorporation, Mr Gould initially said he could not recall. Mr Gould was then taken to a letter from Gould Ralph Services Pty Ltd Chartered Accountants sent in December 1993 to WS Walker & Company solicitors in the Cayman Islands. It referred to arrangements for a telegraphic transfer of funds from London. He then maintained that he was involved as an accountant in setting up JA and that was why the money was coming from London. I observe that Mr Gould did not identify any client in London and did not suggest that the money coming in from London was coming from Mr Borgas. Accordingly, this evidence was both vague and inconsistent with Mr Gould's own account that the establishment of JA was a form of joint arrangement that he had with Mr Borgas and that JA was established in part for Mr Gould's purposes (or those of his clients) and in part for the purposes of Mr Borgas.
In making these observations, I have regard to the fact that the evidence concerns matters that occurred many years ago. However, they are not matters that require recollection of specific events or the details of conversations or dates or places or amounts or similar matters of detail. Rather they concern the broad characteristics of arrangements that were put in place to establish entities with which Mr Gould had very significant dealings over the course of decades. It is to be expected that Mr Gould would be able to recall matters that concern the fundamental characteristics of JA and MH.
Further, Mr Gould's account about his involvement must be considered in the context of other parts of his evidence. He recounted considerable detail about the nature of the matters discussed with senior counsel when JA was established. Mr Gould also gave emphatic evidence about the advice given about the lack of control that he would have as appointor. He also explained the way the contents of the form of articles used for the companies had been obtained from the records of the High Court and the fact that senior counsel viewed the structure as having a form of intellectual value for which Mr Gould was being charged. That is to say, Mr Gould's evidence about what happened when JA was incorporated (and why) was quite detailed as to aspects that he advanced to support the position of the taxpayers to the effect that there had been genuine loan arrangements in place with the Offshore Funders and that he was not the source of the funds that came from overseas to the taxpayers and his other Australian entities.
Returning to the letter from Gould Ralph Services to Walkers, it contemplated that Walkers would provide the directors for JA (which was then to be limited by guarantee). There was no mention of Mr Borgas. It referred to what 'we [namely Gould Ralph] have in mind' for the company; namely that 'other than possibly acquiring from time to time shares in other "off‑shore" companies', JA 'would be solely passive'. There is no mention of JA acting as some form of trustee or receiving client money or buying listed shares in Australian public companies (each of which were put forward by Mr Gould at various times in his evidence as the reason for establishing JA). It certainly does not refer to any involvement by Mr Borgas. The letter also raised questions about the 'appointor' being safeguarded from removal, a matter referred to below in dealing with the topic of Mr Gould's concerns about control of JA and MH.
Mr Gould's evidence as to these matters was inconsistent and unconvincing, especially in circumstances where there was much to indicate that JA had been incorporated for the benefit of Mr Gould, most notably provision for the office of appointor and Mr Gould's own evidence about his concern about control and that he had some form of moral authority over the activities of JA as well as his ongoing involvement in the conduct of the affairs of the relevant overseas entities. These are matters to which I now turn.

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Mr Gould said that he never had any legal capacity when it came to JA 'except maybe a moral capacity'. Having regard to the terms of his other evidence (particularly his evidence about legal advice that he received at the time that JA was established), the expression 'moral capacity' indicated that by reason of Mr Gould being the appointor there was some authority founded in some kind of moral obligation that he could exercise when it came to the affairs of JA (and MH). Bearing in mind his other evidence to the effect that he had no interest in the assets or business activities carried on by JA or MH (or the Offshore Funders controlled by them), the reason for the significance of that moral authority is obscure. It suggests that, adopting a moral perspective, there was a reason why Mr Gould had some capacity to influence the affairs of JA and MH. It is difficult to see why moral authority of that kind might arise if, as Mr Gould maintained elsewhere in his evidence, the affairs of JA and MH were not conducted in his own interests in any way (and that he had no interest in their assets).
On one occasion Mr Gould likened the arrangements for the appointor for each of JA and MH to that which applied to trust companies saying that in most trust companies you have appointors. A comparison of that kind suggested that his authority as appointor was retained in order to ensure that any changes to key aspects of the structure of JA and MH could not be undertaken without his consent. Mr Gould was asked whether he was saying that JA was a trust. He gave answers to the effect that it had always been a type of trust because 'it acts for various clients'.
Mr Gould was then asked who was the beneficial owner of that which is held by JA. It was a pertinent question given Mr Gould's evidence up until that point in time was that Mr Borgas was the beneficial owner and that the company also held monies on behalf of some of Mr Gould's clients. Mr Gould's answer was to the effect that no-one owned JA until it converted to a company having share capital at which time Mr Borgas became the beneficial owner. None of which explains why each of JA and MH was established with Mr Gould as appointor if indeed Mr Borgas was the beneficial owner and the company was, on Mr Gould's account, one that operated, at least in part, for the benefit of Mr Borgas and his family. If the appointor role was said to be explained by the alleged 'trust' character of the entities holding monies for Mr Gould's clients, then as has been explained that suggests that Mr Gould was to retain some form of authority in the interests of protecting those clients. Yet, as will emerge, he disavowed any such authority. Also, as has been mentioned, the only identified clients were those involved in superannuation arrangements. As is explained later in these reasons, Mr Borgas had no involvement in those matters.
Mr Gould was also asked about a statement that he had made in the previously mentioned letter dated 20 December 1993 that was sent by him as part of arranging the establishment of JA which asked for comments as to how an appointor under proposed articles of association for JA would 'safeguard himself from the company subsequently revoking that appointment'. He gave an answer to the effect that he was concerned to have a measure of control if that was possible.
Nevertheless, Mr Gould maintained that Mr Borgas could remove him as appointor of JA and MH at any time. He maintained that position even though the articles provided that after his death, Mr Gould's legal personal representatives would be the appointor and no person could be admitted as a member without the consent of the appointor.
There was in evidence some legal advice from Cayman Islands' lawyers about the nature of the role of appointor. In my view, none of those matters assist because the issue is not as to the legal characterisation of Mr Gould's powers. Rather, the relevant question for present purposes is whether Mr Gould's account to the effect that the Offshore Funders were financiers controlled by Mr Borgas for his own benefit should be accepted. Whether that is so depends in part upon whether Mr Gould's claim that he had no beneficial interest in JA or MH should be accepted. The problem with the evidence of Mr Gould concerning his status as appointor is that it does not sit well with the rest of his account irrespective of the extent of the authority conferred by being an appointor. Further, even if Mr Gould had no legal claim, it may still be the case that, in fact, the affairs of JA and MH were conducted in whole or in part for his benefit.
Mr Gould was taken to a nominee agreement dated 31 August 2005 marked as having been cancelled on 6 February 2009. It was an agreement between Mr Gould and Offshore Nominees Ltd (the shareholder of JA of which Mr Borgas was director and shareholder). The agreement described Mr Gould as 'the Beneficiary', but those references had been struck‑through and replaced in handwriting by Mr Gould with the word 'Appointor'. Allowing for these changes, the recitals to the nominee agreement were as follows:

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The Appointor wishes to appoint one or more of the Nominees as an Officer and/or Directors of the Company.
The provisions of the nominee agreement included terms to the effect that the shares in JA 'together with all dividends, bonuses and interests therein' were held 'on behalf of' the appointor and would be dealt with as the appointor may direct. There was an indemnity given by the appointor to Offshore Nominees for its activities. There were provisions about how instructions were to be provided by the appointor. The document was signed by Mr Gould and on behalf of Offshore Nominees.
Mr Gould's explanation for the nominee agreement was to the effect that he was contacted by a Ms Ratcliffe from 'the service company, management company, sort of in the Cayman Islands' who needed a document signed by Mr Borgas. However, so Mr Gould said, Mr Borgas was 'away on holidays or something' and he signed the document 'as a favour to her late one night'. He said that he signed a covering letter at the same time. He maintained that the letter made it very clear that he was not the beneficial owner. It was Mr Gould's evidence that the document was to be signed by Mr Borgas because Offshore Nominees was the beneficial owner of JA and it was holding the shares in JA beneficially for Mr Borgas.
There were obvious problems with that version of events given the other evidence given by Mr Gould. It was inconsistent with his evidence that JA was some form of 'joint arrangement'. It was inconsistent with his account to the effect that JA operated as a form of trustee and that it held monies of clients of Mr Gould. Finally, if this part of Mr Gould's version of events is correct, then the document that he signed was false in many respects because he denied that his role as appointor enabled him to direct what happened with JA or that it gave him any interest in its assets (or dividends).
Confronted with the terms of the nominee agreement, Mr Gould resorted to describing the whole document as being 'logically inconsistent' and the provision to the effect that the dividends, bonuses and interest would be held on behalf of the appointor and dealt with as the appointor would direct as 'absolutely ludicrous'. However, none of that evidence explained why Mr Gould would sign a document with provisions of that nature as some form of favour because Mr Borgas was not available. If the provisions of the nominee agreement did not properly reflect Mr Gould's understanding of his authority as appointor then why was it signed by him? The evidence he gave provided no satisfactory explanation for why he signed an instrument in the terms expressed (with the changes he made throughout to alter 'Beneficiary' to 'Appointor').
Mr Gould maintained that the nominee agreement had to be read with the accompanying letter to Ms Ratcliffe which he said made it very clear that he was 'not the beneficial owner'.
After a call for the letter to which Mr Gould referred as being sent with the nominee agreement when it was returned, the letter was produced. It said:

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The terms of the letter to Ms Ratcliffe provide no support for Mr Gould's account which was to the effect that he only signed the document as a favour to satisfy inspectors about ownership of JA and MH and that it was, in some way, not an accurate record of the nature of the authority that he held in respect of JA and MH. On the contrary, the contents of the letter point to a concern to ensure that the terms of the nominee agreement are accurate so as to ensure that its terms, in the view of Mr Gould, do not mean that JA and MH are brought 'within the Australian tax net'. Of course, that is an outcome that suggests that Mr Gould (or perhaps his Australian clients) were concerned about that net applying to their earnings in JA and MH (and the entities controlled by them). It is not a concern that is consistent with the account that JA and MH were controlled by Mr Borgas for the benefit of him and his family.
Confronted with the terms of the letter in cross-examination, Mr Gould gave answers to the effect that he was possibly concerned with Australian tax consequences if he was a beneficiary of the companies. Again, those answers do not explain why he was willing to sign a document that recorded powers of a kind that, in his evidence, he claimed not to have when it came to JA and MH.
Mr Gould went on to say that he probably should have 'deleted some more verbiage' in that agreement but his understanding was that Mr Borgas was the beneficial owner of the companies and Mr Gould was not the beneficial owner. He suggested that he had been given an assurance that the nominee agreement would be kept confidential as some form of explanation for its contents.
I do not accept the evidence of Mr Gould to the effect that the terms of the nominee agreement did not accurately record the nature and extent of the authority that was able to be exercised by him in respect of JA and MH having regard to the arrangements that he had with Mr Borgas. Rather he was concerned to ensure that he could exercise control over the two entities even though he was not an officer or shareholder. He meant and intended to have (and indeed, as the balance of these reasons disclose, did have) considerable authority to control the affairs of the two entities.
Mr Gould was taken to a letter dated 6 February 2009 on the letterhead of JA signed by Mr Borgas and addressed to Ms Ratcliffe of FCM Limited in the Cayman Islands. It included the following:

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Mr Gould could offer no credible explanation for the fact that he had signed that document in the terms in which it was expressed. It was put to him that the change in shareholder occurred because Mr Gould had learned that the Australian Taxation Office was looking into the affairs of JA and some of its subsidiaries. In response Mr Gould maintained that it was not until 2010 that he became aware that the Australian Taxation Office was looking into JA's affairs and also maintained his evidence that the change occurred so that Mr Borgas could open a bank account for JA in England (as to which, see below).
Mr Gould was then taken to a letter from the Deputy Commissioner of Taxation to Bell Potter Securities Limited seeking information about international fund transfers to various entities including Chemical Trustee and Derrin Brothers. It was dated 29 January 2009. The letter to Ms Ratcliffe from Mr Borgas about changing the shareholding in JA was dated 5 February 2009. Mr Gould did not dispute that he had signed the document referring to the cancellation of the nominee agreement (with the same date as the nominee agreement to which reference has already been made) with immediate effect.
For reasons I have already given, I do not accept Mr Gould's account as to the circumstances in which he came to sign the nominee agreement or the suggestion that it did not operate according to its terms. Those findings are further supported by the fact that in early February 2009 Mr Gould went to the trouble of signing a document which cancelled the nominee agreement. Further, for reasons I have given, I do not accept Mr Gould's evidence as to why he signed that document which instated Mr Borgas as a shareholder of JA many years after the structure had been set up with Offshore Nominees as the sole shareholder. The fact that Mr Gould sought to explain away the document by testimony that lacked any credibility reinforces the significance of the document.
All these findings count strongly against Mr Gould's overall account as to what was occurring when it came to dealings by Mr Gould's Australian entities with the Offshore Funders being subsidiaries of JA and MH.

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Mr Gould gave evidence about concerns that he had about his ability to control the offshore companies and that he might lose his ability to influence what went on. This evidence tended to contradict his evidence to the effect that those companies were not operated for his benefit.
When the issue of the nature of Mr Gould's own interest in JA and MH and the Offshore Funders was first raised with him in cross-examination, Mr Gould said that the structure whereby he only held a power of appointment was a concern because he could be removed as appointor and Mr Borgas could do something 'out of left field' and that he had been told by senior counsel involved at the time that JA was established that there was always going to be a problem because 'you cannot have control over these offshore companies'.
Although there was reference to client monies being involved, these concerns were initially expressed in terms of Mr Gould's own interest in controlling what was happening with the offshore companies. He explained how, unlike his Australian entities, when it came to the offshore entities he did not have rights as a shareholder to change the directors.
Mr Gould's evidence about the problem concerning control over the offshore companies and the comparison to Mr Gould's Australian entities strongly indicated that JA and MH were established by Mr Gould at his personal instigation and in his own interest as part of his personal financial affairs. Taken with the evidence concerning his attempt to conceal any involvement on his part with JA and MH (addressed below), there is considerable reason to doubt his account about his lack of any capacity, in practice, to influence the conduct of the financial affairs of JA and MH in his own interests.
It was only when Mr Gould was pressed about whether the concern about control was a concern to him that he then explained that concern in terms that he 'also had client monies involved' and that he was 'also dealing with a number of clients' moneys' (emphasis added). At this point in his evidence, Mr Gould was not suggesting that the sole reason for his concern was the alleged involvement of client monies. Rather, Mr Gould appeared to be answering on the basis that he had a personal involvement of some kind and he also had client monies involved which was a reason for concern.
In particular, there was a question and answer as follows:

[111]

It was not suggested that the Offshore Funders conducted finance businesses in which they provided funds for a range of borrowers. There were no records to suggest that there were other borrowers. On the evidence given by Mr Gould, their activities were centred upon providing funds to Australian entities controlled by each of Mr Gould and Mr Leaver (and, in the case of the Gold Trust, Mr Gould and Mr Raptis). As has been explained, Mr Gould maintained that the interest rate that was charged by the Offshore Funders was determined by Mr Borgas who would issue an invoice because he had the decision-making power. However, Mr Gould also gave evidence that he had an involvement with Mr Borgas and Mr Vara 'in determining those things' and that he would talk with them about what was appropriate. His account as to why that would be so when the business of the Offshore Funders was supposedly conducted for the benefit of Mr Borgas and his family was most unconvincing.
As has been mentioned, Mr Gould did give vague and general evidence to the effect that JA and MH (as distinct from the Offshore Funders) also acted as a kind of trustee for some of Mr Gould's clients (as well as for the personal benefit of Mr Borgas and his family). It was evidence that lacked any detail and therefore lacked credibility. Further, Mr Gould did not suggest that Mr Borgas was involved in arranging finance for those clients. Rather, he indicated in a vague and general way that JA and MH acted in some form of trustee capacity. Aside from mentioning dealings in relation to the superannuation funds of those clients, Mr Gould gave no details of the nature of the dealings where JA and MH were allegedly acting in a trustee capacity for clients of Mr Gould. As has been mentioned, the evidence as to the role of JA in dealings concerning the superannuation funds of clients of Mr Gould is addressed separately below. That evidence was confined to JA acting as the holder of the security interest in Hua Wang Bank. Otherwise, Mr Borgas was not involved in the dealings concerning the superannuation funds.
Mr Gould sought to explain his own ongoing involvement in the affairs of JA and MH (and the Offshore Funders) in various different ways. At times he sought to do so on the basis of what he described as his long standing friendship with Mr Borgas. At other times he referred to their 'collaboration'. In relation to Chemical Trustee, Mr Gould also referred to their alleged shared charitable purposes in conducting the affairs of that entity. These explanations were not consistent. They emerged as different explanations at different stages in Mr Gould's cross‑examination when he attempted to explain why he was involved in communications with Mr Borgas and Mr Vara about significant aspects of the affairs of entities allegedly under the control of Mr Borgas.
Mr Gould described the way that activities of Chemical Trustee were conducted in the following terms: 'usually, if I put up something sensible, he [Mr Borgas] would go along with it, but he would make his own investigations. There were times when, basically, he said, "No, I don't think we should do that," and I would say, "Fine"'. This evidence indicated that Mr Gould was proposing to Mr Borgas what he should do in conducting the affairs of Chemical Trustee and Mr Borgas usually agreed. That is to say, Mr Gould instigated what would happen.
It was put to Mr Gould that Chemical Trustee was operated by Mr Gould giving instructions to Mr Borgas who would carry them out and Mr Vara would move the money around. Mr Gould responded to the effect that he (Mr Gould) was influential but he was not an officer of the company. He then went on to explain 'and so, for audit purposes, Peter Borgas had to approve and authorise everything'. It is a strange way to explain what occurred if indeed Mr Borgas was in control and he was the one arranging finance to be provided to the Australian entities.

[131]

The accounts for Chemical Trustee were audited. Unusually for a United Kingdom company they had a financial year end date of 30 June, being common practice in Australia but not in the United Kingdom.
The audited financial statements for Chemical Trustee for the year ended 30 June 2009 were in evidence. They showed 'investments' of £18,922,513 as at 30 June 2009. The notes to the accounts showed that a considerable part of those investments were loan investments. They totalled £11,278,795 before write offs. A separate spread sheet for Chemical Trustee for the year ended 30 June 2009 listed three loans for the Gold Trust. They were shown in Australian dollar amounts with Sterling equivalents. The Australian dollar balance for year end for the three loans were $584,000, $15,000,000 and $900,000. Mr Gould accepted that these amounts were consistent with the audited accounts.
Separate accounts were prepared by Mr Gould for the purposes of filing Australian income tax returns for Chemical Trustee on the basis that it was an Australian resident for tax purposes. In a letter to the Australian Taxation Office in January 2016 concerning the preparation of those Australian accounts, Mr Gould said that he had not been involved in the preparation of the audited financial statements for Chemical Trustee and the staff at Lubbock Fine at the time had 'largely left'. Nevertheless, he said that he had access to the cash books which should enable Chemical Trustee to prepare the accounts. He did not explain why he might have such access.
In the letter, Mr Gould described the relevant activities of Chemical Trustee as 'dominated' by its share investments in Australian listed companies. He referred to the only other relevant activity of Chemical Trustee as 'its involvement in commercial loans in Australia'. He said: 'The loans basically were to Education Corporation ... as trustee for the [Gold Trust] and to [another entity]. To enable these loans to be made Chemical has borrowed funds which it has serviced'. It was also said that interest owing by Chemical Trustee to JA as its parent company was partially met by Chemical Trustee paying expenses for JA. It was asserted by Mr Gould in the letter that when all the interest charged by JA to Chemical Trustee was brought to account there would be a substantial loss.
Mr Gould was challenged as to the truth of the statement in the letter that he had not been involved in the preparation of the United Kingdom financial statements of Chemical Trustee. It was put to him that it had been demonstrated by previous documents put to him that he had approved those financial statements in at least two years. Mr Gould gave the following answer:

[133]

I do not accept this evidence. It is inconsistent with the written communications to the effect that Mr Gould was the mutual client of Mr Borgas and Mr Vara. It is also inconsistent with the evidence of the nature of the businesses conducted by each of them. As I have explained, Mr Gould's evidence as to the role of Mr Borgas in conducting the affairs of Chemical Trustee (and the other Offshore Funders) was confused, inconsistent and unconvincing. As the letter discloses, Chemical Trustee was involved in investing in Australian listed shares and providing funds to a few Australian companies associated with Mr Gould. There is evidence that Mr Gould communicated with Mr Vara about the settlement of the share purchases. There is no suggestion that Mr Vara conducted the share investment portfolio. There was some suggestion by Mr Gould in the course of his evidence that it was Mr Borgas who decided where to invest. The evidence was hedged with evidence from Mr Gould to the effect that he provided input and suggestions. For reasons I have given, I reject Mr Gould's account which seeks to distance himself from the conduct of the affairs of the Offshore Funders. I do not accept the credibility of Mr Gould's account as to those matters.
As to the advances made by Chemical Trustee, the evidence is to the effect that they were arranged by Mr Gould through dealings with Mr Borgas. The evidence of the actions of Mr Gould in relation to JA and MH demonstrate the clandestine way in which those dealings were conducted. As has been explained Mr Gould went to considerable lengths to keep those affairs out of the scrutiny of the Australian Taxation Office.
All these matters and regard to the consistently unconvincing evidence by Mr Gould seeking to distance himself from involvement in the affairs of JA, MH and the other Offshore Funders including Chemical Trustee cause me to reject Mr Gould's evidence that he was not involved in the conduct of the affairs of Chemical Trustee and the finalisation of its audited United Kingdom accounts.
In cross-examination Mr Gould accepted that Mr Vara and others at Lubbock Fine who had been referred to by Mr Gould were still at Lubbock Fine.
For those reasons, I do not regard the matters in the letter as explaining why new accounts were required to be prepared for Chemical Trustee from scratch, without regard to the audited accounts, in order to prepare the tax returns for Chemical Trustee as an Australian resident company.
In his oral evidence, Mr Gould attempted to cast further doubt over the audited accounts of Chemical Trustee. In answer to a question as to what was wrong with the existing audited financial statements, Mr Gould said:

[137]

In considering the veracity of these answers I observe that Mr Gould had been asked about at least some of the audited accounts at the time. There is no indication that he had any concerns with those accounts. There is certainly no indication in the letter to the Australian Taxation Office that there were concerns of the kind enumerated in the answer. No detail was given as to why there were differences that required a whole new set of accounts. Further, the explanation given to the Australian Taxation Office concerned uncertainty about accounting treatment because of an inability to be able to interrogate people at Lubbock Fine. It was only when the veracity of that explanation was called into question that Mr Gould then proffered the suggestion that Lubbock Fine (and presumably the auditors) had not done a good job in their preparation (and the audit review). It will be remembered that Mr Gould had dealings with Mr Vara and Lubbock Fine over decades. There is no suggestion as to general dissatisfaction in their competence or ability to do a good job.
Further as will emerge, the differences between the audited accounts and the accounts prepared by Mr Gould could not be explained by the matters raised by Mr Gould.
By March 2016, Mr Gould had lodged tax returns for Chemical Trustee for the period 2000 to 2014 and had provided a copy to the Australian Taxation Office of what was described as the full general ledger for Chemical Trustee for that period. Balance sheets, profit and loss statements and cashflow statements were also provided by Mr Gould.
The profit and loss for Chemical Trustee for the 2009 tax year showed a net loss of $4,888,399 for the year. The audited profit and loss for the same period showed a profit of £2,827,346.
When questioned about the difference, Mr Gould again sought to attribute the difference to negligence on the part of the auditors. He suggested that the difference between the two sets of accounts was explicable by the fact that many of the assets on the balance sheet no longer existed or were valueless and had not been properly written off. When challenged about the proposition he gave the following answer:

[151]

Given the bland terms of the affidavit evidence given by Mr Gould as to how the $15,000,000 was arranged, namely by calling Mr Borgas and asking him whether Chemical Trustee could lend $15,000,000 to the Gold Trust, the answer is significant. Pressed with the details of the accounting records prepared in 2016 from the cash book records of Chemical Trustee, Mr Gould was forced to accept that the source of the $15,000,000 was JA. It was not Chemical Trustee. Which brings into significance the findings I have made concerning JA, MH and Mr Gould. I have not accepted his evidence to the effect that he had no control over the affairs of JA.
The whole course of the evidence casts great doubt over Mr Gould's evidence about the $15,000,000 being a loan extended by Chemical Trustee to the Gold Trust. It is quite possible that the funds were under the control of Mr Gould in JA and he directed the funds to be funnelled through Chemical Trustee. However, it is not necessary to make any findings as to whether that was the case. It is sufficient to find, as I do, that Mr Gould's account about the $15,000,000 should not be accepted.
Indeed, the Australian balance sheet for Chemical Trustee for the 2009 tax year shows that Chemical Trustee had very substantial liabilities to JA. They were $39,104,897 as at 30 June 2008 and had fallen to $34,304,490 by 30 June 2009. The difference of $4,800,407 is the net movement in the JA general ledger account for Chemical Trustee as prepared in 2016 under the supervision of Mr Gould. As has been explained, that general ledger includes the amount of $15,000,000. Yet, there is no asset shown for a loan of $15,000,000 to the Gold Trust. It is just a direction of funds received by Chemical Trustee from JA to the Gold Trust which results in a liability by Chemical Trustee to JA.
Eventually, Mr Gould was forced to suggest, contrary to the rest of his evidence, that the reason the amount was not shown as a loan was because it was in and out in the 2009 tax year. However, that did not accord with the very substantial interest amount claimed to have been due by the Gold Trust to Chemical Trustee on the amount of $15,000,000 which formed one of the interest deductions claimed by the Gold Trust. It was another example of Mr Gould seeking to conjure an explanation that he thought suited the interests of the taxpayers rather than give a truthful account. When the inconsistency was pointed out to him he resorted to the mantra 'Well, without the working papers, I just can't really add anything to that'. It is not evident how resorting to working papers might explain why on the one hand when it suited one purpose he said that the $15,000,000 had been borrowed for a year and then on the other hand when he was seeking to explain a discrepancy he gave the explanation that the amount was quickly repaid.

[171]

Having first professed that he did not know the detail, Mr Gould immediately followed up with an answer which purported to draw on a recollection about the nature of the lending to the effect that the $15 million amount was in the process of being formalised and the transaction never proceeded. However, that does not explain why it might be that the amount of $15 million was sent by Chemical Trustee to the solicitors for the Gold Trust on the basis of a telephone call by Mr Gould to Mr Borgas before there was anything formalised.
As to the amount of interest due to Chemical Trustee, when cross-examined, Mr Gould maintained that there 'was always a discussion with - with Peter Borgas, Hasmukh Vara, in London' and it was 'simply untrue' to say that he determined the amount of interest. The fact that Mr Gould first nominated Mr Borgas and then referred to Mr Vara is revealing. If indeed there was a discussion with someone who determined the interest rate on a very large borrowing and that such discussions 'always' occurred, you would expect Mr Gould to be able to be specific as to whether it was Mr Borgas or Mr Vara that was the person with whom he agreed the loan terms. There is no mention in Mr Gould's affidavits of Mr Vara being involved in the arrangements concerning the $15 million.
The above evidence was given when Mr Gould was confronted with his own account by affidavit to the effect that he determined in accordance with a practice he had described in his affidavit, the interest liability that should accrue on the debt to Chemical Trustee in the 2003 to 2014 financial years. The practice described appeared to be the same practice that he alleged when it came to determining the interest to be paid by his Australian private entities on their borrowings which were from CVC I initially and then from the Family Trust after the alleged novation of the alleged loans.
Pressed as to whether Mr Gould had the same authority over the affairs of the Offshore Funders and JA, Mr Gould said that whereas his Australian private entities were owned 'by and large' by the Family Trust which conferred the capacity 'to actually exercise the rights of shareholders to change directors', he had no such right in relation to the Offshore Funders. Earlier he said that he did not own or the Family Trust did not own Chemical Trustee and he did not have the capacity to change the directors.
These answers are revealing. Mr Gould did not maintain that Chemical Trustee and the other Offshore Funders were owned by Mr Borgas. Rather, he said that his position in relation to those companies was not the same as for his Australian private entities. He then said:

[173]

The difference concerns the source of his capacity to influence what occurred in relation to the overseas companies compared to his Australian private entities.
Later in his cross-examination, Mr Gould was asked about the purpose of the $15 million being brought onshore. He said that the amount was 'brought onshore for the purpose of buying ... a strip section of shops in Surfers Paradise. He was also asked about his statement in his affidavit that he was advised by the vendors that they could not proceed. He said that presumably the receiver possibly got a better offer. When pressed, he said he could not recall anything about the transaction other than the fact it did not proceed. This evidence stands in contrast to his evidence that he recalled the detail because of the amount involved and the stress of the transaction. The inconsistency was characteristic of his evidence. Detail was recalled to suit the taxpayers' claims but when other details were sought Mr Gould claimed that he could not recall. Then when asked further questions Mr Gould would provide detail to support the taxpayers' claims. It was a consistent pattern that reflected adversely on the credibility of his account. It was a pattern that was evident in his further evidence about the $15 million.
Mr Gould initially said that he did not recall who was the vendor of the property that was the subject of the proposed purchase using the $15 million received from Chemical Trustee. He was then taken to a settlement statement for a property in Elkhorn Avenue, Surfers Paradise. It referred to 18 November 2008 as the date of settlement and adjustment and the subject line was 'Education Corporation of Australia Pty Limited Purchase from Glennington Pty Limited'. It showed a contract price of $15,000,000.
Next, Mr Gould was asked if the name Glennington rang any bells to which he answered 'no'. Mr Gould was then shown an ASIC search which showed that Mr Raptis was a director of Glennington at the time. Mr Gould agreed that the person recorded was the same Mr Raptis who was involved with Mr Gould in Education Corporation, the trustee of the Gold Trust. There was then the following question and answer:

[183]

Notice how Mr Gould started to give evidence as to how he was basically involved with negotiating the agreement to purchase the property from Glennington as proprietor, but then said 'I don't even know' and 'I just don't recall anything about negotiations even'. Then he said that it was the solicitors who handled things with the receiver. It was most unconvincing evidence.
Thereafter, Mr Gould was asked whether he recalled a Queensland Supreme Court proceeding that found in favour of Suncorp Metway and that was why the sale to Education Corporation did not proceed. His answer was: 'Well, now that you mention it, you - it comes to mind there was a dispute, I agree, but what actually happened, I really don't recall'.
Mr Gould was then taken to a case report of reasons for decision in a Queensland Supreme Court proceeding which referred to CVC Private Equity Limited being a party to proceedings about the Elkhorn Avenue property. Mr Gould accepted that he was the Chairman of Continental Venture Capital, the parent of CVC Private Equity, at the time. He suggested that the company was a party because it had a mortgage on the property. However, he claimed that it was one of 'a myriad of other transactions' and it would have been handled by the managing director of Continental Venture Capital.
Mr Gould was taken to the part of the case report that referred to a caveat having been lodged by CVC Private Equity over the Elkhorn Avenue property in which it claimed an interest as a mortgagee in respect of Glennington's contingent interest in the purchaser's beneficial interest under a contract of sale to Education Corporation. The case report also referred to Education Corporation being made a party to the proceedings. Mr Gould professed not to have any knowledge about those matters. I do not accept that evidence.
Finally, it was put to Mr Gould that the entire transaction in respect of the Elkhorn Avenue property was simply Mr Raptis seeking to try and retain control and ownership of the property. He answered 'no doubt that would be a factor in it'. That answer was forced upon Mr Gould and stands in stark contrast to his account that the loan was for an investment opportunity.
For those reasons, I do not accept the credibility of any aspect of Mr Gould's account concerning the $15 million.
The Commissioner also relied upon evidence given by Mr Gould as part of an examination in 2020 to the effect that Mr Gould entered into transactions for clients like Mr Raptis using their funds to purchase a property so that the identity of the purchaser was not revealed. Mr Gould's evidence on that occasion included accepting that in some circumstances it would be shown as a borrowing in the accounts of one of his companies. A finding was invited that the $15 million transferred to the Gold Trust from Chemical Trustee was to assist Mr Raptis as Mr Gould's client and was not a loan. I make no affirmative finding characterising what occurred. It is sufficient that I do not accept Mr Gould's account.

[185]

In his affidavit evidence, Mr Gould produced documents which purported to be a debit interest note for interest charged by Chemical Trustee to the Gold Trust on the $15 million loan. A debit note dated 1 June 2009 was for an amount of $1,000,000. It was signed by Mr Borgas. However, the accounting for that amount in the records of Chemical Trustee and JA produced to Mr Gould did not accord with that figure. As to the calculation of interest, it was said to be based on a rate of 10%, but if that rate was applied for the duration of the loan up until the debit note then the calculation was in error.
Mr Gould could not explain the discrepancies. Nor could Mr Gould explain how the interest rate had been set or why such a high rate of interest had been incurred for what, on Mr Gould's account, was a property investment for which there was to be documentation. These were further aspects that cast doubt on Mr Gould's account that there was a genuine loan of $15 million.
There was other interest claimed as deductions by Education Corporation as trustee of the Gold Trust. They concerned an earlier alleged loan of $1,000,000 to which reference has been made. As to that loan, there was a document that indicated that it had been extended on the basis that it was interest-free for the first 12 months and thereafter interest was at 8%. Mr Gould could not explain why such an arrangement might apply to the loan when it was claimed to be arranged on an arms' length basis.
Mr Gould was also taken to a subsequent document that referred to the loan balance being increased to $1.5 million 'subject to adequate security being maintained at all times'. There was no reference to any such security in Mr Gould's affidavit (although there was for other alleged loans). When cross-examined, Mr Gould gave the answer that the documentation for the loan and the security had 'obviously' disappeared. I do not accept that there was any such documentation or security for the loan.
There was another example on the evidence of a discrepancy between what was shown as a loan in the accounts of one the Australian entities controlled by Mr Gould and the audited accounts of Chemical Trustee. It was a loan to Fennelltown that was written off in the books of Chemical Trustee in 2007 but was still accruing interest in the books of Fennelltown. Mr Gould was unable to explain the discrepancy.
All these matters cast real doubt upon whether the debit notes reflected the terms of genuine arms' length loans agreed as between Education Corporation as trustee for the Gold Trust and Chemical Trustee.

[187]

The deductions claimed by the Share Trust in the relevant period included an amount of $760,000 said to be interest due by the Share Trust to the Family Trust. Mr Gould deposed that in June 2006 he determined that the interest liability on the debt said to have been owed at that time by the Share Trust to the Family Trust should be $760,000 and that he 'also thought it would be desirable' for the Family Trust to pay $760,000 to CVC II because 'my perception was that [CVC II] needed money'. He said that he decided that the Share Trust should pay $760,000 to CVC II 'at the direction' of the Family Trust so that it would not be necessary to implement two bank transactions for one payment. There is no suggestion in his evidence that the $760,000 was to be treated as the payment of interest by the Family Trust to CVC II. Rather, the payment was being made by the Family Trust to CVC II because CVC II needed the money, that is to say it was an advance by the Family Trust because CVC II needed cash.
Mr Gould gave further affidavit evidence about the payment. He deposed to having had a conversation with the accounting staff in respect of the 'desirability' for the Family Trust to pay $760,000 to CVC II. He said that he asked his staff for suggestions as to how the amount could be allocated. He said that he agreed with his staff on how the payment would be made. There is no reference in Mr Gould's affidavit evidence to the amount of $760,000 being paid to CVC II at the direction of the Family Trust as a payment of interest due by the Family Trust to CVC II.
In his oral evidence, Mr Gould said there was an advantage in transferring the $760,000 directly to CVC II because it meant there were no double taxes on the amount transferred. Mr Gould did not mention the amount being directed to be paid to CVC II to discharge an interest liability on the part of the Family Trust to CVC II.
It was then pointed out to Mr Gould that the Family Trust did not return the amount of $760,000 as interest income in the 2006 tax year even though, on his version of events, it had earned that income, albeit that it had directed the amount to be paid to CVC II. Mr Gould also agreed that when the amount of $760,000 was received by CVC II it was recorded as a reduction in a loan amount said to be due by the Family Trust to CVC II, but on 30 June 2006 by journal entry it was recognised as interest income earned by CVC II. It was put to Mr Gould that the amount of $760,000 was not identified as a payment of interest when it was paid into the bank account of CVC II and that it was only given that character by end of year journal entry when it was decided it would be tax effective to treat it as a payment of interest rather than a reduction of monies owed by the Family Trust to CVC II (or as an advance by the Family Trust to CVC II).
Mr Gould was asked to explain why the amount of $760,000 was not shown as interest when it was received into the accounts of CVC II if indeed that was its character. Mr Gould referred to the money having been misdescribed when it first came into the accounts of CVC II. However, his own account was that the monies were directed to be paid to CVC II because it needed the money.
The nature of these events casts doubt upon Mr Gould's account that interest was charged by the Family Trust so that it, in turn, could pay interest to the CVC entity to be used to pay interest due by the CVC entity to the Offshore Funders. If indeed that was the nature of the arrangement then there would have been no uncertainty and you would expect Mr Gould's evidence about the $760,000 to have given an account consistent with arrangements of that kind. More importantly you would expect there to be no uncertainty as to how the $760,000 was to be recorded in the accounts of the Family Trust and CVC II, namely as a payment of interest.

[205]

As has been indicated above, a difficulty with Mr Gould's evidence as to the way in which interest amounts were allegedly determined is that even though there was no general accrual of interest amounts, some of the amounts claimed as deductions were accrued. For example, in the 2007 tax year the Share Trust claimed a deduction for interest of $280,000 due to the Family Trust which was accrued. The accounts showed that the amount was only partly reduced in the following year.
As has been explained, on Mr Gould's account the interest amounts claimed as deductions were charged so that the Family Trust would receive the cash needed to pay to the CVC entity so it could meet its interest liability to the Offshore Funders. Obviously, that could not occur if the interest charges resulted in an accrued liability that remained unpaid.
It was obvious that Mr Gould could see the inconsistency between the accrual and his version of what had occurred when it came to the interest charges. He intimated that despite the interest being showed as accrued there could have been a payment made. He said that he would need to look at the bank statements to work out what had happened. Precisely why that would be so was a matter that Mr Gould could not explain. Eventually, he seemed to accept that if the Share Trust had paid the amount to the Family Trust then it would be shown in the accounts, but he maintained that it was necessary 'to see the whole package to see what actually has gone on'. His evidence in that regard was most unconvincing. It amounted to the proposition that the interest amount might have been paid in some way but would still be shown in the accounts as a liability that was accrued (and therefore not paid). Further, Mr Gould accepted that if the amount of $280,000 had not been charged to the Share Trust then it would have been in a tax payable position for the 2007 tax year.
Further, in the 2010 tax year the Share Trust accrued an interest obligation of $100,000. When asked about that amount, Mr Gould tried to suggest that some other payments were made out of the Share Trust to meet the interest payments. He was unable to explain why an interest charge which on his account was made in order to have the cash to enable the Family Trust to pay amounts to the CVC entity so it could meet its obligations to the Offshore Funders would be accrued. He suggested that the cash might have been provided in some other way. However, he could not provide any logical reason as to why that would occur rather than the alleged interest amount simply being paid.
Interest due from the Share Trust to the Family Trust was also accrued rather than paid in the 2013 tax year.
When pressed as to these matters Mr Gould changed his evidence about the interest charges being raised so that cash was paid to enable the interest payments to the Offshore Funders to be met. He suggested that the Share Trust, at times, did not have the capacity to pay interest for a considerable period of time, but that did not mean that it did not have the obligation to pay the interest. He maintained that the interest due by the Family Trust to the CVC entity was paid but that the interest due from his Australian entities (particularly the Share Trust) was not paid. Of course, this inconsistency reflected adversely on his overall explanation of the nature of the alleged loan arrangements.
Mr Gould was also asked to explain the difference between two versions of the general ledger for the Share Trust for the 2012 tax year. One included an interest amount due in the 2012 tax year to the Family Trust and the other did not. It was put to Mr Gould that the documents indicated that there had been a change to include the interest some time after the end of the 2012 tax year. Mr Gould did not accept that proposition. In giving his explanation he suggested that dates on the documents indicated that they had been obtained from the records in 2019 and 2020 respectively, that is many years after the 2012 tax year. He said: 'Yes, the financial statements weren't updated until after 30 June, that's quite true, but they must have had this interest in them'. An answer of that kind was inconsistent with his earlier evidence to the effect that all the interest amounts were determined and paid before 30 June each year because there was a need to obtain the cash so that the CVC entity could meet the obligation to pay the Offshore Funder interest that was due by 30 June in each year. It prompted a question directed to his statement that the accounts were not updated until after the end of the tax year. Before the question could be finished, Mr Gould interrupted senior counsel to give the following evidence:

[213]

It is an answer which makes little sense. How could an entry into the accounts for the Share Trust to accrue an amount of interest due to the Family Trust, which entry was made well after the interest was required to be paid (so as to put the Family Trust in funds to pay the CVC entity so it, in turn, could pay the Offshore Funder), be something that would assist in paying the actual interest that was needed 'before 30 June'?
Even after he had been taken to the entries which exposed that in the case of the alleged interest incurred by the Share Trust to the Family Trust substantial amounts were entered in the accounts as having been accrued rather than paid, Mr Gould returned to restate his evidence about the need for interest to be determined to be paid to the Family Trust (so it could pay money to the CVC entity), albeit in terms that he 'would have had to have made a decision in May/June, with interest for the [Family Trust], whether it could pay interest or not'. His earlier evidence had been to the effect that some of his Australian entities were not charged interest because they did not have the cash available. His evidence changed to say that he knew how he was going to finalise the accounts as to the accrual of interest prior to 30 June (even though there was no cash to be paid for interest). Of course, Mr Gould's insistence that all was done prior to 30 June when cash had to be found to pay interest to the Offshore Funders was part of his answer to the Commissioner's case that all was worked out much later when amounts required for deductions were identified and then allocated descriptions of interest (or management fees) which did not reflect true obligations.
As was often the case, when confronted with apparent inconsistencies in the logic of his evidence Mr Gould added further detail that had not been provided in his affidavit or when first cross-examined on the topic. His further answers as to what occurred in relation to the accrual of interest sought to explain how it could be the case that a decision was made by him as to what the interest would be in May or June but the amounts were not shown in the accounts until many months later. They began in the following way:

[221]

On 11 July 2005, an amount of almost $5.5 million was paid by Lubbock Fine to Melbourne Insurance Company Pty Ltd. It was shown as an amount owing to Lubbock Fine in the balance sheet for Melbourne Insurance for the 2006 tax year. When taken to the relevant documents Mr Gould accepted that from the accounting records it looked as though Lubbock Fine had provided him with a loan of $5.5 million for almost a year with no interest. Initially, he proffered the following explanation: 'who knows what the terms were of that. Maybe there was an underlying something. There's some other dimension to it as usual'. That is to say, Mr Gould's initial answer was extremely vague and it was to the effect that there was some possible explanation that he did not identify in any way for Lubbock Fine providing Melbourne Insurance with a loan of that kind.
It was then put to Mr Gould that what was happening was that he had instructed Lubbock Fine to give him some money and the reason no interest was paid was that it was within his power to decide that interest would not be paid. Mr Gould then gave an answer which suggested that there may not have been a loan to Melbourne Insurance. He said: 'No. There would be an agreement as to what was going on here. I think it relates to one of my clients, but leaving that aside, I don't know without the working papers'.
This was a most unconvincing answer, especially bearing in mind that Mr Gould began by answering on the basis that it was a loan to Melbourne Insurance but was then able to say that there would be an agreement and that he thought it related to one of his clients. Despite further questioning he provided no indication at all as to how the payment of a very large amount of money to Melbourne Insurance at that time might relate to one of his clients. He gave no explanation as to why the activities of Melbourne Insurance might have been consistent with its receipt of such a large sum from Lubbock Fine for a client without giving rise to any interest liability despite the funds being retained for the better part of a year.
There was no indication in the accounting records that the affairs of Melbourne Insurance were complex or that receipts of the order of $5.5 million from overseas were frequent. When it came to other overseas dealings that had occurred many years ago, such as those that occurred in relation to the superannuation funds of his clients passing through overseas companies, Mr Gould was able to give detailed evidence as to the nature of those dealings.
Further, when confronted with accounting records that were inconsistent with his overall account concerning the interest charges claimed as deductions, Mr Gould frequently intimated that there was some unspecified dealing that he was conducting for his client. The nature of what those dealings might be went largely unexplained. Even taking account of the passage of time, it would be expected that Mr Gould could provide some detail as to possible dealings especially when it came to such a large amount of money being received into a private company otherwise being used for Mr Gould's own purposes. I formed the view that this and other vague references to possible dealings on behalf of clients were attempts to avoid having to concede obvious conclusions to be drawn from entries in the accounting records of companies controlled by him where those conclusions were adverse to the case advanced by the taxpayers.
The answers given by Mr Gould concerning the $5.5 million were even more unconvincing because of what happened next in his cross-examination. Mr Gould was taken to the general ledger for Melbourne Insurance for the 2006 tax year. It showed the amount of $5.5 million being recorded in a ledger account styled 'Sundry Creditors' and showed the creditor as Lubbock Fine. Mr Gould was then taken to the balance sheet for Melbourne Insurance as at 30 June of the following year, namely 2007. It showed a current liability in amount of $5.5 million as being owed to Normandy Finance. Further, the balance sheet did not show any amount as being owed to Lubbock Fine as at 30 June 2007 (or as at 30 June 2006). Rather, the only significant liability for the previous year was an amount of $7.5 million shown as being owed to Normandy Finance.
The balance sheet for the previous year showed an amount of just over $5.5 million as a liability to Lubbock Fine and a liability of $2 million to Normandy Finance. Mr Gould could not explain how, in accordance with ordinary accounting practice the two balance sheets could be reconciled. Asked to explain the discrepancy between the accounting records Mr Gould proffered the possible explanation that there had been an accounting error in the records for Melbourne Insurance for the previous year.
Further, the accounting records showed that in the 2007 tax year the interest expense incurred by Melbourne Insurance was to CVC III whereas the major liabilities in that year were to Normandy Finance ($5.5 million) and JA ($1.4 million) with the amount of $5.5 million having come in from Lubbock Fine the previous year without resulting in any interest liability in that previous year.
Why Melbourne Insurance was itself incurring an interest liability in the 2007 tax year which must have related (at least to a significant extent) to the amount of $5.5 million received in the previous financial year from Lubbock Fine, supposedly on behalf of an unspecified client, was unexplained.

[234]

It was then put to Mr Gould that Fennelltown was used to provide the funds to purchase number 4, to demolish the house and to put in the garden and this is what he meant by 'domestic purposes'. He answered: 'Well, maybe. I mean it's - I just don't know, really. It's sort of - exactly how I - how we sorted that out at that time'. This is a strange answer because it suggests he did not himself know what he was referring to when he used the term domestic purposes. Given that it was a term that he deployed when being pressed for a response it is very odd that a few questions later he would indicate that he did not know what he meant when he used that term.
The entire course of this evidence from Mr Gould was very unconvincing. I formed the distinct impression that Mr Gould was seeking to keep the topic of the use of funds out of scrutiny but was forced to accept that the loan by the Share Trust to the Settlement Trust had been for domestic purposes.
Significantly, by journal entries at the end of the 2003 tax year, the loan came to be included with the indebtedness of a number of other Australian entities controlled by Mr Gould as debts that were due to the Family Trust. It appears that this was part of the purported restructure by which various entities within Mr Gould's private group of companies were all novated so that they were owed to the Family Trust with the Family Trust taking on the debt that was allegedly owed by those companies to CVC II. The general ledger for the Family Trust indicates that the Family Trust took on receivables from other entities. The purpose for which these borrowings were incurred was not demonstrated by the taxpayers. Together, these amounts gave rise to the debt allegedly assumed by the Family Trust to the CVC entity. On the basis of the journal entries, it is an amount that appears to include the domestic borrowing to purchase the property in Chatswood.
The receivable in respect of the domestic borrowing was eventually written off. Mr Gould could not account for why that occurred.
These matters are all inconsistent with the overarching account given by Mr Gould and reflect adversely on his credibility.

[243]

An exchange ensued about what he meant. He said he was doing it on behalf of Mr Gowrie‑Smith. He then resisted the proposition that Mr Gowrie-Smith was the ultimate beneficial owner of Swire Investments. He maintained that the beneficial owner was one of Mr Gowrie-Smith's trusts, though Mr Gowrie-Smith could be said to be the owner 'in a pragmatic sense'.
These answers can be compared to answers that Mr Gould gave quite early on in his cross‑examination. Mr Gould was asked whether the first time he used the services of Mr Borgas was for Swire Investments. His answer was to the effect that Mr Borgas 'was involved with Swire' and that 'somehow Swire was involved with Ian Gowrie‑Smith'. When asked whether he could recall who the ultimate beneficial owner of Swire Investments was, Mr Gould answered: 'No, not really'.
Mr Gould also said that it was Mr Gowrie-Smith who dealt with Mr Borgas about matters concerning Swire Investments. Mr Gould denied that he controlled Swire Investments. He agreed that Lubbock Fine did the administration and prepared the accounts for Swire Investments in the same way that they did for Chemical Trustee.
Mr Gould's evidence about Swire Investments and Mr Gowrie-Smith was significant in a number of respects. First, Mr Gould began by saying he could not recall exactly what his relationship was with Swire Investments, but a few questions later, when confronted with the facsimile addressed to himself, he was able to give detail to the effect that his dealings concerning Swire Investments were undertaken in his professional capacity acting on behalf of Mr Gowrie-Smith. Second, Mr Gould denied any personal interest in Swire Investments. Third, Mr Gould did not suggest that Mr Borgas had any ownership interest in Swire Investments despite the fact that Mr Borgas and his wife were the directors of the company. Rather, his evidence was that Swire Investments was beneficially owned by Mr Gowrie-Smith.
Mr Gould was also taken to a further part of the facsimile that was headed 'Beer'. It recorded the balances in a number of accounts. It included the following question:

[249]

I noted evident hesitation in giving the answer. I formed the view that Mr Gould was reaching for a way to answer the question that suited the taxpayers' case rather than providing a frank response. This was not the only occasion when Mr Gould's answers gave that impression. It was then put to Mr Gould that other offshore companies with which he was associated had used M & N Secretaries to provide services as a company secretary. He agreed and said: 'that's why I said I know the name, but precisely who owned M & N Secretaries then, I don't know'. So, having initially indicated that he thought they were an independent secretarial company and was not certain who they were, when confronted with a question which indicated that the questioner knew of his connection to the company, Mr Gould then gave an answer which made plain that he knew of the company and what it did. This form of exchange was characteristic of his evidence.
Mr Gould was then shown an entry which listed the directors of M & N Secretaries as Mr Borgas and his wife. It was put to Mr Gould that they acted on his instructions in relation to Swire Investments. He answered: 'I disagree with that. That's completely incorrect'. It is difficult to square that answer with the earlier exchange to the effect that Swire Investments was owned by a trust controlled by Mr Gowrie-Smith and Mr Gould was authorised to manage details concerned with Swire Investments. If that were so, you would expect Mr Gould to be able to give and to have given instructions to the company secretary. However, he was emphatic that the directors of the company secretary did not act on his instructions. In my view, this inconsistency in Mr Gould's evidence arose because of Mr Gould's attempt to maintain that Mr Borgas was not directed by him in any way when, in fact, Mr Gould did direct Mr Borgas as to what to do. This was because of his dogged insistence throughout his evidence that Mr Borgas conducted JA and MH in the interests of his own family. For reasons given elsewhere, that evidence lacked any credibility. The attempt to maintain that false depiction of the nature of Mr Gould's dealings with Mr Borgas produced the inconsistency when he incanted the same response even though his position was that Swire Investments was owned beneficially by Mr Gowrie-Smith (and consequently not the family interests of Mr Borgas).
Mr Gould was then shown the accounts for Swire Investments as at 30 June 1992 and 30 June 1993. They showed that in 1992, Swire Investments had very considerable investments and liabilities (in the order of £5 million) but by June 1993 the company had very little by way of assets and liabilities. Mr Gould was asked if he could provide an explanation. His answer was:

[265]

It was an unusual way of responding to the criticism of his evidence that was posed by the question. His justification was to say that the dealings had never been of any consequence to him. That is, to suggest he did not remember because it did not concern his personal affairs. Yet, on his own account it was a trust established with him as appointor, that was called the Gould Trust, that changed its name to the Beer Trust and provided funding for and was used to buy shares for his clients. Why such matters would be of such little consequence that he would not remember them was not elucidated by Mr Gould's explanation.
I do not accept that the evidence unfolded in the way it did because Mr Gould's recollection was prompted in some way by being taken to the affidavit. The sequence in which the change in evidence emerged after Mr Gould was taken to the affidavit led quickly to emphatic and specific answers about the nature of the affairs of the Beer Trust which Mr Gould had initially said was an 'account' and probably a UK company about which he had an uncertain recollection. In fact, it was a trust that had been the subject of very detailed inquiries by those acting for his former wife in the course of proceedings in the Family Court. At that time, Mr Gould had given details concerning the Beer Trust and had said that the Beer Trust only incurred liabilities when it acted as a trustee or nominee for a third party. I have reached these views taking account of the passage of a number of decades since the affidavit was deposed.
My assessment of these matters comes from having observed Mr Gould's capacity to recall considerable details about the structure of his business affairs even though they had occurred in the 1980s and 1990s. Mr Gould presented as a person with considerable ability to recall details of the nature of his past dealings, particularly the nature of the business structures used by him in his personal affairs and in acting for his clients. Indeed, when it came to his version of events concerning dealings with Mr Borgas and the way in which JA and MH had been established and the nature of the advice that was taken at the time, Mr Gould gave evidence in quite some detail and with considerable firmness. Mr Gould also gave detailed evidence about the nature of the arrangements by which entities such as Hua Wang Bank were established, even though those events occurred some decades ago. He also was clear in his evidence about the way in which offshore superannuation arrangements were made for his clients. He did not present as a man with any lack of mental acuity when it came to giving evidence as to historical aspects of the case that concerned the corporate structures used by him, at least where that evidence suited the taxpayers.
Mr Gould's recollection about the Beer Trust soon expanded further. When it was put to him that he was paid to hide people's money offshore by using entities owned on paper by offshore service providers in order to deceive others including the Australian Taxation Office he suddenly was able to provide even more detail in the form of the following answer:

[291]

Hua Wang Bank was controlled by JA. Therefore, the conclusions that have already been reached in relation to the conduct of the affairs of JA apply to Hua Wang Bank. However, as will emerge, it was Mr Gould (and not Mr Borgas) who was involved in the affairs of Hua Wang Bank, particularly the dealings with Asiaciti concerning the bank. These matters provide further reason to doubt those parts of Mr Gould's evidence where he sought to characterise JA (and MH) as entities that were established for the personal benefit of Mr Borgas and his family.
Mr Gould initially suggested that Hua Wang Bank had been established by him for Mr Ian Gowrie-Smith. Later he described himself as Mr Gowrie-Smith's power of attorney in relation to the establishment of Hua Wang Bank. He also gave evidence that his dealings concerning Hua Wang Bank were with Mr Briggs saying that he 'worked collaboratively' with Mr Briggs. There was also evidence that when proceedings were brought by the Commissioner against Hua Wang Bank it was Mr Gould who directed the way in which the defence of those proceedings were conducted, although Mr Gould heroically but unconvincingly resisted that conclusion.
In evidence was a transcript of conversations between Mr Gould and Mr Borgas concerning matters relevant to the proceedings brought by the Commissioner against Hua Wang Bank. Those conversations took place during the hearing of the proceedings. Plainly, the content of the conversations was inconsistent with Mr Gould's account of their relationship as given in these proceedings. It revealed efforts by Mr Gould to coach Mr Borgas as to what he should say about the nature of the affairs of Hua Wang Bank.
I do not accept Mr Gould's account that he was acting as a form of 'litigation agent' for his client, Hua Wang Bank.
There was also evidence of Mr Gould directing the conduct of the affairs of Hua Wang Bank.
On the evidence, the affairs of Hua Wang Bank were controlled by Mr Gould.
I find that Hua Wang Bank was established at Mr Gould's instigation. It acted as a financial intermediary for clients of Gould Ralph. Mr Gould arranged for funds held in what were termed superannuation funds to be deposited into Hua Wang Bank and then for those funds to be advanced to individuals or entities associated with each superannuation fund. The accounting records of Hua Wang Bank showed a correspondence between the amounts deposited with the bank by individual superannuation funds and the amounts of loans extended by the bank to related parties. Deposits were largely equivalent to loans. Mr Gould also made those arrangements in his own personal interests.
In one instance, an amount of $7,968,000 was shown in the balance sheet for the Hua Wang Bank as at June 2005 as having been a loan to 'CVC Investment Nominees' (that is, CVC II) in the 'Last Year'. The same amount was shown as a liability of the bank (under the heading 'Deposits Payable') in the name of 'CVC Invest Nomi/Phillips River' for the 'Last Year'. Then as at June 2005 both amounts are shown as nil.
Mr Gould accepted that the record in the balance sheet was consistent with 'some sort of a purported refinancing or repayment'.

[309]

The accounting records showed that in the 2004 tax year, Philadelphia charged the Family Trust a management fee of $44,000.
In his first affidavit, in the appeal by the Family Trust, Mr Gould described the work that he allegedly personally performed for each of his Australian private entities, including the supervision of staff in his accountancy practice. He said that he always attempted to do that work in a corporate or trust capacity. Mr Gould then referred to his own view that it was appropriate for each entity to charge a fee for work that he regarded 'the entity as having recently done for other entities within [his] group of Australian private entities'. He said that he used the term 'management fees' generically to describe the charges for this work. Mr Gould then described the fee of $44,000 charged during the 2004 tax year as being a management fee of that kind.
In his third affidavit in the Family Trust proceedings, Mr Gould said that the fee was charged in part as a fee for storage of records 'over several years' ($19,000) and in part as a fee for the provision of security by way of charge over properties owned by Philadelphia to secure borrowings from the Offshore Funders ($25,000). The Offshore Funders were alleged to be CVC I (in 1995) and Normandy Finance.
The inconsistency between these two accounts is stark. In the first affidavit Mr Gould says that the fees are for work being done by him and the staff in his accounting practice. Then in his third affidavit Mr Gould says the fee is for something entirely different. There is no explanation for the difference.
Mr Gould was cross-examined about the storage fee component of the alleged management fee. He agreed that the same basement area was used for storing the records of all his Australian entities as well as his accountancy practice. He agreed that there was no fee ever charged for storage to any other entity. He also accepted that the fee charged in 2004 was the only time a storage fee was alleged to have been charged to Philadelphia. Mr Gould gave no evidence as to the basis for the storage fee.
Mr Gould was also cross-examined about the deed of charge that was said to give rise to the security fee that formed $25,000 of the management fee allegedly due by the Family Trust to Philadelphia in 2004. Mr Gould accepted that the security to which he was referring to as having been provided to CVC I was a deed of charge provided by Philadelphia to CVC I in 1995. He also accepted that there had been no fee in respect of the provision of the deed of charge between 1995 and 2004. His explanation was that the fee was charged when it was fiscally convenient and reasonable to do so.
As to the security said to have been provided to Normandy Finance, Mr Gould was taken to a deed poll dated 1 December 2004, being five months after the fee was said to have been incurred. Mr Gould gave a confused and unconvincing explanation as to why the fee might have been imposed when there was no deed of charge by way of security. Further, when it was pointed out to Mr Gould that, on his account, it was the Family Trust that borrowed the money from the CVC entity and that it was the CVC entity that borrowed the money from Normandy Finance, Mr Gould was unable to explain why, in those circumstances, it was not the CVC entity that should have been charged any fee for provision of security if indeed that was the basis for the fee.
I do not accept Mr Gould's account as to the basis for the fee of $44,000 as being credible.

[338]

As has been mentioned, at various points throughout his evidence Mr Gould referred to the need to refer to working papers that were no longer available. Some examples have been given. Characteristically, Mr Gould referred to working papers when pressed to provide an explanation of matters in the accounting records of the taxpayers and other Australian entities controlled by him that appeared to be inconsistent with his version of events. Mr Gould's references to working papers suggested that materials of that kind had existed in relation to the claimed deductions but had not been kept.
However, there was no evidence to support the conclusion that there had been working papers of the kind referred to by Mr Gould. In particular, there was no evidence to the effect that there were detailed notes to support the many end of year general journal entries that related to the interest charges and management fees claimed as deductible expenses by the taxpayers. There were no notations in the ledgers referring to working papers. Mr Gould gave no evidence about the existence of working papers in his affidavits. On the contrary, his version of events in the affidavits was to the effect that there had been conversations about the matters that came to be recorded by way of journal entries concerning the alleged interest and management fees.
Mr Jones gave evidence of the extent of his research to locate relevant documents including materials to support the accounting entries. He did not refer to any working papers or make any suggestion that there had been working papers kept as part of the records of the companies.
In one exchange concerned with management fees, Mr Gould maintained that the fees had been charged for services provided by Melbourne Corporation. His evidence was that overheads and other costs were incurred by Melbourne Corporation for other entities and when those entities had the capacity to pay it was considered reasonable for them to reimburse Melbourne Corporation for the benefits they had received. Mr Gould was asked whether the fees were supported by any time sheets. His first response was to suggest that there had been records of that kind and there would have been charges for work done by employees of Melbourne Corporation. When pressed as to why they had not been produced he said they would have been thrown out. He was then challenged as to whether there had ever been time sheets supporting any of the management fees charged. He then responded 'Well, not - not per se, but there would [have been] people charging accounts in our work in progress for the work they did'. However, as is explained below, there is simply no evidence to support the calculation of management fees by reference to records of that kind. On the contrary, the evidence is to the effect that lump sum amounts were charged. Nor is there any evidence to indicate the nature or extent of overheads or other services that were provided to the company charged the management fee.
I consider the reference to working papers to be a form of ruse resorted to by Mr Gould when confronted with entries in the accounts that were inconsistent with his overall explanation of the basis for the deductions claimed by the taxpayers.

[340]

The Commissioner's principal case was that there were no loans. Various aspects of the evidence were relied upon to support that submission. Significant aspects have been canvassed in dealing with the credibility of Mr Gould.
The case for the taxpayers was that the relevant loans that were alleged to give rise to the deductions for interest charges were oral. They were said to have been arrangements put in place by Mr Gould. For reasons already given, none of that evidence should be accepted as credible. No issue of sham is raised by that aspect of the Commissioner's case.
However, in certain limited respects, the Commissioner also claimed that certain documents relied upon by the taxpayers to demonstrate that there were arrangements to source funds at arms' length from the Offshore Funders that had been brought into existence to demonstrate loans (and supporting security) in respect of funds sourced from the Offshore Funders were shams, in the sense that there were no loans of the kind alleged. For example, there were documents relied upon by the taxpayers to support the alleged refinancing with Derrin Brothers that were said to be a sham.
Of course, those documents do not establish the existence of the alleged loans that were said to give rise to the interest charges claimed as deductions. None of those alleged loans were between a taxpayer and an Offshore Funder.
As to those documents, I find that sufficient doubt has been cast upon their genuineness by the successful attack upon the credibility of Mr Gould that they cannot not be relied upon by the taxpayers to establish genuine dealings in the terms that those documents might suggest. Within the overall narrative of Mr Gould's evidence, the circular movement of funds by which the 'refinancing' was effected, when coupled with the discredited attempt by Mr Gould to cast the dealing as an arms' length refinancing and considered in the context of the many other respects in which Mr Gould's account has been found to be lacking in credit, raises considerable doubt as to whether those documents were no more than a disguise for the movement of overseas funds under the control of Mr Gould.
Given the onus that falls upon the taxpayers, that is sufficient for present purposes for the documents relied upon by the taxpayers to support the alleged overseas loan arrangements to not be accepted at face value.

[342]

For reasons I have given, Mr Gould's account to the effect that the deductions claimed by the taxpayers for interest were in respect of genuine borrowings by the taxpayers was not credible. Nor was his evidence as advanced to support the claim that the borrowed amounts were used by the taxpayers for income producing purposes. As I have explained, by reason of the significance of Mr Gould's evidence, those conclusions mean that the taxpayers have failed to discharge their onus as to the interest amounts.
However, as has been noted, the taxpayers also sought to rely upon analysis undertaken by Mr Jones to support their case that the relevant amounts of principal alleged to have been borrowed were used for income producing purposes. Given the findings that I have made concerning Mr Gould's evidence and the significance of those findings, it is not necessary to consider whether Mr Jones' analysis should be accepted (because it assumes that Mr Gould's account is to be accepted). Nevertheless, I will record my findings concerning Mr Jones' evidence.
Before doing so, I observe that, in closing submissions for the taxpayers, it was recognised that Mr Jones' attempts to trace expenditures from deposits 'sustained damage under cross‑examination'. In consequence, the Court was invited to approach the issue by taking 'a broad view' as to the income to which the borrowings related. In effect, the case advanced in closing did not rest upon the analysis of Mr Jones. Rather, it sought to rely upon the records in the books of account as explained by Mr Gould and a broad brush inference that all amounts that came into the books that were recorded as loans were deployed to earn income. As I have explained, the lack of any credibility in Mr Gould's account means that the closing submissions to that effect fail at their foundation.
I make the following findings concerning the evidence given by Mr Jones.
Mr Jones was employed to assist in the preparation of affidavits for the conduct of proceedings concerning taxation assessments for entities controlled by Mr Gould including the taxpayers in these proceedings. His work was supervised by the barrister then acting for the taxpayers in these proceedings, Mr John Hyde Page. It was Mr John Hyde Page who told Mr Jones what was to be done when it came to preparation of affidavits for the proceedings.
Mr Jones was never an employee of any of the taxpayers and he was not involved in any of the historical events that are said to give rise to the taxation liabilities of the taxpayers for the relevant period. At the time of giving his evidence, Mr Jones was an employee of the Australian Taxation Office, having commenced that employment in January 2024.
Mr Jones gave evidence on affidavit of his analysis of bank statements and general ledger records for each of the taxpayers and, where relevant, other Australian entities controlled by Mr Gould. In some instances he used electronic information from computer records to create general ledgers. Mr Jones also prepared loan summaries for parties alleged to be lenders of funds, including the Offshore Funders.
Mr Jones undertook an analysis of the cash deposits into the bank accounts of each of the taxpayers in the relevant period and the cash expenditures that occurred in the 'aftermath' of the deposits based upon the records that he analysed. In effect, he sought to identify when funds that were alleged to be borrowings came into the bank account of the taxpayer and then identify expenditures shown in the bank records for the taxpayer in the period after that amount came into the bank account until the identified expenditures totalled or exceeded the amount that came into the bank account. It was premised on the view that an analysis of that kind might demonstrate that the amounts allegedly borrowed had been deployed to meet the expenditure in the bank account made immediately after the deposit.
Further analysis was undertaken (based upon evidence from Mr Gould and the accounting records) which was said to support the conclusion that the relevant expenditure amounts were incurred by the taxpayer for income producing purposes.
Mr Jones undertook two types of analysis. One was described as first in first out (FIFO) and the other as debits after deposits (DAD).
In my view, whilst no issues arise as to the credibility of Mr Jones as a witness, there were deficiencies in his approach. Those deficiencies include the following:

[347]

It can be seen that despite Mr Gould's evidence as to the way in which the alleged interest charges were set, there was a considerable divergence as to the implicit interest charges as determined by Mr Paul Hyde Page. Further, the above figures were averaged over the years in which interest was paid by the taxpayer during the relevant period. Therefore, they disguised other variations in the interest rates which the level of alleged interest charges represented (if calculated in the manner that Mr Paul Hyde Page was asked to calculate them, namely as interest rates implicit in the amounts paid having regard to assumed loan balances derived from the accounts of the taxpayers).
Mr Paul Hyde Page calculated the implicit interest rates by averaging the interest over periods that included years when there was no interest charge. In effect, he treated very lumpy ad hoc amounts as representing amounts paid in respect of a constant interest rate applying to the alleged loan balance over the period.
Some calculation errors and inconsistencies were exposed in the detail. I would not have regarded those matters as a sufficient foundation to reject his evidence. Rather, they were the types of matters for which it would be appropriate to make an adjustment if his evidence was otherwise considered to be relevant and of forensic value.
The fact that an implicit rate of interest might be able to be derived from the schedule of amounts shown in the accounts as interest charges when applied to the loan balances provides no support for the taxpayers' claims. The exercise undertaken by Mr Paul Hyde Page assumes that there were loans and that the payments recorded as interest charges were ad hoc payments made to reduce an accruing and unknown interest burden that applied rateably over the period of the loan balance. For reasons that have been given, there was no credible basis to support the existence of loan arrangements of that kind.
The evidence of Mr Paul Hyde Page therefore provided no support for the taxpayers' claims.

[350]

Mr Good accepted that lenders do not generally agree to interest being incurred based on periodic agreements (that is, where interest was paid in some years but not in others). He also agreed that if the implicit interest rate calculation was undertaken for each year of the alleged loan amounts then the percentage interest rates would vary dramatically. By way of example, he agreed that in the case of the Share Trust there were years where the interest would be nil and a year when the interest was more than 50%. Mr Good agreed that in his experience an arms' length lender would not agree to being paid sporadically at such varying rates.
Mr Good also agreed that he had not been provided with all of the information that was necessary to assess the lending parameters for the alleged loan amounts by the trust entities.
Mr Good also accepted that in respect of certain years for the Share Trust (2001, 2002 and 2004) and the Family Trust (2006 and 2008), given the information that was available, a lender would not have had any reasonable expectation of repayment. It was submitted for the Commissioner that those opinions supported the Commissioner's case that there was no obligation of repayment. I am not sure that is correct. There can still be a loan even though it is owed by a party that has no capacity to repay that loan.
In any event, the Commissioner's main submission was much more fundamental. It was to the effect that demonstrating the 'reasonableness' of an implicit rate of interest when derived from amounts claimed to be interest charges was not a basis for demonstrating that the amounts were the interest paid in respect of genuine loans. That submission must be accepted, especially when the pattern in which the claimed interest charges were alleged to have been incurred was entirely inconsistent with the existence of a genuine loan. Even more so when, as has been explained, in most years the amounts produced a sufficient deduction to result in a favourable tax outcome for the taxpayer concerned.
The evidence of Mr Good was of no assistance to the taxpayers in demonstrating that there were loans in respect of which interest was paid. Even if (contrary to my findings concerning the evidence of Mr Gould) the existence of those loans had been established, the evidence of Mr Good would not have established the reasonableness of the interest charged because it ignored the pattern of the payments and the fluctuations in the effective annual interest rate in the years in which the interest was charged (with no basis for any assumption that interest was carried forward from one year to another).

[357]

This answer was most unconvincing. It did not sit with Mr Gould's previous explanations as to how the affidavit had been prepared. Characteristically for Mr Gould's testimony, it also prevaricated. Consequently, it was unclear as to what Mr Gould did say to Mr Jones about the origins of the alleged loan said to have given rise to the interest deductions in the 1999 and 2000 tax years and, consequently, the carried forward losses that Philadelphia claimed in the 2001 tax year.
Mr Gould went on to say that he 'would absolutely adopt' what was in the affidavit, indicating that it had been prepared by Mr Jones and then adopted by Mr Gould. He later made clear that he had not looked at the underlying documents. He then changed his position to say that he had glanced at them.
In short, Mr Gould's affidavit evidence about the origins of the relevant borrowing was exposed as being unreliable.
In his oral evidence, Mr Gould maintained that he had arranged for Philadelphia to borrow monies from the Commonwealth Bank to purchase shares. He referred to documents from 1985 to 1988 concerning a borrowing by Philadelphia from the Commonwealth Bank. However, on Mr Gould's account it was not until 1992 that there was a refinancing with Cheung Wah Bank.
In evidence were financial statements for Philadelphia which included balance sheets showing information for the 1990 and 1991 tax years. They showed that non-current liabilities for Philadelphia as at 30 June 1990 were $230,791.28 (having been $532,363.46 the previous year). They also showed that the non-current liabilities for the previous year included a commercial bill of $403,000 which was shown as being nil as at 30 June 1991). Mr Gould accepted that on the face of those accounts there was no amount owing to the Commonwealth Bank as at 30 June 1990.
Mr Gould was then taken to the accounts for Philadelphia for the 1991 tax year. He did not dispute that the main liability at that time appeared to be an amount of $500,000 (described as 'Bills payable') which corresponded with an at call receivable of $500,000 being a loan to Penalton Pty Limited (one of Mr Leaver's entities). It appeared from those records that by 30 June 1992, the amount due on the commercial bill had been advanced to Penalton. The position emerged in the following question and answer:

[359]

Remembering that Mr Gould's account in his affidavit was that the funds had been borrowed from the Commonwealth Bank and could then be traced through as a borrowing that was refinanced to Offshore Funders, it is difficult to believe that Mr Gould could have any confidence as to the existence of a business purpose for the funds being advanced to Penalton. The lack of any real credibility in his account was evident in his subsequent suggestion that Penalton may have taken over the loan from the Commonwealth Bank. The accounts for the 1991 tax year also referred to a loan of $270,522.02 to Southsea Investments Pty Limited (the trustee of the Family Trust at that time). The previous year that was a much smaller loan to Southsea Investments and a separate 'directors' loan to Mr Gould. However, tracing those loan amounts back through the accounts indicated that they were separate to what had been shown as the 'commercial bill' loan amount.
Further, the accounting records also indicated that interest was not being paid by Penalton on the $500,000 borrowing and the amount was repaid by the end of the 1993 tax year.
Accordingly, Mr Gould was unable to explain in any credible way how it might be that the historical borrowing from the Commonwealth Bank in the 1980s might have been refinanced in some way that continued the borrowing (and its alleged investment funding purpose) beyond 1990.
Thereafter, what was apparent from the accounting records was that there were dealings involving Cheung Wah Bank and Swire Investments, companies to which reference has already been made. I have not accepted Mr Gould's account about the nature of his relationship to those companies or the claims about Offshore Funders providing loans to the CVC entities. What the subsequent records show is an amount going out of Philadelphia to Swire Investments, being an amount on which no interest appeared to be paid. The accounting treatment for the amount in Philadelphia's accounts for borrowings and receivables in the following years is somewhat obscure. There is a credible reading of the accounts that was put to Mr Gould which suggests that ultimately that receivable from Swire Investments was reflected in an amount that was written off by Philadelphia and shown as a reduction in shareholders' funds some time in the 1997 tax year.
So, although a secured loan amount of $350,000 is shown in the accounts for Philadelphia through the mid to late 1990s as a loan due to CVC I, the accounting records suggest that those funds were actually dispersed to Swire Investments and then written off.
In those circumstances, there is no credible account given by Mr Gould to the effect that the loan of $350,000 was a refinancing in some way of the original borrowing from the Commonwealth Bank or that it had been subsequently borrowed for a business purpose.
By the 1998 tax year the Philadelphia accounts show that there was a loan of $350,000 (described in the notes as a secured loan from CVC I). In the 1999 accounts there is an expense shown of $80,000 for interest. The same amount is accrued as a current liability (unsecured) to 'Sundry creditors'. In the accounts for the 2000 tax year there is a further interest expense of $150,000 (shown on the same line as the $80,000 for the previous year). Although the interest amounts are shown as 'paid', the notes to the 2000 accounts for 'Loans, secured' depict the loan balance for CVC I as at 30 June 1999 as being $350,000 reduced to nil as at 30 June 2000. The notes also show a new loan for CVC II with a balance of $580,000.
It was put to Mr Gould that the balance of $580,000 was the amount of $350,000 plus the two amounts of interest expense ($80,000 plus $150,000). Having regard to the state of the accounts, it appeared to be a very reasonable proposition. It culminated in the following question and answer:

[363]

As has been mentioned, there were very large interest expenses claimed to have been incurred by the Family Trust in the 1999 and 2000 tax years. The position of the Commissioner was that the basis for the deductibility of the interest had not been demonstrated by the taxpayer and consequently there were not carried forward losses from those years which could be used to offset income earned in the relevant period.
The submission advanced for the Commissioner was that the evidence concerning the basis upon which interest was claimed in the relevant years casts doubt on the deductibility of interest claimed in earlier years. The way in which it was put in closing submissions was that 'on the very limited evidence available, if one looks back, one can't see anything that was different in the past to our exploration of the 2001 to 2014 years'.
The evidence given by Mr Gould concerning the overall structure of the Australian entities and the way they were said to be funded extended back before 2001. For reasons I have given, I do not accept the credibility of that account.
Otherwise, the only evidence concerning the interest deductions claimed by the Family Trust for the 1999 and 2000 tax years was the general ledger for the Family Trust for the 2000 tax year. It included a general journal entry on 30 June 2000 for 'Accrued Charges' of $900,000 with the notation 'Interest & profit share to C'. There was an opening balance for the same ledger account of $290,000. These are the disputed amounts. Those amounts appear as 'current liabilities' in the balance sheets for the Family Trust for the 1999 and 2000 tax years as 'Accrued charges'.
Therefore, on the evidence, the 'accrued charges' are not able to be identified as relating to any particular borrowing. The purpose of the borrowing is not identified. The two amounts appear to have been incurred as end of year adjustments. The only available note indicates that the $900,000 amount may relate to some form of 'profit share'.
Accordingly, this is not an instance where conclusions may be drawn from the accounts based upon them being maintained in the ordinary course of business in relation to a borrowing that, on the face of the accounts, has been applied to finance the business operations.
In those circumstances, I am not persuaded that the taxpayer has discharged the onus to demonstrate that there were carried forward losses that may be applied in the relevant period.

[365]

The deemed dividends issue arises in respect of the appeal brought by Southsea Nominees as trustee for the Family Trust. It arises because of the taxpayers' claim that Southsea Nominees as trustee for the Family Trust is entitled to franking credits of $1,232,142 with respect to a purported dividend from Leagou in the 2014 tax year. The dividend is alleged to have been paid as to $750,000 in cash and as to the balance by repayment of a loan of $2,150,000 allegedly made by Leagou to the Family Trust earlier in the 2014 tax year, specifically on 17 March 2014.
It is the Commissioner's position that the purported dividend was not a dividend as defined in s 6(1) of ITAA36 because Southsea Nominees as trustee for the Family Trust was not a shareholder of Leagou on 17 March 2014. Rather, by operation of s 109C(1) in Division 7A of ITAA36, the purported dividend was a deemed dividend from Leagou to the Family Trust that was an unfrankable distribution pursuant to s 202-45(g)(i) of the Income Tax Assessment Act 1997 (Cth) (ITAA97). Although the Commissioner has a discretion to disregard the operation of Division 7A that is conferred by s 109RB, it was the position of the Commissioner that there was no discretion in the present circumstances because the relevant statutory criteria expressed in s 109RB(1)(b) were not met. They required the deeming of the dividend to arise because of honest mistake or inadvertent omission. Alternatively, the Commissioner said that there was no exercise of discretion under s 109(2)(b).
The answer advanced by the taxpayer to the Commissioner's position was that expressed in the appeal statement. The issue was not otherwise addressed in the opening or closing submissions for the taxpayers. It was not expressly abandoned but the fact that it was not addressed indicates that it was only put in formal terms. I will address it accordingly.
The position advanced by Southsea Nominees as trustee for the Family Trust was that it was a shareholder of Leagou as at 17 March 2014. Alternatively, if the alleged dividend was not paid to a shareholder then it was not an unfrankable deemed dividend but had some other legal character (being either a settlement of money on the trust or a dividend to Southsea Nominees in its own corporate capacity, and not as trustee).
As to the alternative, the position of the Commissioner was that he disputed the claims as to the legal character of the payment but said, in any event, the legal character was not relevant. Rather, the terms of Division 7A applied irrespective of the legal character of the payment. In my view that position must be correct. The issue is not as to the legal character of the payment but rather as to whether Division 7A applied to deem the payment of the purported dividend to be a dividend to the Family Trust. In the absence of any attempt by the taxpayer to explain why, on its alternative case, the deemed dividend provisions did not apply, that aspect of the alternative must fall away.
Southsea Nominees as trustee for the Family Trust had also advanced a further alternative to the effect that the alleged decision by the Commissioner not to exercise the discretion conferred by s 109RB was vitiated by error because there was a failure to take into account alleged mandatory considerations expressed in s 109RB(3) in the following terms:

[369]

As I mentioned at the outset of these reasons, Leagou was previously named CVC Investment Managers Pty Limited. In what follows I continue to refer to the company as Leagou even though at the relevant time it was named CVC Investment Managers Pty Limited. Leagou was the management company for Continental Venture Capital, a listed public company. Continental Venture Capital had no employees. All its activities were undertaken by a management team employed by Leagou. For a long period of time, Mr Gould was the Chairman of Continental Venture Capital.
On Mr Gould's account, Leagou was always owned equally by his own interests and the interests of Mr Leaver through the Family Trust and the John Leaver Family Trust. In giving evidence to that effect, Mr Gould also suggested in a very general way that Mr Gowrie-Smith may have had an interest in Leagou at some stage. Mr Gould explained that he could not remember whether that was the case and, in his words, in giving that evidence he was 'sort of covering myself'. It was an odd answer given the course of the rest of his evidence which referred to Leagou as controlled by each of his and Mr Leaver's family trusts with each of them having a 50% shareholding. In the course of what follows, I consider the veracity of that evidence.
The balance sheet for the Family Trust as at 30 June 2014 did not show the shares in Leagou as an asset of the Family Trust. When reminded that it was part of the case for the taxpayers that the Family Trust was the beneficial owner of the shares in Leagou as at 17 March 2014, Mr Gould's explanation was that there was an error in the balance sheet. It was plain that Mr Gould immediately understood the significance of the question for the part of the case that concerned the alleged dividend (and consequent franking credit).
Mr Gould was taken to a company search for Leagou as at 26 March 2015. It recorded the shares in Leagou held by Southsea Nominees as being 'beneficially owned'. Despite that record, Mr Gould maintained that the shares were owned by Southsea Nominees as trustee for the Family Trust.
On 24 February 2016, the Commissioner sent a letter to 'The Trustee' of the Family Trust concerning the finalisation of an audit of Southsea Nominees as trustee for the Family Trust for the 2012 to 2014 tax years. It referred to a change in shareholding on 6 March 2014 which showed that from that time Southsea Nominees beneficially held half the issued shares in Leagou. The letter referred to the Commissioner's view that the contentious dividend amounts said to have been declared in the 2014 tax year were assessable under Division 7A as deemed dividends that were not franked.
It was put to Mr Gould that having seen that letter, he decided to take action about the shares held by Southsea Nominees in Leagou. He gave a stuttering answer in response which concluded with the statement that he did not even recall the letter. I found the answer to be most unconvincing in circumstances where Mr Gould well understood from the outset of the line of questioning the relevance of the nature of the shareholding for the franking credit issue. Further, the course of the whole of his evidence was such that he displayed a keen understanding of the taxation consequences of the matters the subject of his evidence. In the context of the overall issues, the Commissioner's letter and statement about the nature of the shareholding would have been significant and memorable.
In his cross-examination, Mr Gould was immediately confronted with a request for correction form bearing the endorsed date of 24 March 2016, which concerned the shareholding of Southsea Nominees in Leagou. The details of the correction requested were listed in that form as:

[381]

It was one of very few instances in the course of a very long cross-examination where Mr Gould was unable to proffer some form of explanation, even an unconvincing one. In many instances, he provided an answer by way of conjecture as to what may have happened. The way he gave the answer revealed what I took to be discomfort at being unable to provide any explanation as well as recognition that there was no explanation.
Mr Gould then denied that the note had been backdated. I do not accept that denial.
It is significant that, at the time of the investigations by the Commissioner as part of the audit process, Mr Gould did not seek to rest his position on the basis of debate about what was meant by beneficial ownership. Instead, he sought to maintain that there had been an actual attempt, two years prior, to lodge the relevant form which had been unsuccessful and yet, subsequently, knowing that to be the position, when the issue was raised he lodged a notice of correction. There is obvious inconsistency between the effort to explain why the shares were described as being held 'beneficially' (in the form of the file note referring to the way the outgoing shareholders had been noted as holding the shares) and the lodgement of the correction form. If indeed there had been a known error at the time of the file note why was the position not corrected at that time?
There was a further aspect that casts doubt on the file note. The change to company details that was lodged to indicate the shareholdings in Leagou (which indicated as to each shareholder that the shares were held beneficially) was dated 6 March 2014, but the file note was dated 19 February 2014. Mr Gould was unable to provide any explanation as to why it might be that having had the alleged problem in lodging the form on 19 February 2014 (as recorded in the file note) and then having prepared the new form (which was dated 19 February 2014), it was not until weeks later that the form was lodged. These matters pointed to the file note being constructed after the event but without due regard to the timing as to the actual lodgement of the form on 6 March 2014.
Mr Gould was then taken to a document that he had produced as an attachment to his first affidavit in the appeal brought by Southsea Nominees as trustee for the Family Trust. It purported to be minutes of a meeting of directors of Leagou held on 19 February 2014. It recorded the following:

[392]

Therefore, on Mr Gould's version of events, in February 2014 an issue arose as to whether the share register of Leagou correctly reflected the shareholding in the company. There was a board meeting on 19 February 2014 at which it was resolved to correct the register. Also, on 19 February 2014 a file note was prepared by Mr Gould which recorded that a form had been unable to be lodged showing the shareholdings of the 'outgoing shareholders' as holding the shares non-beneficially (for the Family Trust and the John Leaver Family Trust) because previous forms had shown those outgoing shareholders as holding the shares beneficially. The form that was then lodged was dated 19 February 2014 but was not lodged until 6 March 2014. It showed the incoming shareholders (Southsea Nominees and Wenola Services Pty Limited) as holding the shares beneficially even though the importance of the distinction had been recognised and the form required the identification of whether the shares were held beneficially or not.
It was in that context, on Mr Gould's account, that the end of year accounts for the 2014 tax year were prepared for the Family Trust and the shares in Leagou. It will be recalled that those accounts did not show the shares as assets of the trust. Mr Gould accepted that the total equity of Leagou at the time was over $25 million. He provided a very unconvincing explanation as to why that may be so. It was first concerned with whether the value of the shareholding might be shown in the loan balances as assets. Then when that was exposed as an invalid explanation Mr Gould then gave evidence that the contributed capital of $100,000 to establish Leagou might mean that the shares were not shown in the balance sheet. All this at a time when the ownership of the shares was said to have been a matter of considerable focus in February and March 2014.
It was not until 2016 when the Commissioner pointed out the consequence for the alleged franking credit of Southsea Nominees being the beneficial holder of half the shares in Leagou that a correcting form was immediately lodged.
Accordingly, when it came to the evidence of Mr Gould based upon what occurred in 2014, which was said to support the conclusion that as at 17 March 2014, 50% of the shares in Leagou were held by Southsea Nominees as trustee for the Family Trust, there was much that was unsatisfactory about his account. In addition, as explained below, there was a very confused history concerning that shareholding.
Mr Gould was cross-examined about the historical record concerning the shareholdings in Leagou. He was taken back to the 1991 annual return for Leagou. The form included the following instruction: 'A member who holds shares on behalf of another person or corporation is not the beneficial owner of the shares (show "N")'. The form showed six shareholders holding a total of 100,000 shares. It showed Southsea Investments as the holder of 49,996. In response to the question in the annual return 'Is the member the beneficial owner of the shares? (Y/N)', there was the notation 'N'. There was a similar entry for Penalton also holding 49,996 shares. Penalton was the trustee of the John Leaver Family Trust at the time. Leaver Holdings Pty Ltd was shown as holding two shares and the notation for that holding was 'Y'. On Mr Gould's account, the two entities holding most of the shares were trustee entities and they were shown as 'N' (not the beneficial owner). Having regard to the evidence given by Mr Gould the only reason for the 'N' notation would be the trustee character of those two companies.
Mr Gould was then taken to the 1992 annual return for Leagou. It showed Southsea (Aust) Ltd as the holder of the shares that had been held by Southsea Investments with the notation 'N' as to beneficial ownership. As to whether he recalled anything about that, Mr Gould said: 'At one stage we were thinking of using another - another nominees, but that - it would be just nominees for the family trust. That's all'.
Mr Gould was then taken to a form providing supplementary information to the 1992 annual return for Leagou, which was said to show a change in shareholders. Whereas the 1992 annual return had given an address in Pitt Street Sydney for Southsea (Aust) Ltd, the relevant shareholding was now shown to be in the name of Southsea (Aust) Limited at an address in Jersey and the notation as to beneficial ownership was recorded as 'Y'. Asked whether he recalled anything about that, Mr Gould said:

[406]

When pressed as to whether he could remember how the shares 'came back' he said: 'Well, no, I don't, but it would be because of certain loans were repaid or something of that order, but exactly how that happened, I don't know'. They were loans that he could not identify.
Even allowing for the passage of time, I do not believe these answers given by Mr Gould. They concern the control of his interest in Continental Venture Capital, a matter at the heart of his financial affairs. In the affidavit in the Family Court proceedings he described himself as being employed by CVC Investment Managers, identifying that role as the source of his weekly income. What Mr Gould was describing was an arrangement to warehouse the shares in Leagou (then named CVC Investment Managers) whilst deposing in the Family Court proceedings that the shares in Leagou had been sold to Penalton and Southsea (Aust) Limited being Jersey companies in which Mr Gould said he had no interest and which he believed, at the time, to be controlled by trusts associated with Mr Gowrie-Smith.
Further, they are matters that Mr Gould knew might be raised. That is evident from his curious statement at the beginning of the passage of cross-examination concerned with the shareholding in Leagou. At that time, he suggested that Mr Gowrie-Smith may have had an interest in Leagou at some time. He said that he could not remember whether that was the case and, in his words, in giving that evidence he was covering himself. Viewed in the context of what unfolded in relation to the affidavit in the Family Court proceedings that was revealing testimony on the part of Mr Gould. I find that Mr Gould was indeed covering himself for the possibility that his past inconsistent testimony would emerge. I also find that before Mr Gould was cross-examined in the present proceedings he had thought about how the inconsistency might be explained. The veracity of Mr Gould's evidence about the alleged loan and security arrangement with Mr Gowrie-Smith is to be evaluated in that light. What Mr Gould's evidence showed was how far he was prepared to go when it came to misrepresenting the state of his financial affairs. It was evidence that reflected adversely on his overall credibility. In what followed, those conclusions were further reinforced.
The 1994 annual return for Leagou still showed 49,996 shares in Leagou being beneficially held by Southsea (Aust) Limited of Jersey.
The 1995, 1996 and 2001 annual returns for Leagou again showed 49,996 shares being beneficially held by Southsea (Aust) Limited. However, the address for the company was an address in Bridge Street Sydney associated with Mr Gould. In each case, no ACN appeared for the company.
The 2002 annual return showed a change. The name Southsea (Aust) Limited and the address were the same, but there also appeared an ACN for the company. An Australian company with that name and ACN had been registered on 11 February 1994 and deregistered on 4 March 1996.
Asked what was going on with the company, Mr Gould gave the following answer:

[408]

He was pressed as to what had happened given that the shares were still shown as being beneficially owned. His answers were unconvincing. It was put to him that he had taken steps to morph the ownership from the Jersey entity into the Australian entity. He denied that but could not explain why the steps were taken in relation to Southsea (Aust) Limited. I find that the steps were taken to unwind the warehousing of the shares. In order for that warehousing to be effected, the beneficial ownership of the shares in Leagou had to be held by Southsea (Aust) Limited. That remained the case because there was never any dealing with those shares. There was simply the sleight of hand effected by the incorporation of the Australian entity with the same name as the Jersey entity.
Eventually, as has been explained, on 6 March 2014, just before the relevant dividend was declared, there was a form lodged to change the shareholdings in Leagou. It was dated 19 February 2014. It showed a decrease of 49,996 shares beneficially held by Southsea (Aust) Limited with an ACN corresponding to the company that had been deregistered in 1996. It showed a decrease in other shareholdings. It also showed an increase of 50,000 shares beneficially held by each of Southsea Nominees and Wenola Services Pty Limited.
So, on the evidence, shares that had been transferred beneficially to Southsea (Aust) Limited of Jersey on 30 October 1992 for $50,000 had been registered in the name of Southsea Nominees. There was no explanation forthcoming from the taxpayer as to the basis for that transfer or why it was said to be a transfer to Southsea Nominees as trustee for the Family Trust. Aside from Mr Gould's general evidence to the effect that the shares had always been held as trustee for the Family Trust, evidence which I do not accept having regard to the state of the evidence as to the warehousing arrangement, there is no basis to conclude that the shares were held as trustee.
The fact that Mr Gould took the steps in relation to the repatriation of the shareholding in Leagou with some deliberation finds considerable support in the following documents that were in evidence. Mr Gould sent a letter to Mr Bell of Lubbock Fine on 19 June 1992. It read:

[419]

(1) an amount of $10,000 said to be deductible in the 2003 tax year as interest on a debt to Chemical Trustee;

(2) an amount of $83,333 said to be deductible in the 2004 tax year as interest on a debt to Chemical Trustee;

(3) an amount of $86,720 said to be deductible in the 2005 tax year as interest on a debt to Chemical Trustee;

(4) an amount of $89,750 said to be deductible in the 2006 tax year as interest on a debt to Chemical Trustee;

(5) an amount of $86,720 said to be deductible in the 2007 tax year as interest on a debt to Chemical Trustee;

(6) an amount of $53,760 said to be deductible in the 2008 tax year as interest on a debt to Chemical Trustee;

(7) an amount of $1,070,000 said to be deductible in the 2009 tax year as interest on a debt to Chemical Trustee;

(8) an amount of $4,367 said to be deductible in the 2010 tax year as interest on a debt to Chemical Trustee;

(9) an amount of $17,836 said to be deductible in the 2010 tax year as interest on a debt to the Family Trust;

(10) an amount of $23,436 said to be deductible in the 2010 tax year as interest on a debt to Morning Star;

(11) an amount of $28,838 said to be deductible in the 2010 tax year as interest on a debt to Melbourne Corporation;

(12) an amount of $287,201 said to be deductible in the 2011 tax year as interest on a debt to Chemical Trustee;

(13) an amount of $6,466 said to be deductible in the 2011 tax year as interest on a debt to the Family Trust;

(14) an amount of $8,405 said to be deductible in the 2011 tax year as interest on a debt to Morning Star;

(15) an amount of $11,381 said to be deductible in the 2011 tax year as interest on a debt to Melbourne Corporation;

(16) an amount of $309,600 said to be deductible in the 2012 tax year as interest on a debt to Chemical Trustee;

(17) an amount of $309,600 said to be deductible in the 2013 tax year as interest on a debt to Chemical Trustee;

(18) an amount of $334,678 said to be deductible in the 2014 tax year as interest on a debt to Chemical Trustee; and

(19) an amount of $80,000 said to be deductible in the 2014 tax year as interest on a debt to Melbourne Insurance.

[422]

(1) a loss of $37,092 is said to have been incurred in the 1999 tax year that could be carried forward and offset against income in subsequent years (particularly on the basis that interest of $290,000 was deductible in that year);

(2) a loss of $584,130 is said to have been incurred in the 2000 tax year that could be carried forward and offset against income in subsequent years (particularly on the basis that interest of $900,000 was deductible in that year);

(3) an amount of $1,600,000 said to be deductible in the 2001 tax year as interest payable to CVC II;

(4) an amount of $1,390,000 said to be deductible in the 2002 tax year as interest payable to CVC II;

(5) an amount of $570,000 said to be deductible in the 2003 tax year as interest payable to CVC II;

(6) an amount of $613,650 said to be deductible in the 2004 tax year as interest payable to CVC II;

(7) an amount of $44,000 said to be deductible in the 2004 tax year as a management fee payable to Philadelphia;

(8) an amount of $10,000 said to be deductible in the 2005 tax year as interest payable to the Share Trust;

(9) an amount of $55,000 said to be deductible in the 2006 tax year as interest payable to CVC II;

(10) an amount of $15,000 said to be deductible in the 2006 tax year as a management fee payable to CVC II;

(11) an amount of $235,000 said to be deductible in the 2006 tax year as a management fee payable to Melbourne Corporation;

(12) an amount of $131,400 said to be deductible in the 2007 tax year as interest payable to CVC II;

(13) an amount of $87,500 said to be deductible in the 2007 tax year as a management fee payable to Melbourne Corporation;

(14) an amount of $1,617,000 said to be deductible in the 2008 tax year as interest payable to CVC III;

(15) an amount of $250,000 said to be deductible in the 2008 tax year as a management fee payable to Melbourne Corporation;

(16) an amount of $1,596,500 said to be deductible in the 2009 tax year as interest payable to CVC III;

(17) an amount of $145,000 said to be deductible in the 2009 tax year as a management fee payable to Melbourne Corporation;

(18) an amount of $1,062,000 said to be deductible in the 2010 tax year as interest payable to CVC III;

(19) an amount of $200,000 said to be deductible in the 2010 tax year as a management fee payable to Melbourne Corporation;

(20) an amount of $1,015,500 said to be deductible in the 2011 tax year as interest payable to CVC III;

(21) an amount of $1,054,500 said to be deductible in the 2012 tax year as interest payable to CVC III;

(22) an amount of $904,000 said to be deductible in the 2013 tax year as interest payable to CVC III;

(23) an amount of $5,000 said to be deductible in the 2013 tax year as a management fee payable to Golden Investments;

(24) an amount of $825,000 said to be deductible in the 2014 tax year as interest payable to CVC III; and

(25) an amount of $5,500 said to be deductible in the 2014 tax year as a management fee payable to Golden Investments.

[431]

For each of the relevant years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion. There was a blameworthy act or omission on behalf of the trustee for the Share Trust or its tax agent, which at the very least, amounts to evasion.

As the Commissioner has formed an opinion of fraud or evasion, the Commissioner may issue original or amended assessments to the trustee of the Share Trust for the relevant years, at any time.

The amended assessments have issued within time.

Where a trust tax return shows no trustee tax liability (whether under sections 98, 99 or 99A of the [ITAA36], the ATO does not, as a matter of course, issue any Nil assessments to the trustee to reflect the position as returned.

Strictly, this means that time does not begin to run for a period of review (in respect of the assessments and the Commissioner has an unlimited period within which to review and assess the trustee's tax position.

Law Administration Practice Statement PSLA 2015/2 Trustee assessments explains the Commissioner's administrative practices of limiting the time in which the ATO will raise an original income tax assessment for a trustee. Paragraph 2 provides that generally the Commissioner will not issue an original assessment to the trustee more than four years after the relevant trust tax return was lodged.

However, paragraph 3 of PS LA 2015/2 outlines a number of circumstances where paragraph 2 does not apply. Relevantly, these circumstances include where the Commissioner is of the opinion that there has been fraud or evasion.

Under the Commissioner's administrative practice, he would have been out of time to issue Trustee assessments to you for the financial years ended 30 June 2004 to 30 June 2012 if he was not of the opinion that there was fraud or evasion.

The Commissioner formed an opinion on 23 April 2015 that there had been an avoidance of tax in the years ended 30 June 2004 to 30 June 2011 and therefore was following his practice statement in issuing the Trustee notices of assessment for the years ended 30 June 2006 to 30 June 2011.

As a result he was also authorised to issue the amended notices of assessment to the beneficiary for the years ended 30 June 2004 and 30 June 2005 under section 170 of the [ITAA36]. The Commissioner was within time to amend the beneficiary assessment for the financial years ended 30 June 2012.

[459]

A description of the nature of the appeal in those terms resonates with modern notions of jurisdictional error. It confines the extent to which a taxpayer can challenge the relevant state of mind on the appeal.
In Avon Downs the taxing provision itself operated on the basis of the state of satisfaction of the Commissioner as to whether particular circumstances existed. The loss was only deductible if the Commissioner had formed the required state of satisfaction. It was a taxing provision that operated by reference to the subjective views of the Commissioner, lawfully formed.
Care must be taken in simply extrapolating the approach in Avon Downs as if it applied in a general way to any issue raised by a taxpayer in an appeal pursuant to s 14ZZ concerning the formation of a subjective view by the Commissioner. The issue in the present case is about an opinion that had to be formed in order for the Commissioner to have the statutory authority to issue an assessment. Once that power was enlivened, the liability to taxation was then determined by the application of the taxing provisions to the circumstances of the taxpayer. That is to say, in the present case, the relevant opinion did not form part of the operation of the taxing provision. However, it did affect the liability to taxation.
In Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation [1975] HCA 5; (1975) 132 CLR 535, the High Court applied (or appeared to recognise the applicability) of the views of Dixon J in Avon Downs in a case concerned with the same taxing provisions: at 541 (Barwick CJ), 574‑575 (Gibbs J), 576, 578 (Stephen J). There is a reference in the reasoning of Barwick CJ to the significance of the Commissioner's state of satisfaction at the time of assessment and to the possibility of the Court treating the Commissioner as not having been satisfied if it is shown that on the material before the Commissioner at the time of assessment the Commissioner could not have been so satisfied.
The approach in Kolotex treats the requisite state of satisfaction at the time of assessment as one of the matters in issue at the time of the appeal to the Court. It appears that on the appeal the facts that bear upon whether the Commissioner might properly be satisfied are only relevant to the extent that they may call into question whether the state of satisfaction was formed according to law.
In Brambles Holdings Ltd v Federal Commissioner of Taxation [1977] HCA 54; (1977) 138 CLR 467, Gibbs J said (at 476):

[463]

In separate reasons, Steward J addressed the taxpayer's proposition that 'in a Pt IVC tax appeal a Court, once satisfied of the presence of error in the attainment by the Commissioner of his state of satisfaction, can decide for itself whether or not the Commissioner should on the evidence before the Court be so satisfied'. His Honour concluded that the proposition was not correct: at [312].
All of which is to expose the importance of clear conceptual analysis of provisions that operate by reference to the Commissioner's state of mind when it comes to appeals under s 14ZZ.
I note that there was a successful appeal but not as to the above aspects of the reasoning: Addy v Commissioner of Taxation [2021] HCA 34; (2021) 273 CLR 613.
Section 14ZZ is confined to an appeal in respect of the taxation decision the subject of the objection decision. It does not empower the Court to substitute its own view for a subjective state of mind of the Commissioner on which the operation of a taxing provision depends. Further, as the circumstances in the present case expose, issues may arise as to whether the subjective state of mind has been formed outside the scope of that process. Issues may also arise as to whether the subjective state of mind that provided the basis for the assessment has been replaced by a subjective state of mind formed in the course of the objection decision.
If the operation of a relevant taxing provision depends upon the Commissioner's subjective state of mind, then, on an appeal under s 14ZZ, the taxpayer is confined to demonstrating a defect of the kind described in Avon Downs (which appears to include any kind of defect that would amount to jurisdictional error). If such an error is demonstrated then it appears that the Court may reach a conclusion as to whether the taxpayer has discharged the onus to show that the assessment is excessive or otherwise incorrect and what the assessment should have been on the basis that the subjective state of mind has not been validly formed. Whether that may be the consequence will depend upon the nature of the provision.
Otherwise, any attack upon the validity of the formation of the opinion with taxation consequences (but not by operation of a relevant taxing provision) must be raised by judicial review proceedings with separate relief being sought.
Finally, as to some of the assessments, the Commissioner advanced an alternative case that they were the original assessments or were issued within the usual four year time period and therefore it was not necessary for there to be fraud or evasion in order for there to be power to issue the assessments. No issue was raised by the taxpayers as to the factual basis for that claim. Given the conclusion I have reached on the issue of fraud or evasion it is not necessary to consider the alternative claim but I make the following findings as to matters that were not put in issue by the taxpayers:

[465]

The submissions as to penalties advanced for the taxpayers assumed that the conclusion had been reached (contrary to the main case for the taxpayers) that the deductions claimed were not allowable. In those circumstances, no submission was advanced for the taxpayers to the effect that there were no false or misleading statements as to material particulars. Rather, the submissions for the taxpayers as to penalties accepted that there was a shortfall amount and focussed upon the amount of the penalty that was appropriate in all the circumstances.
In the case of the Share Trust and the Gold Trust the relevant income was assessed to a beneficiary. Even so, penalties were imposed by the Commissioner upon the trusts because the relevant provisions deem the trustee to have the same shortfall amount as was caused in the hands of the beneficiary: see s 284-30 of Schedule 1 to the Taxation Administration Act.
The base penalty amount is worked out according to the provisions of the table in s 284-90(1) of Schedule 1 to the Taxation Administration Act (noting that a slightly different version of the provision applied from 9 June 2010). Where the shortfall amount, or part of the amount, resulted from intentional disregard of a taxation law, the base penalty amount is 75%. Where the shortfall amount, or part of the amount, resulted from recklessness, the base penalty amount is 50%.
The submission for the taxpayers was that the appropriate penalty amount was 50%. The Commissioner contended that 75% was apposite.
As to uplift penalty amounts, there was no dispute about the 20% uplift applying in second and subsequent years where there was also a shortfall amount. It is established that the uplift provisions apply even where the notices of assessment in respect of second and subsequent years issue on the same day as the notice of assessment for the first year: Bosanac at [147‑[149].
In order for there to be intentional disregard there must be actual knowledge that the statements being made are false. There must be an understanding of the tax liability and a deliberate choice to ignore the law. These matters may be established by direct evidence or inference: Weyers v Commissioner of Taxation [2006] FCA 818.
The submission advanced for the taxpayers concerned the state of knowledge and awareness of Mr Gould. No issue was taken about whether Mr Gould was the relevant guiding mind for the purposes of the application of the penalty provisions. Nor was there any attempt to distinguish between the circumstances applicable to different taxpayers or at different times. Nor was any point taken as to whether the liability of the taxpayers was on the basis that Mr Gould controlled the entities or was their tax agent. Rather, what was put was that great care was to be taken not to base a finding of intentional disregard upon a lack of documentation or infelicity in the documentation.
What was contended in closing submissions for the taxpayers was that a lack of reasonable care or an idiosyncratic view as to what may amount to an allowable deduction was not enough to support a finding of intentional disregard. Further, it was said that Mr Gould took advice on matters when he thought it appropriate to do so and discussed deductions with his staff.
Reliance was placed upon the reasoning of Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971, a case which also concerned a company controlled by Mr Gould. As to Mr Gould's evidence in that case, his Honour said at [23]-[24]:

[472]

His Honour ultimately found that the appropriate characterisation of Mr Gould's conduct in that case was that it was reckless and that the appropriate penalty rate was 50%. On that basis, the taxpayer succeeded in proving that the penalty assessments of 75% were excessive.
On the basis of the above reasoning in Anglo American it was contended for the taxpayers that findings of wilful blindness, gross indifference or conduct that was objectively outrageous would not sustain a finding of intentional disregard. Implicitly, the submission recognised that findings of that character were open having regard to the evidence given by Mr Gould. That implicit recognition (though not a concession) was appropriate in my view because I would characterise the findings I have made concerning the many respects in which Mr Gould's account was not credible as sustaining general findings to that effect. In any event, the contentions for the taxpayers as to penalty accepted that there had been recklessness. Therefore, it is not necessary to consider precisely what may be required to sustain a conclusion of recklessness.
Otherwise, the submissions for the taxpayers were to the effect that it was not open to find that there had been the 'active dishonesty' determined by Logan J to be necessary in order to find intentional disregard. The submission approached the matter on the basis that the issue in relation to penalties was whether the Court could itself make an affirmative finding of dishonesty. That does appear to be the approach that was adopted by his Honour in Anglo American. It appears to reflect the way in which that case was argued.
In the present case, the submissions for the Commissioner emphasised the significance of the onus when it came to penalties. The submission advanced orally in closing was that the taxpayers 'have not discharged their burden of showing that there was no intentional disregard of taxation law by the respective applicant or by its agent'. In my view, it is correct to approach the issue of penalties on the basis that the taxpayer must prove the facts on which the penalties are to be based. The appeal concerns the assessments. The amount of the assessments includes penalties. In order to discharge the onus imposed by s 14ZZO of the Taxation Administration Act, the taxpayers must establish that the assessments are excessive. In the present case, those assessments are based upon the shortfall amounts and penalties at 75% (plus the 20% uplift for all successive years). Having failed as to the shortfall amounts, they must establish the factual and legal basis for the Court to conclude affirmatively that a 75% penalty is not to be applied. To do that, the taxpayers must establish that there was no intentional disregard of taxation law by the taxpayers (relevantly by Mr Gould as the guiding mind).
The taxpayers seek to demonstrate an absence of intentional disregard by Mr Gould's account. In effect, they argue that Mr Gould's account about how he formed the view that the deductions could be made must be accepted as credible or possibly that a conclusion of that kind should be drawn from the accounts themselves. For reasons I have already given, the nature of the accounting records, particularly the extensive use of year accounting adjustments and the irregularity of entries that are said to support the deductions are such that they do not support any inference about the basis for the adjustments without some support or explanation. Mr Gould is the only possible source of that explanation.
The findings I have made demonstrate that Mr Gould's account was so inconsistent and so lacking in credibility that it could not sustain a finding that the taxpayers, by Mr Gould, did not deliberately ignore the law. In many respects, the cross-examination of Mr Gould exposed what was a less than complete and frank account of the relevant aspects of the accounting affairs of the taxpayers and the other entities controlled by Mr Gould. At certain points, evasiveness gave way to explanation which itself lacked credibility. Some aspects of Mr Gould's account, for example his evidence concerning 'Beer' and the contents of his affidavit in the Family Court proceedings, were exposed as being so flawed that it appeared that Mr Gould was being deliberate in his failure to give a truthful account.
For reasons that have been given, Mr Gould's evidence as a whole was entirely lacking in credibility, including as to those aspects which might disavow intentional disregard of the taxation law. Mr Gould was confronted with many documents that were inconsistent with his account but persisted with explanations that lacked any credibility. Evidence of that kind could not rise to discharge the onus on the taxpayers to demonstrate that Mr Gould did not intentionally disregard the taxation law.
I do not go so far as to find affirmatively that the Commissioner has demonstrated active dishonesty by Mr Gould. In closing submissions, the Commissioner advanced a submission to the effect that the Court should be satisfied that each of the taxpayers had actual knowledge of the falsity of the statements made in their income tax returns as to the claiming of deductions and the returning of income. A case of that kind would depend upon a finding as to that state of mind on the part of Mr Gould. However, a case in those terms was not put to Mr Gould. Nor was it supported by detailed references to the evidence that might support such a finding.
There was a suggestion in very general terms to the effect that all of the overseas funds were under the control of Mr Gould. It was also put in very general terms that the accounting entries were made at the direction of Mr Gould and did not reflect the actual circumstances. Certain specific aspects of Mr Gould's account were challenged as untrue. On one occasion, it was put to Mr Gould that he was paid to hide people's money offshore to deceive others including the Australian Taxation Office. It was also put to Mr Gould that when it came to the Offshore Funders they were under his control and he could direct them as to what they charged for interest and as to when the funds they provided had to be repaid.
However, no specific case was put to Mr Gould that there had been dishonesty on his part or intentional disregard of the taxation law when it came to the relevant deductions. For example, it was not suggested that he knew that the deductions claimed were not allowable. Mr Gould gave confused, illogical and inconsistent evidence about the basis for those deductions. He also failed to articulate with any coherence the basis for the alleged interest liabilities or management fees. As I have explained, in certain respects his evidence appeared to be deliberately misleading as to the extent of what it disclosed. These are all reasons why his account cannot be accepted. These are also reasons why, viewed objectively, his conduct was reckless. However, having regard to the way in which the case was run, it is not open to the Court to make an affirmative finding of intentional disregard.
Further, in my view, the limited matters pointed to by the Commissioner in closing submissions to support an affirmative finding, though substantially reflected in the findings made in these reasons, are not sufficient to support an affirmative finding of dishonesty. The submissions were put on the basis that it could be found that Mr Gould (a) knew that the amounts were not deductible if they were not management fees or interest; (b) knew that they were not management fees or interest; and (c) claimed deductions for those amounts anyway. Propositions in those terms were not put to Mr Gould.
I accept that Mr Gould as a tax accountant of many years' standing who gave the explanations for deductibility that he gave in his evidence knew that the amounts were not deductible if they were not truly amounts for management fees or interest. The real issue is whether there was a basis to find that he knew subjectively that they were not of that character and, consequently, that he was the mind by which the taxpayers intentionally disregarded the taxation law. Such a finding must be made with due regard to its seriousness. The rejection of the credibility of the elaborate and inconsistent narrative that Mr Gould gave as to why he thought the various amounts were deductible is not sufficient. Nor are the particular aspects of his account that I have found to be unsatisfactory, being matters that were not concerned with the deductions themselves. This is not a case where an inference can be drawn from the failure to provide any explanation as to why the amounts were thought to be deductible.
For those reasons, I find that the taxpayers failed to discharge their onus of demonstrating that there was no basis for the 75% penalties and consequently the appeals as to penalties must fail.
The above reasoning does not result in the imposition of penalties at the 75% level without an affirmative finding. The nature of the present appeals must be placed in context. The basis upon which the Commissioner has found there to be an intentional disregard of the taxation law has been stated. It was set out in the decisions on the objections which provided the foundation for the assessments the subject of the present appeals. As an exercise of statutory power to make the findings necessary to support the quantum of the assessments that related to penalty amounts, there was no challenge to their validity. Therefore, as the taxpayers have not discharged their onus on their appeal insofar as it concerns the penalty amounts, the assessments must stand insofar as the amounts include penalties. They do so on the basis of the findings by the Commissioner in the valid exercise of statutory power to make those findings.

[476]

The term 'tribunal' is not defined in the legislation. Its inclusion in the above exclusion suggests that the documents referred to in the provision might be disclosed to 'a person concerned in' any tribunal proceedings. It would seem to be odd if that would be the case for any tribunal but not for any court. It would also appear to be unnecessary to provide for such an exception in relation to the conduct of proceedings in 'a court' as defined. Therefore, at least in the case of the exception provided for by s 114Q, 'court' must refer to any court. On that approach, there is an exception for the provision of Mr Gould's affidavit to the Commissioner, a person concerned in the present proceedings.
However, there remains an issue as to whether the terms of that exception indicate that the word 'court' was also intended to have a broader meaning in s 114Q(2) such that this Court could approve the communication of an 'account'. There is some support for such an interpretation: The Queen v Howe (1978) 19 SASR 303 at 308‑309. Nevertheless, I will proceed on the basis that s 114Q(2) does not confer jurisdiction on this Court to direct or approve the communication of an account of family law proceedings.
On the basis I have just outlined, it may be accepted that this Court has no jurisdiction to make an order authorising a person to communicate to the public an account of any part of family law proceedings. However, the offence provision does not apply to the Court. Its terms could not limit the discharge of the Court's constitutional responsibility to provide reasons for decision. Even so, the fact that an account would otherwise come within the terms of s 114Q may be a persuasive reason why the Court would make a non-publication order or otherwise anonymise proceedings: CFB18 v Reader Lawyers & Mediators [2018] FCA 611 at [1]‑[4]; and APC v Mr B (No 2) [2024] NSWSC 1608 at [367]- [371] (Schmidt AJ).
References to 'proceedings' in Part XIVB includes part of proceedings: s 114P.
An 'account' is a narrative, description, retelling, or recital of such proceedings: Hinchcliffe v Commissioner of Police of the Australian Federal Police [2001] FCA 1747; (2001) 118 FCR 308 at [53] (Kenny J).
In these reasons, I have made no reference to any aspect of the Family Court proceedings other than the relevant parts of the affidavit previously deposed by Mr Gould. As I have mentioned, those aspects are confined to Mr Gould's own financial circumstances. Otherwise, they do not deal with any matters personal to Mr Gould or any other person. They concern matters of direct relevance to the contents of affidavits that Mr Gould himself has deposed in support of the appeal proceedings brought by the taxpayers each of whom are emanations of Mr Gould. They relate to matters that occurred decades ago.
I raised the possible relevance of Part XIVB in the course of the hearing. I afforded the parties an opportunity to put on submissions as to the legal principles. No party sought any form of order.
In all the circumstances, in order to provide reasons for decision in these proceedings it is necessary to refer to aspects of the matters deposed by Mr Gould in his affidavit in the Family Court proceedings. The issue that arises is whether, in light of Part XIVB it is appropriate for this Court to limit the publication of references to the contents of the affidavit in these reasons. I am not persuaded that the circumstances of the present case justify the making of any form of non-publication order or some form of anonymisation of the proceedings.

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