Uratoriu v Commissioner of Taxation

Federal Court of Australia|2010-10-27|Before: McKerracher J

The cost base for the purposes of the calculation of the capital gain on the disposal in 2002 by the applicant of property in Rose Bay, New South Wales be increased by $33,078.10. 2. The applications are otherwise dismissed. 3. Subject to order 4, the applicant is to pay the costs of the respondent to be taxed or agreed. 4. The applicant, should he choose to do so, have 10 days to file and serve submissions and/or affidavit(s) on the topic of any variation to Orders 1 and 3. The respondent do have ten further days to file and serve submissions and/or affidavit(s) in response. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 243 of 2007

JUDGE: MCKERRACHER J DATE: 9 April 2010 PLACE: PERTH

AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 243 of 2007

JUDGE: MCKERRACHER J DATE: 27 October 2010 PLACE: PERTH

INTRODUCTION 1 These two applications (the 'appeals') commenced being heard concurrently. The evidence in each was the evidence in the other and the agreed facts in each were agreed facts in the other. On 9 April 2010, WAD 243 of 2007, Ms Clapp's appeal was discontinued. It was dismissed with costs. 2 Each of the applicants (Mr Uratoriu and Ms Clapp) originally appealed pursuant to s 14ZZ(a) Taxation Administration Act 1953 (Cth) (the TA Act) from the appealable objection decision of the respondent (the Commissioner). Mr Uratoriu, alone, now applies for the decision to be set aside or varied. 3 Notices of Decision on Objection dated 23 November 2007 in respect of Mr Uratoriu's Notice of Amended Assessment for years ended 30 June 1997, 1998, 1999, 2000, 2003 and 2004 were initially the subject of the appeal. On 9 April 2010, Mr Uratoriu was granted leave to appeal against an objection decision in respect of the Commissioner's amended assessment dated 9 June 2006 for the years ended 30 June 2001 and 2002. 4 Mr Uratoriu seeks orders that the Commissioner's decisions be varied by excising from Mr Uratoriu's taxable income the following sums for the following years: 1998 - $56,509; 1999 - $274,294; 2000 - $572,212.56; 2001 - $1,053,824; 2002 - $190,576; and 2003 - $81,000; 5 In Mr Uratoriu's closing submissions the various relevant totals in the relevant years (1997 to 2004) were put in tabular form as follows: 1997 1998 1999 2000 2001 2002 2003 2004 Total A. Taxable income as declared $19,400.00 $19,500.00 $19,500.00 $25,740.00 $20,900.00 $21,200.00 $885.00 N/A $127,125.00 B. Alleged Taxable income on which assessments are based $38,901.00 $493,276.00 $548,228.00 $1,032,275.00 $2,301,924.00 $602,674.00 $221,776.00 $91,814.00 $5,330,868.00 C. Difference of A. and B. $19,501.00 $473,776.00 $528,728.00 $1,006,535.00 $2,281,024.00 $581,474.00 $220,891.00 $91,814.00 $5,203,743.00 D. Admitted taxable income $38,901.00 $436,767.00 $273,934.00 $460,062.44 $1,248,100.00 $412,098.00 $140,776.00 $91,814.00 $3,102,452.44 E. Adjustment contended by [Mr Uratoriu] $- $56,509.00 $274,294.00 $572,212.56 $1,053,824.00 $190,576.00 $81,000.00 $- $2,228,415.56 F. Taxable income after contended adjustment $38,901.00 $436,767.00 $273,934.00 $460,062.44 $1,248,100.00 $412,098.00 $140,776.00 $91,814.00 $3,102,452.44

6 In addition, Mr Uratoriu challenges the imposition of the following penalties by the Commissioner: $990,892.40 for the year ending 30 June 2001; $249,073.90 for the year ending 30 June 2002; $85,447.15 for the year ending 30 June 2003; and $28,203.10 for the year ending 30 June 2004

BACKGROUND 7 In light of Ms Clapp's appeal being discontinued and dismissed, it is unnecessary to address the history and content of that appeal. 8 The Commissioner's assessments in relation to Mr Uratoriu arise primarily as a result of the activities of Mr Uratoriu as a director and/or a shareholder in several corporations. The first of those is Vicwal Pty Ltd (Vicwal), a company incorporated on 6 March 1970. Mr Uratoriu has been a director of Vicwal since 1976 and its sole director since 1997. Shares in Vicwal are held jointly between Mr Uratoriu and Ms Clapp. Between 1984 and 1997 Ms Clapp was also a director. 9 There are several other companies involved: Winmarley Properties Pty Ltd (Winmarley) was incorporated on 27 July 1997. A liquidator was appointed to Winmarley on 12 September 2007. Mr Uratoriu was a director of Winmarley. The shares in Winmarley were held jointly between Mr Uratoriu and Ms Clapp. Pinot Nominees Pty Ltd (Pinot) was incorporated on 22 September 1980. Mr Uratoriu has been a director of Pinot since 1980 and its sole director since 15 June 1997. The shares in Pinot are held jointly by Mr Uratoriu and Ms Clapp. Ms Clapp was also a director between 1980 and 1997. Rocket Transport Services (Rocket) was incorporated on 1 December 1999. A liquidator was appointed to Rocket on 24 May 2007. Mr Uratoriu has been a sole director of Rocket since January 2002. Between December 1999 and January 2002, Ms Clapp was the sole director. The shares in Rocket are held by Ms Clapp. Albergo Holdings Pty Ltd (Albergo) was incorporated on 17 March 1992. It was deregistered on 26 June 2005. Mr Uratoriu was its sole director between 25 January 2002 and 26 June 2005. Ms Clapp was a director of Albergo between March 1992 and January 2002 and is sole director from June 1997 to January 2002. The shares in Albergo were all held by Ms Clapp. PLI Pty Ltd (PLI) (formerly known as Port Lincoln International Pty Ltd) was incorporated on 6 May 1996 with a liquidator appointed to PLI on 10 December 2004. Mr Uratoriu was the director of PLI from 13 April 1998 to 1 May 2000. Mr Uratoriu was a shareholder of PLI during this period. Briqueterre Pty Ltd (Briqueterre) (formerly known as Port Link Flexible Packaging Pty Ltd) was incorporated on 13 October 1997 and deregistered on 15 December 2002. Mr Uratoriu was a director from 13 April 1998 to 15 December 2002 and a shareholder during that period. Finally, A.C.N. 078 145 918 Pty Ltd (formerly known as East-West Freight Pty Ltd) (East-West) was incorporated on 9 April 1997. Mr Uratoriu was a director of East-West from 9 April 1997 to 19 April 2001. Mr Uratoriu was a shareholder of East-West during this period. 10 A transaction unrelated to the companies but which gave rise to a further litigated issue was a house purchase. On 29 July 1986 Mr Uratoriu purchased a residential property in Rose Bay, New South Wales (the Rose Bay Property) for $113,500. He sold it on 4 February 2002 for $852,000.

Payments to Mr Uratoriu and/or Ms Clapp 11 In the years with which the appeal are concerned, Winmarley, Rocket, Albergo and Pinot made payments into bank accounts held by Mr Uratoriu or held jointly between Mr Uratoriu and Ms Clapp totalling the following sums: Mr Uratoriu's bank accounts Income Year Rocket Winmarley Albergo Pinot 1998 $124,050 1999 $172,900 2000 $34,793 $81,794 2001 $147,605 $39,000 2002 $35,981 $25,000 $28,454 2003 $114,849

Joint bank accounts of Mr Uratoriu and Ms Clapp Income Year Rocket Winmarley Albergo Pinot 1998 $325,862 1999 $284,205 2000 $20,200 $316,920 $11,000 2001 $104,420 $23,750 $126,975 2002 $142,054 $31,000 2003 $156,842 $19,500

12 Similarly, in the years in issue, PLI and Briqueterre also made payments to the bank accounts of Mr Uratoriu totalling the following amounts: Income Year PLI Briqueterre 1997 $18,600 1998 $166,717 1999 $151,553 $42,000 2000 $134,800 2001 $34,000

13 East-West paid the following amounts to Mr Uratoriu on the following dates: $55,000 on 23 April 2001; $150,000 on 8 February 2002; and $1,692,000 by monthly payments of $47,000 for 36 months between 2001 and 2004 14 Also in the years in issue, East-West made payments into the joint bank account of Mr Uratoriu and Ms Clapp totalling the following amounts: 2001 - $35,000; 2002 - $50,000; 2003 - $32,500 15 Between 1992 and 2001, Albergo operated a liquor store in Mosman Park, Western Australia. In June 2001, Albergo sold the liquor store and received $751,509.50 together with a further amount of proceeds from stock of $153,553.66. 16 Following this sale, the following sums were paid to Mr Uratoriu and Ms Clapp on: 29 June 2001 - $126,974.99 paid to the joint home loan account of Mr Uratoriu and Ms Clapp; 12 September 2001 - $250,000 was paid into a bank account held by Ms Clapp; 16 October 2001 - $25,000 was paid into a bank account held by Mr Uratoriu 17 Issues arise concerning usage by Mr Uratoriu of stock owned by the liquor store. 18 On 9 May 2000, MainFreight Limited (MainFreight) deposited $550,000 into a bank account held by Mr Uratoriu.

Assessments 19 Mr Uratoriu lodged with the Commissioner income tax returns for the income tax years ended 30 June 1997, 1998, 1999, 2000, 2001, 2002 and 2003 but not 2004. 20 Following an audit of Mr Uratoriu and Ms Clapp and their related entities, the Commissioner issued to Mr Uratoriu on 9 June 2006 Notices of Amended Assessment for the years ended 30 June 1997, 1998, 1999, 2000, 2001, 2002, 2003 and 2004, the latter being pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) by which the Commissioner increased Mr Uratoriu's taxable income to the following: $38,901 for the year ending 30 June 1997; $493,276 for the year ending 30 June 1998; $548,228 for the year ending 30 June 1999; $1,032,275 for the year ending 30 June 2000; $2,301,924 for the year ending 30 June 2001; $602,674 for the year ending 30 June 2002; and $221,776 for the year ending 30 June 2003 21 The Notice of Assessment for the year ended 30 June 2004, assessed Mr Uratoriu's taxable income at $91,814. 22 The Commissioner also issued Notices of Assessment and Liability to Pay Penalty. Those notices were dated 16 June 2006. 23 Mr Uratoriu lodged Notices of Objection on 17 August 2006 to each of the Notices of Amended Assessment and the Notice of Assessment for the 2004 year and the Notices of Assessment and Liability to Pay Penalty. The objections were disallowed in full. 24 It was accepted, by the time of the appeal, by Mr Uratoriu that his taxable income for each of the years in issue includes, without thereby limiting his total taxable income, the following amounts: Year 1997 1998 1999 2000 2001 2002 2003 2004 Amount included in taxable income $20,301 $277,559 $272,425 $237,735 $310,403 $170,424 $15,051 $35,055

25 Mr Uratoriu conceded that his taxable income as initially declared was understated. 26 Several of the Commissioner's adjustments were accepted, at least in part. Those include amounts assessed as salary and wages, deemed dividends and other business income.

ONUS 27 On a challenge under s 14ZZO(b)(i) of the TA Act, the onus lies with the applicants (Danmark Pty Ltd v Commissioner of Taxation (Cth) (1944) 7 ATD 333 at 337 (per Latham CJ)). Mr Uratoriu must show not only negatively that the assessments are wrong but also positively what corrections should be made in order to make the assessments correct (Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623-625 per Brennan J and 632634 per Toohey J). In assessing the weight of the evidence adduced it is relevant that some facts concerning a taxpayer's income are or should be peculiarly within the taxpayer's knowledge and a taxpayer cannot take advantage of inadequate records or recollections (see for example Trautwein v Commissioner of Taxation (Cth); R v Commissioner of Taxation (Cth); Trautwein, Ex p (1936) 56 CLR 63 at 87-88 per Latham CJ).

THE ISSUES 28 Broadly speaking and in summary form, the issues for determination on the appeal are whether Mr Uratoriu has established that: 1. first and foremost, certain payments, all of which he admits receiving, were repayments of advances made by Mr Uratoriu or Vicwal. The payments account for the bulk of the evidence. Mr Uratoriu contends this to be the fact and thus the Commissioner's characterisation of the payment as salaries and wages, deemed dividends, other business income or consideration paid for disposal of certain East-West Freight PL shares held by Mr Uratoriu is said to be an incorrect characterisation; 2. payments which Mr Uratoriu admits receiving into a joint account with Ms Clapp were repayments of non-interest bearing advances by Ms Clapp. Mr Uratoriu contends this to be the case so as to dispute the Commissioner's characterisation of the payments as interest income; 3. the $385,621 portion of a $550,000 payment from MainFreight in May 2000 which Mr Uratoriu admits receiving was an advance to meet the then taxation liabilities of PLI. Mr Uratoriu contends this is the position and refutes the Commissioner's characterisation of the payment as other business income; 4. he did not receive allowances constituting income according to ordinary concepts in respect of alcohol taken from the operation of the liquor store conducted by Albergo in 1998-2002; 5. as to the capital gain on the 2002 disposal of the Rose Bay Property, the base price against which the gain should be measured should be increased to include, amongst other expenses, the legal expenses involved in a court action in relation to the Rose Bay Property.

GROUNDS 29 Those issues are distilled from the more detailed grounds relied upon by Mr Uratoriu which for completeness are as follows, although it must be emphasised that the amounts referred to in the grounds in several instances changed by the time of adducing evidence at the hearing. Rose Bay Property 9. In July 1986, [Mr Uratoriu] purchased the [Rose Bay] Property in Sydney … for $113,500. 10. [Mr Uratoriu] engaged a builder to refurbish and renovate the [Rose Bay] Property. After the builder completed the works there was a dispute between the builder and [Mr Uratoriu]. 11. The matter was tried in the Supreme Court of New South Wales ([Davies v Uratoriu; Davies v Residential Tenancies Tribunal and ANOR (1995) 6 BPR 13,917]) and the Supreme Court found the builder was the beneficial owner of 50% of the [Rose Bay] Property and that the builder was ordered to pay [Mr Uratoriu] $1,500.00 per month for the period the builder undertook the renovations. [It was taken into account in assessing contributions)]. 12. … 13. As a consequence of the [Supreme] Court's decision, the [Rose Bay] Property was auctioned to the public during 1996. [Mr Uratoriu] was the successful bidder and in effect purchased the 50% interest in the [Rose Bay] Property from the builder for $250,000.00. 14. [Mr Uratoriu] did not own any other residential property at the time of being the registered proprietor of the [Rose Bay] Property. 15. [Mr Uratoriu] sold the [Rose Bay] Property in December 2001 for $852,000.00. Funds Advanced to Entities 16. In the year 1996, Vicwal was granted a 30 day bill with the National Australia Bank (the Bill) for the amount of approximately $3,400,000.00 [(per the grounds) or $3,500,000 per the evidence]. 17. The Bill was advanced to Vicwal on the basis that it was to be rolled over every 30 days with interest payable on the Bill at a variable rate of 6% per annum calculated daily (at the time the Bill was initially drawn). 18 A further 2% per annum facility fee was charged by the bank which was payable every 6 months. 19. The Bill was guaranteed by Pinot. Vicwal to Winmarley 20. During the period 1996 to 1999 Vicwal utilised a portion of the funds advanced under the Bill to advance approximately $1,000,000.00 to Winmarley for working capital. 21. At the time, Winmarley provided transport services to East-West. 22. Given that Vicwal provided funds for the operation of Winmarley, East-West, Winmarley and Vicwal agreed that East-West would pay its obligations to Winmarley for the services rendered by Winmarley to East-West by paying Vicwal. Such payments being in repayment of the funds advanced by Vicwal to Winmarley. 23. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 23.1 East-West would repay the funds at an interest rate equivalent to the interest rate payable by Vicwal under the Bill; 23.2 Interest was to be capitalised; and 23.3 Repayment of the outstanding principle and interest owing to Vicwal by Winmarley was to be paid on demand. Vicwal to Albergo 24 During the period 1996 to 1999, Vicwal advanced approximately $100,000.00 to Albergo for working capital. 25. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 25.1 Albergo would repay the funds at an interest rate equivalent to the interest rate payable by Vicwal under the Bill; 25.2 Interest was to be capitalised; and 25.3 Repayment of the outstanding principle and interest owing to Vicwal by Albergo was to be paid on demand. Vicwal to Rocket 26. From December 1999 to 2004, Vicwal advanced approximately $280,000.00 to Rocket for working capital. 27. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 27.1 Rocket would repay the funds at an interest rate equivalent to the interest rate payable by Vicwal under the Bill; 27.2 Interest was to be capitalised; and 27.3 Repayment of the outstanding principle and interest owing to Vicwal by Rocket was to be paid on demand. 28. In 2003, [Mr Uratoriu and Ms Clapp] advanced Vicwal approximately $270,000.00 for the purposes of Vicwal advancing the funds to Rocket. Rocket applied the funds to pay its taxation liability at the time. The agreement for this advance was not reduced to writing but was made on the same trems (sic- terms) as outlined above. Vicwal to East-West 29. In April 1997, [Mr Uratoriu] subscribed for and was issued 6 ordinary shares in East-West for $1.00 each. At this time, [Mr Uratoriu] was appointed as a joint director of East-West with Thomas Heaney. 30. During the period April 1997 to April 2001, Vicwal advanced funds in the amount of approximately $3,300,000.00 for working capital from its access to the Bill with the Bank. 31. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 31.1 East-West would repay the funds at an interest rate equivalent to the interest rate payable by Vicwal under the Bill; 31.2 Interest was to be capitalised; and 31.3 Repayment of the outstanding principle and interest owing to Vicwal by East-West was to be paid on demand. 32. The total amount of funds advanced to East-West by Vicwal was $4,300,000.00. This consisted of the $3,300,000.00 advanced direct by Vicwal to East-West. It also consisted of the $1,000,000.00 advanced by Vicwal to Winmarley which was agreed by the parties to be payable by East-West (agreement referred to in paragraphs 20-23). PLI and Briquette to East-West 33. PLI and Briqueterre, of which Mr Heaney was a director and shareholder, agreed to advance East-West funds in the amount of $547,570.00 for the purpose of East-West repaying the funds advanced to it by Vicwal. 34. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 34.1 East-West would repay the funds with no interest payable by East-West to PLI and Briqueterre; and 34.2 Repayment of the outstanding principle owing to PLI and Briqueterre by East-West was to be paid on demand. 35. The advance of funds from PLI and Briqueterre to East-West was effected by PLI and Briqueterre making repayments of the funds advanced to East-West by Vicwal. Clapp to East-West and Link National Transport Pty Ltd 36. On or around 8 November 2000, Ms Clapp mortgaged a property with the Commonwealth Bank Ltd to obtain funds of $300,000.00. 37. The $300,000.00 was advanced to East-West and Link National Transport Pty Ltd. 38. The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 38.1 East-West and Link National Transport Pty Ltd were to repay the advance by monthly repayments of $5000. 38.2 East-West and Link National Transport Pty Ltd would repay the funds with no interest payable by East-West and Link National Transport Pty Ltd to Ms Clapp; and 38.3 Repayment of the outstanding principle owing to Ms Clapp by East-West and Link National Transport Pty Ltd was to be paid on demand. Repayment of Advanced Funds Winmarley, Rocket and Albego (sic-Albergo) to Vicwal 39. Winmarley, Rocket and Albergo have made repayments of the funds advanced by Vicwal by repayment into [Mr Uratoriu's] bank accounts in the amounts of: Income Year Rocket Winmarley Albergo 1998 $138,864 1999 $315,003 2000 $45,892 $240,254 2001 $199,815 $50,875 $63,487 2002 $107,008 $25,000 2003 $193,270

The amounts received by [Mr Uratoriu] were paid to Vicwal in repayment of Vicwal's outstanding balance with the bank under the Bill. Pinot to Vicwal 41. Pinot also made repayments on Vicwal's behalf on occasions as Pinot was the guarantor under the Bill. PLI and Briqueterre on behalf of East-West to Vicwal 42. PLI and Briqueterre made repayments of East-West's outstanding amount owed to Vicwal (agreement referred to in paragraphs 20-23) into the accounts of [Mr Uratoriu] in the following amounts: Income Year PLI Briqueterre 1997 $18,600 1998 $166,717 1999 $151,553 $42,000 2000 $134,700 2001 $34,000

The amounts received by [Mr Uratoriu] were paid to Vicwal in repayment of Vicwal's outstanding balance with the Bank under the Bill. East-West to Vicwal 44. In 2001 [Mr Uratoriu] transferred his 6 ordinary shares in East-West to Mr Heaney for their market value of $1.00 each. 45. In accordance with the agreement referred to in paragraph 31, Vicwal then demanded that East-West in its own capacity or through its sole director, Mr Heaney, repay the outstanding balance. 46. In accordance with the demand, East-West repaid the following amounts to [Mr Uratoriu] on the following dates: 46.1 $55,000.00 on 23 April 2001; 46.2 $150,000.00 on 8 February 2002; and 46.3 $47,000.00 each month during the period 2001 to 2004 for 36 months (Total: $1,692,000.00). 47. The amounts received by [Mr Uratoriu] were paid to Vicwal in repayment of Vicwals's outstanding balance with the bank under the Bill. 48. East-West repaid $2,239,570.00 to Vicwal. This consisted of the $1,692,000.00 direct from East-West and the $547,570.00 repaid by PLI and Briqueterre on behalf of East-West. The current balance outstanding is $2,060,430.00. East-West and Link National Transport Pty Ltd to Ms Clapp 49. East-West on behalf of itself and Link National Transport Pty Ltd made payments of the funds advanced by Ms Clapp by payment into [Mr Uratoriu's] and Ms Clapp's bank account in the amounts: Income year 2001 $35,000 2002 $50,000 2003 $32,500 2004 $150,000

The amounts received were paid directly into the joint bank account of [Mr Uratoriu] and Ms Clapp, however, were for the benefit of Ms Clapp for repayment of the funds she advanced to East-West and Link National Transport Pty Ltd. . Liquor Store Operated by Albergo 51. During the period 1992 to 2001 Albergo operated a liquor store in Mosman Park. 52. [Mr Uratoriu] purchased liquor from the liquor store for personal use in the following amounts: 52.1 $207.18 in the year ended 30 June 2000; 52.2 $1,972.85 in the year ended 30 June 2001; and 52.3 $9,173.96 in the year ended 30 June 2002. 53. Other than purchases that were made by [Mr Uratoriu] referred to above, [Mr Uratoriu] did not purchase nor did [he] use any other liquor products or stock from the liquor store for personal or other use. Transfer of Shares in PLI 54. On or about 1 May 2000 [Mr Uratoriu] transferred his 6 ordinary shares in PLI to Mr Heaney for their market value of $1.00 each. 55. In May 2000 Mr Heaney sold all the shares in PLI to a New Zealand Company named MainFreight Ltd. 56. In order to effect settlement of the transfer of shares from Mr Heaney to MainFreight Ltd it was a condition of the transfer of shares that PLI's taxation liability be extinguished. 57. Mr Heaney directed MainFreight Ltd to pay a balance of the consideration to [Mr Uratoriu] for the purposes of reducing the balance owing by East-West to Vicwal. 58. On 9 May 2000 at the direction of Mr Heaney, MainFreight Ltd deposited $549,994.00 into a bank account of [Mr Uratoriu]. 59. On or around this time the [Commissioner] issued a garnishee notice for $385,621.00. The [Commissioner] directed MainFreight Ltd to pay this amount to him as payment of PLI's then current outstanding taxation liability. 60. The balance of the funds were paid to Vicwal in repayment of Vicwal's outstanding amount owed to the Bank under the Bill. Returns, Assessments and Objections 61 [Mr Uratoriu] lodged with the [Commissioner], income tax returns for the income years ended 30 June 1997, 30 June 1998, 30 June 1999, 30 June 2000, 30 June 2001, 30 June 2002 and 30 June 2003, however, [Mr Uratoriu] did not lodge an income tax return for the year ended 30 June 2004. 62. In 2003, the [Commissioner] conducted an audit of [Mr Uratoriu] and his related entities. As a result of that audit, the[ Commissioner] alleged that [Mr Uratoriu's] taxable income was: 62.1 $38,901.00 for the year ended 30 June 1997; 62.2 $493,276.00 for the year ended 30 June 1998; 62.3 $548,228.00 for the year ended 30 June 1999; 62.4 $1,032,275.00 for the year ended 30 June 2000; 62.5 $2,301,924.00 for the year ended 30 June 2001; 62.6 $602,674.00 for the year ended 30 June 2002; 62.7 $221,776.00 for the year ended 30 June 2003; and 62.8 $91,814.00 for the year ended 30 June 2004. 63. The [Commissioner] amended [Mr Uratoriu's] assessments for the Relevant Period and issued Notices of Amended Assessment to [Mr Uratoriu] dated 9 June 2006 for the years ended 30 June 1997, 30 June 1998, 30 June 1999, 30 June 2000, 30 June 2001, 30 June 2002 and 30 June 2003. 64. The [Commissioner] made an assessment of [Mr Uratoriu's] taxable for the year ended 30 June 2004 pursuant to section 167 of the [1936 Act] … and issued a Notice of Assessment to [Mr Uratoriu] dated 9 June 2006. 65. The [Commissioner] issued Notices of Assessment and Liability to Pay Penalty dated 16 June 2006 to [Mr Uratoriu], imposing a penalty on [Mr Uratoriu] in the amount of: 1. $990,892.40 for the year ended 30 June 2001; 2. $249,073.90 for the year ended 30 June 2002; 3. $85,447.15 for the year ended 30 June 2003; and 4. $28,203.10 for the year ended 30 June 2004. 66. [Mr Uratoriu] lodged Notices of Objection dated 17 August 2006 to the various Notices of Assessment and Notices of Assessment and Liability to Pay Penalty. 67. By Notices of Decision on Objection dated 23 November 2007, the [Commissioner] disallowed Mr Uratoriu's objections in full. CONTENTIONS 68. [Mr Uratoriu] has not derived the alleged taxable income within the meaning of section 6-5 of the [1997 Act] during the Relevant Period. Particulars
1. The alleged funds received by [Mr Uratoriu] from PLI, Briqueterre, Rocket and Winmarley being: 1.1 $18,600.00 in the year ended 30 June 1997; 1.2 $260,581.00 in the year ended 30 June 1998; 1.3 $272,103.00 in the year ended 30 June 1999; 1.4 $236,210.00 in the year ended 30 June 2000; 1.5 $54,085.00 in the year ended 30 June 2001; 1.6 $71,027.00 in the year ended 30 June 2002; 1.7 $78,421.00 in the year ended 30 June 2003; and 1.8 $86,623.00 in the year ended 30 June 2004; were not funds received for salary or regular receipts, but were repayments of funds advances. (Refer to paragraphs 16-38)
2. The alleged allowance of $20,000.00 per income year, for the years ended 30 June 1998 to 30 June 2002 inclusive, were not allowances that were received by [Mr Uratoriu] nor do they accord with the [Commissioner's] Taxation Determination (TD 2006/55). (Refer to Paragraphs 51-53)
3. The alleged interest payments from East-West and Link National Transport Pty Ltd to [Mr Uratoriu] of: 3.1 $17,500.00 in the year ended 30 June 2001; 3.2 $25,000.00 in the year ended 30 June 2002; and 3.3 $16,250.00 in the year ended 30 June 2003; were not funds received by [Mr Uratoriu] as interest payments, but rather were repayments of the $300,000.00 principle amount that was advanced by Ms Clapp to East-West. (Refer to paragraphs 36-38)
4. The alleged payment of $10,000.00 into the account of Vicwal on 29 December 1999, by East-West, was not a deposit of undeclared business income of [Mr Uratoriu], but was a repayment of funds advanced to East-West by Vicwal. (Refer to paragraphs 16.(sic-)38)
5. The alleged amount of $549,994.00 received by [Mr Uratoriu] from Mainfreight Ltd was not business income, but was paid to [Mr Uratoriu] by Mainfreight Ltd for the benefit of Thomas Heaney, of which only $164,373.00 was applied to the repayment for funds advanced to East-West by Vicwal and $385,621.00 being garnished by [the Commissioner]. (Refer to paragraphs 44-50)
6. [Mr Uratoriu] has not derived the alleged taxable income as a deemed dividend within the meaning of Division 7A, section 109C and/or section 109D of the 1936 Act during the Relevant Period. Particulars
7. The alleged funds received by [Mr Uratoriu] from Albergo, PLI, Pinot, Rocket and Winmarley being: 1.1 $148,117.00 in the year ended 30 June 1998; 1.2 $236,453.00 in the year ended 30 June 1999; 1.3 $190,237.00 in the year ended 30 June 2000; 1.4 $294,092.00 in the year ended 30 June 2001; 1.5 $115,761.00 in the year ended 30 June 2002; and 1.6 $124,599.00 in the year ended 30 June 2003; were not funds received as dividends, but were repayments of funds advanced. (Refer to paragraphs 16-38) 51.(sic) In the alternative, if [Mr Uratoriu] has derived the alleged taxable income as a deemed dividend within the meaning of Division 7A, section 109C and/or section 109D of the 1936 Act during the Relevant Period, the relevant entities did not have a distributable surplus pursuant to section 109Y of the 1936 Act. 52.(sic) [Mr Uratoriu] has not made a net capital gain from the transfer of his shares in East-West in the amount of $1,896,994.00 within the meaning of section 103-10 of the 1997 Act for the year ended 30 June 2001. Particulars The funds received by [Mr Uratoriu] were for the repayment of funds advanced by Vicwal and were applied as such. (Refer to paragraphs 16-38) 53.(sic) In the alternative, if [Mr Uratoriu] has made a net capital gain in the amount of $1,896,994.00 within the meaning of section 103-10 of the 1997 Act, which is denied, [Mr Uratoriu] is entitled to a discount in the amount of 50% pursuant to Division 115 of the 1997 Act. 54.(sic) Further, and in the alternative, if [Mr Uratoriu] has made a net capital gain in the amount of $1,896,994.00 within the meaning of s 103-10 of the 1997 Act, [Mr Uratoriu] is entitled to indexation in relation to the cost base pursuant to s 110-36 of the 1997 Act. 55.(sic) [Mr Uratoriu] has not made a net capital gain in the amount of $369,250.00 from the sale of the [Rose Bay] Property within the meaning of sections 118-110 and Division 115 of the 1997 Act for the year ended 30 June 2002. Particulars The sale of the [Rose Bay] Property is exempt for Capital Gains Tax purposes as it was [Mr Uratoriu's] sole or principal place of residence (main residence) pursuant to section 118-110 of the 1997 Act. (refer to paragraphs 9 and 15) 56.(sic) In the alternative, if [Mr Uratoriu] has made a net capital gain in the amount of $369,250.00 within the meaning of section 118-110 and Division 115 of the 1997 Act, the [Commissioner] has not taken into consideration the cost base of the [Rose Bay] Property including the cost of the renovations and improvements of the [Rose Bay] Property. 57.(sic) Further, and in the alternative, if [Mr Uratoriu] has made a net capital gain in the amount of $369,250.00 within the meaning of sections 118-110 and Division 115 of the 1997 Act, [Mr Uratoriu] is entitled to indexation in relation to the cost base pursuant to section 110-36 of the 1997 Act. 58.(sic) The [Commissioner] is not authorised to issue the Assessments under section 167 of the 1936 Act or at all. … 59.(sic) The [Commissioner] was not entitled to impose a tax shortfall penalty under the provisions of Part 4-25, section 284-85 and Item 1 of section 284-90 of the [TA Act] or any provisions of the [TA Act], the 1997 Act or the 1936 Act for the Relevant Period. …

The Evidence 30 The evidence in support of the appeals was gravely inadequate. Although the events occurred many years ago, there are very few documentary records left to unequivocally support the account of events asserted by Mr Uratoriu. There is even more difficulty ascertaining with any degree of precision what it is that the documents which were relied upon do actually record. 31 As to Mr Uratoriu, regrettably his evidence was severely lacking in cogency or detailed recollection. 32 Mr Uratoriu swore three affidavits. The first was a lengthy affidavit of 18 May 2009 (the 2009 affidavit). The second affidavit was sworn on the first day of the five day hearing (the first 2010 affidavit). The third was sworn on the second day of the hearing (the second 2010 affidavit). The first 2010 affidavit ran to some 2000 pages and included a very detailed flow chart (LAU13) said to indicate where the funds from the various entities went and why. 33 Notwithstanding the substantial complexity of this material, the first time that Mr Uratoriu saw the affidavit was at 8.00 am on the morning of the first day of the appeal. He spent half an hour reading the affidavit before swearing it at 8.30 am. 34 The true position as I find it and as he admitted, was that he left it to advisors to attempt to explain a flow of funds in a way which might support his appeals but at a general level, it must be said that his personal knowledge was very deficient. The events occurred a substantial period of time ago. In fairness to him, he admitted both his reliance on advisors and his vagueness of recollection in cross-examination. Furthermore, his affidavits contained many inconsistencies and inadequacies. 35 There may have been substantial loans. It may be that a significant portion of the admitted payments constituted repayment of the loans. But actual proof of either element in any instance was sorely lacking. 36 Those difficulties were compounded by the fact that the companies run by the applicants, generally, kept only rudimentary financial records and were deficient in meeting their obligations in respect of income tax and GST even to the point of the basic obligations of filing returns. 37 Over and above that, it has now been conceded in the course of the hearing in relation to the various companies controlled by Mr Uratoriu that the amounts in respect of which income should have been declared were very much larger than that in respect of which income was declared.

EVIDENCE FOR MR URATORIU 38 I propose to deal only at this point with the evidence in chief in his affidavits as the consequences of the cross-examination, where relevant to the conclusions reached in these reasons, are discussed below under Analysis. 39 In the 2009 affidavit, Mr Uratoriu confirmed the directorships and shareholdings which have been previously discussed. He confirmed the history of these dealings with the Australian Taxation Office (the ATO), including the assessments by the Commissioner and the objections raised. 40 Mr Uratoriu explained he suffers serious depression and has struggled to handle his taxation affairs and the taxation affairs of the entities of which he was a director. He has struggled with the many requests from the ATO with respect to tax reporting obligations. 41 He explained that some time in 2007, he engaged an accounting firm to assist him with bringing his taxation affairs and those of Ms Clapp and of the various companies into order. As a result of that process, he says he will comply with his taxation obligations in the future. 42 As to the Rose Bay Property, he explained that in July 1986, he purchased it for $113,500. He engaged a builder to refurbish and renovate the Rose Bay Property. The builder was to do so on terms that he would reside at the Rose Bay Property, rent free for the period of refurbishment and renovations in consideration of the work undertaken by him. However, after the builder completed the works there was a dispute between Mr Uratoriu and the builder with the builder claiming that he was entitled to 50% of the ownership of the Rose Bay Property. The dispute was the subject of determination in Uratoriu v Davies [1994] NSWRT 55 (and an appeal in the Supreme Court of New South Wales in Davies v Uratoriu; Davies v Residential Tenancies Tribunal and ANOR (1995) 6 BPR 13,917). Mr Uratoriu gave his understanding of that decision as resulting in the Supreme Court of New South Wales holding that the builder was the beneficial owner of 50% of the Rose Bay Property with the builder being ordered to pay Mr Uratoriu $1,500 per month for the period the builder undertook the renovations. Mr Uratoriu deposed to the fact that he did not receive any amount from the builder and he incurred legal fees in the amount of approximately $80,000. Due to the passage of time he says he has been unable to locate all of the invoices paid for legal costs. Nevertheless, as a consequence of the Supreme Court decision, the Rose Bay Property was auctioned to the public during 1996. Mr Uratoriu participated in the bidding for the Rose Bay Property in order to regain his full ownership and was the successful bidder. At that time he was not the registered proprietor of any other residential property and he says (or at least did say in the 2009 affidavit) that the Rose Bay Property was his main residence. He then sold the Rose Bay Property in December 2001 for $852,000. Mr Uratoriu says the capital gain assessment for year ended 30 June 2002 was excessive by $143,659.30. 43 In relation to the companies, in his 2009 affidavit, Mr Uratoriu repeated much of what was set out in the grounds of his appeal as recorded above. Much of it also mirrored the content of the grounds of appeal without descending to any particulars or evidence. A great deal of it was expressed in a formulaic manner in terms of summaries, conclusions, the effect of (oral) agreements and effectively submission. Little of the content was strictly admissible. 44 He deposed to the fact that in 1996, Vicwal was granted the NAB Bill for approximately $3,500,000. The NAB Bill was advanced to Vicwal on the basis that it was to be rolled over every 30 days with interest payable on the NAB Bill at a variable rate of 6% per annum calculated daily. A further 2% facility fee was charged by NAB payable every six months. The NAB Bill was guaranteed by Pinot, himself and Ms Clapp initially but on renewal of the NAB Bill over time, Pinot, East-West, Kingsline Pty Ltd, Ms Clapp and Mr Uratoriu were all guarantors for the NAB Bill. 45 Between 1996 and 1999, Mr Uratoriu says that Vicwal utilised a portion of the funds advanced under the NAB Bill to advance approximately $1 million to Winmarley for working capital. Winmarley was then providing transport services to East-West. He says: Given that Vicwal provided funds for the operation of Winmarley, East-West, Winmarley and Vicwal agreed that East-West would pay its obligations to Winmarley for the services rendered by Winmarley to East-West by repaying Vicwal the funds advanced by Winmarley. He continued: The terms of the agreement between the parties were not reduced to writing. Relevantly, the agreement was that: 30.1 East-West would repay the funds at an interest rate equivalent to the interest rate payable by Vicwal under the Bill; 30.2 Interest was to be capitalised; and 30.2 Repayment of the outstanding principle and interest owing to Vicwal by Winmarley was to be paid on demand. 46 At this point, Mr Uratoriu purported to produce a copy of the minutes of a meeting of Vicwal ratifying the decision of Vicwal to advance such monies. As will be evident below, the minutes were simply created recently for the purpose of supporting the inadmissible account of the terms of the agreement set out in the 2009 affidavit. That position was repeated in respect of all the other relevant transactions. The minutes, prepared long after the so-called events, (and, admittedly, only for the purpose of his appeal) by themselves do not advance Mr Uratoriu's case. 47 In relation to the period of 1996 to 1999, Mr Uratoriu says that Vicwal advanced approximately $100,000 to Albergo for working capital. The terms of that agreement are said to be essentially the same as those in relation to the agreement between Vicwal and Winmarley. The minutes of company meetings of Vicwal ratifying the decision very much after the event were also produced. 48 In relation to Vicwal and Rocket, advances were said to be approximately $280,000 between December 1999 and 2004 from Vicwal. Mr Uratoriu was only able to locate cheque butts demonstrating approximately $175,000 being advanced. The cheque butts were produced. 49 The terms of the agreement were said to be similar to the terms discussed above and minutes after the event were again created purportedly ratifying the decision of Vicwal to make the advances. 50 In addition, Mr Uratoriu says that in 2003, Rocket had taxation liabilities in the amount of approximately $270,000. He says Ms Clapp and he advanced Vicwal approximately $270,000 so that Vicwal could advance the funds to Rocket to meet its tax liability. He says 'the agreement for this advance was not reduced to writing but was made on the same terms as outlined above'. He produced further minutes created for the purpose of the hearing. 51 In relation to Vicwal and East-West, Mr Uratoriu notes that in April 1997 he subscribed for and was issued 6 ordinary shares in East-West for $1 each and was appointed a joint director of East-West with Mr Heaney. Between April 1997 and April 2001, he says Vicwal advanced a total of about $3,300,000 for working capital which was obtained from access to the NAB Bill and from Mr Uratoriu and Ms Clapp. Although he does not specifically say it, I take the intention of this paragraph to convey that approximately $3,300,000 was advanced to East-West. 52 Again, the terms of the transaction were not reduced to writing but were described in the 2009 affidavit as being supported by company minutes of Vicwal purportedly ratifying the decision. Mr Uratoriu also said that the repayment of the advanced funds was in addition to the $1 million advanced by Vicwal to Winmarley which was agreed by the parties to be repaid by East-West. 53 There were also advances, Mr Uratoriu says, from himself to Vicwal and from Vicwal to Link. From November 1999 to 2004, Mr Uratoriu says Vicwal advanced approximately $1,400,000 to Link for working capital. Link was operated by Mr Heaney and took over the operations that East-West conducted after East-West 'went into liquidation'. It was voluntarily deregistered on 17 February 2003. Mr Uratoriu says that an amount of $670,000 which formed part of the $1,400,000 advanced to Link was advanced in November 2003. He produced copies of two cheques made payable to Link in the amounts of $300,000 and $370,000 dated 13 November 2003 and 20 November 2003 respectively. The terms of the agreement, again, were not reduced to writing and minutes of a meeting held years after the event were created to purportedly ratify the decision of Vicwal to borrow the monies from Mr Uratoriu and to advance such funds to Link. 54 PLI and Briqueterre were companies of which Mr Heaney was a director and shareholder. They agreed to advance East-West funds in the sum of $547,570 for the purpose of East-West repaying the funds advanced to it by Vicwal. Again there were no written documents and, again, the minutes were created long after the event. It is said that the advance of funds from PLI and Briqueterre to East-West was effected by PLI and Briqueterre assuming the obligations of making repayments of the funds advanced to East-West by Vicwal. 55 Mr Uratoriu then listed the repayments made by Winmarley, Rocket and Albergo of the funds advanced by Vicwal confirming that the sums in respect of which the amended assessments had been raised were repayments of the loans referred to in his 2009 affidavit. 56 Similarly, Mr Uratoriu says that Pinot also made repayments on Vicwal's behalf on occasions as Pinot was the guarantor under the NAB Bill. Pinot made those repayments on Vicwal's behalf in the years 2000, 2002 and 2003. The sums so paid, he says, were not income but repayment of sums advanced. With PLI and Briqueterre, the position was similar but repayments were made in 1997, 1998, 1999, 2000 and 2001. 57 In relation to East-West and Vicwal, Mr Uratoriu said: 'After holding my 6 ordinary shares in East-West for a period of 4 years, in 2001 I transferred my 6 ordinary shares in East-West to Mr Heaney for $1 per share'. He said that Vicwal demanded that East-West in its own capacity or through its sole shareholder and director, Mr Heaney repay the outstanding balance. In accordance with that demand, East-West repaid the following amounts to Mr Uratoriu on the following dates. $55,000 on 23 April 2001; $150,000 on 8 February 2002; and $47,000 each month during the period 2001 to 2004 for 36 months totalling $1,692,000. 58 Those amounts were received by Mr Uratoriu but were then paid to Vicwal in repayment of Vicwal's outstanding balance with NAB under the NAB Bill. Mr Uratoriu says that East-West repaid $2,239,570 to Vicwal consisting of the $1,692,000 direct from East-West and the $547,570 repaid by PLI and Briqueterre on behalf of East-West with a balance outstanding at the time of swearing the 2009 affidavit of $2,060,430. 59 Mr Uratoriu says that as result of these repayments, the amended assessment for the year ended 30 June 2002 was excessive by the amount of $1,896,994. 60 In relation to loans from Mr Uratoriu to Vicwal and Vicwal to Link, Mr Uratoriu said that part payments were received by Vicwal from Link for the repayment of funds advanced to them. However, prior to the full payment of the funds advanced, Link entered into administration. Mr Uratoriu says the amount of $707,981 remained outstanding and was never repaid. In relation to that sum, he says it was made up of $162,500 for the repayment of a portion of the outstanding debt of East-West assumed by Link; $101,481 for the repayment of funds advanced directly to Link by Vicwal; and $440,000 which was the remainder owning for the funds advanced in the amount of $670,000 (referred to in [53] above). 61 Mr Uratoriu then deals with the relationship of East-West and Link saying that East-West on behalf of itself and Link pursuant to an agreement not reduced to writing but purportedly recorded in much later company minutes, made repayments of the funds advanced by Ms Clapp by payment into Ms Clapp's and his joint bank account in 2001, 2002 and 2003 in respect of amounts of $35,000, $50,000 and $32,500. On that basis, Mr Uratoriu contended that the amended assessments in 2001 were excessive to the extent of $17,500; in 2002 to the extent of $25,000; and in 2003 to the extent of $16,250. 62 In relation to the liquor store in Mosman Park operated by Albergo, Mr Uratoriu said: I purchased liquor from the liquor store for my personal use but not in the amounts alleged by the [Commissioner] in his audit report. I did not purchase nor did I use any other liquor products or stock from the liquor store for my personal use, however, from time to time I purchased products from the liquor store to take to dinner parties and for gifts for my friends. 63 Mr Uratoriu swore to the fact that apart from the amounts declared in his income tax returns and sums described in his affidavits, he did not draw any monies from the entities referred to in his 2009 affidavit as compensation for services rendered. He said that all monies paid into his bank accounts, other than those declared in his income tax return were for the repayment of funds previously advanced to those entities. They were not salary and wages as alleged by the Commissioner. 64 In relation to the transfer of shares in PLI, Mr Uratoriu confirms in his 2009 affidavit that on or around 13 April 1998, PLI allotted him 6 ordinary shares with the value of $1 per share and he became a director of PLI on that date. PLI operated the freight forwarding business that also dealt with container movements at wharfs, freight distribution and freight storage. He transferred his 6 ordinary shares in PLI to Mr Heaney on 1 May 2000 for $1 per share. In May 2000, Mr Heaney sold the business of PLI including such things as client lists and all of the assets of PLI to MainFreight. In order to effect settlement of the sale of PLI's business to MainFreight, it was a condition of the sale that PLI's taxation liability be extinguished. On that basis, on 9 May 2000, MainFreight deposited $549,994 into Mr Uratoriu's bank account which was intended to cover PLI's taxation liability with the remainder being the repayment of funds advanced from Vicwal to East-West. Mr Uratoriu says that the Commissioner did not contact or correspond with him and simply issued a garnishee notice to Mr Uratoriu's bank for $385,621 and directed the bank to pay this amount to the Commissioner as payment of PLI's then current outstanding taxation liability. Mr Uratoriu said that the balance of funds were retained by him and provided to Vicwal in repayment of East-West's debt to Vicwal. Accordingly the amended assessment for the year ended 30 June 2000 was excessive to the extent $550,000. 65 In Mr Uratoriu's second 2010 affidavit (sworn on 23 March 2010), he explained that in his 2009 affidavit, where he had indicated that he made a bid for the Rose Bay Property, it was through an agent who attended the auction on his behalf and he made an offer to purchase the Rose Bay Property for $480,000 which was accepted by the auctioneer. Payment pursuant to the offer was achieved by bank advances. He had to pay Mr Davies $242,500 being calculated as follows: 7.1 the purchase price of $480,000 minus the $155,000 that was to be paid to [Mr Uratoriu] following the determination of the court; 7.2 the balance of $325,000 was divided equally and resulted in [Mr Uratoriu] being required to pay $162,500 to Davies; and 7.3 [Mr Uratoriu] was ordered to pay $80,000 to Davies given the court ordered [Mr Uratoriu] to pay Davies' costs of both the trial and the appeal. 66 Mr Uratoriu also says he paid $80,000 to his lawyers for the trial and appeal and sold the Rose Bay Property in 2001 at an auction for $850,000. He incurred expenses such as agent's commission and conveyancing costs. The proceeds from the sale of the Rose Bay Property being used to buy a residential property in Mosman Park in 2001. 67 Mr Uratoriu says that no copies of documents were retained 'in support of the purchase of the property in 1996 as it was the only residential property that [he] owned and [he] was already the sole registered proprietor'.

LAU13 68 Annexed to Mr Uratoriu's first 2010 affidavit was LAU13, which is now reproduced as part of these reasons. Mr Uratoriu provided the following explanation in relation to LAU13 in his second 2010 affidavit: 14. I explain the following to assist with understanding the Diagram annexed at LAU13 to my affidavit of 22 March 2010 together with page 25 of the report prepared by Mathew Van Riessen. Rocket $46,000.000 (2003) 15. The advance of $56,000,00 was made by me in 2003 (documents 4I, 4J, 4K, 4L, 4M and 4N on the Diagram). During this year I received a repayment of funds from Rocket Transport Services Pty Ltd in the amount of $46,000.00, which is the amount outlined at page 25 of the report of Mr Van Riessen as requiring a reduction in my taxable income as assessed by the [Commissioner]. Vicwal (T/F Winmarley) and (50% KC) $29,094.00 (2000) and $60,953.00 (2000) 16. The amounts of $29,094.00 and $60,953.00 outlined at page 25 of the report of Mr Van Riessen are repayments of the $151,000.00 advanced from Vicwal Pty Ltd to Winmarley Properties Pty Ltd in the relevant year as outlined in the Diagram (documents 5P and 5Q). 17. The $60,953.00 has been assessed as salary/wages to me and being 50% of the total $121,906.00 which the [Commissioner] deemed as salary/wages. The other 50% has been assessed to Ms Clapp as salary/wages. 18. The sum of $121,906.00 and $29,094.00 [$151,000.00] corresponds with the $151,000.00 outlined in the Diagram (documents 5P and 5Q). PLI Adjustment $34,000.00 (2001) 19. The amount of $34,000.00 was received by [Mr Uratoriu] in 2001 from PLI Pty Ltd. This amount has been omitted from the Diagram and should be included in the amounts paid from PLI Pty Ltd to [Mr Uratoriu]. This has no effect on the final amount that [Mr Uratoriu says] is [his] taxable income (at the bottom left summary within the Diagram) as it would increase the amount received by [Mr Uratoriu] by $34,000.00 making the total amount received by [Mr Uratoriu] from the entities $2,386,609.00. It would also decrease the amount of funds that [Mr Uratoriu has] contributed to the entities which have not been repaid during the relevant periods (identified as excess contribution at the bottom left summary within the Diagram) received by [Mr Uratoriu] by $34,000.00. This equates to the total excess contribution being $138,340.00. There accordingly would be no net effect and my alleged taxable income remains at $1,347,418.00 (identified at the bottom left summary within the Diagram). 69 Other than these explanations, that is the only evidentiary amplification of LAU13 which purports to be an entire explanation as to almost all of the movements of funds which are reflected by the issues under consideration in these appeals. Some light may have been thrown on the proper meaning to attach to LAU13 had its author been called to give evidence but he was not. The author of LAU13 was an accountant engaged by Mr Uratoriu and to whom Mr Uratoriu refers in his second 2010 affidavit. The accountant prepared a report but, like LAU13 and the 2010 affidavits, it was not received into evidence. The first 2010 affidavit and LAU13 replaced the report. 70 What did accompany, however, LAU13 were six volumes of documents comprising some further almost 2000 pages said to be the underlying documentary support verifying the content of LAU13. It was argued for Mr Uratoriu that the Commissioner had had access to that material for a substantial period of time and therefore, was not prejudiced by its very late production in the first 2010 affidavit. Self-evidently, access simply to cheque butts or copy cheque butts, copy bank statements and similar documents without knowing what it is said that they represent and how they prove the funds flow said to be illustrated by the last minute production of LAU13 is virtually meaningless. 71 The exercise of producing LAU13 and the 2000 page affidavit on the second day of the hearing, where this material had been sought for a number of years in earlier audits and certainly since the commencement of the proceeding, was a wholly inadequate response to the Commissioner's requests for verification as to the variety of shifting claims made by Mr Uratoriu.

Mr Heaney 72 Mr Uratoriu also called Mr Heaney to give evidence. Mr Heaney's first affidavit was sworn in May 2009. Mr Heaney swore to the fact that on incorporation of East-West in 1997, he was allotted 6 ordinary shares in the company at a value of a $1 per share with the other 6 shares being allotted to Mr Uratoriu at about the same time and also for $1 per share. From 1997 to 2003, Uratoriu and he were shareholders and directors in East-West. However, Mr Uratoriu ceased to be a director and shareholder in April 2001. East-West, he said, was an entity associated with the Port Link Group being a group of entities associated with one another consisting of Link Distribution Pty Ltd, Link and East-West. Mr Heaney was a director and shareholder of all of the entities within the Port Link Group. Other associated entities controlled by him consisted of PLI and Briqueterre. 73 Mr Heaney swore to the fact that over a four year period, Mr Uratoriu and his associated entities Winmarley and Vicwal advanced about $4,300,000 to East-West for working capital. He swore that in 2001, Mr Uratoriu transferred to him the 6 shares he held in East-West at $1 per share. 74 All money which had been paid to Mr Uratoriu and his associated entities by East-West were in respect of repayment of funds previously advanced by Mr Uratoriu and his associated entities. East-West and its associated entities assumed some of the debt payable to Mr Uratoriu and his associated entities. He swore to the fact that East-West and its associated entities facilitated this by way of loans between them. The payments made to Mr Uratoriu and his associated entities by the Port Link Group and associated entities were for repayment of funds advanced to East-West. Subsequently, East-West went into liquidation (it was, as I have said above, voluntarily deregistered) and not all funds advanced were repaid to Mr Uratoriu. 75 Mr Heaney said that as these debts related to a period of between 5 and 12 years ago, the majority of the entities had been liquidated. He was unable to locate any documents regarding the amounts paid by the Port Link Group to Mr Uratoriu. There was, however, an amount of $707,981 said to be outstanding by Link Distribution and Link to Vicwal. That amount was never repaid to Mr Uratoriu or Vicwal as those entities entered into administration prior to the payment of that amount. He swore to the fact that Mr Uratoriu and his associated entities were never repaid all the funds they advanced to East-West. 76 Mr Heaney also underwent an audit by the Commissioner during 2004 as did his associated entities. In his 2009 affidavit, he swore to the fact that in 2004, the Commissioner requested information in relation to the shares held by or disposed of by shareholders in the entities associated with him together with information in relation to payment by those entities. Mr Heaney had previously explained (through his accountant) that the funds advanced to Mr Uratoriu were for repayments of advances only. 77 Mr Heaney confirmed that he had accepted only $1 per share for his shares in PLI when they were sold to MainFreight on condition that PLI's tax liability was extinguished. The remainder of the consideration was paid, he says, under his direction by MainFreight to Mr Uratoriu for the purpose of reducing the balance owing by East-West to Vicwal. For that reason, on 9 May 2000, MainFreight deposited $549,994 in Mr Uratoriu's bank account to pay the taxation liability of PLI. 78 Mr Heaney who resides in Victoria also gave evidence by a second affidavit sworn on 23 March 2010 (the day after the trial commenced) saying that he recalled that a share transfer form was provided to him by Mr Uratoriu identifying 6 ordinary shares in East-West as being those transferred by him for $1 each. He said that at this time, East-West was not generating a profit. As a result of the documents relating to East-West being provided to a liquidator on his appointment, Mr Heaney did not have a copy of the share transfer form. 79 Mr Heaney confirmed that he recalled from his discussions with Mr Uratoriu at or around the time that Mr Uratoriu provided him with the share transfer form for the 6 ordinary shares in East-West, that Mr Uratoriu provided him the share transfer form on the 'discussed basis that the funds advanced to East-West Freight Pty Ltd by [Mr Uratoriu] and his associated entities would be repaid over a period of time and at a rate of $47,000 per month. I accepted these conditions'. 80 I will also address the evidence of Mr Heaney under the Analysis section.

MR URATORIU'S CONTENTIONS 81 Mr Uratoriu concedes that his taxable income for each of the following years includes the following amounts: 1997 - $38,901; 1998 - $436,767; 1999 - $273,934; 2000 - $460,062.44; 2001 - $1,248,100; 2002 - $412,098; 2003 - $140,776; and 2004 - $91,814 82 These sums include initially declared amounts of: 1997 - $19,400 1998 - $19,500 1999 - $19,500 2000 - $25,740 2001 - $20,900 2002 - $21,200 2003 - $885 83 For Mr Uratoriu it was submitted that while he was confused on many occasions in his cross-examination and unable to remember the facts on which he intended to rely, the documents which support his case should be preferred. It was submitted that many of the events concerned occurred many years ago and Mr Uratoriu's medical condition made it difficult for him to remember the details. 84 In relation to the repayment to Mr Uratoriu by Briqueterre, it was submitted that the funds deposited into Mr Uratoriu's bank account from Briqueterre were not salary and wages but rather were payments to be applied against equal payments to or from 'some entity'. 85 It was said that the deposited funds could not be salary and wages in the ordinary sense as Mr Uratoriu's association with Briqueterre was only that he was a director and shareholder. 86 He was not employed by Briqueterre and he did not provide personal services to Briqueterre nor did he exert himself personally for the benefit of Briqueterre. Additionally, the deposited funds were not incidental to employment services or personal services provided to Briqueterre and the deposited funds were not related to any activity or occupation. These submissions were repeated in relation to the other companies from which payments of 'income' were in issue. 87 He says that the payment of funds of $42,000 to him were applied against funds paid to PLI by him as can be seen by payments made by Mr Uratoriu in various documents in which he advanced $686,000 of his own funds to PLI and Briqueterre repaid the amount of $42,000 in the same year (1999). 88 In relation to PLI, it was submitted that the inference was that the funds deposited into Mr Uratoriu's bank account by PLI were not salary and wages but rather were payments to be applied against prior payments to PLI. Again, it was submitted that the deposited funds could not be salary and wages in the ordinary sense as Mr Uratoriu's association with PLI was that he was a director and shareholder for two months during the 1998 year, the whole of the 1999 year and for eleven months during the 2000 year. 89 He argued he was not employed by PLI, he did not provide personal services to PLI nor did he exert himself personally for the benefit of PLI. Additionally, the deposited funds were not incidental to employment services or personal services provided to PLI and were not related to any activity or occupation. 90 Reliance was placed on the evidence of Mr Heaney that Mr Uratoriu had not been involved with the operation of PLI. Accordingly it was said that the various payments to Mr Uratoriu by PLI were applied against payments made to PLI. It was said, however, that the amount of $34,000 received by Mr Uratoriu in 2001 from PLI had been inadvertently omitted from the flowchart at LAU13 and should be included in the amounts from PLI to Mr Uratoriu. 91 In relation to 'repayment' to Mr Uratoriu by Rocket, Mr Uratoriu argues that the inference is that the funds deposited into his bank account by Rocket were not salary and wages 'but rather were applied against funds that [Mr Uratoriu] paid Vicwal and Vicwal had paid to Rocket or Vicwal had paid Rocket and [Mr Uratoriu] paid to Vicwal and also payments of funds that [Mr Uratoriu] had personally paid to Rocket'. He argues that an inference can be drawn from the documents that the funds received earlier by Mr Uratoriu were to be applied against amounts paid by Mr Uratoriu as the funds from Mr Uratoriu moved from Mr Uratoriu directly to Rocket or Vicwal, then to Rocket and back to Mr Uratoriu. Alternatively, it is said that it might be inferred that the funds moved from Vicwal to Rocket and after Mr Uratoriu received those amounts from Rocket they were paid back to Vicwal. It is argued that both these inferences arrive at the same conclusion, namely that Mr Uratoriu received funds from Rocket and those funds should be applied to the funds provided earlier by Mr Uratoriu to Rocket and Vicwal. It is again argued that the deposited funds cannot be salary and wages in the ordinary sense as Mr Uratoriu's association with Rocket is only that he was a director for six months during the 2002 year; the whole of the 2003 year; and the whole of the 2004 year; he was not a shareholder of Rocket; he was not employed by Rocket; he did not provide personal services to Rocket, nor did he exert himself personally for the benefit of Rocket; the deposited funds were not incidental to employment services or personal services provided to Rocket; and the deposited funds were not related to any activity or occupation. 92 For the same reasons, Mr Uratoriu argues the deposited funds cannot be deemed dividends. 93 Mr Uratoriu argues that the payments by Rocket to Mr Uratoriu to the extent of $25,000 in 2001; $22,000 in 2002; and $56,000 in 2003 were applied against funds paid to Rocket by Mr Uratoriu of the same amounts in the same years. 94 Further, the payments by Rocket to Mr Uratoriu to the extent of $25,000 in 2002 and $66,234 in 2003 were applied against funds paid to Vicwal by Mr Uratoriu. Mr Uratoriu paid funds to Vicwal in the amount of $150,000 in 2002 and $25,000 in 2003 and Vicwal paid funds to Rocket in the amounts of $25,000 in 2002 and $66,234 in 2003 and Mr Uratoriu received these funds from Rocket to the extent of the amounts of $25,000 in 2002 and $66,234 in 2003. 95 On this basis, Mr Uratoriu says he has discharged the burden of proof that exists under s 14ZZK of the TA Act that he did not derive any salary or wages from Rocket during the relevant period as alleged by the Commissioner or at all. 96 In relation to the 'repayment' to Mr Uratoriu by Winmarley, again, Mr Uratoriu relies upon inferences to be drawn from documents and circumstances in addition to his own denial that the funds were salary and wages. Mr Uratoriu says there is an inference that can be drawn from the documents that the funds received earlier by Mr Uratoriu were to be applied against amounts paid by Mr Uratoriu as the funds from Mr Uratoriu moved from Mr Uratoriu directly to Winmarley or to Vicwal, then to Winmarley and back to Mr Uratoriu. In the alternative, the other inference that could possibly be drawn is that the funds moved from Vicwal to Winmarley and after Mr Uratoriu received these amounts from Winmarley, they were paid back to Vicwal. Both these inferences result in the same conclusion, being that Mr Uratoriu received funds from Winmarley and those funds should be applied to the funds provided earlier by Mr Uratoriu to Winmarley and Vicwal. 97 In addition, Mr Uratoriu submits for the same reason advanced in relation to the other payments, that they cannot be salary and wages in the ordinary sense or deemed dividends due to the distancing of Mr Uratoriu from any employment relationship with Winmarley. 98 As to the particular amounts, it is said that the payments by Winmarley to Mr Uratoriu to the extent of $29,000 in 1998 and $60,000 in 1999 were applied against funds paid to Winmarley by Mr Uratoriu. Mr Uratoriu advanced funds in the amount of $29,000 in 1998 and $60,000 in 1999 and received repayments of these funds from Winmarley in the same years. 99 Further, the payments by Rocket to Mr Uratoriu to the extent of $9,000 in 1998; $2,000 in 1999; and $31,000 in 2001 were applied against funds paid to Vicwal by Mr Uratoriu. Mr Uratoriu paid funds to Vicwal in the amount of $9,000 in 1998; $4,000 in 1999; and $31,000 in 2001 and Vicwal paid funds to Winmarley in the amounts of $125,000 in 1998; $2,000 in 1999; and $151,000 in 2000 and Mr Uratoriu received these funds from Winmarley in the amounts of $9,000 in 1998; $2,000 in 1999; and $31,000 in 2001. 100 The argument in relation to the 'repayment' to Mr Uratoriu by PLI and MainFreight is similar. Mr Uratoriu argues that the funds deposited into his account by MainFreight to the extent of $385,621.56 were for the purposes of using the sale proceeds of the sale of the business of PLI to MainFreight to attend to the outstanding taxation obligations of PLI as part of the sale of its business. On 9 May 2000, $385,621.56 was transferred to the Commissioner to attend to the taxation liabilities of PLI. Rather than that payment being for a Director's Penalty Notice (DPN), in fact, it is argued it was the amount for PLI's taxation liability. It is argued that there is no evidence that a DPN was actually issued to Mr Uratoriu and that the Commissioner did not tender a DPN. 101 It is also argued for similar reasons that the deposited funds cannot be salary and wages in the ordinary sense for the usual reasons; namely, Mr Uratoriu's association with PLI is that he was a director and shareholder for 2 months during the 1998 year, the whole 1999 year and for 11 months during the 2000 year; Mr Uratoriu has no association with MainFreight Ltd; Mr Uratoriu was not employed by PLI; Mr Uratoriu did not provide personal services to PLI nor did he exert himself personally for the benefit of PLI; the deposited funds were not incidental to employment services or personal services provided to PLI; and the deposited funds were not related to any activity or occupation. 102 For the same reasons it should also be inferred according to Mr Uratoriu that the funds deposited into his bank account from PLI were not deemed dividends but rather were repayments to be applied against payments from Mr Uratoriu to PLI. 103 In relation to Albergo and personal usage of alcohol stock, Mr Uratoriu relies upon his denials. 104 In relation to East-West share sale, Mr Uratoriu has conceded that there was a net capital gain and the Commissioner has conceded that the 50% discount must be applied to the net capital gain pursuant to subdiv 115A of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act). 105 Accordingly, Mr Uratoriu argues that the appeal against the objection decision in respect of the Commissioner's amended assessment dated 9 June 2006 to Mr Uratoriu for the year ended 30 June 2001 (the 2001 income assessment) and the Commissioner's notice of assessment and liability to pay penalty dated 16 June 2006 to Mr Uratoriu for the year ended 30 June 2001 (the 2001 penalty assessment) should be allowed to the extent that the objection decision as to the 2001 income assessment and the 2001 penalty assessment be varied in this way. Mr Uratoriu argues that the matter should be remitted to the Commissioner with directions that Mr Uratoriu's objection be allowed by varying the 2001 income assessment and the 2001 penalty assessment by excising from Mr Uratoriu's taxable income for the year ended 30 June 2001 the amount of $948,497 and remitting the imposed penalties on the excised amount to nil. 106 In relation to the Rose Bay Property and the net capital gain, Mr Uratoriu relies upon his evidence to the effect that during the period of ownership of the Rose Bay Property he was not a registered proprietor of any other residential property or dwelling; he attended to renovations on the Rose Bay Property from 1986 to 1990; whilst initially purchasing the Rose Bay Property with a view to renovating and disposing of the Rose Bay Property for gain, intervening circumstances compelled him to further expend $242,500 in 1996 to gain full ownership of the Rose Bay Property; and he expended $80,000 in legal fees to protect and preserve his ownership interest of the Rose Bay Property, of which he argues he can demonstrate by documentation of the amount of $44,818.60. 107 On that basis it is argued that the Commissioner has failed to allow the further expenditure to gain full ownership of the Rose Bay Property or allow the legal costs incurred and paid by Mr Uratoriu to protect and preserve his ownership interest in the Rose Bay Property being included in the cost base of the Rose Bay Property and thereby reducing the net capital gain of $369,250 to $225,590.70. 108 In relation to the 'repayment' to Mr Uratoriu by PLI and MainFreight, Mr Uratoriu argues that the amount of $385,621.56 was not for the payment of a penalty under a DPN, as alleged by the Commissioner. But rather in referring to the narrative annexed to the affidavit of Ms Betty Jane Logue, the officer of the ATO dealing with Mr Uratoriu and Mr Heaney concerning the DPNs, it has simply been recorded that on 16 February 2000 a DPN was issued but the narrative does not state to whom the DPN was issued or for what amount it was issued. It is stated that 'he [Mr Heaney] is concerned about the DPNs expiring' but does not state whether the DPN in fact expired. It is argued that the narrative simply shows that a DPN was issued on 1 May 2000 but there is no evidence as to who the DPN was issued to or for what amount. There is no evidence, it is asserted, that the DPN was served on Mr Uratoriu. 109 Sections 222AOB, 222AOC, 222AOE and 222AOG of the 1936 Act provide: 222AOB Directors to cause company to remit or to go into voluntary administration or liquidation - deductions and amounts withheld (1) The persons who are directors of the company from time to time on or after the first deduction day must cause the company to do at least one of the following on or before the due date: (a) comply with its obligations in relation to deductions (if any) and amounts withheld (if any) whose due date is the same as the due date; (b) make an agreement with the Commissioner under section 222ALA in relation to the company's liability under a remittance provision in respect of such deductions (if any) and amounts withheld (if any); (c) appoint an administrator of the company under section 436A of the Corporations Act 2001; (d) begin to be wound up within the meaning of that Act. (1A) For the purposes of paragraph (1)(a), the obligations are: (a) to comply with Division 1AAA, 3B or 4, as the case may be, in relation to each deduction (if any): (i) that the company has made for the purposes of Division 1AAA, 3B or 4; and (ii) whose due date is the same as the due date; and (b) to comply with Subdivision 16B in Schedule 1 to the Taxation Administration Act 1953 in relation to each amount that the company has withheld (if any): (i) for the purposes of Division 12 of that Schedule; and (ii) whose due date is the same as the due date. (2) This section is complied with when: (a) the company complies as mentioned in paragraph (1)(a); or (b) the company makes an agreement as mentioned in paragraph (1)(b); or (c) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or (d) the company begins to be wound up within the meaning of that Act; whichever first happens, even if the directors did not cause the event to happen. (3) If this section is not complied with on or before the due date, the persons who are directors of the company from time to time after the due date continue to be under the obligation imposed by subsection (1) until this section is complied with. 222AOC Penalty for directors in office on or before due date (1) If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company's liability under a remittance provision in respect of deductions or amounts withheld: (a) that the company has deducted for the purposes of Division 1AAA, 3B or 4 of this Act, or withheld for the purposes of Division 12 in Schedule 1 to the Taxation Administration Act 1953 (as the case requires); and (b) whose due date is the same as the due date. (1A) If section 222AOBAA is not complied with before the end of the payment day, each person who is a director of the company on the payment day is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount or amounts that the company is required to pay under section 135 in Schedule 1 to the Taxation Administration Act 1953 in respect of the payment or payments relating to the payment day. (2) If section 222AOBA is not complied with before the end of the benefit day, each person who is a director of the company on the benefit day is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount or amounts that the company is required to pay under Subdivision 16B in Schedule 1 to the Taxation Administration Act 1953 in respect of the benefit or benefits provided on the benefit day. 222AOE Commissioner must give 14 days' notice before recovering penalty The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that: (a) sets out details of the unpaid amount of the liability referred to in subsection 222AOC(1), (1A) or (2) (whichever relates to the penalty); and (b) states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given: (i) the liability has been discharged; or (ii) an agreement relating to the liability is in force under section 222ALA; or (iii) the company is under administration within the meaning of the Corporations Act 2001; or (iv) the company is being wound up. 222AOG Remission of penalty if section 222AOB, 222AOBAA or 222AOBA complied with before notice period ends If: (a) a penalty is payable by a person under this Subdivision; and (b) section 222AOB, 222AOBAA or 222AOBA (whichever relates to the penalty) is complied with at a time when the Commissioner has not yet given the person a notice under section 222AOE, or within 14 days after the Commissioner gives the person such a notice; the penalty is remitted because of this section. 110 Mr Uratoriu submits that pursuant to s 222AOB and s 222AOC of the 1936 Act, a director is held liable in specific circumstances, not for a taxation liability of a company, but rather a penalty in the amount of the taxation liability. The Commissioner must follow a specific procedure to make the penalty collectable. Section 222AOC only makes the director liable for a penalty. It does not allow for collection of the penalty. This is expressed in s 222AOE of the 1936 Act where it is said that 'The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice…'. Further, in accordance with s 222AOE of the 1936 Act, a DPN must be issued for a penalty to be collectable by the Commissioner. The DPN must set out and specify all of the details of the company's liability and state the person receiving the notice is liable to pay the penalty but that the penalty will be remitted if, inter alia, within 14 days 'after the notice is given' the liability of the company has been discharged. He argues that there is no evidence before the Court to show that the DPN was in fact issued to Mr Uratoriu and what was specified in the DPN. 111 Furthermore, Mr Uratoriu argues that if the DPN issued on 1 May 2000 was in fact issued to him for the amount of $385,621.56, s 222AOE of the 1936 Act applies. He contends the Commissioner was not authorised to 'receive monies' to pay the penalty amount prior to 15 May 2000, so the funds received by the Commissioner on 9 May 2000 should be taken to be payment of the taxation liability of PLI and not of a penalty amount under the DPN. It is argued that pursuant to s 222AOG the payment of the taxation liability for PLI extinguishes the liability for the penalty, not just the ability to collect the penalty. 112 In summary, Mr Uratoriu argues that the evidence in relation to the issuing of the DPNs to Mr Uratoriu is lacking due to the Commissioner not being able to produce the DPNs and should the Court find that a DPN was given on 1 May 2000, Mr Uratoriu could never be personally liable to pay an amount relating to the taxation liability of PLI unless that taxation liability had still not been paid at the end of 14 days after the DPN was given. In fact, Mr Uratoriu argues, payment for PLI's tax liability was received by the Commissioner on 9 May 2000, well inside any possible 14 day period. 113 In my view this argument places too broad a construction on 'entitled to recover'. I would take that expression when used in s 222AOE not to mean that the Commissioner is not 'entitled to bank' a payment made but rather not entitled to recover it in the sense of taking recovery proceedings. But whether this is correct or not, in my view, this claim fails for more basic reasons discussed below.

The Challenges for Mr Uratoriu 114 It is common ground that the case is essentially one of fact. It turns on the credibility and reliability of witnesses called for Mr Uratoriu, (including, in particular, Mr Uratoriu himself) as viewed in light of the surrounding circumstances and probabilities. Mr Uratoriu sought to prove his case almost wholly on the strength of his own oral testimony, there being a paucity of unequivocal, corroborative, contemporaneous documentary material to support his accounts. 115 The Commissioner contends that Mr Uratoriu was an unsatisfactory witness. I must accept this submission. He was not forthcoming in cross-examination, did not answer questions directly, contradicted himself and often took a substantial amount of time to answer questions. As significantly, it is clear that he departed from his affidavit evidence in numerous material respects and there were fundamental inconsistencies between evidence given in cross-examination and prior evidence given on oath either before this Court or at interviews with the Commissioner's officers. 116 I am obliged also to accept the Commissioner's submissions that in relation to all of the issues arising in these appeals, the vague and generalised nature of Mr Uratoriu's affidavit evidence had all the hallmarks of a reconstruction designed to support a position to counter the assessments. Indeed, it is not possible to conclude that his evidence is anything other than a reconstruction. That this is so was clear from Mr Uratoriu's admission that he had spent a mere 30 minutes reading a nearly 2000 page affidavit prepared on the morning of the hearing in order to verify a chart as complicated as LAU13 as being a 'correct analysis of the flow of the funds'. That this chart was produced on the first morning of the hearing, in light of the fact that the appeals had been on foot since 2007, is equally surprising. Nevertheless, Mr Uratoriu said that in the 30 minutes he had, he checked through the affidavit, checked the annexures to it and checked the entries in LAU13, and was satisfied as to their correctness. 117 Ultimately, Mr Uratoriu did concede that he did not go through his financial records to enable the preparation of his evidence. Rather, he did no more than to accept the untested explanation formulated and produced by his advisors who did not give evidence. He 'trusted' the affidavit to be correct and swore it. 118 This was all the more significant, when it was abundantly clear on cross-examination that Mr Uratoriu had little, if any, understanding of key parts of LAU13 and what they were intended to represent. 119 Also, significantly, there was no suggestion by Mr Uratoriu at the 2003 interviews conducted with officers of the Commissioner, that he was receiving the payments of advances on behalf of Vicwal. Rather, he then said that he borrowed money to live from some of his companies, including Vicwal and his friends and that either he or Vicwal had received loans from Link of over $1 million. This departs from and is inconsistent with the present claim that he received payment of Vicwal's debts. 120 Against that background, it is also appropriate to take into account the fact that the 1999, 2001, 2002 returns for Mr Uratoriu were only lodged in May 2004, well after the ATO had been in contact with him and the 2003 return was not lodged until demand was made. The 2004 return had still not been lodged at the time of the hearing of the appeals. This omission in respect of his personal taxation return obligations extended also to the corporations which Mr Uratoriu controlled. In that regard, Vicwal has not lodged a business activity statement (BAS) since 30 September 2000. Similarly, Winmarley and Rocket were wound up for non-payment of taxation related liabilities. Pinot, at the time of the appeal, was facing a winding up application for the same reason. 121 The Commissioner points to Mr Uratoriu's failure to assist relevant ATO officers in the course of the 2003 audit into his taxation affairs, specifically, his failure to produce any of the requested documents as sought in two notices under s 264 of the 1936 Act (19 June 2003 and 16 October 2003). These notices related to two interviews conducted in July and November 2003 respectively. Mr Uratoriu now contends that there are documents that could have been produced because he relies upon them in this appeal, for example, banking documents as annexed to his affidavit sworn in the commencing day of the trial. 122 Conspicuous also was the absence of any corroborative, contemporaneous documentary material to support critical aspects of Mr Uratoriu's evidence. There was no financial record supplied in many instances. The best evidence on which Mr Uratoriu relied in many instances was in the form of minutes which were prepared years after the purported events and only then, for the purposes of the proceedings. Although Mr Uratoriu gave evidence that the minutes were prepared by his accountant without Mr Uratoriu and the accountant discussing what was to go into the minutes, this only supports the lack of reliability of the documents. I do not, by this observation, mean to suggest that the record created was fraudulently created because it was relatively clear on the face of the minutes (accepted by Mr Uratoriu) that they were prepared for the purpose of the proceedings. In all the circumstances, the extent to which they could be relied upon as an accurate record of the events they purport to record is extremely limited. 123 The evidence of Mr Heaney was similarly vague and generalised in nature. The affidavits that he swore were prepared without regard or recourse to any records as he had no documentation. He accepted that he swore affidavits without being aware of the amounts and dates of payments in issue in the case and, in fact, was provided with a draft of his first affidavit before discussing his evidence with Mr Uratoriu's solicitors. The absence of any corroborative contemporaneous documentary material to support the vague and generalised nature of Mr Heaney's evidence in relation to events which occurred several years ago meant that his evidence was, as with Mr Uratoriu's, quite unconvincing. 124 The key document in the case was the funds flow diagram LAU13. This document was described by counsel for Mr Uratoriu as being a 'road map' to make sense of the material. LAU13, even as a purported summary of funds' movements is of little assistance. It did not show when funds were received. Payments could have been received before the advances relied on as loans, in which case they could not be characterised as loan repayments. It is, of course, possible that there were some loan repayments but the problem is simply that Mr Uratoriu has not discharged the onus which rests on him of proving that the sums received were repayments of loans advanced. LAU13 does very little to assist but even then, suffers much more seriously from the lack of primary evidentiary source material establishing the summary which the flow chart purports to illustrate. 125 Equally it must be said that it would be entirely unreasonable to expect that a person could, unaided, recall many transactions, some of apparent complexity from several years past. That is not what is expected. However in the present instance, Mr Uratoriu has had several years to put together with the assistance of experts, meaningful explanations as to the funds movements now said somehow to be depicted by LAU13. Regrettably the efforts made in this regard to discharge his onus are far too little and far too late. 126 It would be a major leap to infer that a specific receipt was a specific repayment of a loan advanced in circumstances where the evidence of Mr Uratoriu and any other evidence in his case was otherwise vague and unreliable. The foundation for drawing such an inference does not exist. Any such inference would be no more than a charitable guess in favour of Mr Uratoriu's case. In relation to the payments made, the only evidence in support is that contained in his 18 May 2009 affidavit. There was no direct evidence or any proper inference open to the effect of that contended for in the closing submissions advanced for Mr Uratoriu. Mr Uratoriu essentially argues that the payments received by him were on-paid in remittance to Vicwal, in repayment of Vicwal's debtors. As originally framed, Mr Uratoriu said that he received the payments on behalf of Vicwal and remitted them to Vicwal. LAU13 does not illustrate any remittance by Mr Uratoriu to Vicwal. Further, the funds flow diagram does not reflect Mr Uratoriu receiving repayments on behalf of Vicwal which were then on-paid in remittance to Vicwal or at least not in any way that Mr Uratoriu could explain. In cross-examination Mr Uratoriu was unable to identify any such remittances by himself to Vicwal. Indeed, Mr Uratoriu unsurprisingly demonstrated very little familiarity with or understanding of the content of LAU13 at all. 127 Against all of that material there was the acceptance by Mr Uratoriu that he has an actual taxable income in the relevant years that is substantially more than that which was declared and that which was acknowledged in his initial affidavit. 128 Additionally, he conceded that he had not been through his financial records to try and identify or check whether there were any unidentified payments as received by him. 129 As for the 2004 financial year, no income tax return has been lodged and therefore no declaration has been made to the effect that all assessable income had been disclosed. 130 In those circumstances, it is a substantial challenge for Mr Uratoriu to satisfy the Court on the balance of probabilities that he has excluded by proof all sources of income except those which he now admits paraphrased per Brennan J in Dalco. As Brennan J said (at 622-624 with footnotes omitted): As the amount of the amended assessment would be shown to be excessive if the requirements of s 170(2) were not satisfied, s 190(b) imposed on the taxpayer the burden of showing that the requirements had not been satisfied. The ground of objection on which the taxpayer here relies is error in the formation of a judgment as to the amount on which tax ought to be levied. But mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment under s 167(b), the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. In George's Case the Full Court said: "the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income." Kitto J, from whose judgment the appeal in George's Case was brought, said: "[Section] 190 (b) places the burden of proving that the assessment is excessive upon the appellant; and in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment." Counsel for the taxpayer invited the Court to overrule George's Case in so far as it requires a taxpayer to prove that the amount of taxable income assessed exceeds the taxpayer's actual taxable income, but that proposition does not rest on George's Case alone. At base, it rests on s 190(b) but it is acknowledged in McAndrew's Case, McCormack's Case and FJ Bloemen Pty Ltd (at pages earlier cited). In this respect, George's Case is not open to doubt. It follows that Wilcox J was right in holding that "the task for the taxpayer, upon an appeal or a review under Pt V of the Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer". (emphasis added)

East-West Freight PL 131 Mr Uratoriu asserts that East-West became indebted to Vicwal in an amount of $4.3 million between 1996 and April 2001. In cross-examination, however, he said he 'could not be affirmative' and was not sure whether the total advances were $4.3 million. On the face of his affidavit, the $4.3 million was said to comprise $1 million initially advanced between 1996 and 1999 by Vicwal to Winmarley funded by the NAB Bill facility but which was assumed by East-West. However, in cross-examination, Mr Uratoriu was unable to recall the nature of the loan and there is no mention of any 'assumption' of debts of Winmarley by East-West in LAU13. In addition to that $1 million, the $4.3 million comprised a further $3.3 million advanced between April 1997 and April 2001 by Vicwal to Winmarley funded in part by the NAB Bill facility. Mr Heaney also refers to advances of $4.3 million but provided no support for the 'assumption' of any debts of Winmarley on the part of East-West. 132 Mr Uratoriu deposed to a further $1.4 million allegedly advanced to Link in the period 1999 to 2004 which was said to include $670,000 that he advanced personally. None of that information was corroborated by Mr Heaney. Link was said to be the successor of East-West, but the advance was not directly relevant to any of the assessments or the EastWest payments. 133 Mr Uratoriu's evidence was that Vicwal received payments from Link for this debt but that $707,981 was outstanding at the time of Link entering into administration and was never repaid. That included $162,500 of assumed debt of East-West. 134 Mr Uratoriu said that PLI and Briqueterre assumed some $547,570 of East-West's debt to Vicwal but in cross-examination he said that the payments from PLI were repayment of funds he personally advanced to PLI albeit that the amount referred to was $471,570. On affidavit, Mr Uratoriu said that in total East-West repaid $2,239,570 to Vicwal comprising $1,692,000 paid directly from East-West, (although there was an arithmetic error in that on the version of events referred to on affidavit by Mr Uratoriu, the total 'repayments' were understated by $205,000. East-West repaid to Mr Uratoriu which was then paid to Vicwal $55,000 on 23 April 2001, $150,000 on 8 February 2002 and $47,000 each month for 36 months) and the $547,570 that was paid by PLI and Briqueterre on behalf of East-West. 135 Finally, it is said on affidavit, the unpaid balance of the debt owed by East-West to Vicwal was $2,060,430. This is overstated by $205,000 being the arithmetic error referred to above. 136 The evidence for Mr Uratoriu was that he received repayments only and all the amounts by way of 'repayment' he so received were paid to Vicwal. However, in relation to the $164,379 balance of the MainFreight payment (which was the $549,994 received less the $385,621 paid out on the garnishee notice), although Mr Uratoriu deposes to the fact that he retained the balance and provided it to Vicwal in repayment of East-West's debt to Vicwal, he does not suggest it should be taken into account as a reduction in EastWest's debt to Vicwal. It seems unusual to not rely on this substantial payment as a reduction in the East-West loan. If there was a real debt by East-West to Vicwal met in part by the balance of the MainFreight payment, it would be expected that Mr Uratoriu would have deposed to it. In cross-examination, however, Mr Uratoriu said that he could not remember and could not say whether the balance of the MainFreight payment was received in discharge of East-West's alleged debt to Vicwal. This did not accord with the substance of his affidavit evidence. There the essence of the contention for Mr Uratoriu was that the payments received by him from PLI and Briqueterre and possibly also Winmarley were in the nature of repayments of advances which he paid on to Vicwal. They were not income, salary, wages or deemed dividends. He says that payments received by him in respect of East-West were not consideration, payment or disposal of his East-West shares. 137 If this were so, it would follow that payments received from Winmarley could not be justified on the basis that they were repayment of an advance by Vicwal as the liability to repay those advances had been assumed by East-West and all repayments of the alleged advances by Vicwal to (or assumed by) East-West were made into bank accounts of Mr Uratoriu. But at the highest, only $547,570 was repaid by East-West through PLI and Briqueterre prior to April 2001. 138 There is no satisfactory explanation or any explanation as to why the payments by Winmarley, would be on-paid to Vicwal. It has not been suggested by Mr Uratoriu that Winmarley had any liability to Vicwal. Even if there had been, no plausible reason was advanced as to why the repayments were paid into accounts maintained by Mr Uratoriu and Ms Clapp instead of directly to Vicwal as would be expected in the absence of some other explanation. 139 These complex arrangements find no contemporaneous corroborative documentary evidence at all. At the least, it would be expected that the loans would have been recorded in financial statements and books of prime entry. Bank statements and associated records should evidence the alleged on-payments by Mr Uratoriu to Vicwal. No such evidence was produced. 140 Indeed, such documentary evidence as was produced does not support the contention advanced for Mr Uratoriu. In relation to this documentary evidence: The financial statements for Vicwal in the years ended 30 June 1998, 1999, 2000, 2001 and 2002 (which, apart from 1998, are 'signed off' by Mr Uratoriu) do not record any loan at all as being due by Winmarley or East-West to Vicwal. The financial statements for Winmarley for years ended 30 June 1998 and 1999 do not record any loan due by Winmarley to Vicwal. The NAB facility was not available and was insufficient to fund the alleged advances by Vicwal to Winmarley/East-West contended for by Mr Uratoriu. The PLI payments contended by Mr Uratoriu to be on account of debts of East-West assumed by PLI include $18,600 paid in the year ended 30 June 1997. This was comprised of 12 monthly payments of $1,550, commenced in July 1996. However, East-West was not incorporated until 9 April 1997. There is no basis on which PLI could be making payments to Mr Uratoriu for Vicwal in respect of liabilities PLI had already assumed on behalf of East-West, when East-West did not exist. 141 The only corroborative documentary evidence adduced by Mr Uratoriu was the various meetings of Vicwal's supposed board on 12 May 2009. As I have previously indicated, Mr Uratoriu does not purport to contend that these minutes were created at the time of the transactions which he now says they evidence. He fully accepts that they are recently created reconstructions which have been brought into existence to further Mr Uratoriu's case. Given the absence of any contemporaneous documentary support and the wholly unreliable evidence of Mr Uratoriu, those minutes can be of no value whatsoever. 142 The true position is that as to the salary, wages and deemed dividends, Mr Uratoriu was the director of and shareholder in Briqueterre and PLI and the sole director of and shareholder in Winmarley. As to the disposal of the East-West shares, Mr Uratoriu accepts he transferred his six shares and subsequently he commenced to receive the East-West payments. 143 Although it is suggested for Mr Uratoriu in submissions that he was not employed by Briqueterre, PLI or Winmarley, there is no evidence to that effect. Indeed, as Mr Uratoriu now accepts receipt of some salary and wages in respect of Winmarley employment, the contrary may reasonably be inferred. In any event, employment is not a relevant consideration on whether payments were received as deemed dividends or as consideration on the disposal of shares. 144 Mr Uratoriu has not discharged the onus of proving on the balance of probabilities that there were loans by Vicwal to East-West as he alleges, no such loan ever appearing in Vicwal's financial statements. It cannot be concluded on the balance of probabilities that the relevant payments were in repayment of a non-existent advance.

Rocket 145 Mr Uratoriu contends that Rocket became indebted to Vicwal in an amount of $550,000 between December 1999 and 2004 comprising $280,000 advanced directly by Vicwal to Rocket and $270,000 advanced by Mr Uratoriu and Ms Clapp to Vicwal in 2003 which was then on-lent to Rocket so that Rocket could pay its taxation liabilities. He says that Rocket repaid $758,743 to Vicwal comprising $545,985 received by him and $212,758 received by Ms Clapp. Mr Uratoriu's evidence on affidavit was that he received repayments only and all the amounts so received by way of repayment were paid to Vicwal. 146 For the Commissioner it is contended that these assertions are implausible on their face as: 1. payments by Rocket to Mr Uratoriu and Ms Clapp which are said to be repayments of advances by Vicwal exceed the alleged advances (the payments total $758,743 against alleged advances of $550,000); 2. no plausible reason is advanced as to why in respect of the $270,000 tranche the alleged advance was made by Mr Uratoriu and Ms Clapp to Vicwal to then be on-lent by Vicwal to Rocket. Again, there is no explanation as to the series of advances and no explanation as to why there was not simply a direct advance by Mr Uratoriu and/or Ms Clapp to Rocket; 3. no plausible reason was advanced as to why the repayments were paid into accounts maintained by Mr Uratoriu and Ms Clapp to be on-paid to Vicwal, instead of payments direct to Vicwal. In any case, given that on the case for Mr Uratoriu, the $270,000 tranche was sourced from Mr Uratoriu and Ms Clapp, there is no reason why they should not have retained that amount so as to meet the debt owed to them; and 4. had the transactions occurred as Mr Uratoriu contends, it is highly likely that there would have been contemporaneous corroborative documentary evidence. For example, at the least it would be expected that the loans would have been recorded in financial statements and books of prime entry. Bank statements should evidence the alleged on-payments by Mr Uratoriu and Ms Clapp to Vicwal. No evidence of this nature has been adduced. 147 Given the vagueness and unreliability of the evidence of Mr Uratoriu, the latter point in relation to documentary transactions assumes considerable significance and precludes a conclusion that he has discharged the onus on the balance of probabilities. 148 Similar considerations to those concerning East-West also apply here. Mr Uratoriu has belatedly accepted having received certain amounts in salaries, wages and deemed dividends from Rocket. Moreover, the financial statements for Vicwal for the relevant years were signed off by Mr Uratoriu but do not record any loan due by Rocket to Vicwal. Cheque butts relied on do not support the advances contended for. They do records sums but total only $91,233.67 rather than $175,000 as contended by Mr Uratoriu. 149 At the relevant time, Mr Uratoriu was the sole director of Rocket and worked in the business. His de facto spouse, Ms Clapp, was the sole shareholder in Rocket. Again, notwithstanding the assertions by Mr Uratoriu, there is no evidence that he was not employed by Rocket. He admitted working in Rocket's business and, in any event, as previously noted, employment is irrelevant as to whether the amounts were received as deemed dividends. It is unnecessary for the purposes of the deemed dividend provisions for Mr Uratoriu to be a shareholder in Rocket. It was sufficient that he was an associate of a shareholder (see s 109C(1) and s 318 of the ITAA 1936). That is the position as Ms Clapp was at all times Mr Uratoriu's de facto spouse. 150 It cannot be concluded on the balance of probabilities that there were loans by Vicwal to Rocket as alleged by Mr Uratoriu. It cannot be concluded on the balance of probabilities that the relevant payments were in repayment of such advances. While some recognition must be given, as indicated elsewhere in these reasons, to the possibility that there were some advances of some description, the invariably vague and generally unreliable evidence of Mr Uratoriu precludes any sound finding as to the amount of repayments he contends or, indeed, any amount. Any conclusion favourable to Mr Uratoriu on this topic would, again, be pure guesswork. That is not permissible.

Albergo 151 Mr Uratoriu contends that he did not, other than by purchase, take any alcohol or other stock from Albergo's liquor store (Mosman Park Liquor) for personal use. He accepts that Albergo operated the store in 2001 and admits to purchasing liquor. His evidence on affidavit is that he did not, other than by such purchase, use or take liquor products or stock for his personal use. 152 The Commissioner contends Mr Uratoriu's evidence should be rejected. The Commissioner observes that Ms Clapp was not called to give evidence to confirm the evidence of Mr Uratoriu. Ms Clapp as Mr Uratoriu's de facto spouse of 34 years was also the manager of the Mosman Park Liquor store. 153 The Commissioner contends that no explanation for Ms Clapp's absence was established by evidence. As to this topic, while there was no oral or other evidence at trial explaining the absence of Ms Clapp, there was independently verified affidavit evidence from Ms Clapp as to her serious ill-health. Such statements were also made from the bar table. However, subsequently when it was decided not to call Ms Clapp, her affidavit was not tendered. The Commissioner invited the Court to draw the inference consistent with the principle of Jones v Dunkel (1959) 101 CLR 298 that the unexplained absence to call Ms Clapp to corroborate the evidence of Mr Uratoriu should lead to the inference that she would not be capable of giving corroborative evidence. 154 The Jones v Dunkel inference is discretionary. I do not propose to rely upon it as I consider that concluding there was an 'unexplained' absence would be artificial. 155 I do note however that no application was made in the circumstances for any evidence to be given by Ms Clapp on affidavit as to this relatively simple point concerning Albergo. 156 For the Commissioner it is contended that, in any event, Mr Uratoriu did admit in cross-examination to taking stock for his own use 'occasionally'. That submission is correct. 157 It is argued for the Commissioner that the affidavit evidence which is that he never took stock other than by purchase was internally inconsistent because initially Mr Uratoriu said that he purchased liquor 'for [his] personal use' but then says he 'did not purchase … for [his] personal use, however, from time to time [he] purchased products … to take to dinner parties and for gifts…'. I do accept that the thrust of the affidavit for Mr Uratoriu was that he personally did not consume alcohol, that is, that he is a non-drinker. The statement by Mr Uratoriu that 'we totally abstained from drinking' was not consistent with the evidence of Mr Heaney that Mr Uratoriu did drink alcohol. Further, Mr Uratoriu's evidence, like much of his evidence, was not clear on this point, as this extract from the transcript illustrates: In the period of 1997 to 2002 did you personally drink alcohol? --- I guess so, yes. Did you, on oath, at an interview with officers of the Australian Taxation Office on 20 November 2003 state in effect that you and Ms Clapp don't drink? --- I believe so. I can't remember. Well, did you say that or didn't you say that? --- I can't remember. Your Honour, if the witness could be handed an extract from his transcript of interview on 20 November and if I can deal first with what was said at page 118 of the transcript? Mr Harris says something and then you say this, Mr Uratoriu: 'We ---' and no doubt that refers to you and Ms Clapp, doesn't it? --- Yes, I guess I guess so. 'We don't drink, Andrew'. ---That is correct, your Honour. We totally abstained from drinking. I just said to you that sometimes we do have a drink but it doesn't mean to say that we drink. HIS HONOUR: Well, the question was whether in 1997 to 2002 did you drink alcohol and I think you said, "I guess so"? ---Well, it all depends on volumes. You have a stubby a beer on a hot day. I mean, every now and then, it can hardly be construed as being a drinker. ... 158 Following the sale of the particular liquor store in 2001, the expenditure by Mr Uratoriu on alcohol increased substantially in the financial year ended 2002. Whereas the previous year's expenditure had been only $1,740.08 and $1,969.11, for the year 2001/2002 it was $10,547.70 and in 2002/2003 for eleven and a half months, $19,456.93. In cross-examination Mr Uratoriu was unable to explain that significant increase in annual expenditure on alcohol following the sale of the liquor store. 159 Given the general unreliability of the evidence of Mr Uratoriu, I am unable to be satisfied that he has discharged his onus on the balance of probabilities that he did not, other than by purchase, take any alcohol or other stock from Albergo's liquor store for personal use.

MainFreight $550,000 160 I have discussed above the $164,379 balance of the $550,000 MainFreight payment. This section deals with the sum of $385,621 as garnisheed by the ATO. In relation to this sum, Mr Uratoriu contends that it was received to facilitate payment of a tax liability of PLI. In this regard, he is required to establish that he received the money only as agent for and on behalf of PLI so that PLI could meet its taxation liability. 161 Evidence was given by Ms Logue for the ATO as to the narrative of the transactions in relation to PLI's tax liability. That evidence established that, first, there was to be a two-stage transaction with a payment of $550,000 to buy out Mr Uratoriu and, secondly, a transaction involving MainFreight. PLI was in arrears to the ATO in respect of withholding taxes, namely, PAYE and PPS. On 16 February 2000, a DPN was issued to the directors, Mr Uratoriu and to Mr Heaney totalling $385,979.50. Further DPNs were issued separately 1 May 2000. On 17 March 2000, the ATO issued a Garnishee Notice in respect of the bank accounts of Mr Uratoriu having been told that he was to receive $550,000 from the transaction. Other garnishee notices followed as the ATO maintained contact with Mr Heaney, Mr Uratoriu and certain PLI officers with a view to obtaining funds after transfer to Mr Uratoriu. 162 On 4 May 2000, the ATO informed Mr Heaney that it was about to issue summonses against Mr Heaney and Mr Uratoriu. Mr Heaney assured the ATO that funds were to be transferred and on 9 May 2000, Mr Uratoriu contacted the ATO informing it that funds had been deposited into Mr Uratoriu's account. The ATO made arrangements to contact Mr Uratoriu's bank to reduce the amount to be paid under the Garnishee Notice by $357.94, it having been met previously. In total $385,621.56 was received. 163 Mr Uratoriu contended that the narrative did not articulate precisely who the DPNs were issued to and for what amount, and that it could not be ascertained that a DPN notice had in fact been issued to Mr Uratoriu in accordance with the 1936 Act. It was also submitted that any payment made in respect of the DPNs issued on 1 May 2000 was made well within the 14 days of the notice being provided and therefore extinguished any penalty payable under those DPNs, pursuant to s 222AOG of the 1936 Act. 164 I cannot accept either of those submissions. It is clear from the narrative that the DPNs issued on 16 February 2000 were for PAYE and PPS liabilities totalling $385,979.50. It is also clear from the narrative that the DPNs were issued to Mr Heaney and Mr Uratoriu. One illustrative entry in the narrative recorded: '… I advised him we are preparing to issue DPN summonses today against [Heaney] and Luciano [Uratoriu]' 165 The debt in respect of which the February DPNs were issued are flagged by the words 'Jun99-Jan00' which precede the relevant entries. The debt in respect of which the May DPNs were issued was accrued in March 2000 and the relevant entries are preceded by the words 'Mar00'. There can be no doubt that the two debts have been pursued separately and that the payment of $385,621.56 was to meet Mr Uratoriu's personal liability arising from the February DPNs. 166 The Commissioner contends, and I accept, that the evidence from Mr Heaney in cross-examination accorded with what was established from the ATO narratives. I am unable to give any weight to the evidence from Mr Uratoriu in relation to the MainFreight payment given the general lack of credibility and reliability, the absence of his recollection of the DPNs or any of the events generally and the absence of any supportive documentation. I cannot be satisfied, therefore, on the balance of probabilities that the $385,621.56 component of the MainFreight payment was received by Mr Uratoriu as an agent for and on behalf of PLI, so that PLI could meet its tax liability. There is no reason this should have happened. Rather, the evidence shows that the $555,000 was received by Mr Uratoriu following the sale of his shares in PLI to Mr Heaney and that the $385,621.56 was applied to meet Mr Uratoriu's personal liability under the DPNs rather than being applied to meet the taxation liability of PLI.

East-West Interest Payment 167 On this topic, Mr Uratoriu says that the relevant payments were payments of a non-interest bearing loan of $300,000 by Ms Clapp to East-West and Link. There is no evidence from Ms Clapp in support of the contention by Mr Uratoriu. It is a contention which the Commissioner submits is implausible given that there is no reason advanced as to why the so-called repayments were paid into the joint account maintained by Mr Uratoriu and Ms Clapp rather than direct to an account in her name only; secondly, if the transactions had occurred as contended, it is said to be 'inevitable' that there would be some contemporaneous corroborative documentary evidence and none is adduced; thirdly, no explanation was provided as to why the loan would be non-interest bearing, given that every other alleged advance carried interest at commercial rates. 168 Moreover, the contention for Mr Uratoriu is not corroborated by evidence on the part of Mr Heaney. As a director of both East-West and Link, Mr Heaney would be expected to be in a position to be able to confirm any such loans. That Mr Uratoriu did not seek to adduce any such evidence from Mr Heaney properly gives rise to an inference that it would not be available. At no stage in his evidence did Mr Heaney refer to any advances on the part of Ms Clapp. 169 Once again, on the only documentary evidence, it is difficult to see how Ms Clapp could have advanced $300,000 to East-West and Link in November 2000 when Link was not incorporated until 25 June 2001. Again, Mr Uratoriu's evidence lacks credibility and reliability. I am unable to be satisfied that he has discharged his onus on the balance of probabilities to prove that the relevant payments were in repayment of advances by Ms Clapp to East-West and Link.

The Rose Bay Property 170 As discussed, Mr Uratoriu during the course of the appeal abandoned the contention that the Rose Bay Property was a dwelling that he elected as his main residence, thereby attracting the (Capital Gains Tax) CGT exemption under subdiv 118B of the 1997 Act. 171 However, the remaining argument advanced by Mr Uratoriu was that the cost base for computation of the gain should be increased from $113,500 to $400,818.60. In relation to this issue, the first question is whether, as a question of fact, Mr Uratoriu has substantiated the items which he contends ought to be included so as to augment the increased cost base; secondly, as a question of law, if so, whether the substantiated items are of such a nature that they ought to be included as part of the cost base for the Rose Bay Property. 172 The submissions on this topic, as with much of the appeal, were somewhat confusing. Mr Uratoriu's submissions would seek variously a reduction in net capital gain of $330,000 to $225,590.70 or a reduction in net capital gain by $330,000 to $204,250. No adequate explanation of the calculation of these figures or their inconsistency was provided. The Commissioner's submissions feed from Mr Uratoriu's calculations. I have deduced from my own calculations based on the unexplained documentary evidence before me that Mr Uratoriu seeks an increase of $287,318.06 for the cost base (that is $400,818.60 plus $113,500) reducing the capital gain from $369,250 to $225,590.70. In the end, in light of my conclusions on the capital gains point, it matters little. 173 The Commissioner relies on the fact that records of each element of the CGT assets cost base must be maintained. Section (or Division) 121.20(1) of the 1997 Act provides as follows: You must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether you have made a *capital gain or *capital loss from a *CGT event. (It does not matter whether the CGT event has already happened or may happen in the future.) 174 There are no corroborative contemporaneous documents to support the increased cost base claim, apart from a relatively small amount as to legal fees. 175 In the second 2010 affidavit of Mr Uratoriu (sworn on the second day of the trial), he relies on the following payments to make up the claim. $162,500 paid to Mr Davies following the New South Wales litigation. This was a payment to actually acquire Mr Davies' partnership interest as to the Rose Bay Property; $80,000 in adverse costs paid to Mr Davies following the New South Wales litigation; and $80,000 in his own costs paid to his lawyers in that litigation. Only $33,078.10 of his own costs is evidenced in any documentary form. 176 Given the content of s 121.20 of the 1997 Act, the bare assertions by Mr Uratoriu cannot be accepted given they are very late, and self-serving, and given his general lack of credibility and reliability, his lack of real recollection as to the nature of the litigation and expenditure in connection with it and the lack of corroborative contemporaneous documentation. 177 There is also a question of law as to whether the documented accounts for legal fees, at least, may be part of the cost base. Section 110.25 of the 1997 Act provides: 11025 General rules about cost base (1) The cost base of a *CGT asset consists of 5 elements. Note 1: You need to keep records of each element: see Division 121. Note 2: The cost base is reduced by net input tax credits: see section 10330. Note 3: An amount that makes up all or part of an element of the cost base of an asset may be determined under section 230505, if the amount is provided for acquiring a thing, and you start or cease to have a Division 230 financial arrangement as consideration for the acquisition of the thing. 5 elements of the cost base (2) The first element is the total of: (a) the money you paid, or are required to pay, in respect of *acquiring it; and (b) the *market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). Note 1: There are special rules for working out when you are required to pay money or give other property: see section 10315. Note 2: This element is replaced with another amount in many situations: see Division 112. (3) The second element is the *incidental costs you incurred. These costs can include giving property: see section 1035. Note: There is one situation to do with options in which the incidental costs relating to the CGT event are modified: see section 11285. (4) The third element is the costs of owning the *CGT asset you incurred (but only if you *acquired the asset after 20 August 1991). These costs include: (a) interest on money you borrowed to acquire the asset; and (b) costs of maintaining, repairing or insuring it; and (c) rates or land tax, if the asset is land; and (d) interest on money you borrowed to refinance the money you borrowed to acquire the asset; and (e) interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value. These costs can include giving property: see section 1035. Note: This element does not apply to personal use assets or collectables: see sections 10817 and 10830. (5) The fourth element is capital expenditure you incurred: (a) the purpose or the expected effect of which is to increase or preserve the asset's value; or (b) that relates to installing or moving the asset. The expenditure can include giving property: see section 1035. Note: There are 3 situations involving leases in which this element is modified: see section 11280. (5A) Subsection (5) does not apply to capital expenditure incurred in relation to goodwill. (6) The fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property: see section 1035.) Assume a CGT event for purposes of working out cost base at a particular time (12) If: (a) it is necessary to work out the *cost base at a particular time; and (b) a *CGT event does not happen in relation to the asset at or just after that time; assume, for the purpose only of working out the cost base at the particular time, that such an event does happen in relation to the asset at or just after that time. Note 1: For example, in order to apply subsection 11037(1), it is necessary for there to be a CGT event. Note 2: The assumption that a CGT event happens does not have any consequence beyond that stated. For example, it does not mean that the asset is afterwards to be treated as having been acquired at the particular time with a first element of cost base equal to all of its former cost base elements. 178 Accepting for present purposes, although it is not established by any documentary proof, that the $33,078.10 was actually paid, the question is whether that expenditure ought to be included as part of the cost base for the Rose Bay Property. 179 Referring again to s 110.25 of the 1997 Act dealing with the general rules about the cost base of a CGT asset, of the five elements mentioned, only three have potential relevance. The first is money paid in respect of acquiring the CGT asset (s 110.25(2)) and perhaps incidental costs thereto (s 110.25(3)) and capital expenditure to establish, preserve or defend title to the asset or a right over the asset (s 110.25(6)). 180 The Commissioner submits that in the Supreme Court of New South Wales it was held that Mr Uratoriu and Mr Davies were engaged in a venture which at law amounted to a partnership. It was not held that Mr Davies had a proprietary interest in the Rose Bay Property. Rather, what Mr Uratoriu acquired or was forced to acquire was Mr Davies' interest in the partnership. He acquired the entitlement of Mr Davies to a share of the proceeds on a sale of the Rose Bay Property. 181 In relation to legal costs forming part of the costs base, the ATO interpretative decisions suggest that: legal costs incurred by the executor of a deceased estate in confirming the validity of the deceased's Will, will form part of the cost base of the estate's assets pursuant to s 110-25(6) (ATO ID 2001/729); legal costs incurred by the executor of a deceased estate to defend a claim for control of the estate form part of the cost base. Such expenses may need to be apportioned to the various assets of the estate in accordance with s 112-30(1A) (ATO ID 2001/730); a taxpayer can claim an amount of damages paid to a potential purchaser upon the potential purchaser's acceptance of the termination of a contract to sell the asset following the repudiation of the contract by the taxpayer. The expenditure (the amount of damages) was incurred so that the taxpayer could retain title to the CGT asset. It was the amount paid so that the potential purchaser would agree to termination of the contract as opposed to enforcing the taxpayer's performance of the contract. The effect of the termination was that the title to the CGT asset remained with the taxpayer (ATO ID 2008/47). Gordon S Cooper in Capital Gains Tax, 2nd Edition states at p 87: Defending the taxpayer's title or right seems to refer to action taken when the title or right is put in dispute. The most obvious example of this is where someone else lays a claim to the asset in whole or in part and institutes legal proceedings to establish that claim. Costs of the taxpayer in defending those proceedings would be costs in defending the taxpayer's title. 182 The Australian Capital Gains Tax Principles and Practice suggest that: While the concept of expenditure being incurred to establish, preserve or defend the taxpayer's title, etc, to an asset, prima facie supposes that the expenditure is successful in its aim, the reference to expenditure incurred in defending the taxpayer's title may in some circumstances permit expenditure to be included in the cost base that does not achieve its aim. This could be the case, for example, where a taxpayer unsuccessfully challenges a proposed, threatened or intended resumption of property. If the terms of sec 160ZH(1(d) are construed literally, the position may, however, be different if the taxpayer unsuccessfully challenges the validity of a resumption once it has occurred- i.e. the taxpayer would no longer have any title to the property. 183 The Commissioner argues that the Supreme Court of New South Wales held that Mr Uratoriu and Mr Davies were engaged in a venture which, in law, amounted to a partnership and that it was not held that Mr Davies had a proprietary interest in the land. The Supreme Court did hold that the transaction amounted to a partnership, however Hodgson J went on to state: A finding that the venture was a partnership may not, in itself, give the plaintiff [Davies] any caveatable interest in the property. However, in my opinion, subject to what I say about breaches, the plaintiff did have a caveatable interest in the land, at least when the renovations had been substantially completed, because, in my opinion, the plaintiff then had a right to have the land sold and to have the proceeds divided, a right of which the plaintiff could have obtained the specific performance. In the Victorian case of Eple, in which Gowans J decided that a right to share proceeds of sale did not give a caveatable interest, his Honour noted that the agreement in that case gave the caveator no right to require a sale. In this case the agreement and the partnership clearly entitled the plaintiff to require a sale of the property. It could be argued that the plaintiff did not have any equitable interest in the land initially, because there could not be specific performance of the agreement to renovate the property. But, in my opinion, once the renovations had been completed, the plaintiff did have a right, which equity would enforce, to have the property sold and proceeds divided. In my view, that does amount to an interest in land which would support a caveat... 184 The evidence, as held, of a caveatable interest, not just a partnership interest, together with what Hodgson J said at 5 does suggest the interest acquired was proprietary. His Honour said: ... I note that in his evidence the defendant steadfastly maintained that the plaintiff had no interest in the property itself, but only an interest in receiving half the ultimate profits of the venture...It will be apparent from what I say later that I believe the defendant is wrong in that view… and: He [Mr Dupree for Mr Uratoriu] submitted that the documentary evidence strongly supported the position that the property was absolutely owned by the defendant. He pointed to the authority given by the defendant to the plaintiff to bid on his behalf. He pointed to various documents in the solicitor's file, indicating that the client was the defendant alone, and he pointed to the terms of the plaintiff's letter of February 1989 as confirming that the transaction contemplated that the defendant would be the sole owner of the property and that the plaintiff should be merely a tenant. 185 His Honour's description is one consistent with a defence of title. From this it follows that Mr Davies did have a proprietary interest in the Rose Bay Property, and it was this interest, not Mr Davies' partnership interest, that was the CGT asset. Mr Uratoriu was therefore defending his own proprietary interest. 186 I consider that Mr Uratoriu has established a foundation for increase of the cost base of the CGT asset to the extent only of the legal costs of $33,078.10. As noted above, this account is the only account documented. It was not suggested to Mr Uratoriu that he did not pay the account. His evidence was that he had done so.

CONCLUSION 187 For the preceding reasons and with the exception of a relatively minor adjustment on CGT, the appeals have comprehensively failed. This was not only for lack of cogent or credible evidence but also as the underlying explanations for the funds received by Mr Uratoriu were opaque, variable and at times incomprehensible to all parties and the court. The appeals will be dismissed with the exception of the minor CGT adjustment. 188 I will allow an opportunity for any further submissions as to how that should best be accommodated. 189 I also intend that this opportunity should extend to making submissions, if any, as to any variation of the penalty arising on the undeclared capital gains on the sale of the Rose Bay Property. From the evidence it appears a shortfall penalty of 90% was imposed for the undeclared capital gain on the Rose Bay Property. There appears no reason why the applicants should not pay the costs of the Commissioner and subject to providing for a limited opportunity to make arguments on that issue, I will so order. The orders will be: 1. The cost base for the purposes of the calculation of the capital gain on the disposal in 2002 by the applicant of property in Rose Bay, New South Wales be increased by $33,078.10. 2. The applications are otherwise dismissed. 3. Subject to order 4, the applicants are to pay the costs of the respondent to be taxed or agreed. 4. The applicants, should they choose to do so, have 10 days to file and serve submissions and/or affidavit(s) on the topic of any variation to Orders 1 and 3. The respondent do have ten further days to file and serve submissions and/or affidavit(s) in response. I certify that the preceding one-hundred and eighty nine (189) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.

Income Tax Assessment Act 1936(Cth)ss 167, 264, 222AOB, 222AOC, 222AOE, 222AOG

Income Tax Assessment Act 1997(Cth)ss 110.25, 121.20

Taxation Administration Act 1953(Cth)ss 14ZZ(a), 14ZZK, 14ZZO(b)(i)

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