WYVW and Commissioner of Taxation (Taxation) [2023] AATA 4242 (21 December 2023)

1. At objection the Commissioner allowed the Applicant to deduct some interest expenses incurred in relation to the commercial bills used to acquire units in some trusts.[6]
2. The Commissioner held that the Applicant had demonstrated an intentional disregard for the law and imposed administrative penalties.
3. Further Amended NOAs were then issued by the Commissioner to reflect the Objection Decision.
4. On 9 March 2021 the Applicant filed an application for a review in the Tribunal of the Objection Decisions and Penalty Decisions.[7]
5. It is not in dispute that the Tribunal has jurisdiction to review the Decisions pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) and Part IVC of the TAA.[8]
6. To overcome the Commissioner's assessments, the Applicant must establish on the balance of probabilities that the deposits in question are not properly classified as income, and therefore not assessable.

1. The issue for determination by the Tribunal is whether the Applicant has discharged the burden of proof that the Amended NOA assessment issued in the Relevant Years were excessive by showing what the taxable income should be.
2. The Tribunal also has to consider whether the administrative penalty was incorrectly imposed and if so, whether the penalty should be remitted.
3. These questions involve a consideration of whether:
   • 23.1. the Applicant engaged in conduct amounting to fraud or evasion for the purposes of section 170(1) (Table, item 5) of the ITAA 1936 in respect of the 2009 Year;
   • 23.2. the amounts added to the Applicant's declared assessable income are "assessable income";[9]
   • 23.3. interest expenses incurred, and claimed as a deduction, by the Applicant at the time of lodging her ITRs for the Relevant Years (other than the interest expenses identified in paragraph 10 of the Reasons for Decision) are deducible under section 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997);
   • 23.4. there is a shortfall amount for the purpose of section 284-80(1) of Schedule 1 of the TAA for any of the Relevant Years;
   • 23.5. if there is a shortfall amount in any of the Relevant Years, the Applicant is liable to an administrative penalty under section 284-75(1) of Schedule 1 of the TAA. This involves a consideration of:
     1. whether section 284-215 of Schedule 1 of the TAA applies in respect of the penalty assessment for the 2009 income year to reduce the shortfall amount;

1. whether section 284-76(6) of Schedule 1 of the TAA applies in each of the 2010 to 2013 income years in which there was a shortfall amount with the result that the Applicant is not liable to an administrative penalty;
2. what is the base penalty amount worked out in accordance with section 284-90(1) of Schedule 1 of the TAA;
3. whether the base penalty amount should be increased by 20% for any of the 2010 to 2013 income years pursuant to section 284-220 of Schedule 1 of the TAA; and
4. whether all or part of the administrative penalties should be remitted pursuant to section 298-20 of Schedule 1 of the TAA; and

• 23.6. If there is a shortfall amount in any of the Relevant Years, should the SIC be remitted in whole, or in part, pursuant to section 280-160 of Schedule 1 of the TAA.

1. Pursuant to section 166 of the ITAA 1936 the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds, from ITRs and/or from any other information in the Commissioner's possession.
2. Section 167 of the ITAA 1936 provides that the Commissioner may issue a default assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166 in the following circumstances:
   • 25.1. where a person makes default in furnishing a return;
   • 25.2. where the Commissioner is not satisfied with the return furnished by any person; or
   • 25.3. where the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income.

1. Practice Statement Law Administration PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 outlines the Commissioner's practice regarding the authority to issue assessments under section 167 of ITAA 1936.

1. Certain losses or outgoings can be deducted from assessable income. Section 8-1 explains what "general deductions" can be claimed:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income; or

(d) a provision of this Act prevents you from deducting it.

For a summary list of provisions about deductions, see section 12-5.

(3) A loss or outgoing that you can deduct under this section is called a general deduction.

1. Section 175A of the ITAA 1936 sets out when a taxpayer can object to an assessment. It provides:

(1) A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

(2) A taxpayer cannot object under subsection (1) against an assessment ascertaining that:

(b) the taxpayer has an amount of taxable income and no tax is payable.

(3) Subsection (2) does not prevent the taxpayer from objecting against an assessment if the taxpayer is seeking an increase in:

(b) the total of the taxpayer_'s_ tax offset refunds_._

1. Section 14ZZK(b)(i) of the TAA provides that the Applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been. The reason for this, as was explained by Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 (Anglo American), at [115], is that "the Commissioner, unlike a participant, is a stranger to transactions forming the taxable facts".
2. The standard of proof is the civil standard on balance of probabilities.[10]
3. In Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 Latham CJ found that, as a general rule:

[2] "...the taxpayer must... show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right."

4. The Commissioner is under no obligation to tender evidence in support of its assessments; Mason J explained this in Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81:

[6] "The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence."

5. In Guardian Ait Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619; 114 ATR 136 Logan J referred to the obligation on an applicant in taxation appeals noting that the balance of proof does not require proof of facts to demonstration.[11]

1. The High Court in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (Dalco) explained that where the Commissioner and taxpayer have not agreed on the assessment:[12]

"... the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment ... unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail."

2. The approach in Dalco has become known as the "all or nothing" approach.[13]
3. The Applicant referred to Haritos v Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315 (Haritos) where the Full Federal Court discussed the onus of proof issue under 14ZZK of the TAA. The appellant in that case contended that the section did not require exact proof of the amount by which the assessment was excessive, and referred to Ma v Commissioner of Taxation [1992] FCA 530; 37 FCR 225 (Ma) where Burchett J, said (at 233):

"...the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against asset betterment assessments in that case. To refuse to consider the credit, not only of the Applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support generalisations rather than to hit upon a precise figure, was to fall into error law."

4. The Full bench in Haritos accepted that the proposition arising from Ma, that "the Tribunal may be required to make an estimate upon inexact evidence, and it cannot avoid its responsibility to make findings by relying on the burden of proof section".[14]
5. Haritos, unlike this matter, involved a section 167 asset betterment assessment, where the Commissioner had reduced the scope of the dispute to a number of particular deposits. Here, there has been no such agreement reached with the Commissioner to narrow the issues.[15] This means that a failure to prove any disputed item for a particular income year will mean that the Applicant will have failed to discharge her onus of proof.
6. In Commissioner of Taxation v Ross [2021] FCA 766 (Ross) Derrington J set out (at [48]) a summary of the principles concerning the onus from the authorities in relation to challenges made to a default assessment founded upon the "asset betterment method". Derrington J pointed out that:

[10] "There may be cases where the amount of taxable income depends upon the legal complexion of known facts or upon specific factual questions. In such a case, a taxpayer may successfully discharge the onus by establishing that the Commissioner included in their taxable income amounts which ought not to have been included: Dalco at [624]. However, such a situation would only arise where the Commissioner agrees to a process which is different to that described above by confining the scope of the dispute between him and the taxpayer to certain enumerated amounts. One might expect some clear expression of that agreement, involving as it does an abandonment of the advantages accorded to the Commissioner in s 167 in respect of defaulting taxpayers."

1. Derrington J in Ross did not accept that Haritos had rejected the "all or nothing approach". He said:

[55]"...the Full Court was not there rejecting the established principles in relation to the application of s 14ZZK(b)(i) or, indeed, its clearly expressed elements, but merely rejecting that the submission had any relevance in the case before it."

2. See also the recent decision of Moshinsky J in Buzadzic v Commissioner of Taxation [2023] FCA 954 (at [126]-[129]), where he noted that Haritos does not apply in circumstances where the taxpayer and the Commissioner have not agreed to limit the scope of the issues in dispute.
3. In Wang and Commissioner of Taxation (Taxation) [2023] AATA 2962 Senior Member G Lazanas explained:

[51] "It is well established, and unequivocally reaffirmed recently in Ross, that in order to establish an assessment under s 167 is excessive, a taxpayer must positively prove their actual taxable income: per Derrington J at [48], [63], [66], [68] - [69]. See also Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301 (Gashi) at [63]; Trautwein v Commissioner of Taxation (Cth) [1936] HCA 77; (1936) 56 CLR 63 at 88; Ma v Federal Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 per Burchett J at 230."

4. As Senior Member G Lazanas identified, the onus cannot be discharged by seeking to provide particular items are incorrect or should not have been included.[16] She noted:

[53] "It is the very approach which Derrington J made definitively clear in Ross and Condon is inadequate in the context of discharging the onus of proof with respect to default assessments issued under s 167."

5. Nettle J summarised the position succinctly in Bosanac v Commissioner of Taxation [2019] HCA 41; 93 ALJR 1327:

[30] "... although the Commissioner and a taxpayer may agree to confine an appeal to a specific point of law or fact - and where that occurs, the taxpayer might succeed in the appeal by demonstrating that he or she is entitled to succeed on that point - in the absence of such an arrangement, the Commissioner is entitled to rely on any deficiency in the taxpayer's proof of the excessiveness of the amount assessed in order to uphold the assessment. Equally, if all the facts are known, and the amount of taxable income in dispute depends only on the legal complexion of the established facts, the taxpayer may succeed by demonstrating on the balance of probabilities that the amount in question does not bear that legal complexion. But where, as here, an appeal proceeds on the basis that not all of the material facts are known, either because the taxpayer has been less than forthcoming in making disclosures to the Commissioner or for some other reason, the taxpayer cannot succeed by showing only that the basis of the Commissioner's assessment was in some respect erroneous; since for all that can be told, unless and until the taxpayer proves to the contrary, there may be other income of which the Commissioner was not aware and which the Commissioner has not taken into account. In order to succeed in such a case, the taxpayer must discharge the burden of demonstrating on the balance of probabilities the true amount of the taxpayer's taxable income and thus that the amount determined by the objection decision is excessive. Here, that required the kind of wide survey and exact scrutiny of the plaintiff's business activities to which the primary judge referred and which was conspicuously absent from the plaintiff's presentation."

1. In Re Imperial Bottleshops Pty Ltd and William John King Egerton v Commissioner of Taxation [1991] FCA 276, Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records but also noted:

[31] "...It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as 'prima facie unacceptable', cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J."

2. In Bosanac v Commissioner of Taxation [2018] FCA 946 Stewart J highlighted the difficulty a taxpayer will have in demonstrating excessiveness without records, or a reconstruction of those records. He said:[17]

[9] "The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. Where a taxpayer fails to retain records which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness. This was the very problem which the Applicant faced here."

3. Counsel for the Applicant explained that in this matter:

"there are contemporaneous records of transactions going back to the mid-1990s. This is a matter in which there are accounting records prepared by qualified accountants that were relied upon by my client. This is a case in which there is significant contemporaneous evidence and ...it has been gone to, to explain the circumstances in which the disputed transactions occurred, and importantly, to calculate the taxpayer's assessable income... and the usual issues that arise with the effluxion of time and the difficulties in locating records, and the fact that the accountant has retired, are all matters that the Tribunal ought to give weight to in determining, and making an estimate of, the proper taxable income.[18] > > ...in effect there were capital gains that were omitted and my client has gone through and calculated the amount of the assessable income. > > Since the amended assessments were made the Applicant had, as at the date of the hearing, paid the ATO $800,000 pursuant to agreed payment arrangements."[19]

4. The onus of proof was recently addressed by Derrington J in Condon v Commissioner of Taxation [2023] FCA 561 (Condon). This decision was handed down after this matter had been reserved. The decision in Condon, like Haritos, was in relation to a section 167 default assessment based on the asset betterment method.
5. Derrington J explained:

[57]..."there is no stipulation as to how the standard can be met. That will no doubt vary with the circumstances of each case."

6. In Condon, Derrington J reiterated that it is not a legal requirement for the applicant taxpayer to prove matters only by reference to contemporaneous records. He also reiterated that not being able to "adduce every piece of evidence available in relation to each issue".[20]

[57] "A taxpayer is not required to prove matters by reference to contemporaneous primary documentation: cf Commissioner of Taxation v Clark [2011] FCAFC 5; (2011) 190 FCR 206 at 225 [64] - [66] per Edmonds and Gordon JJ. Nor are they required to adduce every piece of evidence available in relation to each issue: Commissioner of Taxation v Cassaniti [2018] FCAFC 212; (2018) 266 FCR 385 (Cassaniti) at 409 [88] per Steward J (with whom Greenwood and Logan JJ agreed)." > > (emphasis added)

7. Derrington J referred to Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1; (1983) 44 ALR 607 (Allied Pastoral Holdings) at [10]-[11], where Hunt J (as his Honour then was) considered that:

"... it is not obligatory for a taxpayer, before he can discharge his burden of proof, to call all the material witnesses and to produce all the material documents which support his evidence ... It is certainly wiser for the taxpayer to do so in most cases so as to ensure that his own evidence is accepted, but even where he does not do so the Tribunal of fact may nevertheless be sufficiently impressed with the taxpayer as a witness that his evidence is accepted without such corroboration or without the whole of such corroboration." > > (emphasis added)

8. Derrington J then addressed the extent to which a taxpayer's own evidence can be relied upon and the necessary precision in satisfying the civil standard of proof:

[59] "Although a decision-maker will, in the evaluation of the evidence, be cautious of a taxpayer's self-serving statements, they are not 'prima facie unacceptable': McCormack v Federal Commissioner of Taxation at 302: and the arbiter of fact is entitled to accept them where the taxpayer is regarded as truthful. Moreover, the taxpayer is not required to corroborate each piece of evidence that is adduced before it can be accepted: Cassaniti at 409 [88]."

9. The Applicant submitted that simply looking at what business records are available may not, and does not in this instance, explain everything. The records need to be explained in context. Counsel for the Applicant referred to the decision of National Australia Bank Ltd v Rusu [1999] NSWSC 539; 47 NSWLR 309 (Rusu) which considered the admissibility of documents as business records. Unlike in Rusu, the AAT is not bound by the usual rules of evidence and may "inform itself on any matter in such manner as it thinks appropriate" (section 33(1)(c), AAT Act). Despite this, in Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617 (Rawson Finances), Perry J confirmed that while the Tribunal is not bound by the rules of evidence, this "does not mean that the common law rules of evidence may not guide an administrative Tribunal in making findings of fact based upon material which is logically probative, bearing in mind that the rules of evidence are generally founded upon principles of common sense and fairness: Sullivan at [82]-[97] (Flick and Perry JJ)."
10. Rusu provides guidance in relation to how such evidence should be approached in order to test the veracity of the documents and their contents, such as who is best placed to give evidence about such records. In Rusu Bryson J said this:

[17] "Before a business record or any other document is admitted in evidence it is obviously necessary that there should be an evidentiary basis for finding that it is what it purports to be. Documents are not ordinarily taken to prove themselves or accepted as what they purport to be; there are exceptions under the Common Law and under statutes for public registers and for many kinds of documents when certified in various ways: and see the method of proof provided in some cases by ss 170 and [275](https://jade.io/article/171 of the Evidence Act 1995. At the simplest, the authenticity of a document may be proved by the evidence of the person who made it or one of the persons who made it, or a person who was present when it was made, or in the case of a business record, a person who participates in the conduct of the business and compiled the document, or found it among the business's records, or can recognise it as one of the records of the business. > > ....... > > [34] If the Court is to find a significant fact on which a large liability may depend, there is a need for the Court to have some measure of confidence in the source of the Court's belief that the fact exists. The Court acts almost always on narrations which must have a human origin; not usually on the Court's own knowledge or on states of fact which are taken to be incontestable. The balance of probabilities is not a demanding standard, as the possibility that the less probable state of fact may be the true one is very obvious, and makes civil justice very vulnerable to error. For the Court to feel confident that it should act on any narration it is very important to have a human witness who has pledged, by oath or affirmation, that the narration is true: someone who is responsible for it. Business records may be incomplete; they often are. They record what there is perceived to be a business need to record, and that may be a small part or an oblique aspect of the objective event."

1. A contention made by the Commissioner in this matter concerns what inferences can be drawn by the fact that certain persons have not been called to give evidence: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 (Jones v Dunkel).
2. That issue arose in the Full Federal Court decision of Cassaniti where the Court considered the issue of burden of proof and how a court or Tribunal should determine whether that burden of proof has been discharged. One of the submissions made by the Commissioner in Cassaniti was that the taxpayer's evidence "was insufficient" because she had failed to call any witnesses to corroborate her claims. Steward J found (at [88]) that:

"Contending that evidence was "insufficient" in the face of three sworn affidavits of the Commissioner, together with the exhibits attached thereto, and her answers in cross examination, may suggest that a taxpayer bears a special burden of proof. However, other than the necessity to scrutinise evidence given by the taxpayer him or herself with care, no such special burden exists."

3. Steward J then set out five propositions which he derived from Allied Pastoral Holdings Proprietary Limited v Commissioner of Taxation [1983] 1 NSWLR 1:

[88] "...

(1) first, where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end. As Hunt J said in Allied Pastoral:

...if the plaintiff succeeds... in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries...

(2) secondly, for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position;

(3) fourthly, there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated;

(4) fifthly, the Tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful;

(5) finally, it would usually be prudent to corroborate the evidence of a taxpayer. It is also prudent to adduce contemporaneous objective evidence. But prudence should not be confused with the requirements of the law."

1. Even if there are no records available, the evidence provided orally still must be scrutinised: Cassaniti, at [88].
2. The matters under consideration date back some ten to fourteen years. It is understandable that perhaps not all records are able to be located or that memories have faded, or at least every detail may not be able to be recalled.
3. In Re Hillsea Pty Ltd [2019] NSWSC 1152 Black J noted (at [16]) one should have regard to "the fallibility of human memory" when assessing affidavit and oral evidence. Black J quoted from Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315 (at [319]), where McLelland CJ in Eq observed that:

"... human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."

1. In Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at 129), Gleeson CJ, Gummow and Kirby JJ (at [31]) observed that:

"...in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical."

1. As will be seen, the Applicant was not responsible for the bulk of the records being scrutinised. This was the responsibility of the then accountants. These are relevant factors, to take into account in determining whether the Applicant has sufficiently demonstrated her actual income, keeping in mind the comments in Rusu.[21] These matters may also be relevant in assessing a person's conduct to determine whether there has been carelessness, intentional disregard, or evasion, which is relevant to the remission of penalties.
2. Counsel for the Commissioner acknowledged that criticisms levelled at questions being asked of the Applicant regarding what occurred many years ago "were in part justified".[22]
3. The question of any Jones v Dunkel inference that can be drawn is addressed later in this decision.

1. Assessable income, as defined in Division 995 of the ITAA 1997, has the meaning given by sections 6-5, 6-10, 6-15, 17-10 and 17-30 of the ITAA 1997.
2. Section 6-5 of the ITAA 1997 provides:

Income according to ordinary concepts (ordinary income)

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income .

Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3) If you are a foreign resident, your assessable income includes:

(a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

(4) In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

1. Section 6-10 of the ITAA 1997 provides:

Other assessable income (statutory income) > > (1) Your assessable income also includes some amounts that are not ordinary income. > > > Note: These are included by provisions about assessable income. > > > > For a summary list of these provisions, see section 10-5.

(2) Amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.

Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non-assessable non-exempt income under another provision: see sections 6-20 and 6-23.

Note 2: Many provisions in the summary list in section 10-5 contain rules about ordinary income. These rules do not change its character as ordinary income.

(3) If an amount would be statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.

(4) If you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia.

(5) If you are a foreign resident, your assessable income includes:

(a) your statutory income from all Australian sources; and

(b) other statutory income that a provision includes in your assessable income on some basis other than having an Australian source.

1. Section 6-15 of the ITAA 1997 sets out what is not assessable income:

(1) If an amount is not ordinary income_, and is not_ statutory income_, it is not_ assessable income (so you do not have to pay income tax on it).

(2) If an amount is exempt income_, it is not_ assessable income .

Note: If an amount is exempt income_, there are other consequences besides it being exempt from_ income tax_. For example:_

• the amount may be taken into account in working out the amount of a tax loss (see section 36-10);
• you cannot deduct as a general deduction a loss or outgoing incurred in deriving the amount (see Division 8);
• capital gains and losses on assets used solely to produce exempt income are disregarded (see section 118- 12).

(3) If an amount is non-assessable non-exempt income_, it is not_ assessable income .

Note 1: You cannot deduct as a general deduction a loss or outgoing incurred in deriving an amount of non-assessable non-exempt income (see Division 8).

Note 2: Capital gains and losses on assets used to produce some types of non-assessable non-exempt income are disregarded (see section 118-12).

1. In the case of a beneficiary of a trust, the assessable income of a beneficiary also includes their share of the trust's income that they are "presently entitled" to: section 97, ITAA 1936.
2. What does "presently entitled" mean? The phrase is not defined in the statute and therefore should be given its ordinary meaning "in light of its context and purpose".[23]
3. In Federal Commissioner of Taxation v Whiting [1943] HCA 45; 68 CLR 199 (Whiting) Latham CJ, and Williams J, in a joint judgment, said at [215]-[216]:

"The words 'presently entitled to a share of the income' refer to a right to income 'presently' existing - i.e., a right of such a kind that a beneficiary may demand payment of the income from the trustee, or that, within the meaning of s.19 of the Act, the trustee may properly reinvest, accumulate, capitalize, carry to any reserve, sinking fund or insurance fund however designated or otherwise deal with it as he directs or on his behalf."

4. In Taylor v Federal Commissioner of Taxation [1970] HCA 10; 119 CLR 444 (Taylor) (at [449]-[452]), Kitto J considered Whiting and held:

"the tenor of the judgments is, I think, that 'presently entitled' refers to an interest in possession in an amount of income that is legally ready for distribution so that the beneficiary would have a right to obtain payment of it if he were not under a disability. Kitto J's reference to 'legally ready for distribution' was, as is made clear both by his decision in the case and subsequently in his judgment, to income that was available for distribution regardless of whether the accounts necessary to enable its precise ascertainment had been completed at the end of the income year or whether it was actually held in a form ready for immediate payment."

5. The High Court, confirming Whiting and Taylor, considered what was meant by "presently entitled" in section 97(1) of the ITAA 1935 in Harmer v Federal Commissioner of Taxation [1991] HCA 51; 173 CLR 264.[24] The High Court said:

[8] "The parties are agreed that the cases, see, in particular, Federal Commissioner of Taxation v. Whiting [1943] HCA 45; (1943) 68 CLR 199, at pp 215-216, 219-220; Taylor v. Federal Commissioner of Taxation [1970] HCA 10; (1970) 119 CLR 444, at pp 450-452; establish that a beneficiary is "presently entitled" to a share of the income of a trust estate if, but only if: > > (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and > > (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment."

1. Assessable income also includes any net capital gain: section 102-5 of the ITAA 1997. The net capital gain is worked out by reducing capital gains made during the income year by the capital losses (if any) made during the same income year.
2. A CGT event occurs if you dispose of a CGT asset (section 104-10).
3. A capital gain arises if capital proceeds from the disposal of the CGT asset are greater than the asset's cost base (section 104-10(4))
4. A "CGT asset" is defined in section 108-5 and includes shares in a company and units in a unit trust (section 108-5(2)).
5. CGT concessions may be available to some small business entities in certain circumstances. Division 152 of the ITAA 1997 provides some relief to small business in relation to capital gains. Section 152-1 explains what the division is about:

To help small business, if the basic conditions for relief are satisfied, capital gains can be reduced by the various concessions in this Division. Those basic conditions are in Subdivision 152-A. > > Some of the concessions have additional, specific conditions that must also be satisfied. > > The 4 available small business concessions are: > > (a) the 15-year exemption (in Subdivision 152-B); > > (b) the 50% reduction (in Subdivision 152-C); > > (c) the retirement concession (in Subdivision 152-D); > > (d) the roll-over (in Subdivision 152-E). > > A capital gain that qualifies for the 15-year exemption is disregarded entirely and is not taken into account under the method statement in section 102-5(1). By contrast, the other concessions are only activated by step 4 of that method statement. This means that you must apply all available capital losses against your capital gains (under steps 1 and 2) before you can reduce them using those 3 concessions.

1. Section 6-5 provides "ordinary income", which is income according to ordinary concepts, forms part of a person's assessable income.
2. "Ordinary income" includes things like wages, salaries, commissions, and other payments made for services rendered, from personal exertion.
3. The concept has been discussed in numerous cases.[25]
4. In Scott the High Court referred to the assessment of whether an amount constituted income depended upon the nature of the transaction. Windeyer J said:

[22] "Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income."

5. In The Commission of Taxation of the Commonwealth of Australia v Harris, G.O [1980] FCA 74; 30 ALR 10, the Full Federal Court stated:

"It is clear that the whole of the circumstances must be considered... > > Whether or not a particular receipt is income depends upon its quality in the hands of the recipient ... > > The regularity and periodicity of the payment will be a relevant though generally not decisive consideration ... > > A generally decisive consideration is whether the receipt is the product in a real sense of any employment of, or services rendered by the recipient, or of any business, or, indeed, any revenue producing activity carried on by him ..."

1. To determine whether an amount has the character of income, the Full Federal Court in Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; 67 FCR 243 held that:

"...it is necessary to look at that amount and determine its character in the hands of the taxpayer."

2. The fact that money is transferred from one party to another does not, absent an obligation to repay the money, classify the transaction as a loan.[26]
3. Traditionally a loan agreement is set out in a legal written document which specifies terms and conditions such as repayment amounts and time, whether any interest is payable and so on.
4. There needs to be some objective indicia that a loan exists - such as confirmation of the period of the loan, what interest in payable and some kind of documentation in the form of an agreement or similar to validate the loan. For example, if there are no formal documents, one would expect email or text exchanges may have occurred between the parties, particularly parties that had known one another for some time.
5. Each case ultimately turns on its facts. As noted by the Full Federal Court in Allied Mills Industries Pty Ltd v Commissioner of Taxation [1989] FCA 135; 20 FCR 288, where a payment is made pursuant to an agreement, the whole circumstances surrounding the agreement must be examined.[27]
6. In relation to contracts formed orally, Hammerschlag J said, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]- [96]:

"... the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences ... > > ... > > [The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding."

1. The issue of substantiation and proof in relation to purported loans arose in the recent decision of Logan J in Anglo American which was concerned, among other things, with whether a taxpayer failed to establish on the balance of probabilities that purported loans were made. It is the responsibility of the taxpayer to demonstrate on the balance of probabilities that there was a loan.[28]
2. The evidence before Logan J was oral and affidavit evidence of the taxpayer. In some instances, there were no substantiating loan documents. In addition to a lack of documentation, there were also inconsistencies in the evidence given and the taxpayer's recollection. Although Logan J noted (at [123]) that the "absence of a document", such as a loan agreement, "evidencing, in this instance a legal relationship occasioning the indebtedness claimed ... is not fatal", it does become problematic in circumstances where there are inconsistencies in the evidence which does exist.
3. Whether, on the objective facts, a loan arrangement is inherently probable, is a matter that should be emphasised in circumstances where there is undocumented oral evidence.[29] It is also reasonable to take into account what a party stands to win or lose.[30]

1. A "limited partnership" is defined in section 995-1 of the ITAA 1997 to mean:

(a) an association of persons (other than a company) carrying on business as partners or in receipt of ordinary income or statutory income jointly, where the liability of at least one of those persons is limited; or > > (b) an association of persons (other than one referred to in paragraph (a)) with legal personality separate from those persons that was formed solely for the purpose of becoming a VCLP, an ESVCLP, an AFOF or a VCMP and to carry on activities that are carried on by a body of that kind.

2. The Partnership Act 1892 (NSW) provides:

50A Limited partnership or incorporated limited partnership is formed on registration

(1) A limited partnership is formed by and on registration of the partnership under this Part as a limited partnership.

(2) An incorporated limited partnership is formed by and on registration of the partnership under this Part as an incorporated limited partnership.

60 Liability of limited partner limited to amount shown in Register

(1) The liability of a limited partner to contribute to the liabilities of the limited partnership is (subject to this Part) not to exceed the amount shown in relation to the limited partner in the Register as the extent to which the limited partner is liable to contribute.

(2) If a limited partner makes a contribution towards the liabilities of the limited partnership, the liability of the limited partner is reduced to such part of the amount shown in the Register as remains unpaid.

(3) If a partnership (the investing partnership) is a limited partner in a limited partnership (the principal partnership), a partner in the investing partnership has no separate liability to contribute to the liabilities of the principal partnership, but nothing in this subsection affects any liability of the investing partnership as a limited partner to contribute to those liabilities.

1. Pursuant to Division 5A - Income of certain limited partnerships of the ITAA 1936, certain limited partnerships are to be treated as companies for tax purposes (section 94A).

1. Division 284 of Schedule 1 of the TAA sets out the circumstances in which administrative penalties apply for (section 284-5):
   • 96.1. making false or misleading statements; and
   • 96.2. taking a position that is not reasonably arguable; and
   • 96.3. entering into schemes.
2. Division 284 also sets out the amounts of those penalties.
3. Section 284-75 sets out when a person is liable for a penalty in relation to a statement. Section 284-75(1) provides:

(1) You are liable to an administrative penalty if: > > (a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law (other than the Excise Acts); and > > (b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

4. Section 284-75(6) provides for an exception:

Section 284-75 > > (6) You are not liable to an administrative penalty under subsection (1) or (4) if: > > (a) you engage a registered tax agent or BAS agent; and > > (b) you give the registered tax agent or BAS agent all relevant taxation information; and > > (c) the registered tax agent or BAS agent makes the statement; and > > (d) the false or misleading nature of the statement did not result from: > > > (i) intentional disregard by the registered tax agent or BAS agent of a taxation law; or > > > > (ii) recklessness by the agent as to the operation of a taxation law. > > (7) If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b).

1. Section 284-80 sets out when there is a shortfall amount:

284-80 Shortfall amounts > > (1) You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.

You have a shortfall amount in this situation:

A tax-related liability of yours for an accounting period, or for a taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999 , worked out on the basis of the statement is less than it would be if the statement were not false or misleading

(2) For the purposes of determining whether you are liable to an administrative penalty, you do not have a shortfall amount as a result of a statement that is false or misleading in a material particular to the extent that you and your agent (if any) took reasonable care in making the statement.

1. Base penalties are worked out in accordance with section 284-90. Base penalties may be imposed if the recklessness or failure to take reasonable care was due to the taxpayer or the taxpayer's agent.
2. Section 284-90 relevantly provides:

284-90 Base penalty amount > > (1) The base penalty amount under this Subdivision is worked out using this table and subsections (1A) to (2), and section 284-224 if relevant:

You have a shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from intentional disregard of a taxation law (other than the Excise Acts) by you or your agent

You have a shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a taxation law (other than the Excise Acts)

You have a shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a taxation law (other than the Excise Acts)

You are liable to an administrative penalty under subsection 284-75(3)

1. The Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (no. 2) 2000 (Cth) (Explanatory Memorandum to the A New Tax System) introduced the current penalty regime. It provides the following explanation of the base penalty amount:

1.57 Where there is a shortfall amount, the Commissioner identifies the cause of the shortfall amount, and applies the appropriate percentage to arrive at the base penalty amount. [Schedule 1, item 2, section 284-90]

1.58 Table 1.4 summarises the causes of the shortfall amount, and the percentage applied in each situation. The base penalty amount is the relevant percentage of the shortfall amount. [Schedule 1, item 2, section 284-90]

Shortfall amount caused by intentional disregard of a taxation law.

Shortfall amount caused by lack of reasonable care.

Shortfall amount where an unarguable position is taken and threshold applies.

Liability under subsection 284-75(3) for failing to provide a document to the Commissioner as required.

Shortfall amount under subsection 284-75(4) where a private ruling is disregarded.

If more than one shortfall section applies

1.59 It is possible that more than one shortfall section may apply in respect of a shortfall amount. For example, a taxpayer may be reckless in making a claim for a deduction, and so be liable for penalty under item 2 of subsection 284-90(1), and also be liable for penalty under item 4 of subsection 284-90 (1) for not having a reasonably arguable position in respect of the claim. In such a case the taxpayer is liable to pay only one of the penalties. If one penalty is higher than the other (e.g. if items 2 and 4 of subsection 284-90 (1) both apply), the taxpayer is liable to pay the higher base penalty amount. [Schedule 1, item 2, subsection 284-90(2)]

1.60 If the taxpayer is subject to 2 base penalty amounts of the same percentage on 2 different shortfall amounts, for example, items 3 and 4 of subsection 284-90(1) both apply, then that percentage will be applied to the total shortfall amount.

Intentional disregard of a taxation law

1.61 A taxpayer will be liable to pay a base penalty amount of 75% of a shortfall amount caused by the taxpayer or agent intentionally disregarding a taxation law. [Schedule 1, item 2, item 1 in subsection 284-90(1)]

1.62 For example, the base penalty amount of 75% would apply to the shortfall amount where a taxpayer or agent deliberately excludes from the taxpayer's assessable income an amount knowing it to be assessable, or deliberately claims a deduction, rebate, credit or offset knowing that it is not allowable

1. The graduated base penalty scheme increases or decreases the penalty percentage based on the gravity of the taxpayer's conduct.

1. The base penalty amount may be increased by 20% in the following circumstances:

284-220 Increase in base penalty amount > > (1) The base penalty amount is increased by 20% if: > > > (a) you took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated; or > > > > (b) you:

(i) became aware of such a shortfall amount after a statement had been made to the Commissioner about the relevant tax-related liability; or

(ii) became aware of the false or misleading nature of a statement made to the Commissioner or another entity after the statement had been made;

and you did not tell the Commissioner or other entity about it within a reasonable time; or

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

(ca) the base penalty amount was worked out using item 3A, 3B or 3C of the table in subsection 284-90(1) and a base penalty amount for you was worked out under one of those items previously; or

(d) the base penalty amount was worked out using item 4, 5 or 6 of that table and a base penalty amount for you was worked out under that item previously; or

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

1. The ordinary meaning of a word must be taken as its ordinary meaning within the context of the legislative scheme in which it is found. This is set out in section 15AB of the Acts Interpretation Act 1901 (Cth) (AIA) which provides relevantly that:

(1) Subject to subsection (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material: > > (a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act.

2. (emphasis added)
3. In Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; 224 CLR 193 at 230 McHugh J said at [124]:

"In determining issues of statutory construction, the text of the relevant statutory provision must be evaluated not only by reference to its literal meaning but also by reference to the purpose and context of the provision......For purposes of statutory construction, context includes the state of the law when the statute was enacted, its known or supposed defects at that time and the history of the relevant branch of the law, including the legislative history of the statute itself. It also includes in appropriate cases "extrinsic materials" such as reports of statutory bodies or commissions and parliamentary speeches - indeed any material that may throw light on the meaning that the enacting legislature intended to give to the provision. That is the process required by the modern approach of the common law to statutory construction. In many jurisdictions, the common law principles have been incorporated, extended or modified by statute. Section 15AA of the Acts Interpretation Act 1901 (Cth) requires a court construing federal legislation to have regard to its purpose. Section 15AB of that Act authorises the use of various forms of extrinsic material to determine the meaning of that legislation."

4. See also the High Court decision in Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503, at 519 where the Court noted:

[39] "This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself."

1. That extrinsic materials may be used is reflected in section 15AA of the AIA which provides:

"In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation."

2. See also SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 262 CLR 362 at [14] where Kiefel CJ, Nettle and Gordon JJ explained the starting point as follows:

"The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute, whilst at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, the meaning must be rejected."

1. More recently in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39; 284 FCR 294, at [68] and [69] (Thawley J, with whom McKerracher J and Davies J agreed) said:

"... The end object of the process of statutory construction is to give the words of the particular statute the meaning which the legislature is taken to have intended them to have: Lacey v Attorney-General (Qld) [2011] HCA 10; (2011) 242 CLR 573 at [43]; Certain Lloyd's Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378 at [25]- [26]. The preferred construction is reached through common law and statutory rules of construction, the application of which involves the identification of a statutory purpose from any express statement in the statute, or by inference from the text and structure of the statute and by appropriate reference to extrinsic materials: Lacey at [44]."

1. Turning then to the extrinsic materials, the Explanatory Memorandum to the A New Tax System provides the following explanation of what is intended to constitute a "false and misleading" statement:

False or misleading statements > > 1.42 A statement is false or misleading in a material particular when something in the statement is false or misleading, or something is omitted from the statement. If something is included in, or left out of, a statement relating to a tax matter which, if known, would cause a taxation officer to determine a claim in another way, it will be a material particular. In short, if a matter is important enough to affect a decision relevant to determining a taxpayer's tax liability, the matter is to be regarded as material and must be disclosed correctly. [Schedule 1, item 2, paragraph 284-75(1)(b)] > > ... > > It is irrelevant whether the taxpayer knows that the statement is false or misleading or not. However, there are exclusions from the penalty where the taxpayer and the agent (if any) exercised reasonable care or followed the advice of the Commissioner (see paragraphs 1.108 to 1.112). The Commissioner may also remit the penalty under section 298-20 in Schedule 1 to the TAA.

2. A false or misleading statement is a statement that is objectively incorrect. It matters not the intention, or lack thereof, of the taxpayer in making the statement. Where a shortfall is found in the amount of assessable income, it inevitably means that a false or misleading statement has been made in the ITR lodged and declared by the taxpayer to be true and correct.

1. The Explanatory Memorandum to the A New Tax System provides the following explanation of what is intended to constitute intentional disregard:

Intentional disregard of a taxation law > > 1.61 A taxpayer will be liable to pay a base penalty amount of 75% of a shortfall amount caused by the taxpayer or agent intentionally disregarding a taxation law. [Schedule 1, item 2, item 1 in subsection 284-90(1)] > > 1.62 For example, the base penalty amount of 75% would apply to the shortfall amount where a taxpayer or agent deliberately excludes from the taxpayer's assessable income an amount knowing it to be assessable, or deliberately claims a deduction, rebate, credit or offset knowing that it is not allowable.

2. The MT 2008/1 Penalty relating to statements: meaning of reasonable, care, recklessness and intentional disregard (MT 2008/1) provides some guidance also. MT 2008/1 is a public ruling and an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. It sets out the Commissioner's interpretation of the concepts 'reasonable care', 'recklessness' and 'intentional disregard' as used in Subdivision 284-B and 'intentional disregard' and 'recklessness' as used in section 286-75(1A)1A of Schedule 1 to the TAA. In relation to "intentional disregard" it provides:

Meaning of intentional disregard of a taxation law > > [109] .... the penalty for intentional disregard is the most severe sanction in response to a serious failure to comply with tax obligations. > > [110] The adjective 'intentional' means that something more than reckless disregard of or indifference to a taxation law is required. > > [111] Unlike the objective test which applies to determine whether there has been a want of reasonable care or recklessness, the test for intentional disregard is purely subjective in nature. The actual intention of the entity is a critical element. > > [112] Intentional disregard means that there must be actual knowledge that the statement made is false. To establish intentional disregard, the entity must understand the effect of the relevant legislation and how it operates in respect of the entity's affairs and make a deliberate choice to ignore the law. > > [113] Dishonesty is a requisite feature of behaviour that shows an intentional disregard for the operation of the law. This is another significant difference between this type of behaviour and behaviour that shows a want of reasonable care or recklessness where dishonesty is not an element. > > [114] Evidence of intention must be found through direct evidence or by inference from all the surrounding circumstances, including the conduct of the entity. > > [115] A mere failure to follow the Commissioner's view contained in a private ruling is not evidence of intentional disregard. However, if an entity ignores an unfavourable private ruling on a matter where the law is clearly established, that may constitute intentional disregard

1. An intentional disregard of a taxation law will be found where there has been dishonesty; where there has been a cognisant decision, an awareness on the part of the taxpayer, to make a false statement, and to leave that statement uncorrected.

**_The Explanatory Memorandum to the A New Tax System provides the following explanation of what is intended to constitute recklessness:

1.63 A taxpayer will be liable to pay a base penalty amount of 50% of a shortfall amount caused by the taxpayer or agent behaving recklessly with regard to the operation of a taxation law. [Schedule 1, item 2, item 2 in subsection 284-90(1)]

1.64 A taxpayer would be behaving recklessly if the taxpayer's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. A finding of dishonesty is not necessary for a taxpayer to be subject to this penalty.

1.65 For example, a taxpayer who purchases shares in a company, but makes no attempt to find out the tax consequences of receiving dividends, and who destroys letters from the company (after banking the dividend cheque) without reading them would be penalised 50% of any shortfall amount which results from the taxpayer failing to return the dividends as income. The concept of recklessness for the purposes of this penalty covers behaviour that could be described as gross negligence.

_**

1. In relation to "recklessness" MT 2008/1 provides:

Meaning of recklessness as to the operation of a taxation law > > [99] The legislative context apparent from a reading of items 1, 2, 3, 3A, 3B and 3C of the table in section 284-90(1) indicates that 'recklessness' connotes conduct that is more culpable than a failure to take reasonable care to comply with a taxation law but less culpable than an intentional disregard of a taxation law. The scheme of the uniform penalties regime is to impose the higher penalty in response to conduct that goes beyond mere carelessness or inadvertence by displaying a high degree of carelessness. > > [100] Like the test for determining whether reasonable care has been shown, a finding of recklessness depends on the application of an essentially objective test. There must be the presence of conduct that falls short of the standard of a reasonable person in the position of the entity. Similar to the position with a failure to take reasonable care, dishonesty is not an element of establishing recklessness. The actual intention of the entity is of no relevance. > > [101] Behaviour will indicate recklessness where it falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. Although the test for determining whether recklessness is shown is the same as that applied for testing a want of reasonable care, it is the extent or degree to which the conduct of the entity falls below that required of a reasonable person that underscores a finding of recklessness. > > [102] Recklessness assumes that the behaviour in question shows disregard of or indifference to a risk that is foreseeable by a reasonable person. The Full Federal Court in Hart v. FC of T (2003) 131 FCR 2003; [2003] FCAFC 105 (Hart) at paragraphs 33 and 43 endorsed8 the following comments of Cooper J in BRK (Bris) Pty Ltd v. Federal Commissioner of Taxation [2001] FCA 164; 2001 ATC 4111; [2001] FCA 164; (2001) 46 ATR 347 (BRK) at paragraph 77: > > "Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood the proscribed conduct is more than mere negligence and must amount to gross carelessness."

2. A finding of dishonesty is not required for "recklessness" and intention of the taxpayer does not play a role. However, something more than a failure to take reasonable care is required.

1. The Explanatory Memorandum to the A New Tax System provides the following explanation of what is intended to constitute a lack of reasonable care:

Lack of reasonable care > > 1.67 The reasonable care test requires a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer to fulfil the taxpayer's tax obligations. Taxpayers must take reasonable care not only in the preparation of their tax returns, but throughout the year on matters that may impact on their tax obligations, for example, record keeping. A shortfall amount may be caused not only by the taxpayer being careless in making (or not making) taxation statements, but also by careless acts or omissions of the taxpayer which lie behind the statements that are (or are not) made. Whether a taxpayer has behaved reasonably will depend on all the facts of each case. > > 1.68 The test looks to whether a person, in all the circumstances of the taxpayer, would have foreseen as a reasonable probability or likelihood the prospect that the act or failure to act would result in a shortfall amount. It is not a question of whether the taxpayer actually foresaw the probable impact of the act or failure to act, but whether a person in the same circumstances of the taxpayer would have foreseen it. The test does not depend on the actual intentions of the taxpayer. > > 1.69 Reasonable care requires a taxpayer to make a reasonable attempt to comply with the provisions of a taxation law. The effort required is one commensurate with all the taxpayer's circumstances, including the taxpayer's knowledge, education, experience and skill. > > 1.70 The reasonable care test is not intended to be overly onerous for taxpayers... > > ... > > 1.72 For business taxpayers, reasonable care would require the putting into place of an appropriate record-keeping system and other procedures to ensure that the income and expenditure of the business is properly recorded and classified for tax purposes. The fact that an employee of the business makes a careless error would not necessarily mean that the business taxpayer is subject to penalty. For example, a penalty would not apply where the taxpayer can show that its procedures are designed to prevent such errors from occurring. What is reasonable will depend, among other things, on the nature and size of the business, but could include, for example, internal audits, sample checks of claims made, adequate training of accounting staff and instruction manuals for staff. > > What is reasonable care? > > 1.73 On questions of interpretation, reasonable care requires a taxpayer to come to conclusions that would be reasonable for an ordinary person to come to in the circumstances of the taxpayer. If the taxpayer is uncertain about the correct treatment of a tax-related matter, reasonable care requires that taxpayer to make reasonable enquiries to resolve the issue. Reasonable enquiry would include the taxpayer consulting someone or some text like an ATO publication or other reference in an effort to satisfy the taxpayer about the proper tax treatment of the matter. The taxpayer would need to have reasonable grounds for believing the source consulted reflected the true tax position in respect of the matter. A mere reading of a provision of the relevant tax law which the taxpayer believed to be relevant might not constitute reasonable enquiry unless the taxpayer had reasonable grounds for believing that he or she had understood the requirements of the law. For example, a wrong interpretation of a statutory provision that is clear and unambiguous would tend to suggest that the taxpayer did not exercise reasonable care. The ultimate consideration would be the honest efforts of the taxpayer, as displayed by the actions of the taxpayer in the context of the taxpayer's circumstances, to ascertain the proper tax position. > > 1.74 The taking of a position with respect to a tax matter that is frivolous, or which lacks a reasonable basis, would be a strong indication of a lack of reasonable care. > > ... > > 1.76 If a taxpayer seeks to rely upon the wrong advice, and the taxpayer's skill and education was such that the taxpayer could reasonably be expected to have known or suspected that the advice was wrong, the taxpayer would risk penalty. A taxpayer would also risk penalty if the taxpayer was careless in presenting all of the relevant facts to the adviser and this had materially affected the advice on which the taxpayer sought to rely. > > 1.77 Where a taxpayer uses a registered tax agent or other person to help prepare and lodge a BAS or tax return, the taxpayer will be vicariously liable for any penalties caused by the agent providing information that results in a shortfall amount. This includes the tax agent not taking reasonable care. The standard expected of a tax agent will be much higher than the standard expected of the client. > > 1.78 A taxpayer who relies upon the advice from a third party of a fact that is material to the preparation of the taxpayer's return (e.g. a bank providing a statement of the amount of interest earned by the taxpayer) will not usually be liable for penalty if the advice is wrong, as taxpayers are ordinarily entitled to rely on such advice. However, if the taxpayer knew, or could reasonably be expected to have known or suspected that the advice was wrong, the taxpayer would risk penalty. For example, a group company may not have exercised reasonable care in claiming a deduction for a group loss transferred to it, if the company could reasonably be expected to have known or suspected (e.g. because of common management and control of the transferor and transferee companies) that the deduction giving rise to the loss was not properly allowable to the transferor company. > > 1.79 Arithmetic errors may indicate a failure to take reasonable care but are not conclusive. For business taxpayers, as indicated above, it would depend on the procedures in place to detect such errors. In other cases it may depend on the size, nature and frequency of error, or the circumstances of the taxpayer making the error, for example, if the taxpayer was under extreme stress at the time of preparing the return.

1. In relation to "reasonable care" MT 2008/1 provides:

Meaning of reasonable care > > [27] The expression 'reasonable care' is not a defined term and accordingly takes its ordinary meaning. The Australian Oxford Dictionary, 1999, Oxford University Press Melbourne, defines 'care' as '...3 serious attention; heed, caution, pains' and 'reasonable' as '3a within the limits of reason; not greatly less or more than might be expected'. Taking 'reasonable care' in the context of making a statement to the Commissioner or to an entity within the meaning of subsection 284-75(4) means giving appropriately serious attention to complying with the obligations imposed under a taxation law. > > [28] The reasonable care test requires an entity to take the same care in fulfilling their tax obligations that could be expected of a reasonable ordinary person in their position. This means that even though the standard of care is measured objectively, it takes into account the circumstances of the taxpayer... > > [29] Judging whether there has been a failure to take reasonable care turns on an evaluation of all the circumstances surrounding the making of the false or misleading statement to determine whether a reasonable person of ordinary prudence in the same circumstances would have exercised greater care.

1. Pursuant to section 170(1) (item 5) of the ITAA 1936 the Commissioner may amend an assessment at any time if he or she is of the opinion there has been fraud or evasion. Where there is no fraud or evasion, generally the Commissioner may only amend an assessment of an individual for a year of income within two years after the day on which the Commissioner gives notice of the assessment to the individual (section 170(1), item 1) or four years (section 170(1), item 4).
2. What does "evasion" mean?
3. The High Court in Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) [1949] HCA 25; 79 CLR 296 described "evasion" as meaning "more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information". Dixon J said (at 313):
   1. "It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible, is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.

In the present case the Board concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of tax by evasion."

1. In Wilson v Chambers & Co Pty Ltd [1926] HCA 15; 38 CLR 131 Knox CJ (at 136):

"The distinction in meaning between the words" evade" and " avoid" is well established, and a charge of evading payment is not made out by evidence which proves no more than that the person charged failed or omitted to pay an amount payable by him."

2. Whether there has been evasion is to be assessed objectively.
3. Evasion is an intentional or deliberate act to conceal and withhold income from the ITR.

1. The Commissioner may remit all or part of a penalty (section 298-20 TAA).

An amount of shortfall interest charge that you are liable to pay is due and payable 21 days after the day on which the Commissioner gives you notice of the charge. > > Note: Shortfall interest charge is imposed if the Commissioner amends an assessment and the amended assessment results in an increase in some tax payable. For provisions about liability for shortfall interest charge, see Division 280 in Schedule 1 to the Taxation Administration Act 1953 .

2. Division 280 of the TAA sets out how the SIC is calculated and imposed. Section 280-100 provides:

280-100 Liability to shortfall interest charge--income tax > > (1) You are liable to pay shortfall interest charge on an additional amount of income tax that you are liable to pay because the Commissioner amends your assessment for an income year. > > (2) The liability is for each day in the period: > > (a) beginning at the start of the day on which income tax under your first assessment for that income year was due to be paid, or would have been due to be paid if there had been any; and > > (b) ending at the end of the day before the day on which the Commissioner gave you notice of the amended assessment.

3. The Commissioner may also remit all or part of a shortfall interest charge as follows:

280-160 Remitting shortfall interest charge > > (1) The Commissioner may remit all or a part of an amount of shortfall interest charge you are liable to pay if the Commissioner considers it fair and reasonable to do so. > > (2) Without limiting subsection (1), in deciding whether to remit, the Commissioner must have regard to: > > (a) the principle that remission should not occur just because the benefit you received from the temporary use of the shortfall amount is less than the shortfall interest charge; and > > (b) the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments.

Corporations Act 2001 (Cth)

1. The following provision is relevant to this matter:

189 Reliance on information or advice provided by others > > If: > > (a) a director relies on information, or professional or expert advice, given or prepared by: > > (i) an employee of the corporation whom the director believes on reasonable grounds to be reliable and competent in relation to the matters concerned; or > > (ii) a professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person's professional or expert competence; or > > (iii) another director or officer in relation to matters within the director's or officer's authority; or > > (iv) a committee of directors on which the director did not serve in relation to matters within the committee's authority; and > > (b) the reliance was made: > > (i) in good faith; and > > (ii) after making an independent assessment of the information or advice, having regard to the director's knowledge of the corporation and the complexity of the structure and operations of the corporation; and > > (c) the reasonableness of the director's reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this Part or an equivalent general law duty;

the director's reliance on the information or advice is taken to be reasonable unless the contrary is proved.

1. The Trusts Act 1925 (NSW) sets out when a trust may employ an agent. Section 53 provides:

Employment of agents > > (1) A trustee may, instead of acting personally, employ and pay an agent, whether being a bank, building society or credit union or an Australian legal practitioner, stockbroker or any other person, to transact any business or do any act required to be transacted or done in the execution of the trust or in the administration of the estate. > > (2) The trustee shall be entitled to be allowed and paid all charges and expenses so incurred. > > (3) The trustee shall not be responsible for the default of any such agent if employed in good faith. > > (4) This section extends, in the case of a bank, building society, credit union, Australian legal practitioner, stockbroker or real estate agent, or in the case of a prescribed person or a person of a prescribed class, to the receipt and payment of moneys. > > (5) Nothing in this section shall authorise a trustee to employ an agent in any case where a person acting with prudence would not employ the agent to transact the business or do the act, if the business or act was required to be transacted or done in such person's own affairs. > > (6) This section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust and shall have effect subject to the terms of that instrument and to the provisions therein contained. > > (7) This section applies to trusts created either before or after the commencement of this Act.

1. The deposits in issue were paid to the Applicant by members of the Applicant's family group (the Group).
2. The Group is made up of a number of different companies and trusts primarily used to conduct a financial advisory business and to invest in real property.
3. The Group had banking facilities with one lender until 2007, after which the source of funding for the various investments made the Group entities changed to Westpac Banking Corporation.
4. During the Relevant Years the Group consisted of the following companies and trusts:[31]

TLP carried on a finance and business advisory business.

SMS carried on an insurance broking and investment advisory business.

MZA #1 is a unit trust established in 1995 to invest in residential property.

LST is a unit trust established in 2003 to invest in commercial property.

ARL Limited is the trustee of the ART Trust which holds commercial real estate.

ART is a unit trust established in 2008 to hold commercial property.

MZA #2 is a unit trust established in August 2012 to hold the Woollahra property.

The TAT Trust is a discretionary trust established in August 2002. It was primarily a service trust for the businesses but also held two property investments. It owned residential real estate and provided management advice to TLP and SS.

SUT is a unit trust established in December 2010 that held the non-property business assets after the Group was restructured in 2011.

SDT is a discretionary trust established in December 2010.

TAF Super is a self-managed superannuation fund of which the Applicant and her spouse were members.

Mr WYVW Investments Superannuation Fund (WYI Super)

WYI Super is a self-managed superannuation fund of which the Applicant and her spouse were members.

TAS was the trustee of the TAT Trust, ART and TAF Super. TAS Pty Ltd was also the general partner of TLP. The main business activity of TAS was business consultancy.

MZA Investments Pty Limited was the trustee of the LST Trust, MZA #1, the MZA #2 and the majority shareholder in a de-registered company MZA Properties Limited. [34] MZA Investment Pty Ltd holds commercial property and is engaged in rental operations.

Mr WYVW Investments was the trustee for WYI Super and also of SUT and SDT until July 2012.

DAC was the trustee of SUT and SDT from 1 July 2012. DAC Pty Ltd was incorporated in June 2012.

1. During the Relevant Years the Applicant's involvement in the Group entities was as follows:[35]

Unit holder - entitled to a share of the income of that trust.

Unit holder - entitled to a share of the income of that trust.

1. During the Relevant Years the Applicant's husband conducted a financial planning and wealth advisory business formerly known as SMS Holdings Ltd.
2. The Applicant's evidence is that during the Relevant Years she was the owner of units in the unit trusts.
3. The Applicant commenced working full-time in the Group in 2002. Her role was to assist with office administration and day-to-day office operations, including maintenance of group business records, entering bank transactions into the MYOB accounting software package, acting as a director of certain group entities and hiring employees. The Applicant was not a financial adviser. The Applicant has no formal accounting qualifications, although she has completed some basic bookkeeping and MYOB classes.[37]
4. During the Relevant Years the Applicant engaged tax agents and accountants (Mr D of SA and Mr P of P & Co) and lawyers (Mr R of BR Pty Ltd) to advise and assist her and the Group in the preparation of their financial statements, records and ITRs in accordance with, among others, her instructions and records.[38]

1. The Applicant set out in her statement her usual record keeping and banking practice at the Group and how transactions relating to her were characterised and treated. It is useful to set this evidence out in full because it is relevant to the contentions and critiques made about her evidence:

[29] "I used MYOB solely to record banking transactions so that they can be processed by the accountants. I did not use MYOB to maintain the accounts and ledgers of the group entities. > > [30] I usually performed the banking transactions for the group electronically from our office. > > [31] I usually recorded MYOB transactions the day following the day I made the bank transactions. I created the descriptions of individual transactions in MYOB. My practice was to use convenient descriptions such as "drawings" or "advances" that the accountants P and Co were familiar with. The descriptions were not used in the sense of any technical accounting terms. > > [32] Normally I would use the same description in both MYOB and bank transaction record. > > [33] I allocated transactions to the MYOB account I thought to be the most appropriate. At times I sought advice from P and Co as to which accounts to use. > > [34] My usual practice was as follows: > > a. Regular payments made to Mr WYVW and me were allocated to a "drawings" or "advance" account; > > b. One-off payments to Mr WYVW or me were allocated to a "loan" account; > > c. Funds I contributed to acquire units in a unit trust were recorded in a unit subscription account; and > > d. Proceeds intended to be redemptions of units in a unit trust (once finalised at the end of the financial year) were recorded in a redemption account. > > [35] As described in more detail from paragraph 37 below, the allocations were reviewed at year end in conjunction with accounting and tax advisers. Where necessary erroneous entries were corrected, offsetting credit and debit balances in accounts between entities were commonly offset (which was commonly referred to as a "consolidation"), and amounts owing by Mr WYVW and me to an entity (e.g. a loan account) were offset against fees determined to be paid to Mr WYVW or me as directors or for otherwise providing services. > > [36] If a transaction did not pass through the bank account of a group entity, I did not record it in MYOB. Examples of transactions that were not recorded in MYOB include: > > a. Transactions where amounts subscribed for units in a unit trust were to be used to fund the purchase of a property by the unit trust and I paid the subscription amount directly to the vendor of the property; > > b. Amounts paid directly to me from the proceeds of sale of a trust property; and > > c. Payments to me of the principal of a term deposit held by a trust where the trust instructed the bank to that pay that principal directly to me.

[37] Before and during the Relevant Years, the affairs of the Group were managed in the following manner:

a. As referred to above, I was responsible for making and recording all bank transactions for the Group. I recorded the transactions in MYOB.

b. At the end of each quarter, I sent the MYOB files to the accounting firm P and Co, who uploaded the MYOB files into their own accounting package (Handisoft). I also provided P and Co with details of transactions that did not involve transfers through the bank accounts and which were therefore not recorded in MYOB.

c. Except where a payment was made as part of a specific transaction (e.g. unit subscription), all payments made to Mr WYVW and I were initially treated as loans or advances in general ledger accounts recording the financial position between us and the relevant entity, with the final determination of how they were to be treated occurring at the end of each financial year including by why of loan consolidations and set offs as referred to above.

d. At the end of each financial year, Mr WYVW and I, in consultation with Mr P of P and Co considered our needs and the needs and activities of the businesses and the trusts and determined:

i. The appropriate amount of management fees to be charged within the group;

ii. The appropriate amount of directors fees to be paid to Mr WYVW and to me respectively for our work within the group;

iii. The appropriate consolidation of loans within the group (including loans to or from Mr WYVW or me) by which I mean aggregating two or more loans or setting off reciprocal loan balances;

iv. Whether to apply any loans within the group against units in the trusts - that is,

1. whether units in a unit trust should be redeemed and the redemption amount set off by way of reduction of amounts owed to the unit trust; or

2. whether an entity should subscribe for units in a trust with the subscription amount satisfied by way of the subscription price being set off by way of reduction of amounts owed by the unit trust to the relevant person or entity; and

v. The appropriate allocation or treatment of payments made to Mr WYVW, me, and the other beneficiaries of the trusts by the entities of the Group including whether these payments should be treated as:

1. Trust distributions (including distributions from any CGT event);

3. returns of capital by way of redemption of units in a unit trust.

e. Based on these instructions, P and Co then applied these year-end transactions to the Handisoft general ledgers and prepared the annual financial statements and tax returns for the Group as well as for Mr WYVW and me.

f. DB and BR of BR Solicitors & Tax Advisers were consulted when we required information regarding Superannuation, Trusts and Estate Planning. The day to day running of our business with regards to accounting was handled by P and Co.

[38] The year-end determinations described above were not generally reflected in the MYOB records, which recorded only bank transactions (see above) although on some occasions P and Co did make some year-end adjustments to some accounts. The ledgers, accounts, and financial statements prepared by P and Co were the records of the Group's financial transactions, position and performance relied on by us.

[39] P and Co used the financial statements to prepare the group tax returns in accordance with tax advice that BR provided. BR also advised us on the structuring of a number of specific transactions, including:

a. the 2009 debt forgiveness by TLP;

b. the sale of the financial services and brokerage businesses to SUT in 2011; and

c. The sale of the mortgage brokerage business to Leverage Financial (an unrelated entity) in 2012.

[40] I relied on P and Co and BR to ensure that the accounts were properly prepared and that all transactions were in compliance with the applicable tax law.

[41] P and Co were also responsible for maintaining the registers of members and unitholders for companies and trusts within the Group based on the transactions reported each financial year."

1. According to the Applicant's statement, the external accountants, P & Co, were responsible for preparing and maintaining the financial accounts, ledgers and unit trust registers for the Group.[39]
2. The Applicant's husband was primarily responsible for providing financial advice to clients and he was the person responsible for maintaining relevant licences.[40]

1. The Group's Real Property Investments commenced in or around 1996. The property purchased was often let to derive rental income.[41]
2. The Applicant provided the following lists of property purchases by the Group:[42]

[24] "MZA #1 purchased the following properties as investments on or about the dates indicated: [43] > > > a. (the Crows Nest property) for $345,000 (January 1997); > > > > b. (the Bondi property) for $500,000 (November 1998); > > > > c. (the Castle Hill property) for $378,000 (October 1999);[44] > > > > d. (the Surry Hills #1 property) for $450,000 (July 2001); > > > > e. (the Chippendale property) for $745,000 (July 2002); > > > > f. (the Darlington property) for $585,000 (July 2002); > > > > g. (the North Rocks property) for $137,500 (September 2002); > > > > h. (the Waterloo property) for $380,000 (March 2003); and > > > > i. (the Surry Hills #2 property) (February 2004). > > [25] LST purchased the following properties as investments on or about the dates indicated: > > > a. (the Surry Hills # 3 property) for $1,600,000 (July 2003);[45] > > > > b. (the Newtown property) for $1,662,600 (June 2004); and > > > > c. (the Glebe property) for $4,175.000 (August 2007). > > [26] ART purchased the following properties as investments on or about the dates indicated: > > > a. (the Alexandria property) for $515,000 (March 2008); > > > > b. a car-space at (the Potts Point property) for $38,000 (June 2010). > > [27] MZA #2 acquired the Woollahra property for $2,956,000 in or around August 2012. > > [28] TAT Trust (a discretionary trust) entered into an off-the-plan contract to acquire (the Surry Hills #4 property) for $535,000 in or around October 2002. Following completion of construction, the contract settled in 2004. Also in or around October 2002, TAT purchased (the Surry Hills #5 property), jointly with CV Pty Ltd in equal shares. The purchase price was $1,500,000. This contract also settled in 2004."

3. The Group's structure and arrangements were complex.
4. During the Relevant Years the Applicant provided funding to some of the Group entities which enabled those entities to make investments. In particular, the Applicant provided part of the funding to MZA #1, LST, ART and MZA #2 to meet the acquisition costs of the properties identified in paragraph [147] above.
5. The Applicant says the funding was provided to the entities through unit subscriptions and financial accommodation.[46] The Applicant says she borrowed money from NAB and Westpac via commercial bill facilities and otherwise to fund subscriptions in the unit trusts.
6. The Applicant states:

[19] "Each of the unit trusts that invested in property was established with nominal capital. In most cases I provided funding to the unit trusts to meet all or part of acquisition costs. My intention in each case was to provide the funds to the trusts by way of subscription for units. I obtained the funds from loans made available to me initially from NAB and subsequently Westpac. On some occasions I directed the bank to pay the loan funds directly to the vendor or as directed by the vendor and to meet associated costs (e.g. stamp duty). On other occasions, I drew down the loan funds to my personal bank account and transferred the funds as necessary to meet the purchase costs."

7. The Applicant's evidence is that her understanding "was that the funds I contributed to the trusts purchasing the properties would be reflected in the value of units issued to me by the trust. The intention was that the acquiring trust would issue units to me of a value equivalent to the amount I contributed to the purchase. I communicated this intention to Mr P on a number of occasions during the Relevant Period".[47]
8. The Applicant submitted the purpose of making those investments was as follows:[48]

[30] "The Applicant's purpose in making these investments and providing financial accommodation was to earn additional income by way of receipt of trust distributions or gains upon redemptions of units funded out of profits made by the units trusts from investments in real property."

9. The Applicant states that she sourced the funds to subscribe for the units from "debt facilities including loans and bank bill facilities made available by the Group's banker from time to time".[49]
10. The Group's bank changed in 2007 from NAB to Westpac resulting in a refinancing of the debt facilities. The Group had three bank bill facilities in Westpac which the Applicant used to fund new subscriptions for units and re-finance previous debt facilities (which were earlier borrowings also used to subscribe for units).[50]
11. As at 2009 the bank facilities had the following limits and were used to re-finance funding of earlier unit subscriptions and new subscriptions in the following unit trusts:
    • 156.1. $2,000,000 (used to acquire units in MZA #1);
    • 156.2. $1,025,000 (used to acquire units in LST); and
    • 156.3. $492,000 (used to acquire units in ART).
12. In 2013 a fourth bank facility was established with a limit of $3,116,000. The Applicant used this facility to acquire units in MZA #2.
13. Fees, charges and interest were incurred by the Applicant from the establishment and maintenance of the bank facilities.

1. The Applicant says she received distributions from the unit trusts from profits made by the trusts in the form of gains made upon the redemption of units. The capital gains and losses made by the Applicant in relation to the unit redemptions were not included in her ITRs. The Applicant says this was overlooked by the accounting and tax advisers who were responsible for maintaining unit registers and preparing her ITRs.[51]
2. During the audit the Applicant provided the Commissioner with copies of the unit registers she requested from her accountants.[52]
3. At the hearing the Tribunal was provided a schedule indicating what the Applicant says her taxable income should be considering those gains and losses.[53] The Applicant also says she was not aware that capital gains had been made at the time the ITRs were lodged.[54]
4. In relation to the deposits referred to by the Commissioner, the Applicant says that between 2009 and 2013, those deposits comprise loan draw downs, trust distributions, drawings from Group entities, funds received upon redemption of units, expense reimbursements and other amounts.
5. The Applicant treated most amounts as drawings or loan advances, unless the amount had been credited for a specific purpose. The Applicant says it was common practice to add/set-off fees for services provided by the Applicant to the Group against the balances owing between the Applicant and the relevant Group entity.[55]

1. In 2011, the Group was restructured to provide for the retirement of the Applicant and her husband. Following the restructure, the entities carrying on the Group's financial services activities were controlled by SUT. All the units in SUT were held by SDT. SDT acquired the units in SUT at market value.[56]
2. On 10 December 2010 TLP wrote to Westpac requesting funding of $4,000,000 as a loan to Mr WYVW to facilitate the 2011 business restructure. The Bondi Property was listed as a security and is referred to by Mr V as having a value of $4,000,000.[57]
3. Following receipt of this letter Westpac agreed to provide the funding.
4. The short-term facility of $4,000,000 was made available to the Group by Westpac to provide the purchase funds for the acquisitions. The facility and purpose for it is said to be reflected in letters from TAS to Westpac, and in a Westpac letter dated 14 February 2011 to the Applicant's husband confirming it had approved the request for $4,000,000 to invest in Mr WYVW Investments Pty Limited as trustee for the Mr WYVW Settlement.[58] The Applicant says the short-term facility funds were used to discharge obligations to pay the purchase price for the acquisitions and to discharge other debt obligations.
5. Westpac wrote to the Applicant and her husband on 17 March 2011 confirming it had processed the following transactions on 14 February 2011 (Restructure Transactions):[59]

Mr WYVW Investments Pty Limited ATF the WYVW Settlement Account #26CBAF

Mr WYVW Investments Pty Limited ATF the WYVW Settlement Account #26CBAF

Mr WYVW Investments Pty Limited ATF the WYVW Settlement Account #26CBAF

Mr WYVW Investments Pty Limited ATF the WYVW Settlement Account #26CBAF

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

TAS Pty Limited ATF TAF Superannuation Account #21ZIIZ

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

TAS Pty Limited ATF TAF Superannuation Account #21ZIIZ

TAS Pty Limited ATF TAF Superannuation Account #21ZIIZ

MZA Investments Pty Limited ATF the LST Trust Account #21ZDFD

MZA Investments Pty Limited ATF the WYVW Settlement Account #21AZCG

Mr WYVW Investments Pty Limited ATF the WYVW Settlement Account #26CBAF

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

MZA Investments Pty Limited ATF the MZA Investments Trust Account #21ZBIF

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

MZA Investments Pty Limited AFT the LST Account #21ZDFD

TAS Pty Limited ATF TAF Superannuation Account #21ZIIZ

MZA Investments Pty Limited AFT the LST Property Trust Account #21ZDFD

MZA Investments Pty Limited AFT the LST Property Trust Account #21ZDFD

MZA Investments Pty Limited AFT the LST Property Trust Account #21ZDFD

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

Commercial Bill Fee Account (Mr and Mrs WYVW) Account #60CDAG

2. As part of the Restructure Transactions set out in the table above, on 14 February 2011 there are two credits to the Applicant's bank in the amount of $1,000,000 each. The Applicant says these amounts represented in aggregate the capital gain distributed to the Applicant by the TAT Trust resulting from the disposal of interests to SUT. The Applicant now acknowledges that this should have been included in her ITR. However, the Applicant then submits the capital gains should then be reduced to nil in her hands due to the application of subdivisions 152-B (small business 15-year concession), 152-C (small business 50% reduction) and subdivision 152-D (small business retirement exemption). The Applicant has provided a worksheet setting out how she submits she qualifies for the small business CGT discounts in the 2013 financial year because she met the maximum net asset value test.[60]
3. The Applicant submits:

[610] "The Active Asset Reduction was applicable in relation to the capital gains from the LST Trust unit redemptions and distributions because we carried on our business activities from (the Glebe Property) for the period it was held by the trust. (The Glebe Property) was leased as a commercial concern by TLP and SMS Pty Ltd for the operation of the Group's Financial Services, Business Advice and Finance Broking businesses. The rent was paid by these entities and was recorded each financial year in: > > a. the financial statements of SMS, TLP and LST (Profit and Loss reports); and > > b. the following general ledger accounts: > > > i. SMS general ledger account AHEE "Rent and Outgoings"; > > > > ii. TLP general ledger account AHEE "Rent and Outgoings"; and > > > > iii. LST general account ZFBZ "Rents Received".

1. In addition to her interests in companies and trusts that were part of the Group, during the Relevant Years the Applicant also had the following relevant interests:
   • 171.1. shares in IAG Limited which were listed for trade on the Australian Securities Exchange and in respect of which the Applicant received fully franked dividends with a franking percentage of 30% in each of the Relevant Years;
   • 171.2. ownership of a property in Mongarlowe that the Applicant disposed of in the 2013 income year resulting in a capital gain of $90,566 (and net capital gain of $39,837);[61] and
   • 171.3. as a beneficiary of a self-managed superannuation fund during the relevant years and from which the Applicant is in receipt of a non-assessable pension.
2. The Applicant's overarching submission is that as controllers of the entities within the Group, the Applicant and her husband would withdraw money between entities as and when needed in order to fund acquisitions, or as needed for themselves. Unless a payment was part of a specific transaction, the drawings needed for themselves were treated as a loan creating an indebtedness by the Applicant to the relevant entity, or if relevant, treated as reducing any indebtedness an entity owed to the Applicant. Running accounts were maintained on this basis.
3. At the end of the year an overall review was taken, directors fees accounted for, and a reconciliation of sorts occurred. That is, any amounts owing between entities were set-off. From time to time, amounts went through the Applicant's account, some of which were related to the businesses and some of which were personal to the Applicant.[62]

1. The Applicant provided the Tribunal with a "Tax Calculation Summary" containing worksheets setting out what she contends is her actual income for the Relevant Years.[63] During the Relevant Years the Applicant received directors' fees, held shares and received trust distributions.
2. At the hearing Mr Peadon explained that in the preparation of the Tax Calculation Summary errors were identified. One error concerns the unit trust registers. Mr Peadon said:[64]

"the accountants who maintained the unit trust register, rather than maintaining it in a number of units that were issued, maintained it based on the subscription amount and treated all units, in effect, as being subscribed for and redeemed at $1, notwithstanding that, because of the appreciation of the value of the assets within the trust on a net asset valuation, that the value of the units had actually increased."

3. As a result of this error, the Applicant submits capital gains made were not included in the ITRs. Mr Peadon says the Applicant has worked out what the value of the units ought to have been (based on the amount she received and the net asset value of the trust what the value of the units) and determined whether a capital gain was made on the redemption of the relevant units. The Applicant has included any gains made in the Tax Calculation Summary.
4. According to the Applicant her total taxable income over the Relevant Years is less than $250,000.

Lodgement of Income Tax Returns for the Relevant years

1. The Applicant lodged her ITRs and received the Commissioner's assessments and penalties as follows:

Amended Assessment/Penalties Issued[65]

1. During the audit the Applicant's, and the Group's, previous accountant provided the Commissioner with MYOB files in relation to the Group.
2. MYOB records including the financial statements (balance sheet and profit and loss statement) for the 2013 financial year in respect of the following entities were unable to be found for:

1. The Applicant's declared taxable income in the Relevant Years prior to the audit was:

Following completion of the audit, the Commissioner found there had been evasion in each of the Relevant Years and a tax shortfall amount. The Commissioner found the following assessable income had been omitted and disallowed some claimed deductions:[76]

1. The Commissioner applied a base penalty of 75% as a result of finding that the shortfall had resulted from the Applicant's intentional disregard.
2. The Commissioner concluded that the base penalty amount should be uplifted by 20% in each of the 2010 to 2013 income years pursuant to section 284-220(1)(c) of Schedule 1 of the TAA by reason that in each of those income years the Applicant "will have previously

had a BPA under item 2 [sic] of section 284-90(1) of Schedule 1 of the TAA".[77]

1. The following table summarises the income tax adjustments, penalties and shortfall interest charge imposed as a result of the audit:[78]

1. The administrative penalties in the above table were calculated as follows:

The Applicant lodged objections to the amended assessments and penalty assessments on 11 June 2015.[79] The Commissioner requested additional information from the Applicant. Numerous communications between the Commissioner and Applicant occurred between 19 July 2017 to 30 November 2020. The Applicant's then tax agent, Mr D (Principal of SA), and later her current legal representative, Mr G of Shearwater Legal, made several submissions to the Commissioner on the Applicant's behalf and responded to the Commissioner's requests for information.

• 188. Following communications between the Applicant and the Commissioner,[80] the Commissioner handed down his Objection Decision on 12 January 2021.[81]

1. The reductions in the amounts assessed and penalties imposed are summarised in the following table from the Objection Decision:[82]

1. As at the commencement of the hearing, the Applicant has paid an aggregate amount to the Commissioner of approximately $700,000 since October 2017 towards the disputed tax debt by way of monthly contributions in the amount of $25,000 from October 2017 to March 2018 and in the amount of $12,500 since April 2018.[83]

1. A summary of what the Commissioner contends are unexplained deposits (excluding where indicated as not assessable) is set out in the following table prepared by the Commissioner:[84]

1. The Applicant states her taxable income for the 2009 Year of $332,838 as calculated at Part A of the 2009 Worksheet. She says her taxable income consisted of:[85]

a. Assessable income of $553,861 consisting of: > > i. $205,000.00 in director's fees from TLP; > > ii. $207.14 in dividends from IAG; > > iii. $47,137.00 in trust distributions from the LST Trust; > > iv. $168,575.00 in trust distributions from TAT Trust; > > v. $70,448.66 of net capital gain from the redemption of units in MZA #1 Trust; and > > vi. $62,493.48 of income attributed to me by the Commissioner from the audit of the MZA Trust; > > b. Deductions of $167,262.50 for interest-related expenses; and > > c. Carried forward losses of 53,760.

2. The character of the following deposits received by the Applicant are in issue for the 2009 Year. These deposits were not declared by the Applicant in the 2009 ITR:

1. In the 2009 Year the Applicant paid interest charges and acceptance fees of $93,000 in respect of commercial bills drawn on Westpac. The Commissioner contends that the nexus between the charges and fees and the Applicant's assessable income has not been established, and therefore this expenditure is not deductible from the Applicant's assessable income.

1. The Applicant states her taxable income for the 2010 Year of $69,155.53 is calculated in 2010 Worksheet. She says her taxable income consisted of:[86]
2. The character of the following deposits received by the Applicant are in issue for the 2010 Year. These deposits were not declared by the Applicant in the 2010 ITR:

1. In the 2010 Year the Applicant paid interest charges and acceptance fees of $141,800 in respect of commercial bills drawn on Westpac. The Commissioner contends that the nexus between the charges and fees and the Applicant's assessable income has not been established, and therefore this expenditure is not deductible from the Applicant's assessable income.

1. The Applicant states her taxable income for the 2011 Year of $128,047.03 is calculated in the 2011 Worksheet.
2. The character of the following deposits received by the Applicant are in issue for the 2011 Year. These deposits were not declared by the Applicant in the 2011 ITR:

1. In the 2011 Year the Applicant paid interest charges and acceptance fees of $141,800 in respect of commercial bills drawn on Westpac. The Commissioner contends that the nexus between the charges and fees and the Applicant's assessable income has not been established, and therefore this expenditure is not deductible from the Applicant's assessable income.

1. The Applicant states her taxable income for the 2012 Year of $84,066.09 is calculated in the 2012 Worksheet.

1. In the 2012 Year the Applicant paid interest charges and acceptance fees of $184,949.76 in respect of commercial bills drawn on Westpac. The Commissioner contends that the nexus between the charges and fees and the Applicant's assessable income has not been established, and therefore this expenditure is not deductible from the Applicant's assessable income.

1. The Applicant states her taxable income for the 2013 Year of $136,124.49 is calculated in the 2013 Worksheet.
2. The character of following deposits received by the Applicant are in issue for the 2013 Year. These deposits were not declared by the Applicant in the 2013 ITR:

1. In the 2013 Year the Applicant paid interest charges and acceptance fees of $165,155.05 in respect of commercial bills drawn on Westpac. The Commissioner contends that the nexus between the charges and fees and the Applicant's assessable income has not been established, and therefore this expenditure is not deductible from the Applicant's assessable income.

Are the Amended Assessment Excessive?[87]

1. In her statement the Applicant provided a history, in relation to each trust, of:[88]
   • 206.1. her unit transactions;
   • 206.2. the property transactions of the trust; and
   • 206.3. the bank facilities she maintained to fund her unit subscriptions.
2. The Applicant provided the Tribunal with numerous worksheets containing calculations of her tax position in the Relevant Years.[89] These calculations included trust reconciliation worksheets, details of the value of assets over time, an annotated loan chronology explaining each transaction, net capital gain calculations, and reconciliations of bank deposits.
3. The Applicant submits the result of this calculations exercise is that she has characterised all of the amounts received, calculated her assessable income, deductions, tax offsets and taxable income.
4. The Applicant also provided an explanation of how she corrected the unit trust registers for LST and MZA #1 to determine the capital gain on the redemption of units in those trusts in the Relevant Years, including providing copies of valuations obtained. This included providing a history dated back to 1997 in some cases.[90]
5. The Applicant explained:

"Summary of tax position > > The Tax Summary at Tab 1 sets out my position in relation to the disputed amounts of my assessable income, taxable income and tax payable in each of the relevant income years, subject only to any available deductions for Shortfall Interest. This data is extracted from the detailed worksheets for each year. > > The information in the following table is taken from the Tax Summary and records for each relevant income year (Column A) my assessable income (Column B), my deductions (Column C), my taxable income (Column D), the amount of taxable income assessed by the Commissioner (Column E), and the amount the Commissioner's assessments of taxable income is excessive (Column F)."

1. In relation to the 2009 Year the Applicant contends the Amended Assessment is excessive for two reasons:
   • 211.1. the Amended Assessment was issued more than four years after the date the original NOA was issued and therefore was after the expiration of the limited amendment period provided for in s 170(1) (Table, item 4) of the ITAA 1936; and/or
   • 211.2. the Applicant's assessable income, as set out in the Tax Calculation Schedule, is less than that assessed by the Commissioner following the objection hearing.
2. As a result of the above the Applicant contends there was no "shortfall amount" in the 2009 Year for the purpose of section 248-80(1) of Schedule 1 of the TAA.
3. Because he is out of time the Commissioner can only amend the assessment for the 2009 Year if there has been fraud or evasion.

1. In relation to the 2010 to 2013 Years the Applicant contends the Amended Assessments are excessive because the Applicant's assessable income, as set out in the Tax Calculation Schedule, is less than that assessed by the Commissioner following the objection hearing.
2. The Applicant submits the amended assessments for the 2010 to 2013 income years are excessive to the extent set out in the following table, or otherwise to the extent revealed by the evidence:[91]

1. The Applicant contends the "shortfall amounts" applicable to the 2010 - 2013 Years for the purpose of section 248-80(1) of Schedule 1 of the TAA are:

1. The Applicant received money from Group entities during the Relevant years.
2. The Commissioner contends that:
   • 218.1. the deposits in dispute constitute assessable income;
   • 218.2. any capital gains made by the Applicant do not qualify for small business relief;
   • 218.3. the disputed deductions lack the requisite nexus with assessable income;
   • 218.4. the Applicant intentionally disregarded the law; and
   • 218.5. the Applicant's conduct warranted an increase in penalty of 20%.
3. The Commissioner says the Applicant has not discharged her onus because she has failed to provide documentation evidencing:
   • 219.1. the request for, and authorisation of, the transfers (deposits);
   • 219.2. the purpose of the transfers;
   • 219.3. whether any obligations arose or were satisfied from the payment of the money to the Applicant.
4. The Commissioner submits the Applicant has failed to demonstrate the Amended NOAs are excessive.
5. The Commissioner determined that the Applicant was evasive because:[93]
   • 221.1. she had control of the entities making the payment to herself and should therefore reasonably have been aware that that the controlled entities were paying money to her benefit;
   • 221.2. she had access to advisers;
   • 221.3. the underdeclared amount of income is significant; and
   • 221.4. "the complexity of the transactions involved in the avoidance of tax were such that they facilitated the obfuscation of the beneficial flow of monies to you. For example You contended that you assumed the liability of VC family trust (unrelated trust) giving rise to a credit entry in GL DZEA.01 (Advance maintenance/education) in the TAT Trust. Mr G subsequently advised this VC loan was written off by the TLP and therefore no assumption of liability by you."

The Total Amount Of $303,000 Described As "Proceeds Of Loan" Deposited By TLP

1. In the 2009 Year the Applicant received the following bank deposits from the TLP totalling $303,000 and but only declared $205,000 as director's fees in her 2009 ITR:[94]

1. At objection the Commissioner determined the various deposits from TLP less the $205,000 director fee declared represented undeclared income.
2. The Applicant contends the deposits were proceeds from a "loan" from the TAT Trust.
3. The Applicant submitted to the Commissioner during the objection phase:[95]
   • 225.1. the $303,000 in deposits were capital payments;
   • 225.2. this was money being advanced by TLP to TAT Trust but was deposited directly into her account;
   • 225.3. the arrangement between the Applicant and the TAT Trust was that the final quantum of these fees owed to the Applicant would be determined at the end of each financial year as the amount available for such fees would depend on the profitability of the business during that financial year;
   • 225.4. she had borrowed funds from the TAT Trust when required which were recorded in a running loan account in the TAT Trust. If it had to, the TAT Trust would borrow funds from TLP and the borrowings were reconciled against the management fees payable at year end;
   • 225.5. it was easier to directly credit her bank account rather than pass the funds through the trust bank account first;
   • 225.6. the Applicant's director fees were set-off against her loan account in the TAT Trust rather than paid directly, reconciled against the advances paid to her by the trust via the TLP;
   • 225.7. the purpose of this arrangement was to ensure the maximum flexibility of cash flow within the group;
   • 225.8. the $205,000 in director fees was not physically paid but instead applied against the Applicant's existing loan from the TAT Trust.
4. In the statement prepared for the hearing the evidence of the Applicant was that:

[380] "In the 2009 income tax year I received deposits in my bank account totalling $303,000 from TLP. The deposits are listed in Part G.6 of the 2009 Worksheet. > > a. I received 12 monthly payments of $6,500 as advances towards my director's fees. These totalled $78,000 and I recorded these amounts in MYOB account 6- BAEF "Drawings - Mrs WVYW". > > > i. At Tab 114 is a copy of the 2009 TLP MYOB accounts. Account 6-BAEF is at page 1840. > > b. On 7 July 2008 I received a payment of $150,000. This was to restore my bank account to a credit balance after the 2008 year-end transactions. I recorded this amount in MYOB account 1-AAEC "Loan to Mrs WVYW" at page 1815. > > c. On 26 June 2009 I received the payment of $75,000. This was one of a number of payments I received from Group members to permit me to pay the interest and rollover fees on the bank bill facilities I maintained. I recorded this amount in MYOB account 1- AAEC "Loan to Mrs WVYW" at page 1815. > > [381] At the end of the 2009 financial year I declared $205,000 of these amounts as directors fees. This included the $78,000 of advances plus $127,000 of the amounts loaned to me. The balance of $98,000 was transferred to my loan account with TAT Trust as described in Part 3 from paragraph [278]."

5. The Applicant received monthly drawings from TLP totalling $78,000. This is reflected in the General ledger of TLP for the 2009 Year.[96]
6. On 7 July 2008 the Applicant received a payment of $150,000 from TLP. This is reflected in the General ledger of TLP for the 2009 Year as a "loan".[97]
7. On 26 June 2009 the Applicant received a payment of $75,000 from TLP. This is reflected in the General ledger of TLP for the 2009 Year as a "loan".[98]
8. Essentially the Applicant claims that the drawings/loans are amounts she owes to TLP, which were then offset against the director's fees payable to her, leaving her owing a balance of $98,000. She says this was all dealt with and sorted at the end of the year.

1. The common characteristics of a loan are:[99]
   • an obligation of repayment;
   • security for the loan by way of charge, lien, set-off or surety;
   • capacity to repay the alleged loan; and
   • interest charged.
2. Simply because funds have been transferred is not of itself enough to constitute a loan. The factor the Courts primarily focus on is whether there is an obligation to repay. Unlike gifts and income, loans generally must be repaid. That is the very nature of a loan - it is not intended to be a permanent transfer.
3. The Commissioner notes that the purported "loan" arrangements are undocumented, and the typical indicia of a loan are not evidenced:[100]
   • 233.1. there is no written loan agreement between TLP and the TAT Trust to evidence the transfer of money that resulted in the 'original' loan in relation to any payments made to the Applicant by TLP on behalf of TAT Trust;
   • 233.2. there are no agreed terms of repayment;
   • 233.3. the purported loans were unsecured; and
   • 233.4. no interest was payable.
4. The Group is a family group of entities, not an ASX listed group. As such there was less formality in some of the dealing or recording of those dealings. Courts have commented that within a group of associated companies it is not surprising for internal arrangements to be made informally.[101] The Tribunal still has to be satisfied on the balance of probabilities that those arrangements were in place.
5. Counsel for the Applicant noted that other Courts, absent a suggestion of a sham, have observed that sometimes loans agreements are made orally within a family group and then documented by book entries, which may result in no cash being exchanged.[102]
6. Logan J in Melbourne Corporation of Australia Pty Ltd v Commissioner of Taxation [2022] FCA 972 went further to explain:

[42] "Sometimes, the informality in relations will be such that one is left just to infer the existence of an agreement by conduct: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, at [369]. > > [43] A great disservice can be done to the Australian business community, especially the small business community, by a failure on the part of the Commissioner, in his administration of national taxation laws, to recognise, as the courts do in cases great and small and in circumstances extending across a wide range of controversies, these ordinary features of Australian commercial life. > > [44] All this said, where, as here, informality is present, much can depend on the credibility one affords the accounts given by participants and, where they exist, representations in business records created under their supervision or with their approval."

1. The Applicant is a limited partner of TLP. Deposits totalling $303,000 were regularly deposited into the Applicant's account from TLP.
2. The TAT Trust's 2009 Handisoft General Ledger (GL) DZEA.01 (Advance maintenance/education) recorded $303,000 and $197,302 as a loan to the Applicant. A corresponding accounting entry to GL BADC (Loan from the TLP) of $500,302 in the 2009 income year.
3. The Applicant's contention that the deposits were proceeds of loan is inconsistent with the TLP's financial records in MYOB. The MYOB records characterised the deposits totalling $303,000 made into the Applicant's bank account as "Drawings". They were recorded as follows:
   • Debit - (6-BAEF) Drawing - Mrs WYVW (Expense account);
   • Credit - Account 1-AAAE 'Westpac No 1'.
4. In contrast to the MYOB records the Applicant's tax-agent during the objection process, Mr Donkin, told the Commissioner that the $303,000 deposits comprised of loan funds advanced to the TAT Trust, as reflected in the TLP's 2009 Handisoft GL BD79 - (Loan - the TAT Trust). The amount totalling $303,000 was recorded as a debit in GL DZEA.01 - Advance maintenance/education with a corresponding accounting entry to loan liability to TLP.
   • Dr. GL DZEA01 - Advance maintenance/education (Physical distribution to you) $303,000
   • Dr. GL DZEA.01 - Advance maintenance/education (Physical distribution to you) $197,302
   • Cr. GL BADC - Loan - TLP $500,302.
5. The Commissioner reviewed the TAT Trust's GL DZEA.01 - Advance maintenance/education, and summarised all the credit entries with an explanation of his observation and/or findings:

TAT Trust GL DZEA.01 - Advance maintenance/education

You stated that this amount was incorrectly dealt with by the prior accountant. You stated that the MYOB records accounted for income on an accruals basis whereas for taxation purposes the trust properly accounted for income on a cash basis which occurred in 2009 income year giving rise to this credit entry.

You acknowledged this amount was therefore assessable income to you in the 2009 income year and proposed to be taxed as trust distribution for this year. However, you have not provided any supporting documents to support this assertion.

You stated that you assumed the liability of VC family trust (unrelated trust) and giving rise to this credit entry.

Mr G subsequently advised this VC trust loan was written off by the TLP and therefore you did not assume this liability. As such, you were not entitled to this credit and the $168,000 needs to be reversed. Consequently, the $168,000 reflected in GL BADC (Loan to TLP) is adjusted.

The $816,879.66 is a combination of the following amounts:

(a) $205,000 being the accrued directors' fees which reduced the TAT Trust loan owed to the TLP, this resulted in a counter balancing reduction in the amount you owed to the TAT Trust and therefore this can be accepted.

The closing balance of the loan asset of the TLP is $590,880 and you assumed this liability, resulting in a counterbalancing reduction in the amount owed by you to the TAT Trust.

However, in response to a section 264 notice, Mr P stated that the $758,881 ($590,880+ $168,000 above) was disclosed as "other appropriations" in the profit and loss statement and hence it does not appear in the balance sheet of the TLP.

As such, you did not assume the alleged loan liability and therefore the financial accounts should not have been provided on the basis you had assumed this debt. Consequently, this credit entry needs to be reversed.

You stated that upon further investigation and discussion with the prior accountant, the $21,000 entry was entered in error and therefore this amount should be disregarded and will not give rise to a credit entry in this general ledger.

1. Based on his findings the Commissioner concluded:

[71] "As illustrated in the above table, the closing balance of the TAT Trust's GL DZEA.01 after the above adjustments is $119,881.04 in debit (amounts you owed to the TAT Trust), as opposed to you were owed by the TAT Trust. > > [72] We cannot identify any actual repayment of the purported loan made by you, other than mere book entries. > > [73] In Temples Wholesale Flower Supplies Pty Ltd v. FCT [1991] FCA 162, the federal court held that a journal entry in the books of the company that was unsupported by any agreement to accept payment in that way, e.g. director fees, in itself did not amount to a 'payment'. The commissioner is of the view that you have not made any repayments of the purported loan."

1. The Commissioner found the following documents and explanation were inconsistent:

[74] "Amounts from the TAT Trust - loan amount: > > The TAT Trust's Handisoft GL account- DZZZ.01 and its 2009 financials show that a balance of $201,862.49 was owed by you as at 30 June 2009. > > However, in response to the section 264 notice dated 30 July 2014 and the ATO position paper dated 9 March 2015, Mr D stated that a balance of $302,376 was owed by you.

[75] Amounts from TAT Trust - corresponding change in assets or liabilities:

Mr G alleged that the $303,000 in deposits comprised loan funds from TAT Trust but physically paid by TLP. There was no physical exchange of money between you and the TAT Trust.

However, Mr D stated that a balance of $302,376 was advanced to you by TAT Trust with a corresponding decrease in 'cash at bank' for the trust.

[76] Inconsistent treatment how the director fee is to be applied.

You stated that the director fee payable by the TLP was applied against the loan owed by the TAT Trust for the 2009 income year. However, this arrangement is materially different in the 2010 income year where the director fee payable by the TLP were said to have been applied against the Mr WYVW and Mrs WYVW's loan.

[77] The TAT Trust and VC family trust loan owed to the TLP was assumed by you and subsequently was forgiven by the TLP

Mr G initially advised that you had assumed (the TAT Trust's loan liability owed to TLP of $590,881) and (VC Family Trust's loan liability owed to the TLP of $168,000). Mr G later advised that you did not assume VC family trust's loan liability with TLP but maintained that you had assumed TAT Trust's loan liability of $590,880. That combined loan liability of $758,880 was later written off by TLP.

However, on 6 December 2013, in response to a section 264 notice issued during the promoter audit, Mr P stated that the $758,881 disclosed as 'Other appropriations' in the P&L statement of the TLP related to the forgiveness of loans for the following entities:

• Loan - TAT Trust $590,881
• Loan - VC Family Trust $168,000
• Total $758,881".

1. The Commissioner ultimately determined that the Applicant was not entitled to a credit of $590,881 and $168,000 to set-off the amounts owed to the TAT Trust, as reflected in the TAT Trust's Handisoft GL account DZEA.01.
2. There is no evidence to support the Applicant's assertion that the purported loans are genuine loan arrangements. All that is known is that there was a book transfer or accounting entries made.
3. There is no loan agreement in place and no corroboration of any loan. At the hearing the Applicant acknowledged that she did not keep a written record of any agreement between the parties to the various "loan" transactions.[103] She says her accountant never advised her to have formal written loan agreements. The Tribunal finds this implausible. These sums that are the subject of the purported loans are not "trivial". It is reasonable to expect there would be very likely be some record of the decision to loan this money.
4. The Commissioner noted that the general ledger produced by Handisoft cannot be cross referenced to the accounting records in MYOB. The following amounts have been incorrectly recorded in the TAT Trust's Handisoft GL:
   • 2009 TAT Trust GL DZEA 1.01: $816,879.66 CR (Loan asset)
   • 2009 TAT Trust GL DZEA.01: $168,000 Cr (VC family trust/tfg)
   • 2009 TLP GL DZEA.01: $21,000 Cr (bredd ltd)
5. The liability the Applicant says she assumed was then written off (the credits reflected in the loan asset were subsequently reversed) and no physical exchange of money occurred. Mr G told the Commissioner that "the forgiveness of the loan was convenient to the overall position of the group". As the Commissioner noted, no other explanation has been provided.
6. In Anglo American, Logan J was taken to accounting entries purporting to demonstrate proof of the existence of a loan. Logan J found that while accounting may offer some "inferential" evidence, the entries are not conclusive evidence of the existence of a loan: Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation [1991] FCA 185; 29 FCR 93, at 100-103 (Temples).[104]
7. The position in Temples was approved in David Cassaniti v Commissioner of Taxation [2010] FCA 641; 186 FCR 480:

"[165] Where in the usual case the withholding process is represented only by accounting entries the question whether a legitimate process of withholding has ensued will depend upon a close examination of those books and records and the surrounding circumstances to see whether it may be inferred from those records and circumstances that a withholding has occurred. At one end of the spectrum, a mere journal entry in the absence of other evidence may not be sufficient evidence, having regard to the surrounding circumstances, that there has been a payment of salary and wages and a withholding from that payment. The authorities make it plain that entries of this kind, standing alone, are not conclusive evidence of the transaction: see, Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation [1991] FCA 185; (1991) 29 FCR 93 at 100 - 103."

1. Here, the Applicant was unable to explain the ledger entries relating to the purported VC loan.[105] The Applicant could not say whether the ledgers were used as part of the Worksheets.[106]
2. TLP forgave the loan from the TAT Trust and FBX Pty Ltd ATF VC Family Trust. Mr V was associated with VC.[107] Mr V borrowed from TLP through FBX. That debt was forgiven yet Mr V received further money from TLP in a subsequent period.[108] This seems highly unusual and implausible. Mr V is not a family member.
3. The accounting entries are not conclusive evidence. The description in the entries themselves are not automatically inputted. They have to be populated by someone. The evidence merely tells us that someone made these entries. It is not proof of the contents described therein.
4. At the hearing the Applicant said:[109]

"My recollection is that in 2009, there was a change in the way that limited partnerships would be - would be considered in that they would be considered like a - more like a company and as - and they were given a certain amount of time to get any outstanding loans sorted out and, in consultation with taxation advisers and lawyers, BR, they gave advice and drew up the deed of forgiveness forgiving that loan from the trust to the partnership."

5. There is no corroborating evidence of that advice being requested or received from BR.
6. The Applicant informed the Tribunal that all of the loans or advances from TAT Trust had been repaid in full in the 2014 year.[110] Financial statements and bank statements were provided to corroborate this evidence.[111]
7. The most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there are no loan agreements, no other written documentation to confirm loan agreements were entered into, and no corroborative evidence of any oral arrangement.
8. Aspects which do not lend themselves to a finding of a loan arrangement are:
   • 258.1. the loan was not secured in any way;
   • 258.2. there was no explanation as to why interest was not payable;
   • 258.3. there was no explanation for when repayments needed to be made.
9. The description of "loan arrangement" lacks credibility. There is a lack of commercial reality about the purported loan transaction.
   • 259.1. The evidence available (set out in paragraph [245] above) indicates there have been inconsistent representations made at various times by the Applicant's representatives. There is no evidence explaining why inconsistent representations were made to the Commissioner. The individual whose instructions they were following when making those representations was not identified.
10. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries) should be available. No other witness was called to verify the Applicant's claim.
11. There is no corroborating evidence of consultations with lawyers and tax advisers. If advice was received, acted and relied upon, which would explain why the Group and the Applicant undertook such transactions, why was this advice was not kept? Why is there no other record, no other evidence proffered, of the circumstances surrounding these transactions? This was not addressed in the evidence.

1. The Tribunal is not satisfied on the balance of probabilities that, on the evidence available, the $303,000 has the character of a loan. The $303,000 therefore, is found to comprise part of the Applicant's assessable income.

Amount Described As A Deposit Made In Error Of $20,075.16

1. In the 2009 Year the Applicant received $20,075.16 from the TAT Trust on 26 June 2009.
2. The Applicant says it was deposited in error and was reversed once discovered.[112] The Applicant withdrew the amount to repay the deposit. This was done on 26 June 2019.[113]
3. The MYOB records for the TAT Trust's MYOB records show on 1 July 2009, the $20,075 was debited to the TAT Trust's Westpac bank account, with a description transfer error.
4. The Commissioner agreed with the Applicant at objection that the deposit had been made in error and that this deposit was not assessable.

Amounts Described As Payment Of Unpaid Present Entitlements (UPE) From The LST Trust: $163,676.20

1. In the 2009 Year the Applicant received two deposits ($56,578.52 plus $107,097.68) totalling $163,676.20 from LST on 26 June 2009. This is reflected in the LST General Ledger.[114]
2. The Applicant also received $47,136.79 in trust distributions from LST. This amount was declared in the 2009 ITR.[115]
3. The Commissioner contends that the difference between $163,676.20, less the $47,136.79 declared, constituted undeclared income.
4. The Applicant submits the deposits constitute a repayment of prior year entitlements.
5. The LST Trust's 2009 Handisoft GL shows the amount of $184,187.27 which the Applicant says represents prior year UPE, which tax had already been paid on and therefore it should not be treated as assessable income in the 2009 Year.[116]
6. The following table reflects the transactions recording the beneficiary account in LST Trust's HandiLedger in the 2009 income year:

Account number DZZZ.01: Opening balance - Benef'y

1. The Applicant provided "a summary table showing UPEs, profit allocation and actual distribution including the LST Trust's financials for the 2006 to 2013 income years":[117]

LST: Unpaid present entitlements - GL DZZZ.01

1. The Commissioner submits the evidence summarised in the above table does not demonstrate that the deposits were repayments of UPE for the following reasons:
   • 274.1. There is a lack of contemporaneous records/lack of documentation to support existence of UPE - there is no record of any UPE;
   • 274.2. The available information contained in the records and some of the explanations given contain inconsistencies. For example, the Applicant's solicitor has submitted that the amounts were a repayment of an UPE and current year entitlements. By contrast, the Applicant's tax agent said there were no UPE.[118] In addition Mr D stated that in the financial reports of LST Trust, the following loan/beneficiary balances were disclosed:[119]

1 July 2008 - Opening Balance $Nil (funds owing to you)

• 274.3. the ITRs of the LST and the TAT Trust for the 2008 income years showed the Applicant was presently entitled to the trust income of $170,871 and $240,113 respectively, totalling $410,984. Yet, in the Applicant's 2008 ITR, the Applicant declared the Applicant's share of trust income was $416,633 (a discrepancy of $5,649). In the Applicant's response dated 30 November 2020, the Applicant stated that the discrepant amount of $5,649 reflected a distribution from the LST Trust to the TAT Trust, which was subsequently distributed from the TAT Trust but not recorded in the TAT Trust's financial account.

1. In her witness statement the Applicant's evidence was as follows:[120]

LST > > [330] In the 2009 income tax year I received and declared a profit distribution from the LST Trust of $47,136.79. > > a. At T-1135 is a copy of the LST 2009 General Ledger. The profit distribution is recorded in account no DZDI.01 at T-1137. This account is my income distribution account. > > b. At Tab 125 is the LST trust distribution report for 2009 to 2013.

[369] As stated at paragraph 330, I also received a profit distribution from the LST trust of $47,136.79. This amount was recorded in the trust general ledger account no 4049.01, my profit distribution account at T-1137. > > [370] At the end of the 2009 financial year:

a. The $47,136.79 profit distribution was credited to general ledger account no DZZZ.01, my beneficiary account (T-1137), increasing the amount owed to me by the trust; and

b. The $163,676.20 deposited in my bank account was debited to my DZZZ.01 beneficiary account, decreasing the amount owed to me by the trust.

[371] The closing balance of the DZZZ.01 beneficiary account after the above transactions was a debit of $67,647.86, being the amount still owed by the trust to me.

[372] In Part E of the 2009 Worksheet, $47,136.79 (the current year profit distribution) of the $163,676.20 in payments is shown as assessable income. The remaining $116,539.20 is shown as a non-assessable loan repayment by the trust.

1. The evidence given by the Applicant is merely a description of what one can see from a review of the accounting entries. The Tribunal repeats what it has already said about the conclusiveness of journal entries.
2. The Applicant provides no explanation for the inconsistent submissions made by her representatives at different times. The inconsistencies in the explanations of the records demonstrates that the records, on their own are not sufficiently reliable.
3. There is a lack of documentation or contemporaneous recognition (other than journal entries). Documents that might be expected to have recorded an unpaid present entitlement include:
   • 278.1. minutes of trustee meetings;
   • 278.2. distribution resolutions; or
   • 278.3. loan agreements.
4. In Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 the Tribunal noted:

[2] "The typical manifestation of [an unpaid present] entitlement is a resolution to vest an entitlement to annual income in a beneficiary of a family trust without any further step being taken or event occurring to discharge the entitlement."

5. No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the balance of probabilities that, on the evidence available, the difference between deposits from LST of $163,676, less the $47,137 declared, constitutes a repayment of prior year entitlements. The balance of $116,539 therefore does comprise part of the Applicant's assessable income.

Amounts Described As Proceeds Of Loan From TLP Totalling $78,000

1. In the 2010 Year the Applicant received $78,000 in monthly deposits from TLP. The Applicant says these amounts were "proceeds of loan". These deposits were not disclosed as income in the 2010 ITR.
2. In the 2010 Year the Applicant declared $57,000 in director fees.
3. The Commissioner amended the 2010 ITR on the basis that the difference of the amounts received, and the director fees declared ($78,000 - $57,000 = $21,000) represented undeclared income.
4. The Applicant submits that the $78,000 was drawn against the Mr and Mrs WYVW loan account of TLP and was not a payment of director's fees.[121]
5. The balance of the Mr and Mrs WYVW Loan account at the end of financial year was $68,514.20 owed by the TLP. The Applicant submits that the drawings do not comprise an advance of funds and the $57,000 in director fees was not physically paid but credited to the Mr and Mrs WYVW loan account.
6. The Commissioner does not accept the Applicant's contention because:

• 287.1. of the lack of contemporaneous evidence - there are no contemporaneous documents such as loan agreements, memos, emails or other correspondence to support:

"i. the existence of any loans between entities within the Group; > > ii. the existence of any agreement to assume/transfer any loan liabilities; > > iii. that the parties agreed to the arrangement whereby the director fee payable by TLP would be applied against your loan to the TLP (Handisoft GL account BAEZ) rather than being physically paid to you; > > iv. this arrangement is materially different to the arrangement in the 2009 income year where the director fee payable by the TLP were said to have been applied to the loan account with TAT Trust (Handisoft GL account BDGI); > > v. the Commissioner has examined all the credit entries that set-off against your loan account reflected in GL BAEZ and has identified there is no actual repayment of the purported loan, rather the arrangement involves mere book entries."

• 287.2. Inconsistencies in documents and explanations.

1. The Commissioner identified the following inconsistencies:
   • 288.1. the treatment of the amounts in the MYOB general ledgers was inconsistent with the Applicant's contention;
   • 288.2. the Applicant's solicitor alleged that the $78,000 was drawn against the Mr and Mrs WYVW loan account of the TLP. However, TLP's 2010 MYOB General ledger showed the $78,000 was recorded in the TLP's GL 6-BAEF Drawings - Mrs WYVW. GL 6-BAEF is an expense account and it is also described as "drawings";[122]
   • 288.3. the Applicant contended that the TLP owed $68,514.20 to Mr and Mrs WYVW, as reflected in the TLP's 2010 Handisoft GL BAEZ (Loans to Mr and Mrs WYVW), which showed that a closing balance of $68,514.20 in credit. However, the TLP's 2010 MYOB GL 1- AAEC (Loan to Mrs WYVW) shows that an ending balance of $152,458.80 was owed by the Applicant;[123]
   • 288.4. the Applicant contended that the TLP forgave her loan liability in the 2009 Year. If that occurred anil opening balance for the 2010 Year would have been expected but TLP's MYOB records showed an opening balance of $225,000, as reflected in its MYOB GL AAEC in the 2010 income year.
2. In her witness statement the Applicant stated:

[431] "In the 2010 income tax year I received regular deposits from TLP of $6,500 per month in my bank account totalling $78,000 for the year. > > a. The deposits are listed in Part G.5 of the 2010 Worksheet (Tab 6 page 23) > > b. At Tab 141 is a copy of the TLP 2010 MYOB accounts. I recorded these amounts in MYOB accounts 6-BAEF "Drawings - Mrs WYVW" at page 2123, the account I used to record payments from the partnership to me. > > [432] On 26 June 2010, TLP applied for an Emission Reduction Purchase Agreement (ERPA) for its own use. As part of the arrangements with VYC Pty Ltd, TLP managed applications for these contracts and collected deposit funds on behalf of VYC into its main bank account. To ensure the application by TLP was properly recorded in the accounts we paid the $21,000 application fee using Mr WYVW's Visa credit card. The ERPA was issued on 30 June 2010. > > a. The transaction is recorded in the TLP 2010 MYOB accounts: > > > i. In account 1- AAAE "Westpac No 1", transaction CRZZAE35 a $21,000 debit (deposit) with the description "Mr WYVW" (page 2087); and > > > > ii. In account 2-EZZI "Monies on behalf Vol Creds", transaction CRZZAE35 a $21,000 credit with the description "Mr WYVW" (page 2109). > > b. At Tab 142 is a copy of the Visa statement showing the payment by Mr WYVW to TLP. > > c. At Tab 143 is a copy of the Application for Issue of an Emission Reduction Purchase Agreement. > > d. At Tab 144 is the executed ERPA. > > [433] At the end of the 2010 tax year, because this amount had not otherwise been repaid, $21,000 of the amounts advanced to me were allocated to reimburse the $21,000 paid to VYC Pty Ltd. > > [434] I declared the remaining $57,000 as income in the form of director's fees. > > [435] At T-955 is a copy of the TLP 2010 General Ledger. Account BAEZ "Loans - Mr and Mrs WYVW" at T-961 shows: > > a. The $78,000 advanced to me as a debit; > > b. A credit of $21,000 for the payment to VYC > > c. A credit of $57,000 for my director's fee."

3. The Applicant was receiving regular drawings. This was recorded in the MYOB accounts.[124]
4. The Applicant provides no explanation for the inconsistent submissions made by her representatives at different times. There is a lack of documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the balance of probabilities that, on the evidence available, the $78,000 was proceeds of a loan. The deposits therefore comprise part of the Applicant's assessable income.

Amounts Described As Proceeds Of Loan Of $41,000 From The TAT Trust

1. In the 2010 Year the Applicant received deposits totalling $269,869:
   • 293.1. $41,000 from the TAT Trust;
   • 293.2. $160,000 from the LST Trust; and
   • 293.3. $68,869 from MZA #1.
2. In the 2010 ITR the Applicant declared $1,590 as a trust distribution from the TAT Trust.
3. On 27 August 2014, the Applicant's tax agent described the deposit of $41,000 received on 3 July 2009 as "Distributions".
4. The Commissioner amended the 2010 ITR on the basis that the difference of $39,410 ($41,000 received less $1,590 declared) represented undeclared income.
5. The Applicant says these amounts were "proceeds of loan" which was repaid in 2014.[125]
6. The Commissioner submits that the $41,000 received on 3 July 2009 was a distribution not a loan because:
   • 298.1. there is no loan agreement, no interest charged, and no fixed term for the purported loans; and
   • 298.2. no corroborating evidence supporting the existence of loans from the trust;
7. The Commissioner relied on the principles established in Weyers v Federal Commissioner of Taxation 2006 ATC 4523 (Weyers case), that interest-free loans made to beneficiaries of a trust with no real expectation of repayment are more properly described as distributions.
8. The Applicant submits that:
   • 300.1. The opening balance of $201,862.49 in the TAT Trust's 2010 Handisoft GL DZZZ.01 - beneficiary account for Mrs and Mr WYVW[126] represents the balance of the loans from the trust carried over from 2009 Year. A distribution of $1,588.68 was credited to GL DZZZ.01 to allow minor accounting treatment differences and was declared in the Applicant's 2010 ITR;
   • 300.2. $20,924.84 was debited to the TAT Trust's 2010 Handisoft GL DZEA.01 - Advance maintenance/education. This amount comprised of the $41,000 payment to the Applicant less the $20,075.18 paid in error that occurred on 26 June 2009;
   • 300.3. the closing balance of GLDZEA.01 of $53,454.81 (in debit) was then transferred to the GL DZZZ.01 - beneficiary account on 30 June 2010 in the TAT Trust. This increased the amount owed by the Applicant to the TAT Trust totalling to $253,728.62.
9. Other than the Applicant's oral evidence, there are no contemporaneous records/documents such as loan agreements evidencing any loan.
10. The Commissioner in its Objection Decision noted that:[127]

"b. Your accumulated loan owed to the TAT Trust was set-off by credit entries with no physical payment made. The credit entries were often complicated by way of cross-assigning liability between the intra-group entities. For example: On 30 June 2010, the $40,000 was credited in the TAT Trust's 2010 GL DZEA.01 resulted from the following transactions: > > The TLP reduced its liability to SMS by $40,000 and assigned the said liability owed to the TAT Trust. As a result, the $40,000 was owed by the TAT Trust to the SMS and extinguished TLP's loan owed to the SMS. > > The following journal entry was recorded in the book of the TLP: > > Dr. Loan to SMS (GL CZHE) - liability account $40,000 > > [Reducing its liability to SMS] > > Cr. Loan - the TAT Trust (GL BDGI) $40,000 > > [TLP now owed $40,000 to the TAT Trust] > > SMS then assigned the $40,000 loan owed by the TAT Trust to you, which means that you are now owed by the TAT Trust. > > The following journal entry was recorded by the TAT Trust: > > Dr. Loan - TLP (GL BADC) $40,000 > > [TAT Trust reduced its liability owed to the TLP as it assumed TLP's loan owed to SMS] > > Cr. Advance Maintenance/Education (GL DZEA.01) $40,000"

11. The Commissioner identified the following inconsistencies between the records and explanations given:

• 303.1. Amounts from the TAT trust - Physical distribution: the 2010 TAT Trust GL (Handisoft account DZEA.01) show many transactions between the trust and the Applicant and her husband, with the closing balance of $53,454.81 transferred to the Applicant's loan account (Handisoft account DZZZ.01) owed to the TAT Trust. By contrast, Mr D stated the Applicant withdrew an amount of $119,926 in the 2010 Year.[128]
  • 303.2. Amounts from the TAT Trust - loan amount: TAT Trust's 2010 Handisoft GL DZZZ.01 showed that a closing balance of $253,728.62 was owed by the Applicant as at 30 June 2010.[129] By contrast, Mr D stated that a balance of $420,712 was owed as at 30 June 2010.[130]
  • 303.3. The treatment of amounts in the MYOB GLs was inconsistent with the taxpayer's explanation:[131]

"You alleged the amounts totalling $41,000 was a loan. > > However, the TAT Trust's 2010 MYOB GL showed that the $41,000 was a 'distribution' made to you. Further, Mr D described the $41,000 from the TAT Trust as a "distribution". No other contemporaneous accounts were provided to show the amounts were recorded as a loan from TAT Trust."

12. In her witness statement the Applicant stated:

[436] "On 3 July 2009 I received a deposit of $41,000 from TAT Trust. > > a. The deposit is listed in Part G.6 of the 2010 Worksheet (Tab 6 page 24). > > b. At Tab 116 is a copy of the TAT Trust 2010 MYOB records. I recorded this deposit in MYOB account 1-1193 "Distribution - Mrs WYVW" on page 1881. > > [437] The transaction is also recorded in TAT Trust 2010 General Ledger a copy of which is at T-1029. The transaction is recorded in account DZEA.01 "Advance maintenance/education" at T-1036, the account maintained by the trust for Mr WYVW and me for advances made to us by the trust. The amount recorded is $20,924.84, because the balance of the $41,000 was recorded in the 2009 accounts due to an error noted and accepted by the Commissioner at paragraphs 80 to 83 of the Objection RFD (at T-19). > > [438] The $41,000 was a loan to me by the trust. As discussed above, its recognition in the accounts was split between the 2009 and 2010 financial years. In both those years, that part of the $41,000 recognised in the accounts for that year formed part of the final balance of our DZEA.01 advances account, which was transferred to our DZZZ.01 beneficiary account, which is where the running loan balance between us and the trust was recorded. > > a. At T-1020 is a copy of the TAT Trust 2009 General Ledger showing at T-1037 the $20,0745.16 debit to account DZZZ.01 in that year. > > [439] Our running loan account with TAT Trust is discussed in detail from Part 3 paragraph 237."

13. The deposit of $41,000 is reflected in the TAS general ledger as a distribution and the TAT Trust ledger.[132]
14. The most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there are no loan agreements, no other written documentation to confirm loan agreements were entered into, and no corroborative evidence of any oral arrangement.
15. Aspects which do not lend themselves to a finding of a loan arrangement are:
    • 307.1. the loan was not secured in any way;
    • 307.2. there was no explanation as to why interest was not payable;
    • 307.3. there was no explanation for when repayments needed to be made.
16. The description of "loan arrangement" lacks credibility. There is a lack of commercial reality about the purported loan transaction.
17. The evidence available of the representations made is inconsistent. There is no evidence that the representations made by Mr D and Mr G respectively were wrong. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the balance of probabilities that, on the evidence available, the $41,000 was proceeds of a loan. The deposits therefore comprise part of the Applicant's assessable income.

Amounts Described As Distribution From The LST Trust Totalling $160,000 (Comprised Of Current Year Entitlement And Unpaid Entitlements)

1. In the 2010 Year the Applicant received deposits totalling $160,000 from the LST Trust. In the 2010 ITR the Applicant only declared $87,320 as a trust distribution from the LST Trust.
2. The Commissioner issued a notice to the Applicant regarding the deposit. The Applicant stated that the $160,000 deposit received on 29 June 2010 from the LST Trust was a "Distribution from Trust" and that the difference between the amount declared in in the 2010 ITR and the trust distribution was due to the timing differences on the drawdown entitlements with respect to the trust distribution.
3. The Commissioner then amended the NOA on the basis that the difference of $72,680 ($160,000 received less $87,320 declared) represented undeclared income.
4. The Applicant says the $160,000 deposited by the LST trust was attributable to:[133]
   • 314.1. the $87,319.53 of present entitlements already declared; and
   • 314.2. $72,680.47 of both prior year entitlement (previously declared) and loan funds.
5. The LST Trust's 2010 general ledgers show:
   • 315.1. Account DZZZ.01 (beneficiary account) - $154,000 was debited in GL DZZZ.01 as evidence of payment of the UPEs; and
   • 315.2. Account DZEC.01 (Physical distribution account) - $160,000 payment comprised of the $154,000 entitlements distribution plus $6,000 paid from the loan account of Mr WYVW.[134]
6. The Applicant submitted to the Commissioner:[135]

"Item 4.2 - 2010 LST Trust ($160,000) > > [16] LST Trust account DZEC.01 (Physical distribution) shows a $6,000 debit (tfg loan to Mr WYVW). > > The year-end balance of $154,000 was transferred to account DZZZ.01 (Opening Balance - Benef'y) reducing the amount owed to you. Explain the $6,000 credit in account DZEC.01. > > As advised in our submission dated 22 November 2017, the $6,000 was a transfer from Mr WYVW's physical distribution account (DZEC.03). The deposit of $160,000 into the taxpayer's account comprised a capital payment of $154,000 to the taxpayer and $6,000 to Mr WYVW. > > We understand that reason for the accounting treatment used for this transaction was in order to align the accounts with the physical deposit of $160,000. > > Note that account DZEC.03 (Mr WYVW Physical distribution account) contains a consolidated debit entry "tfg loans to Mr WYVW" of $106,018.81. This equals the credit entries against transaction #14 in accounts 3085 ($32,018.81), 3087 (68,000) and DZEC.01 ($6,000). > > [17] Provide any other contemporaneous documents to support the existence of the UPEs. > > No other material is available or required. We note that unit trusts do not require distribution resolutions. Distributions are automatically determined based on units held."

7. The MZA #1's 2010 MYOB recorded a transaction as an "Unpaid entitlement".
8. The Commissioner submits that if the $160,000 received from MZA #1 comprised of a payment of UPE, it would be expected that the relevant amount recorded in the MYOB as "Unpaid Entitlement" or similar. It is not recorded as an unpaid entitlement but rather as a "distribution". See LST Trust's 2009 MYOB journal entry for 26 June 2009:[136]

1. The LST Trust's ITRs for the 2007, 2008, 2009 and 2010 years indicate the Applicant was presently entitled to the following net income in each respective income year:[137]

1. In her witness statement the Applicant stated that:

[411] "On 29 June 2010 I received a deposit in my bank account of $160,000 from the LST Trust. > > a. This is listed in Part G.3 of the 2010 Worksheet. > > b. I recorded this in MYOB account 6-BAAD "Distribution - WYVW". A copy of the LST 2010 MYOB ledger is at Tab 139. Account 6-BAAD is at page 2057. > > [412] The $160,000 received by me from the LST Trust was: > > a. A $154,000 payment against the amount owed to me by the trust; > > b. A $6,000 payment against the amount owed to Mr WYVW by the trust. > > [413] As at July 1 2009 I was owed $67,647.86 by the trust which had accrued from unpaid present entitlements on which I had already paid tax. See from paragraph 373. > > [414] As discussed at paragraph 389, in tax year 2010 I received a profit distribution from the LST Trust of $87,319.53 which was recorded in the LST general ledger account no DZDI.01, being my distribution account. The amount is then credited to account DZZZ.01, being my beneficiary account, increasing the amount owed to me by the trust to $154,967.39. > > a. At T-1140 is a copy of the LST 2010 General Ledger. Accounts DZDI.01 and DZZZ.01 are at T-1142. > > [415] The $160,000 payment is shown in general ledger account DZEC.01 "Physical Distribution", my transaction account (T-1143). That account also discloses that $6,000 of this amount was transferred to Mr WYVW's transaction account (DZEC.03). The $6,000 was not recorded in DZEC.03 as a discrete entry. It is part of a consolidated debit entry of $106,018.81. The remaining $154,000 was debited against my DZZZ.01 beneficiary account, reducing the balance of that account to $967.39 owed to me by the trust. > > [416] In Part E of the 2010 Worksheet, $87,319.53 is shown as assessable income (the current year profit distribution). The remaining $72.680.47 of the $160,000 total deposited is not assessable income."

2. The Commissioner submits that the Applicant's contentions cannot be accepted:[138]

[224] "At WS-411 to WS-416 (pages 113-14) the Applicant describes the amount of $160,000 as a repayment of an amount owed to the Applicant by the LST Property trust. AS-57 does not advance the analysis as it does no more than restate a conclusion without reference to the relevant circumstances.

[225] This amount is recorded as a debit entry in Account 6- named as "Distribution XYVW" (MM-2057) suggesting that the amount paid by the LST Property trust (Account 1-AAAZ Westpac No 1 Account; MM-2055) was for the purpose of making a distribution. The amounts were sourced in a payment from Westpac No 2 account (Account 1-AAAA; MM- 2055) The entry was made by the Applicant. The Applicant's evidence is that she kept MYOB records solely relating to payments and receipts (TR-95:4 - 22). Her description provides evidence of the character of the payment by the LST Property trust.

[226] If it be accepted that Account No DZEC.01 - Physical Distribution (T-AADC) relates to the Applicant then by the entry bearing the date 30 June 2010 the Applicant is in receipt of a transfer from the trustee of the LST Property trust. Yet there is no evidence or supporting documentation which addresses the circumstances in which this transfer occurred. There is no documentation in support of such a transfer to provide necessary character to what otherwise is a bare payment.

[227] Nor is the circumstance of this payment further revealed by the content of Account No DZZZ.01 (T-AADB) which comprises three entries, each unrevealing of circumstance of character. Those entries stand next to dates 1 July 2009 (one entry) and 30 June 2010 (two entries). The latter entries simply state "Year end closing entry".

[228] In addition, prior year present unpaid entitlements may be established from income tax return records for years in which entitlements arose, and from bank statements evidencing repayment, or a failure to repay, those entitlements. No evidence has been led of the repayments made by the LST Property trust such that the balance of unpaid present entitlements has not been established. NAB Bank accounts which were lost through a weather event, cover the same period for which NAB bank statements were retained for the Applicant in other circumstances (see WS-430, page 118). It is unfortunate that those records were lost.

[229] In the absence of the evidence of the circumstances giving the receipt of $160,000 a legal and fiscal character other than assessable income, the objection decision should not be disturbed."

1. The Tribunal agrees with the Commissioner. The Tribunal repeats comments it has already made about proof of loan arrangements and journal entries.
2. No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied, on the balance of probabilities, that the undeclared balance $160,000 comprised:
   • 324.1. $87,320 of present entitlements already declared; and
   • 324.2. $72,680.47 of both prior year entitlement (previously declared) and loan funds.
2. The deposits of $160,000 therefore comprise part of the Applicant's assessable income.

Amount Described As Payment Of UPE Of $68,869 Sourced From MZA #1

1. In the 2010 Year the Applicant received a deposit of $68,869 from MZA #1. In the 2010 ITR the Applicant did not declare any distribution from MZA #1.
2. The Commissioner amended the NOA for the 2010 Year on the basis that the difference of $68,869 ($68,869 received less $0 declared) represented undeclared income.
3. The Applicant contends it is not income and that the deposit was a payment of a UPE which was carried over from 2009.[139]
4. The Applicant submits that the:
   • 329.1. MZA #1's 2010 general ledger account DZZZ.01 (the Applicant's beneficiary account) shows its opening and closing balance is $68,869.19 (in credit) described as "unpaid entitlement" carried over from 2009;[140]
   • 329.2. MZA #1's 2010 general ledger account DZEC.01 "physical distribution" account described the payment of the $68,869 to the Applicant as an "unpaid entitlement";[141] and
   • 329.3. tax had already been paid on this amount.
5. The Commissioner submits that the deposit cannot be characterised as UPE because:
   • 330.1. the movement of the MYOB GL 1-BZHZ (Loan to Mrs WYVW).

The beginning balance of GL 1-BZHZ in the 2009 income year does not reconcile with its closing balance of 30 June 2008. It is unclear what caused the difference between the $68,869 and the $34,728.81.

• 330.2. in the Applicant's response dated 30 November 2020, the Applicant stated that the $16,000 was a loan from her to the MZA #1 Trust (made on 30 June 2010) to cover an interest payment that was due. The Applicant says this was reflected in her bank account and the MZA #1 bank account for the 2010 income year.

1. Because of an audit, MZA #1's 2009 ITR was amended on 14 May 2014 to disclose the Applicant's share of net income from non-primary production of $62,493. In turn, the Applicant's 2009 ITR also had to be amended to include the undistributed income from the MZA #1 Trust.
2. The Commissioner requested the Applicant provide confirmation that the trust distribution made by MZA #1 pre-1 July 2009 resulted in the alleged UPE of $68,869.19. In response the Applicant confirmed she had received the following trust distribution from MZA #1:[142]

1. The Commissioner contends that the Applicant has been unable to identify when she became presently entitled to the UPE.
2. The Applicant provided bank statements for each account held by MZA #1 for the 2008 to 2009 income years. However, the Commissioner says these are insufficient to demonstrate when she purportedly became entitled to the UPE.
3. In addition, the Commissioner submits that the available documents and various explanations contain inconsistencies as follows:

• 335.1. at objection Mr G alleged that the deposit of $68,869 was a repayment of UPE.[143] However, on 20 April 2015 in response to the ATO position paper, Mr D provided MZA #1's financials and disclosed the following loan/beneficiary balances as follows:[144]

MZA Trust > > 1 July 2009 Opening balance $68,869 (Loan owed to you) > > Less: Drawings $64,089 > > 30 June 2010 Closing balance $4,780

• 335.2. in response to a notice issued during audit where the Commissioner requested a statement describing any existing UPEs for MZA #1 for the period 1 July 2008 to 30 June 2012, Mr D and Mr P provided the following response:[145]

[417] On 30 June 2010 I received a deposit in my bank account of $68,869 from the MZA #1 Trust. > > a. This amount is listed in Part G.4 of the 2010 Worksheet (Tab 6 page 23). > > b. I recorded this amount in MZA #1 MYOB account 2- CZHI "Unpaid entitlement Mrs WYVW". At Tab 140 is a copy of the MZA #1 2010 MYOB records. Account 2-CZHI is at page 2065. > > [418] As at 30 June 2009, I was owed $68,869.19 in unpaid present entitlements. > > a. At Tab 70 is a copy of the MZA #1 2009 Financial Statements. The amount of $68,869.19 is disclosed on page 1278 as a debt to me as of the end of that financial year. > > b. At T-1170 is a copy of the MZA #1 2010 General Ledger. Account DZZZ.01 "Opening Balance - Benef'y" at T-1175 shows the opening balance of $68,869.19 owed to me. > > c. I detail the history of the balance of this loan account from paragraph 422. > > [419] The $68,869 payment was debited to account no DZEC.01 "Physical distribution", my current-year transaction account (T-1175), recording the payment to me of that amount. > > [420] There are other entries in account no DZEC.01, specifically a payment to the trust from me of $16,000 and some adjusting entries, resulting in a final balance of $64,089. > > [421] The general ledger at T-1140 does not include the year end consolidating entries. Had these entries been included, they would have shown the final balance of that account being transferred to me DZZZ.01 running account and that having a final balance of $4,780 owed to me by the trust. > > a. At Tab 72 is a copy of the MZA #1 2010 financial statements showing on page 1287 a liability to me of $4,780 > > b. At T-1176 is a copy the MZA #1 2011 General Ledger. Account DZZZ.01 at T-1183 shows the opening balance of $4,780.11 owed to me. > > Balance of my loan account > > [422] At the beginning of the 2003 financial year the balance of my beneficiary loan account was Nil. > > a. At T-1283 is a copy of MZA #1 Financial Statements for 2003 showing at T-1287 this nil balance for my beneficiary loan in the comparative figures for 2002. > > [423] In the 2003 financial year I became entitled to and declared on my income tax return a profit distribution of $100,423. I received no payments that year, resulting in a net loan from the trust of $100,423. > > a. The MZA #1 Financial Statements for 2003 showing: > > > i. At T-1287, a beneficiary loan from me of $100,423; and > > > > ii. in the Beneficiary Profit Distribution section at T-1290 the trust profit distribution and the net loan. > > b. At Tab 37 is a copy of the MZA 2003 general ledger. This shows the profit distribution to me as a credit in account DZDI.01 (page 835), the transfer of that amount to account no DZZZ.01, my beneficiary account (page 834), and the final balance of account DZZZ.01 being $100,423 owed to me by the trust. > > c. At Tab 47 is a copy of the MZA MYOB records for 2003. Account 1-BZHZ at page 891 records that I received no payments from the MZA #1 bank account that year. > > d. The Annotated Transactions at Tab 11 show no payments to me from MZA #1 Trust in 2003. > > [424] In the 2004 financial year there was no profit distribution and I received no payments against my entitlements. The loan balance remained $100,423. > > a. At T-1291 is a copy of MZA #1 Financial Statements for 2004 showing in the Beneficiary Profit Distribution section (from T-1297) that there were no distributions or payments > > b. At Tab 49 is a copy of the MZA 2004 general ledger. This shows at page 951 no change in the balance of account DZZZ.01 being $100,423 owed to me by the trust. > > c. At Tab 48 is a copy of the MZA MYOB records for 2004. Account 1-BZHZ "Loan to Mrs WYVW" at page 919 records that I received no payments from the MZA #1 bank account that year. > > d. The Annotated Transactions at Tab 11 show no payments to me from MZA #1 Trust in 2004. > > [425] In the 2005 financial year I became entitled to and declared on my income tax return a profit distribution of $92,970. I received $100,423 in payments and benefits that year resulting in a net loan from the trust of $92,970. > > a. At T-1299 is a copy of MZA #1 Financial Statements for 2005 showing in the Beneficiary Profit Distribution section (from T-1305) the trust profit distribution and the net loan. > > b. At Tab 52 is a copy of the MZA 2005 general ledger. This shows at page 986: > > > i. the profit distribution to me as a credit in account DZDI.01, ii. the transfer of that amount to account no DZZZ.01, my beneficiary account, > > > > iii. the debit of $100,423 in account DZZZ.01, being the payment to me; and > > > > iv. the final balance of account DZZZ.01 being $100,423 owed to me by the trust. > > [426] In the 2006 financial year I became entitled to and declared on my tax return a profit distribution of $126,561. I received $108,051 in payments and benefits that year, resulting in a net loan from the trust of $111,480. > > a. At T-1307 is a copy of the MZA #1 Financial Statements for 2006 showing: > > > i. at T-1311 the balance of my beneficiary loan was $111,480. > > > > ii. at T-1314 the $108,051 physical distribution (payment) to me > > b. At Tab 130 is my submitted income tax return for 2006 showing at page 1977 the declared profit distribution of $126,561. > > c. At Tab 57 is a copy of the MZA 2006 general ledger. This shows at page 1057: > > > i. the debit of $108,050.05 from account DZZZ.01, being the physical distributions allocated to me as recorded in account DZEC.01 "Physical Distribution". Account DZEC.01 includes a debit of $78,588.28, being the amounts deposited in my bank account as recorded in MZA #1 MYOB account 1-BZHZ "Loan to Mrs WYVW" at Tab 58 page 1065; and > > > > ii. the final balance of account DZZZ.01 being $111,480.50 owed to me by the trust. > > [427] In the 2007 financial year there was no profit distribution. I received $19,932 in payments and benefits that year, resulting in a net amount owed by the trust of $91,548. > > a. At T-1315 is a copy of the MZA #1 Financial Statements for 2007 showing at T-1322 the physical payments and loan balance. > > b. At Tab 60 is a copy of the MZA 2007 general ledger. This shows at page 1116: > > > i. a debit of $19,932.05 in account DZZZ.01, being the physical distributions allocated to me as recorded in account DZEC.01 "Physical Distribution". Account DZEC.01 includes a debit of $15,156.05, being the amounts deposited in my bank account as recorded in MZA #1 MYOB account 1-BZIZ "Loan to Mrs WYVW" at Tab 61 page 1123; and a debit of $5,000 being an amount paid to Mr WVYW, as recorded in MYOB account 1-BZIB "Loan to Mr WYVW" (also page 1123). > > > > ii. the final balance of account DZZZ.01 being $91,548.45 owed to me by the trust. > > [428] In the 2008 financial year there was no profit distribution. I received net payments and benefits of $22,639 resulting in a net amount owed by the trust of $68,869. > > a. At T-1323 is a copy of the MZA #1 Financial Statements for 2008 showing at T1329 the physical distribution and loan balance > > b. At Tab 63 is a copy of the MZA 2008 general ledger. This shows at page 1176: > > > i. a debit of $22,679.26 in account DZZZ.01, being the physical distributions allocated to me as recorded in account DZEC.01 "Physical Distribution". Account DZEC.01 includes a debit of $19,572.76, being the amounts deposited in my bank account as recorded in MZA #1 MYOB account 1-BZHZ "Loan to Mrs WVYW" at Tab 64 page 1185;. > > > > ii. the final balance of account DZZZ.01 being $68,869.19 owed to me by the trust. > > [429] In the 2009 financial year there was no profit distribution and I received no net payments against the amount owed to me by the trust. The payments I received that year from the trust were for the redemption of units as discussed at paragraph 196. > > a. At Tab 70 is a copy of the MZA #1 Financial Statements for 2009 showing the loan balance remaining at $68,869. > > b. At T-1163 is a copy of the MZA 2009 general ledger. This shows at page T-1168 no change in the balance of account DZZZ.01 being $68,869.09 owed to me by the trust. > > c. At Tab 135 is a copy of the MZA #1 MYOB records disclosing in account 1-BZHZ "Loan to Mrs WVYW" at page 2013 payments to and from me of $1000 at the end of April 2009, resulting in no net payments. > > [430] My bank account statements confirm that all payments from the trust bank account to me were recorded in MYOB as described above. > > a. At Tab 12 are my NAB bank account statements from 1 February 2003 to 31 July 2009. > > b. At Tab 13 are my Westpac bank account statements from 28 June 2007 to 5 July 2013. > > c. The payments are also listed in the Consolidated Transactions

[232] Despite the elaborate narration, the Respondent notes that the inconsistencies in the manner in which the MZA 1 Trust's books were kept does not explain nor confirm that the Trust in fact owed moneys to the Applicant during the 2010 Year. > > [234] The first step is to note that three different portrayals of each financial year were presented in some but not in all Years (and those immediately preceding the Review Years)

3. (a) General Ledger records
4. (b) Ledger Entries Reports (LER)
5. (c) Financial Statements

[235] As will be seen from the table below, one set of records portrays the Applicant as a debtor until the 2010 Year (with no disclosure made in the 2009 Year); the second set of records portrays the Applicant as a creditor of the MZA 1 trust with no disclosures provided for the 2009 and 2010 Years; while the financial statements are not provided for the earlier years and only in relation to the 2009 and 2010 Years. > > [236] No General Ledger or LER were exhibited for the 2009 Year. WS-429 (page 118) deposes that there were no distributions made during that year and no net payments made. > > [237] References to Debtor or Creditor in the table which follows are to the position disclosed in the various records and the number shown is the closing balance depicted

$85,654.28

Debtor

MM-1065, Tab 58

$111,480.50

Creditor

MM-1057, Tab 57

$15,506.05

Debtor

MM-1123, Tab 64

$91,548.45

Creditor

MM-1116, Tab 60

$34,728,82

Debtor

MM-1185, Tab 64

$68,869.19

Creditor

MM-1176, Tab 63

LER balance 2008 identical to 2009 disclosure MM-1278, Tab 70

Opening balance $68,869

Creditor

MM-2064, Tab 140

1. [238] Despite the elaborate explanation, the Respondent submits that the explanation should not be accepted due to the inconsistencies described in the Applicant's own records summarised in the table above. The resulting records are insufficiently reliable to provide proof of the character of the receipt of $68,869. Referring to MM-1947ff, Tab 125, which is simply a summary without evidence of source, is of no assistance to the Applicant.

2. The Tribunal agrees with the Commissioner's submission that, given the inconsistencies in the material, the true position is unable to be determined.
3. The Applicant may have recorded the payments as "UPE" but what is the foundation/evidence that that is the proper characterisation of the transaction. On the Applicant's own evidence, the general ledgers are unreliable as they do not record all purported transactions. The purported author of the general ledgers did not give evidence.
4. The evidence available of the representations made is inconsistent. There is no evidence or explanation given for the inconsistencies identified by the Commissioner. The inconsistencies are described in the Applicant's own records summarised by the Commissioner in his closing submissions. The resulting records are insufficiently reliable to provide proof of the character of the receipt of $68,869. As the Commissioner submitted "referring to MM-1947ff, Tab 125, which is simply a summary without evidence of source, is of no assistance to the Applicant".[146]
5. No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the evidence that the $68,869 has the character of an unpaid present entitlement. The $68,869 deposit therefore comprises part of the Applicant's assessable income.

Amounts Described As Proceeds Of Loan Totalling $233,500 Sourced From The TLP

1. During the 2011 Year the Applicant received bank deposits from TLP totalling $233,500. In the 2011 ITR the Applicant only declared $110,000 in director fees.
2. Following the audit, the Commissioner amended the 2011 ITR on the basis that the difference of $123,500 ($233,500 received less $110,000 director fees declared) represented undeclared income.
3. The Applicant submits that the deposits totalling $233,500 were drawn against the Mr & Mrs WYVW loan account and the director fee of $110,000 was accrued to Handisoft's GL BAEZ. The Applicant says the balance of TLP's Handisoft GL BAEZ - Mr & Mrs WYVW loan account as at 30 June 2011 was $34,137.48 in credit (owed by TLP), so the drawings against that account were less than the amount owed by the partnership and therefore not income.
4. In 2017 the Applicant submitted (through Mr G):[147]

7. The Taxpayer declared $110,000 in director's fees:
8. The ATO's position is that this represents undeclared income of $123,500 ($233,500 less $110,000).
9. The true position is:
   1. The director fees were not physically paid to the Taxpayer but credited to the Mr and Mrs WYVW loan account. These fees were declared on the Taxpayer's income tax return.
   2. The $233,500 was drawn against the Mr and Mrs WYVW loan account, not payment of the directors fees.
   3. The balance of the Mr and Mrs WYVW Loan account was $34,137.48 (owed by the Partnership) at the financial year, so the drawing against that account were less than the amount owed by TLP and therefore not income.
10. The position is disclosed in:

a) TLP 2011 General Ledger account AFBE shows the directors fees paid to the Taxpayer:

Account number AFBE - Directors fees

30/06/2011 - fees WYWV - $110,00

b) TLP 2011 General Ledger account BAEZ shows the Loan Account of Mr and Mrs WYVW. Significantly, it discloses:

1. The director's fees being credited to the account;
2. The drawings being debited against that account; and
3. The final balance being an amount owed by the TLP.

Account number BAEZ - Loans

1. The Commissioner disputes that the amounts received were amounts drawn against the Applicant's loan account owed to TLP having regards to the following considerations:[148]
   • 347.1. A review of TLP's 2011 GL account BAEZ credit entries showed:
     1. $40,000 - Loan to Mrs WYVW - Journal #2.
     2. $70,000 "tfg SMS/Mr WYVW" - Journal #27

"SMS owed $70,000 to you but was owed by the TLP. On the other hand, you had a loan owed to the TLP. You stated that the $70,000 credit represented a loan consolidation. This $70,000 credit entry in the TLP's GL BAEZ was to reduce the amount you owed to the TLP."

The MZA Trust's book > > MZA Trust's book > > Your assumption of liability of MZA Trust owed to JPL resulted in a reduction of your liability in the MZA Trust's 2011 account as shown in the journal entry below: > > Dr. CEFF - Loan to JPL (Liability) $210,000 > > Cr. CZHD - Loan - Mr WVYW $210,000 > > Your assumption of liability of MZA Trust owed to SMS resulted in a reduction of your liability in the MZA Trust's 2011 account as shown in the journal entry below. > > Dr. CZIZ - Loan to SMS (Liability) $9,900 > > Cr. CZHD - Loan - Mr WVYW $9,900 > > As a result of the above two transactions, the MZA Trust was said to have owed you a total amount of $219,900 ($210,000 + $9,990) as at 30 June 2011. You stated that the $219,900 owed to you by the MZA Trust was set-off against the amount the TLP owed to the MZA Trust. Consequently, the following journal entries were recorded in the book of the MZA Trust and the TLP in the 2011 > > income year. > > MZA Trust's 2011 account > > Dr. CZHD - Loan - Mr WVYW $219,900 > > Cr. BDHC - Loan to the TLP $219,900 > > The TLP's 2011 account > > Dr. CZHD - Loan to MZA Trust $219,900 > > Cr. BAEZ - Loan to Mr WVYW $219,900 > > IV. $119,000 - Journal #29 > > This credit entry resulted from your assumption of TLP's liability owed to VYC. > > We note that there was no physical payment made from your bank account to set-off the purported loan reflected in GL BAEZ (loan Mr and Mrs WYVW), other than accounting entries. > > (emphasis added)

[240] "A partial explanation for this amount is found at WS-510 (page 134) and WS-515(c)) (page 135). This has been described as a running account between TLP and the Applicant (TR70:30). > > [241] Account 6- BAEF lists 14 receipts which total $233,500: 13 of those receipts range between $5,000 and $6,500 with a final receipt of $151,000. No evidence has been given of the circumstances in which each receipt arose to enable the character of the receipt to be determined. The bank statements referred to at WS - 510(c) (page 134) (MM-460, Tab 13) shed no light on the circumstances relevant to establishing the character of the receipt. > > [242] The transfer to the Applicant represents a bare payment. To say this is a loan requires evidence of the acceptance by the Applicant of an obligation to repay and the terms of such a loan as agreed between TLP (and those managing it). The arrangement is undocumented. There is no evidence adduced of loan terms. > > [243] Th fact that a later payment purports to repay a loan is not evidence that the amount received was a loan (Federal Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753; (2012) 89 ATR 357, 364 - 5 [22] - [24] (Edmonds J); Federal Commissioner of Taxation v Normandy Finance Pty Ltd [2016] FCAFC 180; (2016) 104 ATR 491, 548 [172] (Jagot and Davies JJ)."

3. In addition to the above the Commissioner notes there are no contemporaneous documents such as loan agreements, memos, emails or other correspondence to support:
   • 349.1. the existence of any loans between entities within the Group;
   • 349.2. the existence of any agreement to assume/transfer any loan liabilities;
   • 349.3. there is no evidence (such as a bank statement) that the Applicant made the repayment of the Applicant's loan owed to TLP;[149]
   • 349.4. with respect to the alleged assumption of MZA #1's loan liability with JPL, whether the Applicant was entitled to a credit of $210,000 owed by MZA #1 (which was applied to assume part of TLP's loan with MZA #1);
   • 349.5. whether the parties agreed to the arrangement whereby director fees payable by TLP would be applied to the Applicant's loan account with TLP's Handisoft GL BAEZ, rather than being physically paid.
4. The Applicant says the amounts totalling $233,500 were drawn against the Mr and Mrs WYVW loan account of TLP (Handisoft GL BAEZ). However, TLP's 2011 MYOB records characterise this amount as an expense and described as "Drawings - Mrs WYVW".
5. The Applicant explained[150] that the credit entry of $119,000 had been incorrectly recorded by the previous accountant and this transaction needed to be reversed.
6. In her witness statement the Applicant stated that:

[510] "On 29 June 2011 I received a one-off payment from TLP of $151,000, which was made to assist me in paying the annual interest and fees on the Westpac bank bill facilities maintained by me at that time and other year-end transactions. > > a. This amount was recorded in MYOB account 6- BAEF "Drawings - Mrs WYVW" at Tab 154, page 2412. > > b. This amount is also recorded in the TAS general ledger account no BAEZ "Loans Mr and Mrs WYVW" at T-972 as part of the $233,500 debit entry "Drawings - Mrs WYVW". > > c. At Tab 13 are my Westpac bank account statements from 28 June 2007 to 5 July 2013. Pages 3 and 4 of statement 25 (from page 459) show the gathering and dispersal of funds at the end of the 2011 financial year, including the $151,000 payment on page 460. > > d. These end-of-year transactions are also disclosed at items 670 to 683 of the Annotated Transactions (Tab 11 page 60). > > [511] I received no other payments from TLP that year."

7. The most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there are no loan agreements, no other written documentation to confirm loan agreements were entered into, and no corroborative evidence of any oral arrangement.
8. The Applicant confirmed there was "no documentation beyond the recordals [sic]" in SMS and TLP accounts.[151]
9. Aspects which do not lend themselves to a finding of a loan arrangement are:
   • 355.1. the loan was not secured in any way;
   • 355.2. there was no explanation as to why interest was not payable;
   • 355.3. there was no explanation for when repayments needed to be made.
10. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.
11. The evidence available of the representations made is inconsistent. There is no evidence that the representations made by Mr D and Mr G respectively were wrong. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries) would be available.

1. The Tribunal is not satisfied on the evidence that the balance of the deposit ($123,500) was proceeds of a loan. The $123,500, therefore, does comprise part of the Applicant's assessable income.

An Amount Of $180,000 Described As Distribution Arising From A Capital Gain Derived By MZA #1

1. On 14 February 2011 $180,000.00 from a Westpac Term deposit was deposited into the Applicant's bank account from an unidentified source.
2. The Applicant has contended the following at different times:
   • 360.1. that this deposit was a repayment of the principal of a term deposit held under the name of MZA #1 and that the principal of the term deposit should therefore be treated as part of the consideration for the redemption of units in the MZA #1;
   • 360.2. that this deposit represented part of a capital gain made by MZA #1 which was distributed to the Applicant. The MZA #1 ITR disclosed a net capital gain of $225,798 and applied its non-primary production losses of $176,109 resulting in a net capital gain of $49,689.
3. On 30 November 2020 the Applicant submitted:[152]

[16] "In your response dated 22 November 2017, you stated that the $180,000 represented part of a capital gain made by the MZA Trust which was distributed to you. However, this was set-off by the capital gains discount and prior year losses, resulting in a net capital gain of $49,687. > > Adding your alleged net capital gain of $49,687 to your other assessable income of $20,640 equates to $70,329. This amount exceeds your carried-forward revenue losses of $66,747 as disclosed in your 2010 tax return. Therefore, there should have been a positive amount of taxable income reported in the 2011 income year. Provide a statement explaining why a taxable income amount of nil was reported in your original 2011 income tax return. > > Response: > > There was an interest deduction of $245,612 that offset the capital gain. See page 4 of the taxpayer's 2011 ITR (attached) > > [17] You claimed that in the 2011 income year the net capital gain of $225,798 was distributed to Mrs WYVW. The MZA unit register you provided shows that 11,570 of units were issued to the Mr WYVW Pty Ltd Super Fund on 28 June 2009, with no indication that it was disposed in the 2011 income year. > > Explain why a capital gain amount of nil was made to the Mr WYVW Pty Ltd Superfund. > > Response: > > Due to the effluxion of time complete records of these transactions are no longer available. Moreover, the tax returns were prepared by the previous accountant. This makes it difficult to provide a comprehensive response. In that context, we note that: > > (a) the units held by the Mr WYVW Super Fund represented approximately 0.05% of issued units > > (b) the capital gain allocation to Mr WYVW Super Fund as a proportion of issued units would have been approximately $1,130. > > (c) Mr WYVW Super fund would also have been entitled to a share of the $176,109 loss, giving a net gain of approximately $250, which is the amount declared as distributed NPP to the Mr WYVW Super Fund. > > It therefore appears that the accountant made an error in the completion of the trust tax return, but the net result of that error was that the taxpayer paid tax on approximately $250 of net income she did not actually receive because that amount of capital gain was declared as a distribution to the Mr WYVW Super fund as well as being included in the distribution to the taxpayer."

4. The Commissioner contends the deposit constitutes undeclared income. The Commissioner submits:
   • 362.1. there is no evidence to show which of the units purchased were redeemed to result in the deposit;
   • 362.2. one would expect a CGT event to have been declared in the 2011 ITR;
   • 362.3. the evidence does not establish that the deposit of $180,000 arose from a capital gain distribution made by MZA #1 to the Applicant.
5. The Commissioner points to a lack of contemporaneous records and documentation to support the Applicant's contentions.
6. During objection the Commissioner notes the following regarding the material available:[153]
   • 364.1. the MZA #1 2011 Handisoft GL DZEC.01 showed a physical distribution of $199,509.61 to the Applicant (which the Applicant contends includes the $180,000 deposit). However, the Commissioner says this amount of $199,509.61, as reflected in GL DZEC.01, cannot be reconciled with the Applicant's bank statements. The following bank deposits were made by MZA #1 or Westpac to the Applicant during the 2011 income year:

1. • 364.2. there are no documents to verify the accuracy of the net capital gain declared by MZA #1 in its 2011 ITR (i.e., $225,798) and the Applicant's share of the gross capital gain of $274,360.49 (as reflected in MZA #1's 2011 Handisoft GL DZZZ.01.55). The claim regarding the capital gain is also not reflected in the 2011 ITR where the Applicant declared no capital gain tax event and nil capital gain.
2. There are no contemporaneous documents evidencing the Applicant's unit holdings in MZA #1.
3. The Commissioner notes the following inconsistent information provided by the Applicant and her advisers:

• 366.1. Mr D stated this term deposit was in the name of MZA #1 and so cannot be considered as income,[154] whereas during objection Mr G advised that the capital distributed to the Applicant by MZA #1 was derived from the sale of the two properties (the North Rocks property and the Chippendale property);[155]
• 366.2. In the Applicant's response dated 20 June 2018, the Applicant stated that the capital gains distributed by the MZA Trust was derived from the sale of properties of the North Rocks property and the Chippendale property:[156]

"$183,614.75 was debited in the MZA Trust's 2011 Handisoft GL CAGD (bank loans) to record the repayment of the loan. This was funded from the proceeds of the sale of (the North Rocks property) and it reconciled to the settlement adjustment worksheet you supplied. The Commissioner notes that in relation to (the Chippendale property) the settlement worksheet showed an amount of $1,078,664.14 was directed to National Australia Bank Limited.[157] However, on 26 August 2010, the amount debited in MZA Trust's 2011 GL CAGD (bank loans) was only $692,220, not $1,078,664.14 with a description sale of (the street). Further, the settlement date was 26 November 2010, but the transaction was recorded/dated 26 August 2010."

• 366.3. Mr G stated the $180,000 formed part of the Applicant's share of the gross capital gain resulting from the sale of two properties (the North Rocks property and the Chippendale property) by MZA #1. Whereas Mr D stated that the $180,000 was from the redemption of units in MZA #1.[158]
• 366.4. the Applicant also stated that on 14 February 2011, the $464,000 deposited into her bank account was funded from the proceeds of the sale of the Chippendale property.[159] That deposit was currently being characterised as a unit redemption and not a trust distribution.[160]

[500] "On 14 February 2011 I received a $180,000 payment from MZA #1, this payment is transaction 640 of the Annotated Transactions (Tab 11 page 59). > > [501] The $180,000 payment not recorded by me in MYOB because it was not paid from the MZA #1 bank accounts. This amount was the return of the amount that MZA #1 placed on term deposit with Westpac (term deposit BEG00). I did not keep records of term deposit investments in MYOB. > > a. At T-302 is the Term Deposit Repayment Advice for term deposit BEGZ00, advising that the amount placed on deposit was credited to account GCBC49 FZCD17, which is my Westpac bank account, at the end of the period on which the monies had been placed on deposit. > > [502] This payment was an advance payment of part of my $274,360.49 entitlement to the proceeds of the sale of properties that year by the trust, as detailed from paragraph 449. > > [503] At the end of the 2011 tax year I was owed $79,631.07. > > a. At T-1176 is a copy of the MZA #1 2011 general ledger, account DZZZ.01, my loan account, has a final balance of $79,631.07 owed to me (at T-1183). > > b. At Tab 153 is a copy of the MZA #1 2011 financial statements showing on page 2362 the $79,631.07 amount owed as a financial liability on the balance sheet > > [504] Included in this $180,000 payment is the $49,698 trust distribution declared on my income tax return. The remainder is not taxable income."

2. In closing submissions the Commissioner submitted:

[245] "The Applicant describes this amount as the advance payment of a capital gain to which she was entitled from MZA 1 from the sale of properties by that trust during the income year ended on 30 June 2011 (WS-502 (page 132)). > > [246] The Applicant did not return any capital gains in her 2011 income tax return (T93- T-96 esp T-95) and the revised calculation of the Applicant's taxable income for that year refers to capital gains from units rather than a capital gain to which the Applicant was specifically entitled (MM-25ff, Tab7). > > [247] The explanation at WS-502 is inconsistent with the actual return and proposed recalculation of the Applicant's taxable income for the 2011 Year. The explanation does not satisfy the standard of proof required to discharge the burden of proof."

3. The evidence available and the various representations made are not consistent and inconclusive. There is no evidence that the representations made by Mr D and Mr G respectively were wrong. Some documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied, on the balance of probabilities, that the undeclared deposit of $180,000 arose from a capital gain distribution made by MZA #1 to the Applicant. The $180,000, therefore, does comprise part of the Applicant's assessable income.

Amount Described As Interest On Term Deposit: $5,888.22

1. The Applicant concedes the amount of $5,888.22 described as interest has been correctly assessed as income. The Applicant states it was inadvertently not recorded in the accounts of MZA #1 and was neither declared as income in the trust nor in the 2011 ITR.[161]
2. This issue is no longer in dispute.

Amount Described As Proceeds From The Sale Of The Beneficial Interest In The TLP To SUT Of $750,000 But An Amount Of $1,000,000 Was Incorrectly Deposited Into Your Bank Account (Overpaid By $250K)

1. In the 2011 Year, the Applicant received two $1,000,000 deposits on 14 February 2011 from an unidentified source. This amount was not disclosed in the 2011 ITR.
2. In 2014 the Applicant stated the deposits were from:[162]
   • 374.1. proceeds from the sale of interest in TLP to SUT; and
   • 374.2. redemption of units in the TAT Trust (the payment being funded from the sale of its shares in SMS).
3. The Commissioner does not accept the Applicant's explanation because:
   • 375.1. there was no evidence provided to support the sale of her interest in the TLP;
   • 375.2. there was no evidence showing a change in the partnership structure on or around 14 February 2011.
   • 375.3. The TAT Trust is a discretionary trust and did not have the ability to issue units. Therefore, the $1,000,000 deposit on 14 February 2011 could not have been for the redemption of units in the TAT Trust.
4. At objection the Applicant said:
   • 376.1. the amount deposited resulting from the proceeds of sale of 50% of the beneficial interest in TLP to SUT should have been $750,000 (being half of the offered purchase price, as disclosed in the letter of offer), but an amount of $1,000,000 was incorrectly deposited into her bank account;[163]
   • 376.2. the second $1,000,000 represented a distribution made by the TAT Trust arising from the sale of its interest in SMS, which occurred on 14 February 2011[164] and that the amount distributed should have been $1,250,000 (being the sale of SMS by the TAT Trust).

• 376.3. there was an error in the allocation of purchase funds between two businesses (i.e., TLP and SMS) but this was of no consequence because the correct total sums were transferred).[165]

"Sale of interest in TLP to SUT" of $1,000,000

1. The Applicant contends that she disposed of her interest in TLP to SUT and this gave rise to a capital gain. The Worksheets (Part D of the 2011 Worksheet) provided set out how the Applicant calculates the purported capital gain.
2. At the time the trustee of SUT was Mr WYVW Investment Pty Ltd. On 1 July 2017, the Trustee of SUT changed to DAC Pty Ltd by deed. The change of trustee is not in dispute.[166]
3. The following documents are relevant to the Applicant's contention include:

• 379.1. "Minutes of Resolution" dated 22 September 2010 by Mr WYVW Investments Pty Limited resolving that the offer contained in Letter of Offer should be made. The meeting was constituted by Mr WYVW as Chairman;[167]
  • 379.2. A "Letter of Offer" dated 22 September 2010 made by Mr WYVW Investments Pty Limited (as purchaser) to the Applicant and Mr WYVW (as vendors). The letter states Mr WYVW Investments Pty Limited offered to acquire an "equitable estate" in TLP. The consideration offered for the acquisition is $1,500,000. The offer was stated to be subject to the right of SMS Pty Ltd to benefit from TLP for three months from the date of acceptance of the offer. The letter provided:[168]

"Mrs WYVW and Mr WYVW may accept the offer contained in this letter by dealing with the promissory note and delivering a power of attorney for the Limited Partnership Interest to SMS Pty Ltd of (the Glebe property) in the state of New South Wales as Custodian."

• 379.3. a "Promissory Note" dated 22 September 2010, under which Mr WYVW Investments Pty Limited promises to pay, on demand, the amount of $1,500,000 to the Applicant and Mr WYVW. There is also a promise to pay interest at the rate determined in accordance with the definition of "benchmark interest rate" in section 136 of the Fringe Benefits Tax Assessment Act 1986 (Cth)";[169]
• 379.4. a "Power of Attorney": A power of attorney (POA) granted by the Applicant and Mr WYVW (as Grantors) to Mr WYVW Investments Pty Limited. The POW gave Mr WYVW Investments Pty Limited the power to do anything the Grantors may lawfully authorise an Attorney to do in respect to their interest in TLP. The POW was witnessed by Mr V;[170]
• 379.5. SUT's 2012 balance sheet which included an amount of $1,500,000 recorded as "Current Assets - interest in other entities" (constituting SUT's acquisition of a 50% equitable interest from Mr and Mrs WYVW each for $750,000, totalling to $1,500,000);
• 379.6. an excerpt of the SUT's Westpac bank account to show the various cheque withdrawals that occurred on the date of sale of 14 February 2011 as evidence of the payments made to the Applicant.

1. The Applicant advised there was "no completed sales contract" and said, "the offer was accepted by conduct and the transaction concluded on that basis".[171]
2. The Commissioner submits that these documents do not establish that the deposit of $1,000,000 arose from the sale of the Applicant's beneficial interest in TLP because:
   • 381.1. the Applicant had advised on 3 May 2019 that there was no completed sales contract. There was no formal agreement for the sale and no document corroborating any acceptance of the offer; and
   • 381.2. no CGT event was declared in her 2011 ITR.
3. The Commissioner also notes that the valuation of TLP was not conducted by a professional valuer and there is a lack of information which would permit the Commissioner to accept the valuation.
4. The Applicant says no CGT was payable due to the application of small business CGT concession in Division 152 of the ITAA 1997, which reduced her income tax liability to nil. The Commissioner says even if there was a capital gain made, there is insufficient evidence to show the conditions under section 152-10 of the ITAA 1997 were satisfied (in particular, the $6 million net asset value test).
5. In order to calculate the capital gain, the market value of the units held by the applicant in MZA #1 had to be calculated. The Applicant arranged for the MZA #1 properties to be valued by a registered valuer, Mr W. Mr W is certified by the Australian Property Institute as a "Certified Practicing Valuer". Mr W valued the Bondi property at $1,940,000.
6. The Commissioner pointed out this is less than half the value given for one of the properties (the Bondi property) in the letter to Westpac of 10 December 2010. In that letter (the purpose of which was to obtain funding of $4,000,000 to facilitate the 2011 business restructure) the Bondi property is referred to by Mr V as having a value of $4,000,000.[172]
7. Following receipt of this letter Westpac agreed to provide the funding.
8. The Applicant submitted the value of the properties listed in the 10 December 2010 letter "as being available for security against any loan appear to be no more than the subjective opinion of the author of the letter as to the value of those properties. It is further noted that a condition of the finance approval by Westpac on 14 February 2011 was that (the Bondi property) be revalued by a Bank Panel Valuer at a minimum market value of $4,000,000.80 There is no evidence that any such valuation was ever undertaken".
9. The Applicant did not know if the Bondi property had a market value different to $4,000,000 as at 10 December 2010.[173]
10. There are serious doubts as to the true value of the Bondi property and therefore the value of the units in the trust.
11. At the hearing the Applicant provided the following evidence:

[518] "On 14 February 2011, I received credits into my Westpac account totalling $2,000,000 from the restructuring of the Group business as discussed from paragraph 522. These payments are listed in Part G.9 (Tab 7 page 30). The total amount consisted of: > > a. $750,000 from the sale of my 50% beneficial interest in TLP to SUT for $750,000. > > b. A $1,250,000 capital distribution from TAT Trust being 50% of the proceed of the sale by the trust to SUT of its shares in SMS Pty Ltd. > > [519] On that same day, Mr WYVW also sold his interest in TLP to the WYVW Settlement Unit Trust for $750,000 and received a $1,250,000 payment from TAT Trust, being 50% of the proceed of the sale by the trust to SUT of its shares in SMS Pty Ltd > > [520] At T-511 is a covering letter from Westpac enclosing a list of all the transactions processed by it on 14 February 2011 in connection with the business restructuring. As discussed at paragraph 529, the payments to me were made by way of two $1,000,000 deposits instead of one deposit of $750,000 and one deposit of $1,250,000. These payments are the 5th and 6th transactions listed at T-512. > > [521] The net capital gain on these transactions was calculated as set out in Parts C.1 and C.2 of the 2011 Worksheet. In addition to the general discount, the Active Asset Reduction and retirement concessions were applied to these capital gains, resulting in a nil assessable capital gain."

12. The Commissioner pointed out that the bank statements do not assist to identify the character of the payment:[174]

[93] "On 14 February 2011, the Applicant received two separate deposits of $1m each into a bank account (FZCD17) kept by the Applicant with Westpac. > > [94] Westpac described each deposit (T-512) as from Mr WYVW Investments Pty Ltd as trustee for the SUT and TAS as trustee for the TAT Trust. The latter deposit is the subject of the submissions under heading 4.4.2, immediately below. > > [95] An extract from the Westpac bank statement of SUT (Account BF-CB16) for the period 31 January 2011 to 28 February 2011 (T-456) records four withdrawals on 14 February 2011, each depicted as "withdrawal/cheque ADZB11". Two of those withdrawals are for $1m. No payee in relation to those withdrawals is identified by the bank statement. > > [96] The character of the payment cannot be determined from these entries. There is no proof, for example, that the receipt is capital proceeds for any CGT event. Further there is no proof that part of either $1m receipt represents capital proceeds because there is no proof of which part, or of the character of the other part."

13. At the hearing the Commissioner pointed out:[175]
    • 392.1. there is real doubt about the legal content and effect of the offer where:
      1. The Applicant did not recall when she received the offer contained in the 22 September 2010 letter;[176]
      2. There is an apparent inconsistency between the date recorded on the offer and the existence of the offeror relationship because SUT was not settled until 23 December 2010.[177] The Applicant provided no explanation.
      3. It is unclear what asset the Applicant was purporting to sell because during cross-examination the Applicant said she thought that by signing the power of attorney she would not be disposing of her partnership interest, but rather her "equitable interest, or whatever you would call it, in the TAS finance book...";[178]
    • 392.2. it is unclear whether there was a CGT event because:
      1. it is unclear whether acceptance preconditions were fulfilled, or when they were fulfilled, and it is unclear when the offer was actually made (the offer was incapable of acceptance before it was made).
      2. the two preconditions stated in the Letter of Offer were:
         • 392.2.2.1. that there be a "dealing" with the promissory note; and
         • 392.2.2.2. the delivery of a power of attorney for the TLP interest to SMS of the Glebe property in the state of New South Wales as Custodian.
      3. There is no evidence of how the promissory note was dealt with - the Applicant could not recall whether she had dealt with or demanded payment, or whether she had received any interest in the discharge of the promissory note.[179]
14. It is unclear on the evidence whether there was a dealing with the promissory note. During cross-examination of the Applicant the following exchange occurred which demonstrated the unreliability of the Applicant's evidence:[180]
    1. "Did you deal with the promissory note delivered with the offer?---I don't recall.
       1. Did you demand payment on the promissory note?---On that date?
       2. That date or at all?---Well, the offer happened in - some months later on 14 February 2011. The sale happened on that date.
       3. Did you demand payment on the promissory note on that date?---I don't recall."
15. There are too many purported "errors" and uncertainties in relation to this transaction which makes it appear implausible.
16. The Applicant says the errors were made but gives no explanation for why or how those errors were made. No communications with the accountant are before the Tribunal. There is no indication of the advice sought or given nor is there any advice of the instructions provided.
17. There is no proof of sale of the Bondi property. There is insufficient evidence for this sale before the Tribunal.
18. In this circumstance, given the complexity of the transactions, the Applicant's evidence as outlined above is insufficient to persuade the Tribunal. No explanation was given, other than with respect to the Applicant's former accountant, for why no other witnesses were called to corroborate the Applicant's evidence.

Amount Described As "Distribution From The TAT Trust Arising From The Sale Of The TAT Trust's Shares In SMS Of $1,250,000" But Only $1,000,000 Was Deposited Into Your Bank Account (Underpaid By $250K)

1. The Applicant states the reason why the investment in SMS was not reflected in the TAT Trust's financial account was due to the error made by the previous accountant.[181]
2. As a result of the error the Applicant says the 2011 financial accounts of the TAT Trust were drawn to properly account for that asset and its disposal:[182]
   • 399.1. in the amended financials of the TAT Trust, the beneficiary loan of SMS was reduced from $64,394 (FY2010) to nil (FY2011).
3. The Commissioner notes that a copy of 2006 shareholders agreement indicates shares in SMS were beneficially held by the TAT Trust.[183] Australian Securities and Investment Commission records showed that TLP was the beneficial owner of the SMS shares. The Applicant says the ASIC record is incorrect as TLP never traded on its own and had always only acted as trustee for the TAT Trust.[184]
4. The Commissioner does not accept the position that the amount of $1,250,000 was a distribution from TAT Trust arising from the sale of the TAT Trust's shares in SMS and maintains the position that the deposits are properly assessable as income considering that:
   • 401.1. no CGT event was disclosed in the 2011 ITR;
   • 401.2. The Applicant had previously confirmed there were no completed sales contract between the TAT Trust and SMS;[185]
   • 401.3. ASIC records were only updated after the audit. Prior to that the Applicant had maintained TLP beneficially held shares in SMS;[186] and
   • 401.4. there were inconsistencies between some documents and explanations such as in one response to the Commissioner the Applicant stated the $1,000,000 received on 14 February 2011 was related to proceeds received from unit redemption from the TAT Trust. However, on objection the Applicant said it was from proceeds of sale of shares in SMS. Yet the TAT Trust's 2010 MYOB records do not show it held any shares in SMS.
5. The Applicant says (see also [374], [376] and [390] above):
   • 402.1. the amount received of $750,000 is the sale proceeds from her interest in TLP. The net capital gain from the sale of the business was calculated and is set out in the 2011 Worksheet; and
   • 402.2. the amount received of $1,250,000 is her share of the sale proceeds from the sale by TAT Trust of all its shares in SMS. The net capital gain from the sale of the business was calculated and is set out in the 2011 Worksheet.
6. Again, given the complexity of the transactions, the evidence (some of which was inconsistent and unexplained as outlined above), is insufficient to persuade the Tribunal that the amount of $1,000,000 is not income. No explanation for why no other witnesses, except for the accountant, has been given.

1. The Tribunal is not satisfied on the balance of probabilities that the undeclared deposits totalling $2,000,000 were:
   • 404.1. proceeds from the sale of interest in TLP to SUT; and
   • 404.2. redemption of units in the TAT Trust.
2. The deposits of $2,000,000, therefore, comprise part of the Applicant's assessable income.

An Amount Of $464,000 Described As Proceeds From The Redemption Of Units In MZA #1

1. In the 2011 Year, the Applicant received a bank deposit on 14 February 2011 from MZA #1 of $464,000. This amount was not disclosed in the 2011 ITR.
2. In 2014 the Applicant said:[187]
   • 407.1. the deposit was from proceeds from redemption of units in MZA #1 and the payee was MZA Investments Pty Ltd; and
   • 407.2. 2,915,443 units in MZA #1 were acquired on 1 July 2007.
3. Following the audit, the Commissioner amended the 2011 ITR on the basis that the deposit represented undeclared income.
4. The Commissioner reached its decision because:
   • 409.1. a lack of appropriate records in accordance with the terms of the MZA Trust deed to demonstrate the actual intention of the parties and true characterisation of the transaction; and
   • 409.2. there was no disclosure in the 2011 ITR of any CGT event arising from the alleged redemption of units in the MZA #1 Trust.
5. The Commissioner identified the following lack of documents:
   • 410.1. no contemporaneous documents to support the purchase and subsequent sale of units. For example, unit certificates to substantiate the unit holding in the MZA #1 as required under Clause 7 of the MZA #1 Trust Deed and bank statements to evidence the purchase of the units in MZA #1;
   • 410.2. no evidence of the alleged redemption of units in MZA #1. Clause 9 of the Trust Deed requires unit redemptions to be made in writing to the trustee accompanied by the appropriate unit certificate. No documents evidencing cancellation of the unit certificates were provided; and
   • 410.3. no CGT event was declared in the 2011 ITR.
6. The Commissioner also identified inconsistencies between records and explanations provided as follows:
   • 411.1. MZA #1's unit register indicates the Applicant redeemed 464,000 units on 25 June 2011, but:
     1. the deposit of $464,000 occurred four months prior to the unit redemption; and
     2. the Applicant told the Commissioner the units were redeemed on 14 February 2011;[188]
   • 411.2. in March 2019 the Applicant told the Commissioner the $464,000 was funded from the proceeds of the sale of the property at the Chippendale property in November 2010,[189] whereas in June 2018 the Applicant treated the deposit as a redemption of units in MZA #1 and contended that the amount of $180,000 in dispute represented a capital gain distribution from MZA #1 arising from the sale of the properties at the North Rocks property and the Chippendale property;
   • 411.3. MZA #1's 2011 MYOB records showed on 14 February 2011 the $464,000 was recorded as a loan asset of MZA #1 as follows:

"Debit - Account 1-BZHZ 'Loan to Mrs WYVW' (Loan asset account) $464,000

[148] In the 2011 financial year I redeemed units in MZA #1 Trust to the value of $464,000. This transaction was part of the business restructuring transactions and is discussed further from Part 6 paragraph 522. > > a. At T-1176 is a copy of the MZA #1 2011 general ledger which shows at T-1184 the $464,000 redemption as the only transaction in account DBDZ "Subscribed Units - Mrs WYVW". > > [149] No other units in MZA #1 were acquired or redeemed by any person or entity in the 2011 financial year. > > a. At T-1184 there are no transactions shown in account DBDZ.10, the WYI Super subscribed units account. > > [150] As calculated at Part D of the MZA #1 Unit Worksheet at Tab 3, the redemption price for these units was $3.37. I redeemed 137,685.05 units, reducing my total unitholding to 1,098,087.68 units.

[496] On 14 February 2011 $464,000 was deposited into my bank account by Westpac. This was paid from the MZA #1 Westpac bank account. This is transaction 630 of the Annotated Transactions (Tab 11 page 59).

4. a. At Tab 152 is a copy of the MZA #1 2011 MYOB records. I recorded this payment to me in account no 1-BDHZ "Loan to Mrs WYVW" at page 2347, being my loan account, because it was received prior to the finalisation of the unit redemption.

[497] At the end of Tax year 2011, this amount was allocated as payment for the redemption of units to that value in MZA #1. > > [498] It was always intended that the $464,000 payment would be for a redemption of units in the trust. > > a. It was identified as such in the transaction instructions prepared for Westpac as referred to in paragraph 529 above. The specific instruction is at T-509. > > b. At T-1176 is a copy of the MZA #1 2011 general ledger recording in account DBDZ "Subscribed Units - Mrs WYVW" (T-1184) a debit reflecting an amount payable to me upon redemption of units to the value of $464,000 by me. > > c. At Tab 153 is a copy of the MZA #1 2011 Financial Statements showing the reduction in the value of units held by me as a result of the redemption of units to $2,164,873 from the $2,628,871 value in the MZA #1 2010 financial statements (Tab 72, page 1288) > > [499] The $84,921.71 net capital gain from this redemption of units has been included as in my calculation of my assessable income. See from paragraph 0. The remainder of the $464,000 payment is a return of subscribed capital and not taxable income

5. The lack of sufficient records and inconsistent representations made about these transactions such that the Tribunal cannot be satisfied that the deposit was from proceeds from redemption of units in MZA #1.
6. These transactions relate to entities under the Applicant's direction and under supervision and guidance of tax accountants and solicitors. It is reasonable to expect that documentation would have been prepared.
7. No corroborating witnesses were called.

1. The Tribunal is not satisfied, on the balance of probabilities, that the undeclared deposit of $464,000 deposit was from proceeds from redemption of units in MZA #1 to the Applicant. The $464,000 deposit, therefore, comprises part of the Applicant's assessable income.

An Amount Of $645,000 Described As Proceeds From The Redemption Of Units In The LST Trust

1. In the 2011 Year, the Applicant received a bank deposit on 14 February 2011 from MZA Investments Pty Ltd of $645,000. This amount was not disclosed in the 2011 ITR.
2. The Applicant says:[190]
   • 418.1. the deposit was from proceeds from redemption of units in the LST Trust and the payee was MZA Investments;
   • 418.2. units in the LST Trust were acquired on 1 July 2007.
3. The Applicant states this amount was received as payment for the redemption of units in the trust. The Applicant has now calculated a net capital gain of $50,455.37 from the redemption of the units (see 2011 Worksheet[191]).
4. Following the audit, the Commissioner amended the 2011 ITR on the basis that the deposit represented undeclared income.
5. Mr D informed the Commissioner in April 2015 that:[192]

"As per the financial statements for LST Trust previously provided, these show the following changes in issued units held by Mrs WYVW: > > > Year ended 30 June 2010 $1,134,325 Issued units > > > > Year ended 30 June 2011 $489,325 Issued units > > This was a reduction of $645,000 as documented in the attached unit register, financial statements and Mrs WYVW's bank account. These documents clearly showed the deposit related to a redemption of units and therefore is not income."

6. The Commissioner reached his decision having considered the following:
   • 422.1. there was a lack of appropriate records in accordance with the terms of the deed to demonstrate the actual intention of the parties and the true characterisation of the transaction. For example:
     1. no unit certificates, evidence of payment has been provided to demonstrate the acquisition of the units took place;
     2. no documents have been provided evidencing the units have been cancelled (Clause 8 of the LST Trust Deed provides that the units shall be cancelled as from the date they are redeemed);
     3. the LST Trust unit register supplied by the Applicant[193] showed the Applicant redeemed the units on 30 June 2011, but the $645,000 was deposited on 14 February 2011; and
     4. there are no contemporaneous records to evidence the Applicant's request to redeem the units.
7. The Commissioner also identified the following inconsistencies between some documents and information provided:[194]

"I. The unit register provided by Mr D on 23 October 2014 showed that 1,989,000 units were redeemed in the 2009 income year. Mr G stated that there was no redemption of 1,989,000 units in the 2009 income year. Mr G also stated there were discrepancies in the financial records for the 2008 financial year whereby the Applicant was incorrectly credited with 3,024,325 units. This amount appears to have included units that were in fact held by Mr R, who contributed $2,090,000 to the purchase by way of acquisition of units. > > II. In the LST Trust's unit register you supplied, the balance of your unit holding was 489,325 units as of 30 June 2011. This was not consistent with the LST Trust's 2011 MYOB records as it debited an amount of $3,024,325 in GL 3-HZZA (Subscribed units) in the 2011 income year. This casts doubt the accuracy of the unit register of the LST Trust you supplied. > > III. The LST Trust's 2011 MYOB showed on 14 February 2011, the $645,000 was recorded as a loan asset as follows: > > > Debit - Account 1-CZZC 'Loan to Mrs WYVW' $645,000 > > > > Credit - Account 1-AAAD 'Westpac No 1' $645,000 > > IV. There was no CGT event declared in your 2011 income tax return."

[491] "On 14 February 2011 as part of the transactions relating to the restructuring of the businesses discussed from paragraph 528, $645,000 was deposited into my bank account by Westpac. > > a. The deposits are listed in Part G.4 of the 2011 Worksheet. > > b. At Tab 151 is a copy of the LST 2011 MYOB records. I recorded this in account no 1-CZZC "Loan to Mrs WYVW" at page 2337 because it was received prior to the finalisation of the unit redemption. > > [492] At the end of Tax year 2011, this amount was allocated as payment for the redemption of units to that value in the LST Trust. > > [493] It was always intended that this payment would be for a redemption of units in the trust. > > a. It was identified as such in the transaction instructions prepared for Westpac as referred to in paragraph 529. The specific instruction is at T-510 > > "Subscribed units - Mrs WYVW" at T-1149 records a debit reflecting an amount payable to me upon the redemption of units. > > c. At Tab 95 is a copy of the LST 2011 Financial Statements showing at page 1483 the reduction in the value of units held by me as a result of the redemption of units to $489,325 from the 30 June 2010 value of $1,134,325 (Tab 94 page 1474). > > [494] The $50,455.37 net capital gain from this redemption of units has been included in my calculation of my taxable income. The remainder of this payment is a return of subscribed capital and not taxable income".

9. There is no explanation for why the deposit was paid prior to the purported unit redemption.
10. Again, there are insufficient records and inconsistent representations made about these transactions such that the Tribunal cannot be satisfied that the deposit was from proceeds from redemption of units in the LST Trust. No corroborating witness was called.

1. The Tribunal is not satisfied, on the balance of probabilities, that the undeclared deposit of $645,000 deposit was from proceeds from redemption of units in the LST Trust to the Applicant. The $654,000 deposit, therefore, comprises part of the Applicant's assessable income.

1. The issue in relation to the 2012 Year concerns whether certain expenses can be deducted from the Applicant's assessable income. This is dealt with at paragraphs [543]-[612] below.

The Total Amount Of $522,912.90 Described As A Distribution Of A Capital Gain & The Proceeds Of The Redemption Of Units In The LST Trust

1. In the 2013 Year, the Applicant received bank deposits from LST totalling $522,912.90. In the Applicant's 2013 ITR the Applicant only declared $71,309 as trust distributions from the LST Trust.
2. The Applicant provided the following description against each deposit:[195]
   1. 
3. The Commissioner was not satisfied that the deposits were proceeds from loans and amended the 2013 ITR on the basis that the deposits from LST totalling $522,912.90 represented undeclared income.
4. The Applicant contended that:
   • 432.1. there is no undeclared income because:

1. she derived a capital gain of $159,348 during the year (resulting in a net taxable capital gain of $85,120 as declared in the 2013 ITR); 2. $301,000 of the deposits were proceeds of the redemption of units held in LST. The following journal entries were recorded the LST's 2013 Handisoft GL with a corresponding description "Redemption of units":

"Dr. GL. DBC0.01 Subscribed units - Mrs WYVW $301,000 > > Cr. GL DZEC.01 Physical distribution $301,000"

5. after the deductions of these amounts, the net distribution identified by the deposits above is $62,564 which is $8,745 less than the presently entitled income declared.
6. A review of the LST 2013 Handisoft GL DZEC.01 discloses the deposits totalling $522,912.90
7. The Commissioner does not accept those amounts represent a capital gain distribution made by the LST Trust and proceeds from redemption of units in the LST Trust for the following reasons:

"Based on the LST Trust's 2013 CGT schedule, the net capital gain of $85,120 is calculated as follows: > > Capital gains - Real Estate $90,556 > > Amount of capital gains from a trust (Including a managed fund) $159,348 > > Total capital gain: $249,904 > > Total CGT discount applied ($124,957) > > Small business active asset reduction ($39,837) > > Net capital gain $85,120."

• 434.2. The Applicant has not identified which deposits related to her alleged capital gain distribution;
• 434.3. There are no contemporaneous documents such as unit certificates or payment direction to support the Applicant held the specified number of units in the LST Trust which entitled her to receive the alleged capital gain distribution from the LST Trust.
• 434.4. In relation to the $301,000 described as "proceeds proceeded from the redemption of units in the LST Trust" there are no contemporaneous documents:
  1. such as unit certificates or payment direction to support the Applicant held the specified number of units in the LST Trust giving rise to the alleged redemption of units in the LST Trust;
  2. to support any agreement between the Applicant and LST that the proceeds from the alleged sale of units of $301,000 were to be credited in the Applicant's loan account instead of providing physical payment;
• 434.5. the records and explanations are inconsistent:

1. Mr G stated that the Applicant redeemed 301,000 units in LST in the 2013 Year, which is consistent with the LST's 2013 Handisoft GL DBCZ.01 (Subscribed units - Mrs WYVW) showing a redemption of 301,000 units. In the LST's 2013 MYOB records, it shows that the Applicant redeemed 303,000 units, not 301,000. The LST Trust unit register shows that on 26 April 2013 the Applicant redeemed 303,000 units, resulting in a unitholding balance of 33,897 units as of 30 June 2013.[196] The Applicant says the unit register contained an error and it should have been recorded that 301,000 units were redeemed;
2. in contrast to Mr G, Mr P advised that the Applicant redeemed units in the LST Trust for $495,316 on 8 May 2013.[197]
3. In her statement the Applicant stated that:

1. [633] "In the 2013 tax year I received deposits totalling $522,912.90 from the LST Trust. The deposits are listed at Part G.4 of the 2013 Worksheet:

a. On 18 October 2012 I received a payment of $6,000 from the LST Trust. This payment was not recorded in MYOB, but I advised the accountants of this payment. It is recorded in the LST 2013 general ledger account DZEC.01 with the description "Transfer from WBC 2 - as advised WYVW". I on-lent this amount to K WYVW. > > > i. At T-1111 is a copy of the LST Trust 2013 General Ledger. Account DZEC.01 is at T-1115. > > b. On 31 January 2013 I received an amount of $11,596 from the LST Trust. This was to pay the stamp duty on the mortgage for the funding of the Moncur St Property. I recorded this in MYOB account 6-BAAE "Drawings Mrs WYVW". It is also recorded in general ledger account DZEC.01 at T-1115. > > > i. At Tab 189 is a copy of the LST Trust 2013 MYOB records. Account 6-BAAE is at page 2780. > > c. On 15 March 2013 I received the sum of $10,000 from the LST trust. I recorded this in LST MYOB account 1-CZZC "Loan to Mrs WYVW" at page 2775. It is also recorded in general ledger account DZEC.01 at T-1115 > > d. On 8 May 2013 I received the sum of $495,316.90 from the LST trust. This payment was an advance on the anticipated distributions from the trust for that year and was sourced from the proceeds of the sale of (the Glebe property) by the trust that year. See from paragraph 596. I recorded this in MYOB account 6-BAAD "Distribution Mrs WYVW" at page 2780. It is also recorded in general ledger account DZEC.01 at T-1115.

4. [634] The taxable component of these deposits is $89,398.16, consisting of:

a. The trust distribution of $31,472. See paragraph [330]. > > b. The net taxable capital gain of $39,837 from the sale of (the Glebe property) by the trust. See paragraph [596]. > > c. The net taxable capital gain of $26,646.02 from the redemption of units in the LST trust. See paragraph [599].

5. [635] The non-taxable component of these deposits is $424,957.88. This comprised:

a. The non-taxable component of the capital proceeds, which totalled $393,864.98: > > > i. $119,511 from the sale of (the Glebe Property) ($159,348 - $39,837) > > > > ii. $274,383.98 from the redemption of units ($301,000-26,646.02) > > b. The repayment of $31,092.90 against the amounts owed to me by the trust. > > > i. At the beginning of the 2013 tax year, the trust owed me $286.75.

1. At T-1113 General ledger account DZZZ.01, my beneficiary account, shows this as the opening balance.

2. At Tab 169 is a copy of the LST Trust Financial Statements for 2013 showing at T-2560 a liability to me of $287 at the end of the 2012 financial year.

ii. On 17 May 2013 I deposited $31,000 in the LST bank account. At that time the LST Bank account was overdrawn by $30,689.14.

1. I recorded this in MYOB account 2-CZCA "Loan from Mrs WYVW" (Tab 189, page 2777).

2. This is transaction 881 of the Annotated Transactions (Tab 11, page 63)

iii. Account DZEC.01 also records two adjusting credits totalling $455.70.

iv. The total of the above amounts ($287.75 + 31,000 +455.70) is $31,742.45. This is $649.55 greater than the remaining $31,092.90 received by me, meaning that amount was not income."

1. There is no conclusive evidence the Applicant owned units in the LST Trust, and no evidence that processes for unit redemption were followed.
2. The lack of sufficient records and inconsistent representations made about these transactions are such that the Tribunal cannot be satisfied that the deposit was from proceeds from redemption of units in MZA #1.
3. These transactions relate to entities under the Applicant's direction and under supervision and guidance of tax accountants and solicitors. It is reasonable to expect that documentation would have been prepared.
4. No corroborating witnesses were called.

1. The Tribunal is not satisfied, on the balance of probabilities, that the undeclared deposit of $522,912.90 deposit was from proceeds from redemption of units in MZA #1 to the Applicant. The $522,912.90 deposit, therefore, comprises part of the Applicant's assessable income.

An Amount Of $79,631 Described As Payment Of UPE From The MZA #1

1. In the 2013 Year, the Applicant received a bank deposit from MZA #1 of $79,631 on 12 November 2012. This amount was not disclosed in the 2013 ITR. The Applicant declared $0 as trust distribution from MZA #1.
2. The Commissioner requested the Applicant explain the difference between the loan listed of $33,025 from MZA #2 and the $79,631 received from MZA #2 with the description "proceeds of loan".[198]
3. Mr D advised:

"As at 30 June 2012, Mrs WYVW was owed $79,631 from the MZA Trust. This was repaid in the 2013 income year. Mrs WYVW also drew additional funds of $33,025 from MZA #2 in the 2013 year."

4. The Commissioner formed the view that the Applicant became presently entitled to the $79,631 deposit at the time it was deposited into her bank account given the Applicant did not provide any evidence of the existence of a loan, no interest was charged and there was no fixed term for the alleged loans.[199]
5. At objection the Applicant contended the $79,631 deposited by MZA #1 was a payment of a UPE. The Applicant referred to MZA #1's 2013 GL DZZZ.01 - Opening balance beneficiary showing the opening balance of the purported UPE was $79,631.07 as of 1 July 2012.
6. The Commissioner contends that the deposit of $79,631 received on 12 November 2012 has been correctly assessed to the Applicant as assessable income in the 2013 income year because:
   • 446.1. there are no contemporaneous documents (such as unit certificates or bank statements) to support the purchase and subsequent sale of units. Clause 7 of the MZA Trust Deed requires unit certificates be issued to unitholders;
   • 446.2. documents and explanations are inconsistent:
     1. Mr G represented the $79,631 was a repayment of a UPE. By contrast Mr D represented as at 30 June 2013 there was no UPE;[200] and
     2. Mr G confirmed there was only one profit distribution in the period 1 July 2009 to 30 June 2013 (occurring in the 2011 income year).
7. The Commissioner set out in its reasons for decision the profit distribution totalling to $274,360.30 (calculated based on the unit holding percentage as per the unit register rounded to 1 decimal place) made to the Applicant by MZA #1 in the 2011 income year:[201]

2. Contrary to the unit register, the actual income distributed to the unit holders as declared in MZA #1t's 2011 original ITR was as follows:

a. "On 12 November 2012 I received a deposit in my bank account of $79,631 from the MZA #1 Trust. > > i. I recorded this amount in MZA #1 MYOB account 2-CZIA "Loan -Mrs WYVW". > > > 1. At Tab 170 is a copy of the MZA #1 2013 MYOB records. Account 2-BZIA is at page 2566. > > ii. This payment is also recorded in the general ledger account DZEC.01, my current-year transaction account. > > > 1. At T-1102 is a copy of the MZA #1 2013 general ledger. Account DZEC.01 is at T-1115".

[266] "In her WS the Applicant describes this amount as an unpaid present entitlement (WS-638b, page 165) which was owing to her since 30 June 2011 (MM-2347, Tab 152; Account No 1-BZHZ). The balance derives from 3 entries:

4. (1) an opening balance of $84,869 (credit balance - MM-2064, Tab 140 but cf MM-1287, Tab 72 as addressed under 4.4.5(f) casting doubt on the accuracy of this opening balance)
5. (2) a debit entry of $464,000 (dealt with at heading 4.4.5(i) above, the character of which was not established) and
6. (3) a credit entry of $458,762 for which no details are available.

[267] The doubts surrounding each integer contribute to the unreliability of the character of the net balance amount. Having failed to provide evidence of the circumstances attending the payment of $79,631, the receipt remains a bare payment which the Applicant has not proved is not her assessable income."

7. The evidence given by the Applicant is merely a description of what one can see from a review of the accounting entries. The Tribunal repeats what it has already said about the conclusiveness of journal entries.
8. The Applicant provides no explanation for the inconsistent submissions made by her representatives at different times. The inconsistencies in the explanations of the records demonstrates that the records, on their own are not sufficiently reliable.
9. In Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 the Tribunal said that:

[2] "The typical manifestation of [an unpaid present] entitlement is a resolution to vest an entitlement to annual income in a beneficiary of a family trust without any further step being taken or event occurring to discharge the entitlement."

10. There is a lack of documentation or contemporaneous recognition (other than journal entries). Documents one may expect to have recorded an unpaid present entitlement include:
    • 454.1. minutes of trustee meetings;
    • 454.2. distribution resolutions; or
    • 454.3. loan agreements.
11. No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the balance of probabilities that the deposit of $79,631 constitutes a repayment of prior year entitlements. The amount of $79,631 therefore comprises part of the Applicant's assessable income.

The Total Amount Of $222,226 Described As Proceeds Of Loan From The TAT Trust

1. In the 2013 Year, the Applicant received bank deposits from the TAT Trust of $222,226. This amount was not disclosed in the 2013 ITR. The Applicant declared $65,927 as trust distribution from the TAT Trust.
2. Following the audit, the Commissioner amended the 2013 ITR on the basis that the difference of $156,299 ($222,226 deposits received less $65,927 income declared) represented undeclared income.
3. The Applicant contends that:
   • 459.1. the distribution of $156,299 is comprised of a loan to her from the trust;
   • 459.2. she repaid the loan in the 2014 income year;
   • 459.3. in the 2014 income year, the Applicant's loan liability to the TAT Trust was transferred to the SDT as part of the restructuring of the family trust arrangements; and
   • 459.4. payments were made by the Applicant to the SDT in June 2014 of $333,090.[202]
4. The Applicant provided:
   • 460.1. an excerpt of a bank statement of SDT to evidence the repayment of the purported loan which extinguished the transferred liability.[203]
   • 460.2. an excerpt of the TAT Trust's 2013 balance sheet which showed the amount owed by the Applicant was increased by $194,451 (from $226,674 to $424,215).
5. The Applicant says the total loan amount owed should have been recorded as $219,215 and not $424,215 in the TAT Trust's 2013 financial statements, and the amount owed to MZA #1 should have been recorded as an asset of $65,000 instead of a liability of $140,000.[204] The amount of $219,215 is comprised of:[205]

a. an opening balance of $229,674.26 (GL account DZZZ.01);[206]

b. movement during 2013 of $17,687.71 (See GL DZEC.01 - Physical distribution); and

c. a beneficiary distribution of $28,146.[207]

1. The Applicant provided a revised financial statement of the TAT Trust for the 2013 income year and noted that these amended financial statements for the TAT Trust were consistent with the previously issued financial account for MZA #1.
2. The Commissioner reached his decision having considered the following:
   • 463.1. there were no loan agreements, no interest charged, and no fixed term for the purported loans;
   • 463.2. there was no evidence supporting the existence of any loan; and
   • 463.3. following Weyers case (see paragraph [299] above), interest-free loans made to beneficiaries of a trust with no real expectation of repayment are more properly described as distributions.
3. The Commissioner was not satisfied with the Applicant's contentions because:
   • 464.1. there are no contemporaneous documents such as loan agreements or evidence to support that the parties agreed to transfer loan amounts.
4. The Commissioner also identified that some documents and explanations provided are inconsistent:

"Amounts from TAT Trust - loan amount: > > I. Mr D advised that you owed $424,215 to the TAT Trust as at 30 June 2013 and in your response dated 22 November 2017 at page 18, you provided an excerpt of the TAT Trust's 2013 balance sheet showing that the amount owed by you was $424,215.[208] > > Further, the 2013 TAT Trust's Handisoft GL DZZZ.01 shows that a balance of $229,674.26 was owed by you as at 30 June 2013. > > Amounts repaid > > II. Mr G advised that the full loan amount was repaid in full in the 2014 financial year. [209] He later advised that the loan was not repaid but reallocated to the SDT in 2014, where in June 2014 you made a payment of $333,090 to SDT which extinguished the transferred liability.[210] Mr G later advised that the amount repaid was actually $333,039, this was due to a typographic error.[211] > > III. You provided the SDT and your bank statement to show that you made the relevant payment as summarised below.[212]

The description of the $113,039 deposit in SDT Westpac account does not match your explanation that it was a loan repayment. Further, it is not clear whether the total payment of $333,039 you provided to SDT was for the purposes of extinguishing the transferred loan liability and characterised as such in contemporaneous records."

[308] In the 2013 financial year, the TAT Trust general ledger (at Tab 105) contains three loan accounts for us. These are (at page 1576): > > a. the DZZZ.01 beneficiary account; > > b. the DZZZ.06 beneficiary account; and > > c. account 3090, "Loan - Mr WYVW". > > [309] At the end of the 2013 financial year the trust owed us $734,784.74. As shown in the worksheet at Tab 4 page 13 this consisted of: > > a. $219,215.26 owed by us to the trust being the balance of the DZZZ.01 beneficiary account; > > b. $4,000 owed to us by the trust, being the balance of the DZZZ.06 beneficiary account (page 1576); > > c. $950,000 owed by the trust to us, being the balance of the 3090 loan account; and > > d. An additional $6,000. > > [310] At Tab 122 is a copy of the trust's 2013 Balance Sheet disclosing: > > a. On page 1936 a receivable asset of $219,215 described as "Beneficiary Loan: Mrs WYVW" > > b. On page 1937 an unsecured financial liability of $6,000 described as "Beneficiary Loan: Mr WYVW" > > c. On page 1917 an unsecured financial liability of $950,000 described as "Loan -Mr WYVW". > > [311] The balance sheet referred to above was prepared by P and Co in November 2017 to correct errors in the balance sheet contained in the 2013 financial statements that incorrectly recorded the balance of my loan account as $424,215 rather than $219,215.26, and the balance of the loan account with MZA #1 trust as being a liability of $140,000 rather than an asset of $65,000 as recorded in the MZA #1 financial statements and the general ledgers of both trusts. > > a. At T-2100 is a copy of the TAT Trust 2013 financial statements provided to the Commissioner on or around August 2017. This version of the balance sheet contains the incorrect balances for both me (at T2104) and MZA #1 loan (at T- 2105). Note that the net assets total at T-2106 is the same on this and the corrected balance sheet. > > b. At Tab 74 is a copy of the MZA 2013 Financial Statement showing a $65,000 liability to TAT Trust on page 1303. > > c. At T-1102 is a copy of the MZA #1 2013 General Ledger also showing at account BDHA "Loan - TAT trust" (T-1105) the $65,000 liability to the TAT Trusd (sic). TAT Trust general ledger account DZZZ.02 (Tab 105, page 1576) shows the $65,000 balance of the loan account with MZA #1 (owed to TAT trust). > > [312] This updated balance sheet should have been included in the materials provided to the Commissioner on 1 December 2017 as an attachment to the submissions to the Commissioner of that date. > > a. At T-766 is a copy of the submission to the Commissioner dated 1 December 2017. The amended balance sheet is referred to in item 9 (T-785). > > [313] The $219,214.96 balance of the TAT Trust general ledger DZZZ.01 beneficiary account (Tab 105, page 1576) results from: > > a. an opening balance of $229,674.26 (worksheet 2013 transaction 1 (tab 4 page 13); > > b. A trust profit distribution of $28,146.01 (transaction 2), being the transferred closing balance of my DZDI.01 distribution account (page 1577); and > > > i. at Tab 120 is a copy of the trust's 2009 - 2013 distribution resolutions showing on page 1928 the distribution to me in 2013 of all the profit. > > > > ii. The trust general ledger account DAII (page 1578) shows the undistributed profit for 2013 (worksheet transaction 14) and the transfer to my DZDI.01 distribution account (transaction 4) > > c. Net payments to me of $17,686.71 (transaction 3), being the closing balance of my physical payment account DZEC.01. > > [314] General ledger account DZEC.01 (Tab 105, page 1578) records the transactions between trust and me that occurred in the 2013 financial year. > > a. Worksheet transaction 5 is the credit to my benefit of $205,000, being my entitlement to the proceeds from the sale by the trust of the "Meta" property at (the Surry Hills #5 property), as also discussed from paragraph 652 in Part 8. > > b. transactions 6 and 7 are minor correcting transactions. > > c. Transaction 8 records the $150,538 payment made to me by the trust on 9 November 2012 as part of the debt and security restructuring discussed from part 8 paragraph 650. > > d. Transaction 9 is the allocation of the Bendigo Bank dividend (trust income) to me. > > e. Transaction 10 is the allocation to me of a $300 payment I originally recorded in MYOB account 1-AAFA "Loan to Mr WYVW Invest P/L". > > > i. At Tab 183 is a copy of the TAT Trust 2013 MYOB records. Account 1-AAFA is at pager (sic) 2694. > > f. Transaction 11 combines two payments to me: > > > i. $41,688.02 on 15 January 2013, which I borrowed so that I could pay the rollover costs (interest and acceptance fee) of that amount on my $3,116,000 bank bill facility.

1. Annotated transactions 845 (Tab 11 page 63) is the credit to my account of the $41,688.02 from TAT Trust.

2. Annotated Transaction 845 is the debit by Westpac from my account of $41,688.02.

3. At T-2322 is the confirmation of the $41,688.02 amount paid on 15 January 2013, comprising an acceptance fee of $13,206.72 plus interest of $28,481.30. As the bank advises at T-308, the acceptance is part of the interest cost and therefore an interest charge.

ii. $30,000 on 25 January 2013 to cover a $27,917.30 payment to American Express on that day. The $30,000 deposit is Annotated transaction 846 (Tab 11, page 63), the payment to American Express is not included in the Annotated Transactions, but appears on my bank statements at Tab 13, page 355.

g. The final entry (transaction 3) records the transfer of the $17,687.71 final balance of this account DZEC.01 to my DZZZ.01 beneficiary account

[315] General Ledger account DZZZ.06, Mr WYVW's beneficiary account shows at TR-a final balance of $4,000 owed by the trust. This arises from the opening balance of $6,000 (transaction 12) less a payment of $10,000 made on 28 June 2013 (transaction 14). The payment is recorded in MYOB account 2-CZDD.

[316] General ledger account CDIZ records the unchanged balance of the $950,000 loan to the trust.

[317] As discussed in part 8 paragraph 594, I received a payment from the trust on 28 December 2012 of $211,000 as repayment of an amount of $205,000 borrowed from the trust in the preceding month. I have included the additional $6,000 in my calculation of my assessable income.

1. As previously noted, the most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there are no loan agreements, no other written documentation to confirm loan agreements were entered into, and no corroborative evidence of any oral arrangement.
2. Aspects which do not lend themselves to a finding of a loan arrangement are:
   • 468.1. the loan was not secured in any way;
   • 468.2. there was no explanation as to why interest was not payable;
   • 468.3. there was no explanation for when repayments needed to be made.
3. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.
4. The evidence available of the representations made is inconsistent. There is no evidence that the representations made by Mr D and Mr G respectively were wrong.
5. There is no corroborating evidence of consultations with lawyers and tax advisers. If advice was received, acted and relied upon, which would explain why the Group and the Applicant undertook such transactions, why has this advice not been kept? Why is there no other record, no other evidence proffered, of the circumstances surrounding these transactions? This was not addressed in the evidence.

1. The Tribunal is not satisfied on the balance of probabilities that the $222,226 has the character of a loan. The $222,226 therefore does comprise part of the Applicant's assessable income.

An Amount Of $281,000 Described As A Repayment Of A Loan To The Applicant And Interest On A Loan Previously Advanced To The SUT

1. In the 2013 Year, on 31 December 2012, the Applicant received a deposit totalling $281,000 described as "principal paid on a term deposit BIFC68" from DAC (the trustee of SUT). In the 2013 ITR the Applicant did not declare this deposit.
2. The Applicant submitted, through Mr D, that the term deposits were in the name of "MZA Investment Pty Ltd ATF the MZA Trust" and the interest income had been returned in the MZA Investment 2013 tax return.
3. The Commissioner contends that the Applicant became beneficially entitled to the principal of the term deposit and was presently entitled to that amount at the time it was deposited into her bank account because:
   • 475.1. there was no evidence that the term deposit belonged to the MZA #1 Trust;
   • 475.2. the term deposit amount was deposited into the Applicant's bank account; and
   • 475.3. the term deposit amount was used by the Applicant to pay for private expenses.
4. Mr D submitted the following to the Commissioner on the Applicant's behalf:[213]

"Attached is term deposit notice the from Westpac showing the repayment of the $281,000 term deposit. > > This term deposit was in the name of The WYVW Settlement Unit Trust and so cannot be income of Mrs WYVW. > > The principal of these term deposits was treated as part of the consideration for the redemption of units which was addressed above."

5. The Commissioner amended the 2013 ITR on the basis that the Applicant became presently entitled to the $281,000 term deposit principal as of the date it was deposited into her bank account. The Commissioner found that the Applicant had not provided any evidence to show which units were redeemed to result in the deposit, the purchase of the units redeemed, and the value of the units.
6. During the objection phase the Applicant contended:[214]
   • 478.1. the $281,000 represented a repayment made by DAC;
   • 478.2. she lent the principal amount of $281,000 to the SUT on 12 November 2012;
   • 478.3. the deposit was held by DAC as trustee for the SUT.
   • 478.4. the principal amount, together with interest, was repaid to the Applicant on 31 December 2012, where it was used with other funds to repay a maturing bill facility of $492,000;
   • 478.5. interest should have been declared but was inadvertently omitted by the previous accountant; and
   • 478.6. no tax is however payable on the principal sum of $281,000.
7. The Applicant's Westpac bank account statement (Account number: 60-CDAG) shows that an amount of $486,000 was debited on 12 November 2012.
8. An excerpt from the bank voucher (retrieved from Westpac) discloses an amount of $486,000 was debited.
9. The Applicant contended that the $205,000 was to pay out a commercial bill facility of the TAT Trust and $281,000 was to create a term deposit (BIFC68) in the name of DAC (as trustee for the SUT).
10. The Applicant's bank statement shows that on 31 December 2012 an amount of $281,000 was returned to the Applicant with interest, and together with other funds available, which was used to repay a maturing bill facility of $492,000.
11. The Applicant says the $281,000 debited in SUT's 2013 GL BBGZ (interest in other entities) was the term deposit for account BIZH39.[215] This was consistent with DAC's bank statements also showing that the term deposit received on 9 November 2012 was described as principal paid on term deposit BIZH 39.[216]
12. The Applicant told the Commissioner in 2018 that the term deposit acquired with her fund was the term deposit BIFC68, which was never recorded in the account of SUT.[217] The Applicant acknowledged the bank records do not show DAC held the funds she lent.
13. The Commissioner contends:[218]
    • 485.1. there are no contemporaneous documents to support the Applicant's assertion that she lent an amount of $281,000 to create a term deposit in the name of DAC. The Westpac bank voucher[219] disclosing that an amount of $486,000 was withdrawn with a description to pay a commercial and the term deposit was provided by the Applicant, but the Commissioner says it is not an original copy of the voucher and it is unclear where the funds were directed to notwithstanding that it was described as "commercial bill + term deposit" in the particulars. The Commissioner says that to open a term deposit the Applicant must have signed relevant forms confirming the type of entity and the entity name she wished the term deposit to be held under;
    • 485.2. there are inconsistencies between some documents and explanations given:
      1. on 27 August 2014, in response to the section 264 Notice dated 30 July 2014, the Applicant described the $281,000 deposit as being the "principal paid on Term deposit BIFC68" from Westpac Term Deposit DAC Pty Ltd. However, on 23 October 2014, Mr D stated that the term deposits were in the name of MZA Investment Pty Ltd ATF the MZA Trust and the interest income had been returned in its 2013 tax return.
      2. on 20 April 2015, in response to the position paper, Mr D contended that the repayment of the $281,000 term deposit was treated as part of the consideration for the redemption of units in the SUT.
14. the Westpac Term Deposit repayment advice dated 2 January 2013 discloses the acquisition and repayment of the term deposit BIFC68 into the Applicant's bank account (GCBB49).[220] The repayment advice showed that the renewal/lodgement date was 8 November 2012, which is before the date (12 November 2012) the Applicant alleges she advanced the amount of $281,000 to SUT.
15. the Applicant contends that the $281,000 was a loan advanced to the SUT and the principal and interest of the term deposit was paid to her in the 2013 income year. However, in the Applicant's response dated 20 June 2018, the Applicant stated that:
    • 485.2.4.1. the term deposit in question was never recorded in the account of SUT or other group entities as the bank records do not show DAC held the funds lent by the Applicant.
    • 485.2.4.2. the $281,000 debited in SUT's 2013 GL BBBZ (interest in other entities) was the term deposit for account BIZH39, not BIFC68 (it is a different bank account).
16. The Commissioner submits in light of the above that the Applicant has not produced sufficient evidence to prove the $281,000 was a return of capital.
17. In her statement the Applicant's evidence was:

[641] > > "b. On 31 December 2012 I received a payment of $281,000 being the return of capital provided to the trust for investment as a term deposit. This term deposit is Annotated Transaction 842 (Tab 11 page 63) and is discussed further from paragraph 650. > > c. On 31 December 2012 I received a payment of $1,795.32, being the interest earned by the trust on the $281,000 term deposit. This payment is Annotated Transaction 841. Because this amount was paid directly to me it was overlooked by the accountants and not included in the assessable income or distributions of the trust. I have taken this to be a profit distribution to me and included it in my calculation of my assessable income. I note that I provided the accountants with my bank statements each year as part of their preparation of my tax returns. I was not previously aware that this amount had not been included in my taxable income. > > (emphasis added) > > [642] The taxable component of the deposits is $1,795.32, being the interest that was earned on the $281,000. The remaining $243,807 consists of the repayment of the $281,000 advanced to the SUT plus a loan to me of $63,807 as discussed below."

18. The Tribunal repeats comments it has made previously regarding lack of corroborating evidence and inconsistent evidence. The records are acknowledged to be incomplete and inaccurate. No other witness was called to verify the Applicant's claim.
19. The Tribunal repeats its comments about the number of "errors" made by the accountant.

1. The Tribunal is not satisfied on the balance of probabilities that the $281,000 has the character of a repayment of a loan. The amount of $281,000 therefore does comprise part of the Applicant's assessable income.

An Amount Of $63,807 Described As Repayment Of Loan From SUT

1. In the 2013 Year the Applicant received a deposit of $63,807 on 12 November 2012 from an unidentified source.
2. On 27 August 2014 the Applicant contended that it was proceeds of loan from DA unit trust. Later, the Applicant contended:[221]

"This [$63,807] payment was shown in the loan account [of the WYVW Settlement Trust] advanced to Mrs WYVW in the financial statements and was not income."

3. The DAC Pty Ltd's bank statement shows this amount as a debit.
4. The Commissioner contends there is no evidence to support the existence of a loan from DAC Pty Ltd ATF the SUT.
5. The Applicant says:
   • 495.1. the deposit was a loan from SUT which she repaid in the 2014 Year;

• 495.2. SUT's 2014 Handisoft GL BDHC (loan to M WYVW) and its financials shows the closing balance of the purported loan, as reflected in GL BDHC, was $63,732.28 (which included the disputed amount of $63,807) was fully repaid in the 2014 income year;[222]
• 495.3. the loan was repaid by way of transferring the loan liability to SDT in the 2014 income year as part of a restructuring of the family trust arrangements; and
• 495.4. the SDT's bank account statements[223] show the following payments to the SDT totalling $333,039

1. The Commissioner submits:
   • 496.1. there are no contemporaneous documents such as loan agreements or evidence to support that the parties agreed to transfer loan amounts;
   • 496.2. there are no documents to support the transactions recorded in both SUT's GLs and SDT's GLs;
   • 496.3. the MYOB records for the 2013 Year have not been provided.

• 496.4. the $63,807 loan amount that was allegedly transferred to SDT cannot be reconciled with the transactions recorded in the SDT's 2014 GLs provided on 15 March 2018.[224]

[641] "In the 2013 tax year I received deposits totalling $346,602.32 from SUT. The deposits are listed at Part G.7 of the 2013 Worksheet. These deposits were part of the debt and security restructuring transactions detailed from paragraph 650. > > a. On 12 November 2012 I received a deposit of $63,807 from SUT. > > > i. This deposit is Annotated Transaction 821 (Tab 11 page 62). > > > > ii. See also paragraph 653.b.v > > ... > > Loan of $63,807 > > [643] The $63,807 amount was a loan from SUT: > > a. At T-1120 is the SUT 2013 general ledger. Account BDHC "Loan - Mrs WYVW" records this amount as a debit. With the addition of some sundry transactions the final balance of that account was $63,732.28. > > b. At Tab 171 is a copy of the SUT 2013 financial statements showing at page 2574 the balance of the loan to me at 30 June 2013 was $63,732. > > c. During course of 2014 my loan balance was discharged. At Tab 191 is a copy of the SUT 2014 Financial Statements showing at page 2879 a nil balance for my loan at June 30 2014".

2. The most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there are no loan agreements, no other written documentation to confirm loan agreements were entered into, and no corroborative evidence of any oral arrangement.
3. Aspects which do not lend themselves to a finding of a loan arrangement are:
   • 499.1. the loan was not secured in any way;
   • 499.2. there was no explanation as to why interest was not payable;
   • 499.3. there was no explanation for when repayments needed to be made.
4. There is a lack of corroborating material. While a formal loan agreement may not be found in such a familial group, some documentation or contemporaneous recognition (other than journal entries). No other witness was called to verify the Applicant's claim.

1. The Tribunal is not satisfied on the balance of probabilities that the $63,807 has the character of the proceeds of a loan. The amount of $63,807 therefore does comprise part of the Applicant's assessable income.

An Amount Of $456,761 Described As Redemption Of Units In MZA #1

1. In the 2013 Year the Applicant received deposits of $47,684 and $409,077 totalling $456,761 on 12 November 2012, from an unidentified source.
2. The Applicant contended, through Mr D, in August 2014 the two deposits totalling $456,741 were "Redemption of units" (MZA #1 as payee).[225]
3. An excel spreadsheet provided by Mr D, titled "Register of Unit Holders MZA", showed:
   1. 
4. The Commissioner noted that:
   • 505.1. no unit certificates were provided to substantiate the Applicant's unit holding, despite clause 7 of the Trust Deed for MZA #1 requiring that unit certificates be issued to unitholders evidencing their unit holding;
   • 505.2. no copy of a written request for redemption was provided despite clause 9 of the Trust Deed requiring unit redemptions to be made in writing to the trustee accompanied by the appropriate unit certificate.
   • 505.3. the date of the purported unit redemption, as indicated by the deposit into the Applicant's bank account (12 November 2012) is different from the date shown in MZA #1's unit register (30 June 2013). This is despite the fact that clause 9 provides that the units shall be cancelled as from the date they are redeemed.
5. Mr D informed the Commissioner in April 2015:[226]

"As per the financial statements for MZA Trust previously provided, these show the following changes in issued units held by the Mrs WYVW: > > Year ended 30 June 2012 $2,164,873 Issued units > > [The Applicant's] inability to demonstrate the trustee's compliance with its requirements under the deed, in the absence of a dispute between the parties, is not relevant. The parties are in complete agreement that the payments were as a result of redemption of units. > > Year ended 30 June 2013 $1,708,112 Issued units > > This is a reduction of $456,761 as documented in the attached unit register, financial statements and your bank account. These documents clearly show the deposit relates to a redemption of units and is not income."

6. The Commissioner amended the 2013 ITR to include the amount of $456,761 on the basis there was a lack of appropriate records in accordance with the terms of the deed to demonstrate the actual intention of the parties and true characterisation of the transaction.
7. An excerpt of the MZA #1's Handisoft GL DBDZ (subscribed units - Mrs WYVW) shows the value of the Applicant's subscription is reduced by $464,000.[227]
8. The Applicant says there was no written notice given to the trustee requesting for the redemption of 456,761 units as this was an intra-group transaction.
9. The Commissioner submitted:
   • 510.1. there is no evidence of the cancellation of any units;

• 510.2. there are no documents to support the claimed redemption of units held in MZA #1, as reflected in its Handisoft's general ledgers (GLs).[228]
• 510.3. If the units were redeemed as alleged there would have been a net capital gain of $85,120 as reported in the 2013 tax return. This gives rise to the inference that the Applicant did not declare any capital gain/loss resulting from the alleged redemption of units in MZA #1.

[653] > > "On 9 November 2012, I received two further payments from MZA totalling $456,761. These were advances against the intended redemption of units in the trust. The unit redemptions were finalised at the end of the financial year by the accountants. See from paragraph 156 in Part 2. The two payments were: > > i. $47,684, shown as Annotated Transaction 822 (Tab 11 page 62, also at G.5 of the 2013 Worksheet at page 42) > > ii. $409,077, shown as Annotated Transaction 824."

2. The Applicant says this amount was an advance against the intended redemption of units in the trust. The redemption amounted in a gross capital gain of $155,808.53.
3. The Commissioner submitted:

[283] "The Respondent maintains the submission, made in connection with 4.4.3 above, that there is no evidence that the Applicant owned these units in the MZA 1 Trust. Even if the Applicant did, there is no evidence that the procedures for redemption (described above under 4.4.3) were followed > > [284] At MM-5 (Tab 3) the Reconciliation Worksheet, revised from earlier versions of it (see T-47 para 264)) shows a redemption of $456,761 (Part A, 2011 column) and a redemption of number of 129,720.89 (Part B). This redemption occurred on 30 June 2013 (MM-622, Tab 15) while the amount of $456,761 was received on 12 November 2012. The character ascribed to the receipt is inconsistent with the circumstances. > > [285] Having failed to provide evidence of the circumstances attending the payment of $456,761, the receipt remains a bare payment which the Applicant has not proved is not her assessable income."

4. There are insufficient records, evidence and explanation (as outlined) about these transactions such that the Tribunal cannot be satisfied that the deposit was from proceeds from redemption of units in MZA #1. No corroborating witness was called.

1. The Tribunal is not satisfied on the balance of probabilities that the $456,761 has the character of the proceeds from redemption of units in MZA #1. The amount of $456,761 therefore does comprise part of the Applicant's assessable income.

• 516. Despite the years that have passed since the financial transactions of concern occurred, a considerable amount of accounting entries and ledgers were able to be produced. Some records dated back to 2000. It is understandable that all documents may not have been located, and that the Applicant may not be able to record the minutia of every individual transaction, particularly from more than a decade ago. The issue and concern, in the majority of instances examined here, is that the Applicant was not the author of the record. The structure of the Group is complex as is the consolidation of transactions. The Applicant is not an accountant and says she relied on her accountant to prepare necessary financial records and to provide advice as needed.[229] At first blush there is nothing inherently wrong with doing this. It is what reasonable people would expect a taxpayer to do in these sorts of complex arrangements. The Applicant, as a director and trustee is specifically authorised by statute to engage the assistance and advice of others. Section 53 of the Trustee Act 1925 (NSW) specifically states that a trustee "may, instead of acting personally, employ and pay an agent ... to transact any business or do any act required to be transacted or done in the execution of the trust or in the administration of the estate". Similarly, section 189 of the Corporations Act 2001 (Cth) provides that, unless proven to the contrary, reliance on advice by a director is taken to be reasonable where they have relied on a "professional adviser or expert in relation to matters that the director believes on reasonable grounds to be within the person's professional or expert competence".

1. In QQRK and Commissioner of Taxation (Taxation) [2023] AATA 3493 the Tribunal noted that although a taxpayer's evidence is evidence, this does not mean it will be sufficient to "persuade without corroboration":

[11] "...The Tribunal will look carefully at self-serving testimony that is not corroborated in circumstances where one would ordinarily expect records or other documentation or testimony from another witness to be available, or where the taxpayer's testimony is unusual or unlikely on its face or inconsistent with other probative evidence".

2. Despite the lengthy and self-serving narration by the Applicant of entries in various accounts, the Applicant has not satisfied her evidentiary onus. There are incomplete records, gaps in information and in some instances, inconsistencies in the records and explanations provided over the course of the last ten years.
3. When questioned about some transactions the Applicant did not recall or could not explain the transaction. The Applicant could not answer questions about items in the financial statements. For example, the TAT Trust records a $3,050,000 gift being received from the Applicant on 14 February 2011.[230] During the hearing the Applicant could not explain the circumstances in which the trust received this large monetary gift.[231] The Tribunal agrees with the Commissioner that as the director of the trustee of the TAT Trust during that income year, it is implausible that the Applicant would not know the identity of the donor of the gift.[232] In submissions in reply the Applicant said this matter was referred to in her statement and was a "mundane" transaction and therefore "easy to understand why it was not of itself a "memorable event".[233] There was no evidence by the Applicant to that effect. The Applicant was not taken to that part of her statement in re-examination so she could provide that explanation or reasoning for her initial, or total, lack of recollection.
4. The Applicant could not, when taken to accounts exhibited to her statement, identify whether an entry meant she was owed money by or owed money to another.[234]
5. The Tribunal's impression is that this complex web of arrangements was not one designed or in fact managed by the Applicant, yet the Applicant called no one to assist her attempts to explain what happened. The Applicant acknowledged that she had been assisted in preparing her witness statement.[235]
6. The Worksheets were tendered as a supplement to the Applicant's witness statement, but they were not prepared by her but at her "direction". At the hearing she informed the Tribunal her current solicitor prepared the Worksheets. Her current solicitor, Mr G, was not called to give evidence on her behalf about the preparation of the Worksheets or his representations made to the Commissioner throughout the audit and objection process. In particular, there is no evidence to explain Mr G's representations to the ATO being at odds with the representations made by Mr D (her previous tax agent).
7. The instructions or directions given by the Applicant, or others, to her solicitor were not before the Tribunal.
8. While there is no hard and fast rule dictating how a taxpayer must discharge their burden of proof,[236] as Deputy O'Loughlin QC and Senior Member L Hespe SC (as she then was) pointed out in Buzadzic and Commissioner of Taxation (Taxation) [2021] AATA 4820 (Buzadzic).[237] The Tribunal is unable, without assistance to "undertake a forensic examination and interpretation of the accounting records (which were included MYOB files) laid before it" (at [48]); and

[49] "The Tribunal is not in a position, unassisted, to embark on an examination of records of varying degrees of completion without being party to or involved in the transactions they are said to record, in an endeavour to work out what the Applicants' taxable income was and whether any or all of the amounts the Commissioner has included in the amended assessments totals that he has assessed were truly assessable. Where the respective amounts are not obvious, for the Tribunal to undertake that task without proper assistance and explanatory evidence would be engaging in speculation and guesswork which is not the proper foundation for concluding whether an applicant has demonstrated what the relevant taxable income is."

9. There is no expert evidence to assist the Tribunal with its task. The Tribunal can only rely on the Applicant's evidence.
10. The Applicant set out in her statement a narrative of the disputed transactions and what contemporaneous documents were available, by reference to what is recorded in some of the documents and records. There are, however, many inconsistencies and those that have arisen have in large part been labelled as mistakes or errors made by her former professional service advisers. No explanation as to why or how those continually occurring errors came to pass was proffered. Despite the written narrative of the transactions, the Applicant during cross-examination could not elaborate or explain the transaction, or could not recall it.
11. The Commissioner submitted that Jones v Dunkel inferences would be called because the Applicant did not call her legal advisers, Mr V, Mr P or her husband, and that the failure to do so "damages the acceptability of the case the Applicant seeks to prove and would seem to be an attempt to avoid having that case tested".[238]
12. In the recent decision of Rawson Finances Perry J explained the rule in Jones v Dunkel and its application as follows:

[83] The rule in Jones v Dunkel is also based on common sense, namely, that an unexplained failure by a party to call a witness may, in appropriate circumstances, give rise to an inference that the evidence of that witness would not have assisted that party's case: Jones v Dunkel at 308 (Kitto J), 312 (Menzies J) and 320-321 (Windeyer J). While the rule may make certain evidence or the inferences which may be drawn from the evidence more probable, it cannot fill gaps in the evidence, or convert conjecture and suspicion into inference: Jones v Dunkel; Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121 at [53] (Gleeson CJ and McHugh J). As, for example, Newton and Norris JJ held in O'Donnell v Reichard [1975] VicRp 89; [1975] VR 916 at 929 in explaining the proper manner in which the rule may be applied: > > ... where a party without explanation fails to call as a witness a person whom he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person's evidence would not have helped that party's case; if the jury draw that inference, then they may properly take it into account against the party in question for two purposes, namely: > > (a) in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken; and > > (b) in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given, again in relation to matters with respect to which the person not called as a witness could have spoken. > > (Emphasis in the original.) > > ... > > Underpinning the rule in Jones v Dunkel is the general principle tracing back to the remarks of Lord Mansfield in Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63 at 65 that "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted".... > > Importantly, this principle is not limited to the failure to call a particular witness: other instances where it may be relied upon include a failure to adduce any evidence at all, a failure to produce a particular document, or a failure to prove a particular fact (Payne v Parker [1976] 1 NSWLR 191 at 201 [proposition (3)] (Glass JA)). > > ... > > Importantly, Glass JA in Payne at 201 identified three conditions for the application of the principle in Jones v Dunkel, namely: "(a) the missing witness would be expected to be called by one party rather than the other, (b) his [or her] evidence would elucidate a particular matter, (c) his [or her] absence is unexplained...".

13. The Commissioner's written closing submissions set out the nature of the evidence that Mr P, Mr V, Mr R, and the Applicant's husband could have given. The Applicant contended in reply submissions that the Commissioner's case went well beyond matters raised at the hearing and therefore should not be considered. The Tribunal disagrees. The Applicant was on notice that Jones v Dunkel inferences were raised and why. This is not a new issue or a new foundation. The fact that more fulsome particulars of the evidence that could have been given by these individuals is subsequently set out in the closing submissions does not prejudice the Applicant. It is precisely because arguments may be more fully stated in written form that the Applicant was provided the opportunity to provide submissions in reply. The Applicant provided an additional 50 pages of submissions in reply.
14. Many of the Jones v Dunkel particulars raised by the Commissioner had already been contemplated by the Tribunal. Inferences do not need to be drawn to damage the Applicant's case. The evidence that could have been given by these witnesses simply highlights the deficiencies in the Applicant's evidence and in the evidence before the Tribunal.

• 531. The Applicant says she did not call her previous accountant to give evidence because they did not part on good terms. He had not prepared unit registers correctly, and he has now retired.[239]

1. The Applicant pointed out that an inference "does not detract from the proof" of a party's case, and that where the failure to call the evidence is unexplained, the Tribunal "may (not must)" draw the inference: Cross on Evidence, [1215].[240]
2. It may be that an inference cannot be drawn in relation to Mr P, but that is problematic for the Applicant. It is the Applicant's evidence that Mr P was responsible for the accounts, unit issue/redemption/register maintenance and the accounting software used which the Applicant says she was unaware of and not shown.[241] This leaves significant gaps in the evidence. The Applicant wants the Tribunal to accept that everywhere an accounting record is inconsistent with her contention, that it is because of an "error" made by Mr P. Yet, other than her say so there is no evidence of that error. There are no contemporaneous instructions given by her to Mr P which demonstrate an error was made in the carrying out of those instructions. Without these "corroborating witnesses" the Applicant's evidence is unable to be scrutinised (see Cassaniti, at [88]). There is no way for the Tribunal to test the evidence placed before it.
3. The evidence that could have been by Mr P includes:[242]

(a) the scope and record of his retainer/engagement; > > (b) whether instructions necessary to discharge his retainer/engagement were received in writing (email, letter or otherwise) and whether and when relevant materials were provided by the Applicant and the completeness of those materials; > > (c) whether he received a formal delegation of the Applicant's powers in relation to all or any of the relevant unit trusts of which the Applicant was a director of the trustee company, including to calculate the market value of the units issued and redeemed; and if not whether he believed that he had received, informally, such a delegation; > > (d) whether those instruction extended to keeping a register of unit holders in relation to the various unit trusts; > > (e) the frequency and content of the regular meetings referred to by the Applicant; > > (f) the agenda for such meetings, who prepared it, and when it was circulated; > > (g) the attendees at those meetings; > > (h) the role, if any, played by the Applicant's husband at those meetings > > (i) the accounting records provided by Mr P to the Applicant in respect of the WYVW entities; > > (j) when, during a Year, or after the end of a particular Year, those accounting records were provided to the Applicant, and whether the Applicant was provided with a physical or email copy of those records, for her own records; > > (k) whether the invoices rendered by Mr P disclosed discrete charges for the secretarial work which the Applicant alleges he did, or, at least, was supposed to do; > > (l) whether Mr P was made aware of the purchase offer made by Mr WYVW Investments Pty Ltd to purchase the Applicant's interest in TLP, and if so by whom, and when; > > (m) whether Mr P was made aware of the purchase offer made by Mr WYVW Investments Pty Ltd to purchase all of the share capital issued by SMS Pty Ltd, and if so by whom, and when; > > (n) how Mr P accounted for the purchase offers dated 22 September 2010 (described in paragraphs (l) and (m) above); > > (o) materials evidencing the sale of the limited partnership interest and the shares in SMS Pty Ltd respectively, and if so by whom, and when; > > (p) how Mr P accounted for the completion of the sales referred to in the previous paragraph; > > (q) how Mr P accounted for Westpac transfers on 14 February 2011; the materials and instructions received in relation to those transfers; the person who provided those instructions; and when those instructions were received; > > (r) the processes adopted to determine the appropriate amount of management fees, directors' fees; these steps undertaken to appropriately consolidate loans within the group; and > > (s) the timing of trustee resolutions necessary to confer entitlements on the Applicant and other entitlements.

4. In relation to the Applicant's former legal advisers, no explanation was given for why they had not been called. The Tribunal agrees with the Applicant's submission no inference can be drawn in circumstances where a witness is not called on the grounds of a refusal to waive privilege: Cross on Evidence [1215]. However, the evidence that could have been given by her former solicitors, without infringing legal professional privilege, includes:[243]

(a) the timing of instructions to produce the Deeds of Forgiveness (Tab 110); > > (b) the timing of delivery of the Deeds of Forgiveness ; > > (c) the timing of instructions to draft the SUT deed and who provided those instructions; and > > (d) the timing of the instructions to draft the written offers, later hand-dated 22 September 2010, and who provided those instructions.

5. In relation to Mr V, no explanation as to why he was not called was given.
6. Mr V is the signatory of the letter to Westpac dated 10 December 2010. The Applicant said he was a consultant to TLP. Presumably, as author of the instruction letter to Westpac, Mr V could have been called by the Applicant to explain the restructuring of the Group and the instructions given to Westpac, in circumstances where the Applicant says she did not participate in the implementation of the transfers arranged by Westpac. Mr V was the signatory of the letter, and presumably participated in its preparation. "For the Court to feel confident that it should act on any narration it is very important to have a human witness who has pledged, by oath or affirmation, that the narration is true: someone who is responsible for it": see Rusu (set out at paragraphs [53]-[54] above.
7. The evidence that could have been by Mr V, a former consultant of TLP,[244] trustee of V Trust and a purchaser of a business assets from the Group, includes:[245]
   1. (a) the services he performed as a consultant to TLP);
   2. (b) the terms of the loans made by TLP to the V Trust;
   3. (c) the representations made by the V Trust to TLP in relation to the forgiveness of the loan of $168,000 by TLP on 1 June 2009;
   4. (d) whether the Applicant authorised Mr V to draft the letter to Westpac dated 10 December 2010;[246]
   5. (e) the Applicant's knowledge of and involvement in providing or perusing the content of the letter to Westpac dated 10 December 2010 before it was sent to Westpac;
   6. (f) the meaning of and basis for the values described in the Westpac letter dated 10 December 2010 for the Bondi property and both business trails that total $1m;[247]
   7. (g) his role in the February arrangements whereby Westpac processed 14 separate entries between entities comprising the Group, the Applicant, her husband and the WYVW Superannuation Fund;[248] and
   8. (h) the date SUT was settled.
8. In relation to the Applicant's husband, no explanation was given as to why he was not called to give evidence in support of the Applicant.
9. The evidence that could have been given by the Applicant's husband, who was, throughout parts of the Review Years, registered as a limited partner of TLP; a director of Mr WYVW Investments Pty Ltd, SMS Pty Limited and TAS includes:[249]

(a) the operation and management of TLP; > > (b) his observations of the Applicant's usual practices; > > (c) his own qualifications and skills in making, recording and understanding accounting entries and the extent of his involvement and dealings with Mr P (see further items below); > > (d) his discussions with the Applicant in relation to the state of the financial affairs of the Group, and which entity within the Group should undertake a particular action or transaction; > > (e) when the purchase offers from Mr WYVW Investments Pty Ltd, hand-dated 22 September 2010, were made; > > (f) when the trust property of SUT was settled on Mr WYVW Investments Pty Ltd; > > (g) whether the purchase offers were made by Mr WYVW Investments Pty Ltd as trustee of SUT; > > (h) whether the purchase offers were made by Mr WYVW Investments Pty Ltd as trustee of WYVW Settlement (Discretionary Trust); > > (i) when each purchase offer was accepted; > > (j) whether he dealt with the with promissory notes delivered with the offer made by Mr WYVW Investments Pty Ltd to the Applicant and him in relation to the purchase of the equitable estates in their respective limited partnership interests in TLP, and if so how, and when; > > (k) whether he dealt with promissory notes delivered with the offer made by Mr WYVW Investments Pty Ltd to the trustee of the TAT Trust in relation to the purchase of the trust's shares in SMS Pty Ltd and if so how, and when; > > (l) whether he demanded payment of the promissory note drawn by Mr WYVW Investments Pty Ltd in relation to the purchase of the equitable estates in the limited partnership interests in TLP and if so when; > > (m) whether he demanded payment of the promissory note drawn by Mr WYVW Investments Pty Ltd in relation to the purchase of the shares > > owned by the trustee of the TAT Trust in SMS Pty Ltd, and if so when > > (n) the scope and record of instructions given by him to Mr P for his matters or for members of the Group; > > (o) whether those instructions were given in writing (email, letter or otherwise); > > (p) when those instructions were given; > > (q) the frequency and content of the regular meetings with Mr P referred to by the Applicant; > > (r) the agenda for such meetings and the attendees at those meetings, apart from himself; > > (s) the role, if any, he played at those meetings; > > (t) the accounting records provided by Mr P to him and the Applicant in respect of the entities comprising the Group; > > (u) when those accounting records were provided to him and the Applicant, and whether he and the Applicant were provided with a physical or email copy of those records, for their records; > > (v) whether the invoices rendered by Mr P disclosed discrete charges for the secretarial work which Mr P did or which the Applicant alleges he did not do; > > (w) whether he communicated to Mr P the purchase offer made by Mr WYVW Investments Pty Ltd to purchase his interest in TLP, and if so when; > > (x) whether he communicated to Mr P the purchase offer made by Mr WYVW Investments Pty Ltd to purchase all of the share capital issued by SMS Pty Ltd, and if so when; > > (w) how Mr P accounted for the purchase offers dated 22 September 2010; > > (x) he provided to Mr P materials evidencing the sale of the limited partnership interest and the shares in SMS Pty Ltd respectively, and if so when; > > (y) how Mr P accounted for the completion of the sales referred to immediately above; > > (z) how Mr P accounted for Westpac transfers on 14 February 2011, and the materials and instructions received in relation to those transfers; > > (aa) whether he was the person who gave those instructions to Mr P, and when those instructions were given; > > (ab) the processes adopted to determine the appropriate amount of management fees, directors' fees; and of the steps undertaken to appropriately consolidate loans within the group (WS-37d, page 12); > > (ac) the timing trustee resolutions were made necessary to confer entitlements on the Applicant, and other entitlements under trusts in the Group, the trustees of which were companies of which he and the Applicant were directors; > > (ad) whether he gave instructions to BR to produce the Deeds of Forgiveness, if so when; > > (ae) when the Deeds of Forgiveness were delivered > > (af) when the Deeds of Forgiveness were executed > > (ag) whether he instructed BR to draw the SUT deed, if so when and what his instructions were; > > (ah) the date SUT was settled; > > (ai) when he, as a director of Mr WYVW Investments Pty Ltd, instructed BR to produce the written offers, later hand-dated 22 September 2010 in relation to the limited partnership interests in TLP and the issued shares in SMS Pty Ltd; > > (aj) the services Mr V performed as a consultant to TLP ; > > (ak) the terms of the loans made by TLP to the VC Trust; > > (al) the representations made by the VC Trust to TLP in relation to the forgiveness of the loan of [$168,000] by TLP on 1 June 2009; > > (am) why TLP decided to forgive the loan of $168,000 which the VC Trust owed to it; > > (an) whether he authorised Mr V to draft the letter to Westpac dated 10 December 2010; > > (ao) his knowledge of and involvement in providing or perusing the content of the letter to Westpac dated 10 December 2010 before it was sent to Westpac; > > (ap) the meaning of and basis for the values described in the Westpac letter dated 10 December 2010 for the Bondi property and both business trails that total $1m; > > (aq) his role in the February arrangements whereby Westpac processed 14 separate entries between entities comprising the Group, the Applicant, him and the WYVW Superannuation Fund; and > > (ar) the $3.05m gift made to the TAT Trust in the 2011 Review Year.

1. The Tribunal finds that the Applicant has not shown, on the balance of probabilities, the deposits were from non-income sources.[250]
2. The Tribunal finds that the Applicant has not established what their actual taxable income was for each of the Relevant Years, and that the Commissioner's Amended NOAs were excessive.

1. The Applicant claims that interest expenses incurred from the loan facilities during the Relevant Years are deductible from her assessable income.
2. During the Relevant Years the Applicant had four commercial bill facilities:[251]

"which was a refinancing of the following earlier facilities used to acquire units in MZA #1: > > > i. a $300,000 fixed interest loan from NAB taken out in June 2001;[252] > > > > ii. a $1,300,000 NAB bank bill facility taken out in June 2002;[253] and > > > > iii. a $400,000 NAB bank bill facility taken out in June 2002".

• 544.2. $1,025,000 Westpac commercial bill "which was a refinancing of an original $1,675,000 commercial bill facility with NAB that I entered into in 22 August 2003 to acquire units in the LST Trust";[254]
• 544.3. $492,000 Westpac commercial bill "used to acquire units in the ART";[255] and
• 544.4. $3,116,000 Westpac commercial bill "used to acquire units in the MZA #2 trust".[256]

1. The Applicant states "the borrowings...(including the refinancing of those borrowings) were for the purposes of acquiring units in the unit trusts for the purpose of deriving income in the form of profit distributions from the trusts".[257]
2. The Applicant contends she incurred deductible interest expenses from third party financiers and therefore they are tax deductible in the relevant years.

1. The Applicant initially claimed the purpose of the bill was to refinance the amounts borrowed to acquire units in the LST Trust.[258] Later, at the time of objection the Applicant said it did not in fact relate to the LST Trust but was a refinancing of the amounts she borrowed to acquire units in MZA #1.[259]
2. In her statement the Applicant's evidence was:

[48] "In the relevant years I maintained the following Westpac bank bill facilities: > > a. A $2,000,000 facility which was a refinancing of the following earlier facilities used to acquire units in MZA #1: > > > i. a $300,000 fixed interest loan from NAB taken out in June 2001; > > > > ii. a $1,300,000 NAB bank bill facility taken out in June 2002; and > > > > iii. a $400,000 NAB bank bill facility taken out in June 2002".

1. The Applicant advised this was incurred as part of the above transaction to assist with the funding of (the Glebe property) by the LST Trust.[260]
2. At the hearing the Applicant's evidence was:

[48] "In the relevant years I maintained the following Westpac bank bill facilities: > > ..... > > b. A $1,025,000 facility which was a refinancing of an original $1,675,000 commercial bill facility with NAB that I entered into in 22 August 2003 to acquire units in the LST Trust".

1. The Applicant advised this was incurred to assist with the funding of the Alexandria property by the ART.
2. At the hearing the Applicant's evidence was:

"In the relevant years I maintained the following Westpac bank bill facilities: > > ....... > > c. A $492,000 facility used to acquire units in the ART".

3. At objection the Commissioner allowed the deductible interest expenses the Applicant incurred on the commercial bill of $492,000 taken out to acquire units in the ART Trust on 22 April 2008."[261]

1. The Applicant advised this was incurred to assist with the funding of the Woollahra property by the MZA Trust #2.
2. At the hearing the Applicant's evidence was:

"In the relevant years I maintained the following Westpac bank bill facilities:

d. A $3,116,000 facility used to acquire units in the MZA #2 trust."

1. At objection the Commissioner allowed the deductible interest expenses the Applicant incurred on the commercial bill of $3,116,000 taken out to acquire units in the MZA Trust #2 on 12 October 2012.[262]

1. The Applicant submitted uncontentiously that the following general principles apply:[263]

[81] "The following principles apply for the purpose of determining whether a loss or outgoing will be an allowable deduction: > > a. there must be a sufficient nexus between the outgoing and the assessable income, that is, the outgoing must be "incidental and relevant" to the gaining of assessable income: Ronpibon Tin v FCT [1949] HCA 15; (1949) 78 CLR 47 at 5; > > b. the loss or outgoing must have the essential character of an outgoing incurred in gaining assessable income: Lunney v FCT [1958] HCA 5; (1958) 100 CLR 478 at 497; and > > c. there must be a necessary connection between the outgoing and the operational activities by which the taxpayer directly gains or produces assessable income: Charles Moore v FCT [1956] HCA 77; (1956) 95 CLR 344 at 351. > > [82] Interest is a recurrent or periodic payment that does not secure an enduring advantage. The payment of interest secures the use of the money during the term of the loan. It is not a loss or outgoing that is capital in nature: Steele v DCT [1999] HCA 7; (1999) 41 ATR 139 at 148. > > [88] ...As a general rule, "the character of the refinancing takes on the same character as the original borrowing": Federal Commissioner of Taxation v Roberts & Smith [1992] FCA 363; (1992) 37 FCR 246 at 257."

1. At objection, in relation to the remainder of the interest expenses claimed, the Commissioner determined that some of the interest expenses claimed in relation to commercial bill facilities for the Relevant Years were not deductible under section 8-1 of the ITAA 1997 because the Applicant was:
   • 558.1. unable to identify the amount of interest expenses applicable to the purchase of units in each trust;
   • 558.2. unable to provide any evidence that units were purchased in trusts; and
   • 558.3. unable to provide any evidence that the monies borrowed were used to purchase units in the relevant trusts.
2. Losses or outgoings of a capital, private or domestic nature are not deductible.
3. Taxation Ruling 95/25[264] identifies the factors which must be considered to determine if there is a 'relevant connection'[265] such as the nature of the business activity, the business purpose for which the outgoing was incurred; the objective circumstances surrounding the incurring of the expenditure; and the character of the expense.
4. In Ure v Federal Commissioner of Taxation [1981] FCA 5; 34 ALR 237, at [488] Brennan J said:

"An outgoing of interest may be incidental and relevant to the gaining of assessable income where the borrowed money is laid out for the purpose of gaining that income ... The laying out of the borrowed money for the purpose of gaining assessable income furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by him from its use."

5. The Full Federal Court in Federal Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49; 192 FCR 325 had to consider whether the taxpayer was, pursuant to section 8-1 of the ITAA 1996, entitled to deduct from his taxable income interest costs incurred from borrowing money for the purpose of purchasing a number of units in a trust. The Full Court agreed with the taxpayer's summary of the relevant principles as follows (citations omitted):

[44] "The appellant submitted, correctly in our view: > > 12. To be deductible under s 8-1, an expense must be incurred "in the course of" gaining or producing assessable income ... It is both sufficient and necessary that the occasion for the loss be found in whatever would be expected to produce ... The taxpayer's motive or subjective intention is relevant ...For expenditure to be deductible it is sufficient that the occasion for incurring the expenditure be a "genuine and not colourable relationship between the whole of the expenditure and the production of such income" [...Interest expenses incurred for the purpose of furthering Mr Forrest's present or future income producing activities are generally deductible ... Income need not in fact be produced..."

6. If funds have been used to benefit others, the funds have more than one purpose. Its sole purpose is not to produce income for the taxpayer.
7. In assessing whether a sufficient nexus exists between the expenditure and production of assessable income, the purpose of the expenditure is relevant. To what "use" was the expense put: Federal Commissioner of Taxation v Munro (1926) 38 CR 153; Fletcher v Federal Commissioner of Taxation [1991] HCA 42; (1991) 22 ATR 613.
8. The Tribunal accepts the facilities were taken out and that interest and fees were paid thereon. This is stipulated in Westpac's letter of 10 April 2015.[266] However, the letter does not identify the properties the borrowed funds were purportedly used to finance, or refinance.

The deductibility of interest charged on the $2,000,000 Westpac commercial bill

1. The Applicant submits that she has incurred deductible interest expenses from Westpac on the $2,000,000 commercial bill because it was for the purpose of refinancing the amounts borrowed to acquire units in MZA #1 with NAB in the 2006 income year.[267]
2. The NAB drawdown facility was drawn in the 2007 Year as follows:

2. $1,300,000 Facility commencing on 26 June 2006;

1. The Applicant was charged interest (based on the Westpac letter dated 10 April 2015) on the facility during the Relevant Years as follows:

1. The Applicant states at the time of refinancing, she owned 2,915,443 units in MZA #1 in the 2006 income year. The Tribunal is cognisant that this purported purchase occurred some time ago but there is simply no record of the ownership of these units. As already discussed, there is no independent or corroborating evidence.
2. The Applicant does not have complete records of the NAB drawdown facility. The Applicant was able to provide the following:[268]
   • 570.1. a NAB facility agreement of $400,000 - the secured property is described as "residential/commercial properties" and the guarantors include MZA Investment Pty Ltd (trustee of MZA #1);
   • 570.2. a NAB facility agreement of $1,300,000 and $300,000 facility - the secured properties are described in Annexure A annexed to the NAB facility agreement details. Majority of the properties were owned by MZA Investments (except the Newtown property, which was registered under the name of MZA Investment Pty Ltd ATF the LST Trust).
3. These loans are secured against properties not owned by the Applicant.
4. In June 2007, the NAB drawdown facility was refinanced with Westpac as part of the sale of the Newtown property and the acquisition of the Glebe property. The Applicant provided a letter from Westpac to NAB dated 20 June 2007 describing the refinancing transactions.
5. The Applicant told the Commissioner:
   • 573.1. to facilitate the settlement of the Newtown property, she refinanced with Westpac to pay off the $2,000,000 NAB facility in return for the release of the mortgage over the Newtown property;
   • 573.2. there is a clear nexus between the $2,000,000 bank bill (NAB and Westpac) and the units held in MZA #1.
6. The Commissioner submits that the Applicant has not satisfactorily established the requisite nexus between the $2,000,000 commercial bill and the acquisition of units in MZA #1 because:
   • 574.1. there are no contemporaneous records, such as unit certification, application of units, provided to show the Applicant took out the initial/original commercial bill for the acquisition of units in MZA #1 before being refinanced by her with NAB in the 2006 income year;
   • 574.2. the properties held by MZA Trust during the relevant years included the family home at the Bondi property. There was no evidence that MZA #1 received rent from the Applicant at an appropriate market rate.
   • 574.3. the Applicant has not been able to reconcile the interest deductions as declared in the ITRs with the interest charged as per the bank statements.

• 574.4. There are inconsistencies between some of the records and the explanations. Mr D advised the $2,000,000 commercial bill related to the LST Trust[269] whereas Mr G initially contended that it was related to acquisition of units in the LST trust, but later advised the monies borrowed was for the acquisition of units in MZA #1.

[96] "On 25 June 2001 I entered into a 3-year $300,000 "Fixed Rate Interest Only Loan in Advance" facility with NAB expiring 30 June 2004. This facility was refinanced at expiry and then refinanced using funds drawn down on a Westpac $2,000,000 facility in July 2007. > > a. At Tab 30 is a copy of the NAB loan documentation and covering letter dated 9 July 2001 for the $300,000 facility. This was for a 3-year term. The account number was 53-BBD-CHZD. > > b. The refinancing is discussed at paragraphs 117, 123 and 126. > > [97] The $300,000 in loan funds were provided to MZA #1 by way of unit subscriptions and used by the trust to acquire the property at (the Surry Hills #1 property) in July 2001. > > a. At Tab 31 is a copy of the settlement sheet for the property and covering letter from Alexander and Associates dated 23 July 2001 confirming that the proceeds of the $300,000 loan facility were applied to the purchase of the property. > > [98] The trust increased its external borrowings in 2001 to $1,210,822.60 plus a $57,125.75 overdraft. and in general ledger accounts CAEF and CAGD. > > a. At Tab 36 is a copy of the MZA #1 Financial Statements for 2002, which include comparative figures for 2001. The trust's bank loans and overdraft are listed on the balance sheet as secured liabilities on page 824.

[111] On 30 April 2003, I entered into a 3-year $400,000 "Fixed Rate Interest Only Loan in Advance" facility with NAB. The account number was 55-FAC-EAZC. This facility was refinanced by NAB until it was incorporated into the Westpac $2,000,000 facility.

a. At Tab 44 is a copy of a letter from NAB dated 29 April 2003 confirming approval of the $400,000 facility, together with the loan documentation.

[112] I used this loan to subscribe for $400,000 in units in MZA #1. MZA #1 used these funds to purchase a property at (the Waterloo property) for $380,000, with the remaining funds being deposited in MZA #1's bank account.

a. At Tab 45 a letter from NAB dated 7 May 2003 confirming the loan drawdown with:

i. $344,137.40 being disbursed to Alexander and Associates for settlement of (the Waterloo property); and

ii. The remaining $55,862.60 being disbursed to MZA #1.

b. At Tab 41 is the settlement sheet for (the Waterloo property), with covering letter from Alexander and Associates.

c. At Tab 46 are the NAB 2003 bank statements for the trust from 1 February 2003 to 1 July 2003 recording on page 863 the deposit of 55,862.60 as surplus loan drawdown funds on 7 May 2002.

d. At Tab 47 is a copy of the MZA #1 2003 MYOB records. The $55,862.50 in excess funds are recorded in account 2-CZHH "Surplus Loan Drawdown NAB" on page 899.

...

[136] In July 2007 the Group changed banks from NAB to Westpac. This involved a full refinancing of my loan facilities with NAB. The $300,000, $1,300,000 and $400,000 loans were replaced with a single $2,000,000 bank bill facility with Westpac.

a. At T-415 is a letter from Westpac dated 20 June 2007 approving the refinancing of my existing NAB facilities. Facility 1 is the replacement for my NAB loans.

b. At T-1597 is a copy of a letter from Westpac to NAB confirming the refinancing of our facilities with Westpac. This includes Tranche 1, which is the refinancing of the $2,000,000 of interest in advance loans.

c. The $300,000 facility is one of the interest in advance loans referred to at item 1) of that letter.

d. At Tab 68 is a copy of the Letter of Instruction to surrender the Deed for (the Newtown property) to Westpac as part of the Westpac refinancing. This document confirms that with the payment to NAB of the $2,000,000, the three loan accounts will be closed.

e. At Tab 69 is a copy of a letter from Westpac dated 22 August 2007 confirming the refinancing transactions. Item 1 of that letter refers to the refinancing of the $300,000, $1,400,000 and $400,000 NAB interest in advance facilities."

1. The Applicant maintained the facility from 2010 through to 2013.[270]
2. The Applicant set out in her statement the interests and fees incurred through the relevant period.[271]
3. The change in instructions, as evidenced by Mr D's and Mr G's submissions to the Commissioner on the Applicant's behalf, indicates the Applicant's uncertainty about the transaction. As a result the Tribunal has little confidence in the Applicant's evidence.

The deductibility of interest charged on the $1,025,000 Westpac commercial bill

1. The Commissioner contends that interest charged on this bill facility is not deductible.
2. The Applicant submits that she has incurred deductible interest expenses from Westpac on the $1,025,000 commercial bill because it was incurred fund of the Glebe property by the LST Trust.[272]
3. On 8 August 2007, the Applicant drew down a bill of $1,092,500 to cover the purchase of the Glebe property held under the name of MZA Investments Pty Ltd. This amount was later increased to $1,250,000, and then later reduced from $1,250,000 to $1,025,000.
4. The Applicant says it was originally increased from $1,092,500 to $1,250,000 to assist with the funding of the prepaid interest for this bill as well as the prepaid interest on the $760,000 bill of the TAT Trust.
5. A Westpac transaction summary shows that the amount of $77,606.51 was relating to the interest prepayment for this $1,250,000 bill and the amount of $47,184.76 was relating to the $760,000 bill.[273] The total amount of interest expenses is therefore $124,791.27 and the remaining balance of $32,708[274] is retained in the account of Mrs WYVW.
6. The Applicant states:
   • 584.1. on 24 June 2007, the bank bill described as "LST Bill #3" was reduced from $1,250,000 to $1,025,000 with a commensurate redemption of 225,000 units to fund this reduction, this was consistent with the balance of your unit holding in the LST Trust of 1,035,325 units. This is reflected in the Ledger Entries Report for LST.[275]
   • 584.2. that she incurred a debt under the terms of the initial $1,305,000 bill used to acquire the said units.[276] This bill was subsequently refinanced on a number of occasions. Interest was incurred under the initial bill as well as the refinancing. In accordance with usual principles, the interest is therefore deductible.[277]
7. A letter from Westpac to the Applicant's husband dated 22 August 2007 stated that as part of stage 2 of draw down, on 27 July 2007, Westpac refinanced her NAB bill of $1,305,000, which was rolled over until 1 August 2007 (approximately 6 days).
8. The Applicant states at the time of refinancing, she held 1,250,000 units in the LST Trust.
9. MZA Investment Pty Ltd is the registered owner of the Newtown property. This property was contracted on 3 July 2007 and settled on 1 August 2007.[278]
10. In the Applicant's letter to Westpac dated 30 July 2007**,** it was stated that the funds available to be disbursed from the LST Trust account were $2,700,276.71 and they were proceeded from the sale of the Newtown property. The Applicant instructed the $1,305,000 of the $2,700,276.71 to be disbursed to clear the Westpac bill of $1,305,000 that she refinanced.
11. A Westpac letter dated 22 August 2007 confirms the proceeds from the sale of the Newtown property occurred on 1 August 2007 were used to pay off the Westpac commercial bill of $1,305,000 drew down on 27 July 2007 as instructed by the Applicant's letter dated 30 July 2007.
12. The LST Westpac bank statement with an account #21ZDFD showed that on 2 August 2007 the proceeds from the sale of the Newtown property was used to repay the Applicant's $1,305,000 bill with Westpac.
13. The Applicant says the number of units held during 2009 to 2013 income year and the interest expenses claimed for each income year (the Applicant says all interest was paid in advance) was:

1. The Commissioner submits the Applicant has not produced enough evidence to establish the $1,025,000 Westpac commercial bill has a sufficient connection with her income producing activities and therefore the interest expenses are not deductible.
2. The Commissioner says the Applicant:
   • 593.1. has not provided sufficient evidence to prove she acquired 1,250,000 units in the LST Trust;
   • 593.2. the unit register supplied by the Applicant is incomplete as transactions occurring prior to 30 June 2008 are not provided;
   • 593.3. says the payment of their NAB commercial bills of $1,305,000 was refinanced on 27 July 2007 but was not reflected in the LST Trust financials in the 2008 income year - i.e. it was not recognised as a redemption of units in the LST Trust nor as a loan advanced to the Applicant;
   • 593.4. has not been able to reconcile the interest deductions declared in her ITRs and interest charged as per the bank statements. Although the Applicant provided a corrected table at "Attachment T" as part of her submission dated 3 May 2019, the corrected interest calculation relied upon the attribution of the commercial bills collectively and it is unclear the amount of interest charged, that is attributable to this $1,025,000 commercial bill;
   • 593.5. has provided explanations inconsistent with some of the records. For example:
     1. the LST Trust unit register shows that the Applicant held 3,024,325 units as at 30 June 2008 and redeemed 1,989,000 units in the 2009 income year. This resulted in the balance of the Applicant's unit holding in the LST Trust of 1,035,325 units as at 30 June 2009. However, on 3 May 2019, a table provided by the Applicant purporting to summarise her unit holding and deductible interest expenses showed that she held 1,250,000 units as at 30 June 2009. These figures are substantially different from one another.
3. LST Trust's 2008 HandiLedger showed the Applicant's husband held the entire units of 3,024,325 as at 1 July 2008.[279] The Applicant says this was incorrect as it included units that were in fact held by another person (Mr BR) in error, who had contributed $2,090,000 to the purchase by way of acquisition of units.[280] To prove that Mr R contributed $2,090,000, the Applicant provided a "Letter of Authority to Westpac" letter dated 30 July 2007. The letter indicated that the loan proceeds sourced from Mr R was used for the settlement of the Glebe property and were used as follows:
   • 593.5.2.1. $1,461,250: Bill facility in the name of Mr BR. Interest amount to be advised prior to settlement so that these funds can be made available in the account in the name of Mr BR, full face value must be transferred to the LST Trust account.
   • 593.5.2.2. $628,870.60: Equity contribution from Mr BR.
4. based on the Applicant's explanation, the balance of her husband's unitholding in the LST Trust as at 30 June 2008 should have been 934,325 units. However, the LST trust unit register shows the following:

2. The Commissioner says, based on the above, that the interest expenses claimed are not deductible because they do not satisfy either the First or Second Limb of section 8-1.
3. The Applicant explained that:

[53] "The unit registers for LST and MZA #1 provided to the Commissioner recorded the aggregate amount subscribed for units rather than the number of units allotted and redeemed. As described below, this resulted in errors in the calculation of capital gains upon redemptions of units in the returns lodged for the relevant years. Those capital gains have been included in the assessable income calculation set out in the table in Tax Summary.

[54] The unit registers for LST and MZA have been corrected to record all allotments and redemptions being undertaken at a per unit price reflective of the net asset value of the relevant trust. The unit registers have also been corrected to include information from the establishment of each trust.

b. At Tab 15 is the corrected MZA #1 unit register.

[55] The registers were corrected using the process detailed from paragraph 58.

[56] The correction process has disclosed that capital gains were in fact made in the years in which units were redeemed. These have been included in the tax calculations in this statement.

[57] Because of the way in which the units and the unit transactions were recorded in the accounts, I was not aware prior to the corrections being made that capital gains had been made on the redemptions. My tax returns had been prepared by P and Co and I had no reason to believe that they had not been properly prepared.

[170] On or about 22 August 2003 I obtained a commercial bill facility from NAB for $1,675,000. This facility was maintained with varying balances until refinanced by Westpac in 2007 as the $1,025,000 bank bill.

[618] The $1,025,000 Bill was a refinancing of a previous commercial bill facility. As detailed from paragraph 192, the original facility was used to acquire units in the LST Trust for the purposes of deriving income."

1. The Applicant states she retained the $1,025,000 bank bill facility through 2009, 2010, 2011 and 2012. In 2013 the Applicant retained the $1,025,000 bank bill facility until the sale of the Glebe property. The Applicant provided a copy of a letter from Westpac dated 10 April 2015 summarising the interest payments for this bill facility (excluding the rollover fees charged).[281]
2. The Applicant maintained the facility from 2009 through to 2013.[282]
3. The Applicant set out in her statement the interests and fees incurred through the relevant period.[283]
4. The change in instructions, as evidenced by Mr D's and Mr G's submissions to the Commissioner on the Applicant's behalf, indicates the Applicant's uncertainty about the transaction. As a result the Tribunal has little confidence in the Applicant's evidence.

1. Taxation Ruling TR 95 /25 - Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following Federal Commissioner of Taxation v. Roberts; Federal Commissioner of Taxation v Smith provides:

[3] The cases clearly indicate that whether or not a loss or outgoing incurred by a taxpayer satisfies the requirements of section 8-1 is dependent on all the facts and matters relating to the loss or outgoing incurred by the taxpayer in question. However, the following general principles are relevant to the question whether interest is deductible under section 8-1: > > (a) The interest expense must have a sufficient connection with the operations or activities which more directly gain or produce the taxpayer's assessable income and not be of a capital, private or domestic nature. The test is one of characterisation and the essential character of an expense is a question fact to be determined by reference to all the circumstances. > > (b) The character of interest on money borrowed is generally ascertained by reference to the objective circumstances of the use to which the borrowed funds are put by the borrower. However, regard must be had to all the circumstances, including the character of the taxpayer's undertaking or business, the objective purpose of the borrowing, and the nature of the transaction or series of transactions of which the borrowing of funds is an element. In some cases, the taxpayer's subjective purpose, intention or motive may be relevant in deciding the deductibility of interest. > > (c) A tracing of the borrowed money which establishes that it has been applied to an income producing use may demonstrate the relevant connection between the interest and the income producing activity. Normally this would be the case for non-business taxpayers. It might also be the case where a business makes a specific borrowing which goes to the structure of the business - for example, where a business makes a large borrowing to fund an offshore acquisition. > > (d) A rigid tracing of the borrowed money will not always be necessary or appropriate (e.g., where the borrowing finances the replacement of funds withdrawn from the business by a person entitled to be paid those funds). In such cases the relevant question is whether borrowed funds are being used to replace another source of funding for business purposes. > > (e) Interest on borrowed funds will not be deductible simply because it can be said to preserve assessable income producing assets. > > (f) Interest on borrowings will not continue to be deductible if the borrowed funds cease to be employed in the borrower's business or income producing activity. > > (g) The interest will not be deductible, to the extent to which it is private or domestic in nature, or is incurred in relation to the gaining or production of exempt income.

2. The trusts were formed to invest in property for the purpose of making a profit. Pursuant to the Trust Deeds, the unit holders of the trust are then entitled to a distribution of the profit from the trust. The issue is whether the Applicant actually acquired units in the trusts. The documentation one would expect to be available was not forthcoming. The trust deeds of the MZA #1 and LST Trusts provide for the following mechanisms to be in place with respect to the issue, maintenance and redemption of units (as summarised by the Commissioner):

(1) signed written applications for units (MM-658, Tab 20 MZA 1 Trust, cl 5(b)); > > (2) a determination by the Trustee of the number of units to be issued (MM-1312, Tab 75, LST Property Trust, cl 5.4); > > (3) the issue of unit certificates (MM-660, Tab 20 MZA 1 Trust cl 7); > > (4) the maintenance of a Register of Unitholders (MM-65, Tab 20, MZA 1 Trust, cl 6; MM-1313, Tab 75, LST Property Trust, cl 9); and > > (5) written applications for redemption of units (MM-662, Tab 20, MZA 1 Trust cl 9; MM-1313, Tab 75, LST Property Trust, cl 8).

3. There is no evidence of these steps occurring.
4. As referred to earlier, the Applicant's evidence regarding Mr P's involvement or responsibility with respect to the units is glaringly lacking in any specificity.[284]
5. The Applicant's ITRs for the Relevant Years make no reference to "units" or "issued units" or "subscribed units".[285]
6. The Applicant told the Tribunal she did not see the unit registers, and had no involvement in their preparation. The Applicant conceded that she did not know if the units had been issued. She said:[286]

"I did not know that they hadn't been [issued], that's correct. I did not know that he had not been issuing units."

7. The Commissioner identified that documentary evidence provided to the Commissioner Respondent during the course of the audit[287] included documents entitled Member register;[288] Register of Unitholders;[289] Summary of Issued Units;[290] Unit Trust Register;[291] and Register of Units (sic) Holders.[292]
8. Were units issued? The Applicant has maintained that the trust registers were not maintained correctly. The Applicant says the register only records the units, it does not create the units. The Applicant submits that: