CASE 10/2000

Members:
TE Barnett DP
RD Fayle SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2000] AATA 625

Decision date: 31 July 2000

---

TE Barnett (Deputy President) and RD Fayle (Senior Member)

The applicant (``the taxpayer'') failed to lodge income tax returns for the seven years of income ended 30 June 1990 to 1996 inclusively. The respondent issued notices of assessment pursuant to s 167 of the Income Tax Assessment Act 1936 (``the Act'') in relation to each of those years. The taxpayer has objected to the assessments on the basis that the taxable incomes have been overstated.

2. The taxpayer was unrepresented at the hearing. Ms Lorraine Price of counsel, instructed by the Australian Government Solicitor, represented the respondent. The Tribunal had before it the documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (``T documents''). The

---

ATC 191

respondent tendered twenty documents identified as exhibits R1 to R20 inclusively. Evidence was given by Mr David Parker^[1] Mr Parker, an officer with the respondent, gave evidence that he had ascertained from the respondent's records that the taxpayer's spouse had not lodged income tax returns for the years of income ended 30 June 1990 to 1996 inclusively. Final notices to lodge were issued in relation to the 1992 and 1993 years but the file is noted that no returns were necessary. No notices to demand lodgement were issued in relation to the other years, however, returns have since been lodged for he 1997 and 1998 years of income. The search was carried out in both her maiden and married names. This evidence, as it will be seen, does not add any credibility to the evidence of the taxpayer that she had considerable means and paid for various things which have been attributed to the taxpayer in the respondent's estimation of his taxable incomes as assessed and in dispute. (in person), and by Senior Constable McDonald^[2] Senior Constable McDonald gave evidence that he was authorised to down-load the taxpayer's criminal record (Ex. R20), from the police computer and affix Superintendent R T Miller's facsimile signature to it. and Federal Agent Jabour^[3] Federal Agent Jabour gave evidence that the Australian Federal Police seized the taxpayer's records and duly returned some of them to the taxpayer's then solicitor, whom he named, and some to the taxpayer's spouse. This evidence is contrary to that of the taxpayer who said he had no records at his disposal to enable him to prepare for this case. (both by telephone), for the respondent. The taxpayer tendered an affidavit (A1) and initially called his spouse, his daughter and son-in-law and a former employee to give evidence.^[4] The request by the taxpayer to call these four witnesses was made during the third day of the hearing. The taxpayer then provided a long list of persons he wanted to call to give evidence on his behalf, all of whom had provided witness statements and in respect to all of whom the respondent objected. After discussion in this respect the Tribunal agreed to adjourn till a later date to enable the taxpayer to call the four witnesses identified above. The respondent agreed to prepare summons for these witnesses on behalf of the taxpayer who were then summonsed by the Tribunal. In respect of two of the proposed witnesses, whom resided in Tasmania, the Tribunal agreed to arrange for their evidence to be by video link. Some time during the adjournment the taxpayer notified the Tribunal that he had had a change of mind and did not now wish to call any of the witnesses. The Tribunal ruled that it required the witnesses and treated the witnesses as called by it. Whilst the respondent's objection remained, it was simply noted. The Tribunal considered it appropriate to take an opportunity to clarify some of the taxpayer's evidence critical to his contention that he did not earn all the money which was assessed to him in the disputed assessments. Subsequent to being summonsed to appear, one witness, the former employee of the taxpayer (who was in jail), notified the Tribunal that she would not cooperate. The Tribunal excused that witness on the grounds that she would not assist it. All but the latter gave evidence. Because of the confidential nature of these proceedings neither the taxpayer nor his witnesses will be identified in these reasons.

3. The taxpayer is currently serving a jail sentence, having pleaded guilty to charges of possessing a quantity of heroin and being knowingly concerned in the importation of heroin, a prohibited substance.

4. The notices of assessment for the years ended 30 June 1990 to 1992 inclusively, are based on an estimate of taxable income arrived at by the respondent by a process of averaging the two immediately preceding years, being years of income for which income tax returns were lodged (T6, pp. 82-83). Notices of assessment for those three years are found at T3 (pp. 54-56). The notices of assessment for the three years ended 30 June 1993, 1994 1995 and 1996^[5] The period 1 July 1995 to 31 October 1995 was taken as the whole of the year ended 30 June 1995 since the taxpayer was incarcerated on 1 November 1995. are based on ``T Accounts''<sup>[6]</sup> The Tribunal understands a T Account, in this instance, to be a calculation of estimated funds from unexplained sources. It is based on identifying funds available and funds expended, for a year and adjusting for the opening and closing bank or deposit account balances. The difference between those is adjusted by reference to any deposits which source cannot be identified and an allowance for estimated living expenses on the assumption that those would have been paid by cash. To this estimate of funds available from unexplained sources are made adjustments to deduct any receipts which would not be assessable income and any non-cash deductions to which the taxpayer would be entitled and add to that any identified amounts which would themselves be assessable income. This technique provides an explanation of what, in the opinion of the respondent, is a reasonable estimate of the taxable income for each year. The method has been approved by the Federal Court in Favaro v FC of T 97 ATC 4442. (T2, pp. 33-35). The T account amount of ``funds from unexplained sources'' for each year of income (T2, p. 37) is adjusted to include any assessable income amounts derived which were identified during the process of compiling the T accounts (T2, p. 37). The resultant amount is the respondent's estimate of taxable income assessed pursuant to s 167 of the Act (T3, pp. 57-60).

5. The taxpayer challenged the method of estimating his taxable income for the first three years under review (his evidence in this respect is considered later), where the averaging approach was used. He did not challenge the principle of the T Account approach. He did however challenge aspects of the calculations leading to the taxable incomes assessed for the four years of income. These matters are considered in detail in these reasons. The taxpayer also submitted that as he had forfeited property to the value of $264,610 under the Proceeds of Crime Act 1987 (Cwlth), he should not be assessed for income tax to that extent. He submitted that by the Commonwealth taxing the amount and also seizing it, it has charged him charged twice for the same amount.

6. In any review of an objection decision the onus of proof rests on the taxpayer (s 14ZZK(b)(i) of the Taxation Administration Act 1953). It is not sufficient to discharge that onus merely for the taxpayer to show that there may be errors in the respondent's calculations of the taxable incomes as assessed pursuant to s 167 of the Act. The taxpayer must show that the amount of the assessment is excessive in the sense of it being greater than the actual taxable income which he or she claims to have derived in any given year of income. In circumstances where the onus of proof rests on the taxpayer, the respondent is not required to mount an impregnable case in support of an assessment made pursuant to s 167 of the Income Tax Assessment Act 1936 (``the Act'');
George v FC of T (1952) 10 ATD 65 at 68-69; (1952) 86 CLR 183 at 204;
FC of T v Clarke (1927) 40 CLR 246 at 251 and
Galea v FC of T 90 ATC 5060 at 5067; (1990) 21 ATR 1108 at 1116-1117. It is sufficient for the respondent to have made reasonable inquiries to found a basis for the assessment:
Briggs v DFC of T (WA) & Ors 87 ATC 4278 at 4294-4295.

7. For the following reasons the Tribunal is satisfied that the respondent has acted reasonably in arriving at the amount of taxable incomes assessed for each of the years in question. These reasons, which are facts not in contention, are summarised in dot point form below:

• • The taxpayer did not lodge income tax returns for any of the 7 years of income to which the objection decisions under review relate.
• • The Australian Federal Police arrested the taxpayer in November 1995.
• • The taxpayer was taken into custody on 5 November 1995, later; having pleaded guilty to the offences mentioned above, he was jailed on 26 April 1996 (R20). He was still in custody at the time of the hearing of this matter.
• • The respondent was provided with a copy of a report compiled by Mr Kim Griffiths, Financial Analyst, Commonwealth Director of Public Prosecutions, September 1996 (R1). This report included, among other relevant information, T accounts for the years ended 30 June 1993, 1994 and 1995 and for the period 1 July 1994 to 31 October 1995.

  ---

  ATC 192

• • As a result of its own inquiries, the respondent made adjustments to each of the T accounts referred to above. Specifically these were:
  • • 1993 - increased funds available by $20,000 for estimated living expenses. This increased the unexplained funds available by $20,000.
  • • 1994 - increased funds available by $20,000 for estimated living expenses; increased money received from Duncan Cooper by $3,914; increased sundry deposits by $3,730; added bank interest received $84; increased closing bank balances by $5,000 (A/C 500209); and increased cash expenditure by $9,912. The net effect of these adjustments was to increase unexplained funds available by $27,294.
  • • 1995 - increased opening bank balances by $5,000 (A/C 500209); increased receipts from Duncan Cooper by $2,500; reduced sundry deposits by $2,620; added $39 bank interest received; increased funds available by $20,000 for estimated living expenses; increased funds expended by $11,012 relating to the importation of a BMW motor vehicle; reduced cash expenditure by $22,772; and increased funds expended by $220,000 relating to cash stolen. The net effect of these adjustments is to increase the unexplained funds available by $201,297.
  • • Period 1 July 1995 to 31 October 1996 - increased loan repayments by Masonry Projects by $700; increased sundry deposits by $1,742; increased cash deposits by $5,000; added bank interest received by $968; reduced cash withdrawals by $2,700; increased cash expenditure by $3,398; and increased funds available by $7,000 for estimated living expenses. The net effect of these adjustments is to increase the unexplained funds available by $7,754.
  • • The respondent's own inquiries to assist it in being satisfied about the reasonableness of the T accounts and the basis for the above adjustments included:
    • • Obtaining ABS statistical information about the level of household expenditure by State and Territories and Capital Cities (R18). It used this information to estimate the living expenses.
    • • Vouching bank transactions during the 1993 to 1996 years of income and summarising these into categories, firstly by each bank account and then overall by year; (T2, pp. 5-26 and pp. 28-30).
    • • By reference to witness statements provided by the Australian Federal Police (T10 - T29), summarising cash expenditure by categories for each year (T2, pp. 26-27).

8. The taxpayer gave evidence about his activities and earnings for the years of income in question. He was not represented. The Tribunal is of the opinion that the taxpayer's evidence cannot be relied upon as on a number of occasions he seemed to change his evidence when he thought that by doing so it would assist his case. In particular, the taxpayer said that he did not begin dealing in drugs until 1994. He said that until then his drug purchases were for his own use. The Tribunal treats this claim with scepticism. Exhibit R20 is a copy of the taxpayer's police record. It shows that in February 1980 he was fined $200 on a count of cultivating cannabis and $200 on another of possessing a quantity of it. Similarly in January 1981 he was fined $400 for possession of a prohibited plant and $20 for supplying a 4th Schedule drug. In March 1983 he was fined for both cultivating and possessing cannabis, $1,000 on each count. He was jailed in May 1986 for 2 years, with a minimum of 12 months, on a count of imposition.^[7] Albeit not a charge directly to drug dealing but going to aspects of character and veracity. In October 1990 he was fined $1,500 for cultivation of cannabis with intent and $500 for possession of a quantity of cannabis. Similarly in February 1992 he was fined $1,000 for cultivation of cannabis, $3,000 for possession with intent to sell or supply and $500 for possession of a quantity of cannabis.

9. For the record the following subsequent and relevant convictions are noted.^[8] This is not a complete list of the taxpayer's convictions but only of those of relevance. In February 1994 he was fined $500 for possessing cannabis. In June 1994 he was fined $400 for possession of amphetamine. In April 1996 charges were heard (and to which he pleaded guilty) for amphetamine and heroin possession with intent to supply and for importation of heroin. These latter charges were those for

---

ATC 193

which he went to jail (presumably remand) in November 1995.

10. The taxpayer married (for the second time) in 1994 and about July that year travelled with his spouse to Italy. They returned around Christmas time, in December 1994.

11. Whilst not categorically denying that he was involved in drug dealing the taxpayer claims that he was set up by, and dealing on behalf of, the Australian Federal Police as an agent provocateur. His affidavit (A1), he submits, supports these claims. However, that affidavit is a copy of evidence presented to the Court of Criminal Appeal (WA) in relation to the taxpayer's appeal against his conviction (for which he pleaded guilty). Pidgeon J, with whom Malcolm CJ and Kennedy J agreed, said, in relation to this evidence:

``The affidavit file by the applicant [the taxpayer] sets out his whole history of drug dealing... If the situation were that officers asked him to keep trading so that the authorities could identify and arrest the persons found to be dealing with him then the legal situation and the legal consequences and the applicant's liability would become a complex question. (p. 368)... This is not the type of situation deposed to by the applicant. What subsequently occurred, as deposed to by the applicant, is complete dishonesty by both the applicant and the police officers with the applicant and the law enforcing officers sharing the proceeds of substantial drug dealing on their own account. There is no suggestion of an official advance of money to conduct a controlled operation to apprehend offenders. I shall make reference to some of the detail deposed to by the applicant but it must be emphasised that the officers concerned have deposed that the applicant's allegations are completely untrue.''

(p. 369)^[9] Extract from the Court of Criminal Appeal (WA) judgment in the matter of the taxpayer's appeal against conviction but confined to a practice and procedure matter at the time. The details of the reference are suppressed in the interests of confidentiality (Ex R19).

12. No independent evidence, which would enable any contrary conclusion about the taxpayer's activities involving members of the police force, has been presented and the Tribunal adopts the conclusions of the Court of Criminal Appeal above. The taxpayer has not satisfied the Tribunal that he was dealing in drugs as an agent. The affidavit (A1) is clear admission that the taxpayer was dealing in drugs.^[10] See A1, for example, paragraphs 13, 18, 29, 30, 37, 41, 57, 59, 62-65, 81-87, 105 etc etc. In his oral evidence, the taxpayer admitted being actively involved in drug dealing from some time in 1993.

13. He submitted that the taxable incomes assessed, for each of the three years ended 30 June 1990, 1991 and 1992, by process of averaging the immediately preceding years' taxable incomes,^[11] See paragraph 4 above. is flawed because he was not in the country from May 1992 to September 1992 and when he returned he was unemployed. R20, his police record, indicates that he was in Australia in August 1992 when he was convicted of stealing and fined $500. The taxpayer has not produced any supporting evidence to indicate that he was absent for a significant part of the calendar year 1992. The Tribunal has nothing to go by, except for the taxpayer's recollection. Admittedly, the taxpayer was disadvantaged in preparing for his case, being in jail. Nevertheless, in the Tribunal's opinion, the taxpayer simply has failed to discharge the onus of proof^[12] Section 14ZZK(b) of the Taxation Administration Act 1953. that those three assessments are excessive. Despite evidence that in those years he was a contract worker in the building industry, he offered no evidence of his actual earnings of income during those three years. His only evidence is that some time after June 1989 he was off work for about one and a half to two years with a broken foot and during that time he survived on about $6,000 ``medical benefits''.^[13] Although when questioned about this by Ms Price for the respondent he said firstly that he was on sickness benefits and later, when it was suggested that there was no record of such benefits being paid, said it must have been insurance. The Tribunal cannot draw any definitive conclusions about what may have been the facts in relation to this period. The taxpayer did admit in questions put to him by Ms Price that this was a time when he was most likely actively engaged in building his home. Also, for a period of about 4 months in 1992 he was absent overseas and derived no Australian source income and that immediately after he returned, he was on social security benefits.^[14] There is evidence that the taxpayer received $7,335 in social security benefits during the year ended 30 June 1993, which amounts have been included as assessable income for that year of income. As mentioned, the taxpayer has not satisfied the Tribunal that his stated recollection of events is reliable. In the absence of any objective evidence of actual taxable income for the three years of income mentioned, the Tribunal cannot found a conclusion that the assessments in question are excessive. They may well be but the taxpayer has not discharged his onus of proof in that regard. In the opinion of the Tribunal, the averaging method adopted by the respondent in these circumstances, where there is both a complete lack of documentation and unsupported self-serving statements by the taxpayer, together with a prior history of income earning, the respondent's assessments are reasonable and not at all fanciful. That being the case, the taxpayer's objection to the first three years of income, ended 30 June 1990, 1991 and 1992 cannot be sustained.

14. In relation to the taxpayer's objections to the assessments issued for the following four years, ended 30 June 1993, 1994, 1995 and

---

ATC 194

1996, the Tribunal had before it the T documents and various exhibits. In addition, the Tribunal received the oral evidence of the taxpayer, his affidavit (Ex. A1) and the oral evidence of his spouse, his daughter and his son-in-law. As noted by footnote (supra), the latter three witnesses were called by the taxpayer to corroborate his evidence, however because the taxpayer changed his mind and asked that they not be called, the Tribunal called them instead.

15. The taxpayer's oral evidence is conveniently summarised as follows:

• • His spouse has considerable private means available and she paid for the wedding and later, the BMW motor vehicle imported after their return from overseas in 1994. In particular - $8,343 cash to the Hyatt (R15); and $11,012.41 cash paid for a bank cheque on 2 February 1995, for costs on importation of a BMW motor vehicle (R1, p. 8). Also, the taxpayer said in evidence that his spouse funded a deposit of $10,500 on the purchase of a house; (see T35 - capital expenditure). When questioned about this the taxpayer said the transaction occurred just prior to his arrest and that his spouse decided not to go ahead with the purchase and she lost the deposit. He could not offer any reason as to why she would not proceed with the purchase rather than lose that amount of money.
• • His son-in-law and daughter were drug dealers in their own right and used proceeds from their own dealings to pay for many of the amounts attributed to him as the source of unexplained funds. In particular - a sum of money (said to be $220,000) held in a safe deposit box in his daughter's name (referred to in part in R4(a) & R4(b), R11, T27, p. 222 and T13, p. 141, T16, p. 164, T17 and p. 173-178); $6,000 cash paid for a motor vehicle for his daughter (T14, pp. 144-145); $10,000 or thereabouts, received by his partner (who later became his spouse) from an insurance claim was used to support both of them. Also, $30,000 seized by the Australian Federal Police from a third party, was money belonging to his daughter and not his (R1, p. 12 and R4(a). R4(a) is a signed statement in which the third party deposes that, at the time of the taxpayer's arrest in November 1995, he took the money from a safe deposit box in the taxpayer's daughter's name. She gave him the key and authority to access it (T16, pp. 160-162). The sum of $17,000 cash paid for rent in advance for the lease of a workshop was funded by the taxpayer's daughter. (See sworn statement at T21, p. 189-190, which refers and contradicts.) In relation to the sum of $15,000 paid as a deposit on a house for the taxpayer's son, he maintains that it came from his son-in-law. However his son-in-law stated that $12,000 of it came from cash which he was holding for the taxpayer and the balance of $3,000 was a cheque which was a repayment of a cash loan given to him earlier on by the taxpayer (R1, p. 11).
• • In August 1997 (whilst still in jail), the taxpayer made a sworn statement to the Family Court in relation to consent orders. In it he deposed that he had ``savings'' of $199,000 (T8, p. 112). When asked about this by Ms Price, he admitted that this was his statement but then said the statement was incorrect, that he did not have the assets as stated. When asked, he denied that this was part of the missing $220,000 said to have been stolen and which he said belonged to the Australian Federal Police. He did admit in cross-examination to making an effort to recover the allegedly stolen money without success, even though he said it was not his money.
• • When asked by Ms Price about the origins of $33,500 cash deposits from unknown sources, as state in the T Account for the year ended 30 June 1994 (T2, p. 33), the taxpayer said it was from wedding presents. The details of these several deposits is set out at T2, pp. 11-15. There are 8 separate deposits, (one of $1,500, one of $3,000, one of 4,000 and five of $5,000, deposited at irregular intervals between 16 September 1993 and 24 June 1994). The taxpayer said the wedding was in July 1994. He said that he did not have any record of who gave the money but his spouse would have such a record. His evidence is that it is customary in his culture for wedding guests to give money. He said it was not unusual that such large amounts would be given, even nine months before the actual wedding. In the absence of any corroborating evidence, the taxpayer's evidence cannot be given any credence, especially having regard

  ---

  ATC 195

  to his admitted nefarious activities at the time.
• • The taxpayer admitted having received certain goods in exchange for trade services rather than payment (year ended 30 June 1993, goods valued at $10,369, year ended 30 June 1994, goods valued at $3,227 and $5,133 and year ended 30 June 1995, goods valued at $13,703: T2, p. 37). Each of these amounts has been included as assessable income in the respective assessments of taxable incomes (T2, pp. 57-59).
• • That $220,000 cash said to have been stolen during the year ended 30 June 1995 was not the taxpayer's money but was money provided to him by the Australian Federal Police (when he alleges he was acting as agent provocateur). The only relevant evidence that the taxpayer had was his affidavit (A1), already discussed and in relation to which the Tribunal adopts the observations of the Court of Criminal Appeal (WA) mentioned above.
• • That $10,000 given to the taxpayer's spouse by his daughter was money belonging to his daughter. The sworn statement deposed by the taxpayer's son-in- law states that this money was part of the money which the taxpayer had been giving, on a regular basis, to the taxpayer's daughter (his spouse) for deposit into the safe deposit box. It was held in cash at the time of the taxpayer's arrest and passed to his spouse to fund his bail (T17, p. 173, T16, p. 163 and see R10, p. 11 para. 1, which refers).
• • That $7,450 (R1, p. 12) seized by the Australian Federal Police from a third party, who claimed that she was holding it for the taxpayer, was not his money (R6). The third party deposed that the money came into her possession from her daughter who obtained it from the taxpayer for whom she worked.

16. In relation to the demeanour of the witness, the Tribunal notes that when cross- examined by Ms Price he was, on several occasions, uncooperative and aggressive. This attitude was especially apparent when he was questioned on certain aspects of his oral evidence. For example: when questioned about his standard of living between 1993 and 1995; when asked about his assertion that money came from his spouse, who had said in her sworn statement that it came from him; when he asserted that his drug deals were done on credit and that he was not always paid;^[15] When questioned by the Tribunal about this the taxpayer said that he always paid for his supplies at the time and rarely sold on credit and then only to regular and reliable customers. He said ``never trust a druggie.'' when asked about his assertion that the stolen $220,000 belonged to his daughter and son-in-law; when asked about his assertion that the $17,000 cash paid to the landlord of the workshop was his daughter's money - he said that the workshop was intended mainly for use by his daughter and son-in-law; when it was put to the taxpayer that he organised and paid the tradesman for alterations to the workshop, he agreed but denied that it was his workshop.

17. In the light of the taxpayer's evidence and the need for much of it to be corroborated, as mentioned, the Tribunal called the taxpayer's daughter and son-in-law and his spouse to give evidence. By way of introduction in this regard, the Tribunal notes its impressions of those three witnesses. The taxpayer's daughter told the Tribunal that she suffered a nervous break- down soon after her father's arrest when she was subjected to a police interview without notice, concerning her father's activities. She said she was traumatised and spent some time in hospital as a result. She blames that experience for not now having clear recollection of events alluded to in her father's evidence and indeed in her own statement (T16). The Tribunal cannot accept that she does not recall all of the events put to her in questions by the taxpayer. It does however, accept that some of the events at the time are beyond recollection, for it is clear and accepted that she was traumatised by the fact of being taken into custody and interviewed, without an opportunity to make suitable arrangement for the care of her child. Also, it is the Tribunal's impression that whilst the taxpayer's daughter wishes to get on with her life to his exclusion, she is still somewhat intimidated by him. The Tribunal is of the opinion that the son-in-law's evidence is more reliable. It was, in effect, a reiteration of his statement (T17) which he said he had recently re-read in preparation for the hearing and did not wish to change. The Tribunal is of the opinion that the evidence of the taxpayer's former spouse is unreliable and at best equivocal. Even if taken as reliable, in the Tribunal's opinion it does not assist the taxpayer in discharging his onus of proof. Indeed, when challenged by the Tribunal, after the luncheon adjournment, as to why she was changing her evidence given before lunch, the taxpayer's former spouse said that she had had time to think about the particular matters in

---

ATC 196

question then. In particular the Tribunal places little reliance on the evidence of the taxpayer's former spouse that when they lived together they lived rather frugally and that she paid all household expenses from her own funds. It is the Tribunal's impression that the taxpayer and his former spouse were both lying when asked about their standard of living during the time they spent together before the taxpayer's arrest. The taxpayer did not appear to have any real understanding of the underlying methodology of the T accounts in evidence. Nevertheless, he appeared to appreciate that it would advantage him if the personal living expenses for each of the four years in question was reduced from the amounts assumed by the respondent.^[16] These amounts were estimated in R18 from Australian Bureaux of Statistics Household Expenditure and Characteristics by Household Composition — Australia, 1993-1994 — see R18.

18. Regarding the assertions made above (para 14) by the taxpayer involving the three witnesses, the Tribunal finds as fact:

• • The taxpayer's spouse did not have considerable independent financial means at any material time - before they met in 1992, during the period when they lived together prior to their marriage in 1994, nor after their marriage. The Tribunal is satisfied that before the marriage she earned her income from dealing in Bessermer Ware and similar products and supplying home made pastries and cakes to a local shop. None of these activities would provide anywhere near the sort of capital, which the taxpayer said she had at her disposal. Further, when pressed she said that over the time period in question her family may have assisted her to the extent of $15,000 all told. Also, her evidence about the amount of money received from family and friends as wedding presents was exceedingly vague. No conclusions in aid of the taxpayer can be drawn from that evidence. In the opinion of the Tribunal it is not plausible that the taxpayer or his spouse received, as wedding presents, either in Australia and or in Italy, anything like the amount of cash required to fund the wedding, the purchase of the BMW and the import clearance duties and charges paid in Australia when it arrived. The Tribunal does however, accept that more than likely the $10,000 received by the taxpayer's spouse as a result of the motor vehicle accident injury was used in whole or in part by the taxpayer in building their home. It is noted that this amount has not been included as assessable income of the taxpayer in any event.
• • The Tribunal does not accept that the taxpayer's daughter or son-in-law were earning sufficient money to accumulate independently the money alleged to have been stored in the safe deposit box, which has been variously estimated at $220,000 to $400,000.^[17] See witness' statements of taxpayer's daughter (T16, at p. 162), taxpayer's son-in-law (T17 at p. 171) and Albert Edward Washbrook (T27 at p. 224). The Tribunal accepts the evidence of both the taxpayer's daughter and his son-in-law that his daughter opened a safe deposit box at Bank West for the taxpayer, who provided sums of money from time to time, ranging from lots of $5,000 to $30,000, to deposit into that box. Also, the Tribunal accepts the witness statements for those two witnesses that the daughter kept a sum of money of up to $30,000 or thereabouts, at her home so as to provide cash to the taxpayer as and when required, which was quite frequently from all accounts. The Tribunal accepts the oral evidence of the taxpayer's daughter in relation to her and her immediate family's financial position. That is, that during the period in question, from some time since 1991 after she and her husband had returned from inter-State, they had little money and on occasion she had asked her father (the taxpayer) for small amounts of financial support, which he gave but not always. The Tribunal accepts the daughter's statement (T16) that she and her husband borrowed $67,000 from the National Australia Bank to fund the purchase of an electrical business. She deposed that her father put up a security deposit of $80,000 with that bank to secure the loan. Indeed, the evidence is that their electrical business failed and they both went into bankruptcy, not a likely outcome for someone holding large sums of money at their disposal. It is simply not plausible that the taxpayer's daughter gave her money to the taxpayer or to his spouse as the taxpayer has attested.
• • The Tribunal prefers the evidence of the taxpayer's son-in-law (T17) to that of the taxpayer in regard to the origin of the allegedly stolen sum of about $220,000. However, some allowance needs to be taken of the apparent confusion on the part of the deponent as to the amount in the safe deposit box and the amount buried in the taxpayer's back yard, both allegedly about $220,000.

  ---

  ATC 197

  The evidence is, and the Tribunal accepts, that there were two separate sums of about $220,000, one stored in the safe deposit box and withdrawn after the taxpayer's arrest and the other buried in a back yard and dug up for a drug deal in May 1995, prior to the taxpayer's arrest. It was this latter sum that was allegedly stolen. And further, the Tribunal accepts the evidence of Mr X, as deposed in his statement (R4a),^[18] The witness' identity is not revealed, as the Tribunal understands that he is a close family associate of the taxpayer if not related. The taxpayer's daughter deposed that she gave him the key to the safe deposit box together with a written authority to enable him to access it so as to remove its content. This she did on his suggestion after the taxpayer's arrest. (T16 at 160-161) that the $30,000 seized from him by the police after the taxpayer's arrest was proceeds from the safe deposit box which he had removed with the consent of the taxpayer's daughter. The evidence points to a reasonable conclusion that the taxpayer was dealing heavily in drugs and had accumulated large caches of money identified separately as two amounts of $220,000 and properly included in the T accounts in question. There is no evidence in support of the taxpayer's claims that the various sums which he attributes to having been sourced from his daughter and son-in- law, in fact came from them. Rather, to the contrary, these sums, which have not been denied, came from cash available to the taxpayer alone.
• • Similarly, the taxpayer has not discharged the onus of proof resting on him that he received, in total, the sum of $33,500 (T2, p. 33) as gifts of cash from wedding guests or family and friends in relation to his marriage in 1994. The more likely explanation of its source, which the Tribunal prefers and finds, is that it constitutes proceeds from drug dealing by the taxpayer.

The taxpayer's submissions

19. The taxpayer was unrepresented and for that reason his submissions were neither structured nor succinct. However, the Tribunal listened attentively without interruption, except to suggest that he read from his prepared statement if he believed that covered the relevant points. It gleans from his submissions what it understands to be their essence. These are summarised below in the order in which he made them.

20. The taxpayer submitted that even if the amounts variously assessed as income are in part proceeds from the illegal sale of drugs, (which he did not admit), then to that extent they cannot form part of his assessable income. He submitted in this regard that the Income Tax Assessment Act 1936 contains no specific provision bringing to assessable income proceeds from criminal activities. He submitted that there is no Australian precedent stating unequivocally that proceeds of criminal activities are assessable income. He further submitted that it makes no sense that such would be assessable income for income tax purposes because in so doing the government is condoning crime because by assessing its proceeds for tax it is participating indirectly in crime.

21. He submitted that these proceedings have a potential to prejudice him irreparably because he believes that he still has a case before the Anti-Corruption Commission. He submitted that if this Tribunal affirms the objection decisions under review he would be required to pay assessments that may later be proved to be without substance. The Tribunal understands this submission to be founded on an assertion that the proceeds of drug dealing which have been assessed are not his income but derived by him as agent for the police.

22. He submitted that contrary to an apparent conclusion drawn by the respondent in its submissions, he was overseas in 1991 not 1992.

23. He submitted that in any event the respondent has not been able to prove any of its assertions that the various sums of money attributed by them to drug dealing were in fact his drug dealings.

24. He submitted that the only admitted fact is that he did not file income tax returns for the six years in question. This, he submits, proves nothing and goes no way toward accurately assessing his proper taxable income for each of those years.

25. He submitted that the respondent has wrongfully relied on false statements obtained from his daughter, whilst under duress by the Australian Federal Police and that she was denied a lawyer at the time and put under severe pressure [to tell lies about him and his affairs].^[19] The Tribunal had received two signed statements to the AFP by the taxpayer's daughter. The first, dated 13 November 1995 (about the time of her father's arrest) was not taken into evidence. The second (T16) is dated 4 June 1996. There was no evidence that the latter was coerced in any way.

26. He submitted that the assessment for the year of income 1991/1992 is flawed because he was not then living with his future spouse; for 5 months of the year he was not in the country and prior to that he was unemployed.

27. He submitted that for the year of income 1993/1994 he did not have any gainful employment, spending most of the time building his house and living off his fiancee,

---

ATC 198

who later became his spouse. He submitted that both of them were on social security benefits for that year. He submitted in these respects that therefore he derived virtually no assessable income.

28. He submitted that for the 1994/1995 year of income, the year in which he was married, he and his spouse lived abroad for 5 months and derived no assessable income during that period. He reiterated his evidence-in-chief that in any event much of the money to pay for the wedding and the BMW was either wedding gifts or from his spouse's personal savings.

29. He submitted that he and his spouse (and before their marriage, his fiancée) lived quite frugally and would not have incurred anywhere near the amounts attributed by the respondent for personal living expenses.

30. In relation to the alleged sum of $220,000 contained in the safe deposit box, he reiterated his evidence that this was not his because the evidence shows that he did not open the box, it was in his daughter's name and operated by her or her husband. He repeated his evidence that he never had access to the box and submits that any money in it [must have] belonged to his daughter and son-in-law or (as the Tribunal understands this submission) sourced from his spouse's personal savings.

31. He submitted that the Tribunal should place no reliance on the evidence of his daughter or son-in-law, as it is self-serving. He submits that they would not be prepared to tell the truth, as it would incriminate them [a reference presumably to the taxpayer's assertion that they were very successful drug dealers in their own right]. He further submitted that the Tribunal should accept his assertion (which he put to his son-in-law and which was emphatically denied) that his son-in-law did a deal with the police to falsify evidence to convict the taxpayer on the basis of immunity given to his son-in-law.

32. In relation to the alleged $220,000 dug up from [his] back yard in May 1995 and later stolen, he submitted that it was not and never was his money but belonged to the Australian Federal Police so he should not be assessed on it. And, in any event, that money has gone, stolen, so he ought not to be required to pay tax on it. The Tribunal understands this to be a submission that the sum stolen (which the evidence supports) if the taxpayers, should give rise to a tax deduction of that amount.

33. The taxpayer concluded his submissions by complaining that the Tribunal had not conducted the hearing fairly as he was not provided with any legal assistance nor accountancy assistance and that the Tribunal did not allow him to ask the first questions of his witness, his former spouse but assumed that role to themselves.

34. The Tribunal will deal with each of those submissions as well as the submissions of the respondent provided in written outline and addressed orally by Ms Price.

Reasons for decision

35. The Tribunal finds as fact that the taxpayer profited from drug dealing at least in the years of income ended 30 June 1993, 1994, 1995 and 1996. The Income Tax Assessment Act 1936 (``the Act'') does not differentiate as potentially assessable income, that derived from legal as distinct from illegal business activities. In the opinion of the Tribunal the taxpayer was carrying on a business of dealing in drugs, from which he derived assessable income pursuant to s 25(1) of the Act. There appears to be no direct Australian precedent on this question however, the matter has been considered in other jurisdictions. In
Partridge v Mallandaine (1886) 2 TC 179 at 180, Denman J said:

``In my opinion if a man were to make a systematic business of receiving stolen goods, and to do nothing else, and he thereby systematically carried on a business and made a profit of #2,000 per year, the Income Tax Commissioners would be quite right in assessing him if it were in fact his vocation.''

36. Several other cases in other jurisdictions are cited at paragraph 11-745 (and 19-370 re ITAA 1997) of CCH Australian Federal Tax Reporter, including
Minister of Finance v Smith [1927] AC 193 in which profits from bootlegging liquor were held to be assessable to income tax. The taxpayer was, at material times, a resident of Australia carrying on an illicit business of trading in drugs with a view to profit. Those facts are supported by the evidence before the Tribunal and are, in its opinion, sufficient of themselves to treat the proceeds from the sale of such drugs as assessable income pursuant to s 25(1) of the Act. The Australian Federal Court has given implicit support for the above contention that proceeds from illegal activities are regarded as assessable income:
Madad Pty Ltd v FC of T 84 ATC 4739

---

ATC 199

at 4744; (1984) 4 FCR 420 at 426,
Magna Alloys and Research Pty Ltd v FC of T 80 ATC 4542 at 4563-4564; (1980) 49 FLR 183 at 214-215 and see also Parsons RW, Income Taxation in Australia, Law Book, 1985 at para. 2.27.

37. The Tribunal cannot accept that these proceedings may prejudice the taxpayer irreparably. Even, in the most unlikely event that in another place it was found that he derived the proceeds of his drug dealings as agent, the provisions of s 254 of the Act would govern him. The evidence before the Tribunal is that the Court of Criminal Appeal has dismissed the taxpayer's application in regard to his acting as agent and there is no evidence of any on- going, immanent or likely Anti-Crime Commission inquiry or investigation which might bring about any other result. The case history of this matter, since its initiating application in 1997, and the forbearance of both the respondent and the Tribunal to ensure that the taxpayer had every reasonable opportunity to present his case without prejudice, supports a conclusion that natural justice has been afforded him.

38. As mentioned above, the taxpayer has not discharged his onus of proof that the assessments for each of the three years of income ended 30 June 1990, 1991 and 1992 are wrong. The Tribunal has already commented, in paragraph 13 above, upon the acceptability of the method used by the respondent to arrive at the taxable income for each of the years in this regard. Whilst recognising that the taxpayer has made many assertions about his then activities, these have not been substantiated or corroborated and are at best self-serving. He asserted that for 5 months in the 1991/1992 year he was out of the country and for much of the year was unemployed. Those statements have not been independently verified. He has not presented any evidence to provide a basis for arriving at his proper taxable income for any of those years. He has admitted that at various times in those years he derived income from his concrete business, from motor vehicle trading, as a site supervisor on various projects and from social security. However, he has not quantified these amounts. For those reasons the objection decisions in relation to each of those years of income are affirmed.

39. As mentioned above in paragraph 6, it is not for the respondent to prove the amount of its assessments but s 14ZZK(b)(i) of the Taxation Administration Act 1953 requires that on an application to the Tribunal for review of an objection decision the taxpayer has the burden of proving the assessment is excessive. In
Favaro v FC of T 97 ATC 4442, the Full Court (Spender, von Doussa and Sackville JJ) made the following comment which, in the opinion of the Tribunal, is appropriate in this case for reasons already provided, not the least of which is the lack of credibility of the taxpayer:

``The learned primary Judge commenced by citing passages from
FC of T v Dalco 90 ATC 4088;... and from
Ma v FC of T 92 ATC 4373. In Dalco, Brennan J, with whom four other members of the Court agreed, said this about s 190(b) of the Income Tax Assessment Act 1936 (Cth), the predecessor to s 14ZZO^[20] The provisions of s 14ZZO of the Administration Act refer to appeals to the Federal Court and are similar terms as s 14ZZK which refers to requests for review by the Administrative Appeals Tribunal. of the Tax Administration Act 1953 (at ATC 4091; CLR 621):

`Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.'

The passage cited by her Honour from Ma was as follows (at ATC 4377; CLR 230):

`... if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax.'

The primary Judge formed an adverse view of Mr Favaro's credibility. She did not regard Mr Favaro's evidence on any significant issue as worthy of belief unless confirmed or corroborated by other evidence or as adverse to the interests of the appellants. Accordingly, she did not accept

---

ATC 200

his evidence on a number of important issues affecting the asset betterment statements prepared on behalf of the appellants.''

(p. 4445-4446)

40. The Tribunal does not accept that the respondent's case relies on false statements by the taxpayer's daughter obtained by the AFP under duress. Indeed, the statement by the taxpayer's daughter signed in November 1995 was not taken into evidence and has not been considered in these reasons. The statement made by her in June 1996 has been taken into evidence. For reasons expressed above, to the extent that admissions in that statement (T16) are contrary to the taxpayer's evidence, the Tribunal has preferred the former. There was no contention on the part of the deponent that the later statement (T16) was made unwillingly.

41. The evidence is that the sum of $220,000 allegedly stolen in May 1995 belonged to the taxpayer and he has not discharged his onus of proof that it was not proceeds from drug dealings. Indeed, his evidence and that of his son-in-law is that the money that had been dug up from his yard was stolen during an intended drug purchase. Their evidence is that the money was stolen. In the Tribunal's opinion the sum of $220,000 has been correctly included among ``other payments'' in the T account for the year ended 30 June 1995 (T2, p. 34) having the effect of increasing the otherwise ``total funds expended''. On the basis that the money was in fact stolen, which is accepted by the Tribunal, there arises the question of whether there should be an offsetting allowable deduction for the loss. Subsection 51(1) of the Act, for the present purposes, allows as deductions losses or outgoings incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing such income, except to the extent that the loss or outgoing is of capital or of a capital nature. The amount is clearly a loss as it was stolen. It was lost during activities directly connected with the carrying on of the illicit drug dealing business, the proceeds from which are assessable income pursuant to s 25(1) of the Act.

42. As noted, the taxpayer was not represented in these proceeding and has little, if any, demonstrated knowledge of Income Tax law. The respondent did not address the question of whether the $220,000, which had been stolen during a drug deal, is an allowable deduction. The Tribunal, subsequent to its adjournment, provided parties an opportunity to make submissions in this regard.^[21] A written submission on the issue was firstly sought from the respondent and then provided to the taxpayer for response. The Tribunal proceeded in this manner so as to afford parties procedural fairness — see Full Court decision in Fletcher & Ors 88 ATC 4834 at 4846-4848. The issues are whether the amount stolen (that is, lost) is a loss on revenue account incurred in the course of carrying on the drug dealing business or a loss of capital? In the latter case it would not be deductible unless it is otherwise allowable pursuant to s 71 of the Act.

43. The Tribunal can dispense with the last issue promptly. In its opinion no deduction is available pursuant to s 71 as the evidence is that unknown persons stole the amount. For the loss to qualify as a deduction under s 71^[22] Subsection 71(1) of the Act states: Where a loss incurred by a taxpayer through embezzlement, larceny, defalcation or misappropriation by a person, including an agent, employed by the taxpayer, not being a person employed solely for private or domestic purposes, of, or in respect of, money that is or has been included in the assessable income of the taxpayer is ascertained in the year of income, that loss shall be an allowable deduction. it would need to have resulted from larceny (theft) perpetrated by a person employed by the taxpayer. Clearly that condition is not present.

44. In the opinion of the Tribunal the amount stolen was accumulated proceeds from drug dealing. That the amount was not banked does not alter its nature. It was received as income and accumulated for use in the business.

45. In 1956 the Full High Court in
Charles Moore & Co (WA) Pty Ltd v FC of T (1956) 11 ATD 147; (1956) 95 CLR 344, by way of a case stated, considered the question of deductibility of a sum of money stolen at pistol point, whilst being taken from the taxpayer's retail store to the nearby bank for depositing. The amount was an accumulation of the previous day's takings from sales, miscellaneous services and collections on account of credit sales and lay-by sales. It was part of the daily routine to take the money to the bank for depositing. In holding that the amount was an allowable deduction under s 51(1) of the Act their Honours, Dixon CJ, Williams, Webb, Fullagar and Kitto JJ, made the following observations relevant to the present case:

``Banking the takings is a necessary part of the operations that are directed to the gaining or producing day by day of what will form at the end of the accounting period the assessable income. Without this, or some equivalent financial procedure, hitherto undevised, the replenishment of stock in trade and the payment of wages and other essential outgoings would stop and that would mean that the gaining or producing of the assessable income would be suspended. (p. 350)

... The `occasion of the loss' in the present case was the course pursued in banking the

---

ATC 201

money. In
Commissioner of Taxation (NSW) v Ash (1938) 61 CLR 263; 5 ATD 76, Rich J said; `There is no difficulty in understanding the view that involuntary outgoings and unforseen or unavoidable losses should be allowed as deductions when they represent that kind of casualty, mischance or misfortune which is a natural or recognized incident of a particular trade or business the profits of which are in question. These are characteristic incidents of the systematic exercise of a trade or the pursuit of a vocation.' Even if armed robbery of employees carrying money through the streets had become an anachronism which we no longer knew, these words would apply. For it would remain a risk to which of its very nature the procedure gives rise.... Phrases like... `incidental and relevant' when used in relation to the allowability of losses as deduction do not refer to the frequency, expectedness or likelihood of their occurrence or the antecedent risk of their being incurred, but to their nature and character. What matters is their connexion with the operations which more directly gain or produce the assessable income. (ATD pp. 148-149; CLR p. 351)

It was argued for the commissioner that even conceding the foregoing the loss was of a capital nature. This argument depends upon the view that before the money was stolen it had come home to the taxpayer so as to form part of its capital resources. But that is not a tenable view of the matter. Attempts have been made in
Sun Newspapers Ltd and Associated Newspapers Ltd v FC of T (1938) 61 CLR 337 at 359-363; 5 ATD 87 at 93-97, and
Broken Hill Theatres Pty Ltd v FC of T (1951-1952) 85 CLR 423 at 433-434; 9 ATD 423 at 424 to formulate the tests for distinguishing between on the one hand losses, outgoings and expenditure of an income, and on the other hand those of a capital nature. For the purposes of this case it is enough to refer to the passages cited and to point out that we are here dealing with a loss incurred in an operation of business concerned with the regular inflow of revenue, not with a loss of or concerning part of the `profit yielding subject', the phrase in which Lord Blackburn in
United Collieries Ltd v Inland Revenue Commissioners (1930) SC 215 at 220; (1929) 12 TC 1248 at 1254, summarize the characteristics of a business undertaking or enterprise considered as an affair of a capital nature.''

(ATD p. 149; CLR p. 351)

46. In the opinion of the Tribunal it is not to the point that the drug dealing business was illegal. In a sense, that fact makes the likelihood of the participants being robbed greater since the crime is less likely to be reported to the authorities, increasing the chances of getting away with it. So, to paraphrase their Honours' in Charles Moore, what matters is the connection of the robbery with the drug purchase operation directly connected with the gaining or production of the taxpayer's assessable income. That connection or nexus is established on the facts. The Tribunal adopts the court's reasons for holding that the amount stolen in Charles Moore was not a loss of capital or of a capital nature and ergo, this loss would be so characterised. If that is wrong in law then this is not the appropriate forum to decide that question. Charles Moore is an unchallenged Full Court decision of some 48 years standing, concerning a fundamental issue relating to a generic provision of the Act which, in this respect, remains unchanged. Further, in the opinion of the Tribunal the loss cannot be characterised as one incurred in the course of securing a future supply of drugs (an enduring benefit), which would be of a capital nature. The evidence is that it was lost during operations to acquire trading stock.

47. For those reasons the Tribunal finds that a deduction pursuant to s 51(1) not previously allowed by the respondent should be allowed for the sum of $220,000 stolen during the year ended 30 June 1995.

48. In the Tribunal's opinion there is sufficient evidence (supra) before it to be satisfied that there was a sum of at least $220,000 accumulated in a safe deposit box on behalf of the taxpayer and removed therefrom soon after his arrest in November 1995. The Tribunal is satisfied on the evidence that that sum was an accumulation of drug dealing proceeds over time. It cannot be broken down to income derived in any one or more years of income. In the absence of any evidence to the contrary, it is reasonable to adopt the respondent's approach and treat the amount as cash on hand as at 31 October 1995 (T2, p. 35 and R1, p. 12), even though it has not been recovered. The evidence suggests that $30,000

---

ATC 202

of the money previously stored in the safe deposit box was recovered by the police from the person who allegedly removed it from the safe deposit box (R4a and T16). The evidence of the taxpayer's daughter is that the amount in the box was between $250,000 and $300,000 (T16, p. 158). The Tribunal has already expressed the view that it prefers her evidence and that of her spouse instead of that of the taxpayer. So, in the opinion of the Tribunal, to include both the $220,000 and the $30,000 in ``cash on hand'' (R1 and T2) was open to the respondent in compiling its T account for the period from 1 July 1995 to 31 October 1995 (T2, p. 35). No adjustment in this respect should be made to the respondent's assessment of the taxpayer's taxable income for the year of income ended 30 June 1996.

49. As mentioned in paragraph 5 above, during the hearing the taxpayer submitted that money and real and personal property, (valued at $264,610), forfeited pursuant to a declaration by the Supreme Court of Western Australia under the Proceeds of Crimes Act 1987 (Cth) (Ex R2), should be excised from his taxable income. He submitted that both to forfeit the property and to assess it for tax is charging twice for the same amount.

50. The Tribunal understands this submission to be open to two alternate interpretations:-

• (a) that the seizure is a payment to the Commonwealth equal to the value of the property seized and therefore, in effect, should be taken to be a discharge in part of any income tax liability arising from the disputed assessments;^[23] See footnote 28 below. or
• (b) that the seizure, because of its clear connection with the crime of drug dealing giving rise to the disputed assessments, should result in a tax deduction, equal to the value of the property seized, from the assessed income from drug dealing activities.

51. In response to the first of these implied submissions the Tribunal is of the opinion that although the end result of either a seizure under the Proceeds of Crimes Act or a payment of assessed income tax pursuant to the Act, is to contribute to Commonwealth revenue, the two are quite distinct. The seizure or confiscation of property under the Proceeds of Crimes Act is part of the penalty/punishment imposed by a court upon conviction for breaking the law. It is a penalty in the same character as a fine or imprisonment. It is not a payment, voluntary or otherwise, by the person from whom the property is seized. It does not discharge any liability nor establish any rights. It is not a consequence of a contractual or legal obligation arising as a result of lawful activities or bona fide levies, such as local council rates levied on property owners or licence fees levied on persons conducting particular legal activities (e.g. fishing). On the other hand, a payment of income tax is made to the Commissioner of Taxation under the Act, to discharge a liability arising as a result of an assessment of income tax according to law. The liability is evidenced by a notice of assessment^[24] Or of course, in the case of some taxpayers under the self-assessment system, a deemed notice of assessment — see for example s166A of the Act. or a notice of amended assessment under the Act. It is in the same character as local council rates levied on property owners or licence fees mentioned above. It is a debt to the Commonwealth discharged by payment, unless waived according to law.

52. In relation to the second of the implied submissions, for the taxpayer to qualify for a deduction of $264,610 the amount would need to meet the tests of s 51(1) discussed above and not be excluded by s 51(4) mentioned below. The first obstacle confronting the taxpayer is that the ``payment'' if there was one, occurred after the end of the years of income in which the assessed income was derived. The court order under the Proceeds of Crimes Act was made on 30 October 1996 (R2). It had no temporal connection to the business activities giving rise to the income derived. Nor could it be said that the incurring of the penalty could give rise to any income derivation or be incurred in the course of the operations from which the business derived its income. It was a loss and therefore incapable of generating income either directly or indirectly. Also, the forfeiture was too late to have any relevant nexus with the assessed income's derivation, occurring well after the taxpayer was out of action and in jail. The amount of the loss was not incurred in the course of carrying on the business of drug dealing or related to winding it up. It was clearly a loss consequent upon his conviction. In the opinion of the Tribunal there is insufficient nexus between the occasion of the derivation of the income that may have been used to accumulate or purchase the property forfeited and the occasion of the loss (the forfeiture) - see
Amalgamated Zinc (de Bavay's) Ltd v FC of T (1935) 3 ATD 288; (1935) 54 CLR 295

---

ATC 203

. Unlike the loss of the money stolen, discussed above, this loss is neither relevant nor incidental to the day to day activities previously carried on in the drug dealing business. No reduction of taxable income can follow as a result of the forfeiture.^[25] Insofar as it is relevant this conclusion is supported by the respondent's Taxation Ruling TR 93/25 .

53. It was submitted on behalf of the respondent that in any event s 51(4) operates to deny any otherwise allowable deduction. That subsection provides:

``A deduction is not allowable under subsection (1) in respect of:

• (a)...; or
• (b) an amount ordered by a court, upon the conviction of a person for an offence against a law of the Commonwealth, a State, a Territory or a foreign country, to be paid by the person.''

However, because the Tribunal is of the opinion that the forfeiture or seizure is not an amount ``to be paid by the [taxpayer]'', it falls outside the exception. Although ``paid'' is not relevantly defined in the Act^[26] It is defined in s 6(1) but only in relation to dividends. its lexical definition does not include notions of forfeiture, seizure or confiscation of property. The word is defined, in this sense, in the Macquarie Dictionary as:

``Pay v, paid ... To discharge (a debt, obligation, etc), as by giving or doing something. 2. To give (money, etc) as in discharge of debt or obligation. 3. To satisfy the claims of (a person, etc.) as by giving money due. 4. To defray (cost or expense). 5. To give compensation for. 6. To yield a recompense or return to; be profitable to...''

54. In the opinion of the Tribunal the amount forfeited is not an allowable deduction pursuant to s 51(1) of the Act, albeit not excluded by s 51(4). In any event, if it is wrong in that conclusion, the Tribunal, in this respect, accepts the alternate submission of the respondent that the forfeiture of property imposed in the public interest as a personal deterrent and punishment clearly does not satisfy the positive limbs of s 51(1) of the Act and is a non-deductible capital loss or is a private loss.^[27] No submissions were received as to whether the loss was of such a character that it would satisfy the provisions of Part 111A, Capital Gains and Losses and be taken into account as a capital loss. As the taxpayer has not been assessed on any capital gains per se that discussion is of academic interest only in the current context since capital losses cannot reduce otherwise assessable income.

55. For the above reasons no reduction in taxable income arises as a consequence of the seizure of property referred to above.^[28] In the context of reviewing the objection decisions under review it is not within the Tribunal's jurisdiction to make any observations about the competency or otherwise of the amount forfeited as being taken as a set-off against the taxpayer's tax liability. However, the Tribunal has averted to this question in paragraph 50 above.

56. The taxpayer submitted that the Tribunal did not afford him procedural fairness by having questioned his former spouse before he was given the opportunity of questioning her. It is not required that the Tribunal defend itself against such accusations, which would normally be made in the Federal Court as a ground for review of the Tribunal's decision. In this case, as the accusation was made in the course of the proceedings the Tribunal was obliged to decide whether there had been a denial of natural justice or procedural fairness so as to consider whether it could be rectified before handing down its decision. In considering this matter the Tribunal notes that it is bound to conduct proceedings with as little formality and technicality, and with as much expedition, as the requirements of the Administrative Appeals Tribunal Act 1975 and (in this matter) the Taxation Administration Act 1953 permit. It is not bound by the rules of evidence and may inform itself on any matter in such manner, as it thinks appropriate.^[29] Subsection 33(1) of the Administrative Appeals Tribunal Act 1975. Further, the witness in question was ultimately called by the Tribunal, which suggests a prerogative right to examine- in-chief.

57. In the course of the above reasons the relevant submissions of the respondent have been taken into consideration. Some additional submissions were made and these too were considered in determining the facts and reaching the decision below.

58. The Tribunal agrees with the primary submission of the respondent that the onus of proof in this matter rests with the taxpayer (supra). The Tribunal accepts that the T account method used by the respondent to assess the taxable incomes pursuant to s 167 of the Act is proper in the circumstances of this case as previously outlined in paragraph 7 above. The method has been approved in Favaro v FC of T 97 ATC 4442 at 4443-4444 and AAT Case 4072
88 ATC 191;
(1988) ATR 3133, Senior Member PM Roach at ATC 192; ATR 3134.

59. In the course of submissions on behalf of the respondent, Ms Price canvassed many aspects of the assessments and T account entries in particular and set out the respondent's reasons for these. The Tribunal has not deemed it necessary to address each and every one of those submissions in detail if only for the reason that they were not challenged by the taxpayer. The Tribunal invited the taxpayer, on several occasions during his evidence-in-chief to address each of the adjustments in particular. In the opinion of the Tribunal the only matters which the taxpayer addressed have been covered in these reasons. The Tribunal

---

ATC 204

therefore concludes insofar as there are other items in the T accounts not directly and individually addressed then the taxpayer has not discharged his onus of proof to satisfy the Tribunal that the various assessments under review are excessive. The Tribunal points in particular to the following paragraphs of the respondent's outline of submissions and accepts unreservedly those submissions, to the extent not otherwise canvassed in these reasons, in support of the respondent's assessments now under review:

• • Paragraphs 20 and 21 (Cash on hand)
• • Paragraphs 35 to 38 (Cash deposits)
• • Paragraphs 39 to 41 (Cash expenditure 1995/1996). The respondent's concessions in this respect are noted and taken into account in the decision.
• • Paragraphs 42 to 44 (Cash expenditure 1994/1995)
• • Paragraphs 45 to 49 (Receipts from contracting)
• • Paragraphs 52 to 54 (Sundry deposits)
• • Paragraphs 55 to 58 (Estimate of living expenses)
• • Paragraphs 59 and 60 (Social Security benefits)

60. In the course of taking evidence the Tribunal noted that the sum of $10,122.25 banked in April 1993 (T2, p. 29) was been included as assessable income (T2, pp. 34 & 37). The evidence is that this sum was an amount payable to the taxpayer's spouse in settlement of a compensation claim for injury in a motor vehicle accident and not ``income'' of the taxpayer. The Tribunal understands that the respondent concedes this. Therefore, the taxable income assessed for the year ended 30 June 1993 should be reduced to exclude that amount of $10,122 from assessable income.

61. The Tribunal accepts the submissions by the respondent, set out in paragraph 73 of its outline of submissions, that the objection decisions under review should be varied by the particular amounts as detailed. In addition, the Tribunal accepts the subsequent submission^[30] See respondent's letter to the Tribunal of 3 July 2000, with attachments. The Tribunal granted leave for this supplementary submission which reduces the applicant's taxable income for that year. that the amount included for estimated living expenses for the year ended 30 June 1993 be reduced by $3,725. The Tribunal also decides that in relation to the year ended 30 June 1995 the objection decision should be varied by reducing the taxable income by $220,000 being a further deduction pursuant to s 51(1) for the loss incurred when those funds were stolen in the course of the operations connected with the carrying on of the taxpayer's drug dealing business (supra).

Decision

62. For the above reasons and pursuant to s 43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the objection decisions under review in relation to each of the years of income ended 30 June 1990, 1991 and 1992.

63. For the above reasons and pursuant to s 43 of the Administrative Appeals Tribunal Act 1975, the Tribunal varies the objection decisions under review remitting the matter to the respondent to issue amended assessments accordingly:

• • For the year of income ended 30 June 1993 - reduce the taxable income by $13,347 to $75,908;
• • For the year of income ended 30 June 1994 - reduce the taxable income by $968 to $270,484;
• • For the year of income ended 30 June 1995 - reduce the taxable income by $224,793 to $222,161; and
• • For the year of income ended 30 June 1996 - reduce the taxable income by $7,450 to 510,414.

64. Finally the Tribunal notes that each of the notices of assessment for the respective years (T3) include additional tax assessed for late returns. As none of those amounts were the subject of objection, the objection decision under review or part of any application to this Tribunal, the Tribunal has not been called upon to consider them. However, if it was within its jurisdiction to review those assessments in that regard, on the basis of the evidence, it is highly unlikely that the Tribunal would be moved to vary those assessments in that respect. There will of course be adjustments to the additional tax assessments flowing from the above amendments.