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HO v FC of T

Members:
GL McDonald DP

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2008] AATA 783

Decision date: 3 September 2008

GL McDonald (Deputy President)

The application

1. The applicant is appealing against amended income assessments raised by respondent for the financial years 1993-1998 (inclusive). For those years the applicant lodged self-assessed income returns of $36,966, $34,333, $32,506, $29,562, $33,502, and $35,550 respectively. The assessments were amended to disclose income of $165,036, $267,013, $205,815, $357,999, $257,119, and $421,737 respectively. The applicant objected to the amended assessments. In as far as the tax years ending 1993 and 1998 were concerned the objections were allowed in part (a deduction of $2,000 in assessable income for the 1993 tax year and a deduction of $53,440 for the 1998 tax year). The total amount arising from the amended assessments is $1,477,162.07.

The hearing

2. The applicant filed three witness statements and a supplementary witness statement and gave oral evidence. Mr Gerard Mahoney, an officer of the respondent, was called by the applicant. The respondent did not call any witnesses.

3. The Tribunal had before it the documents filed for purpose of s 37 of the Administrative Appeals Tribunal Act1975 (the T documents), a set of supplementary T documents (the ST documents) and the exhibits tendered by both parties. The Tribunal was concerned that the applicant may give evidence which may be used against her in other proceedings and adjourned early on the first day so that she could take legal advice.

4. The applicant was represented by Mr Norman Rosenbaum and the respondent by Mr Peter Sest, both of counsel.

Preliminary matters

5. The applicant is and was at all material times a general medical practitioner who practises medicine in her maiden name, Ho. The applicant is married to Joo Kiah Chong, who is known as and will be referred to in these reasons as Mr Joe Chong. The applicant and Mr Joe Chong have two children, a son born on 25 May 1986 and a daughter born on 22 December 1990. It was the applicant's evidence that she and her husband are of Chinese origin. She claimed that she could raise issues which concerned her with her husband for his advice and counsel. However, it was her evidence that she had no moral authority to question him or refuse him when he asked her to do something for him. Thus she maintained that she was obligated to sign documents giving security over assets in her name, or in their joint names, when requested by him regardless of what she thought of any proposal even assuming he told her of his purpose. She maintained that this was so even after a guarantee she had given to secure funds for a business venture of her husband had resulted in her bankruptcy after the business failed.

6. Mr Chong has a brother, Mr Joo Kok Chong, who is known as and will be referred to in these reasons as Mr John Chong. The applicant initially gave evidence that they were a close family and Mr John Chong was always a part of the family along with another brother.[1] Transcript, 12 August 2008, page 57. In her later evidence the applicant stated that in about 2000 her husband and Mr John Chong had fallen out over financial matters and that the contact was thereafter not so close.[2] Transcript, 13 August 2008, page 193.

7. Mr John Chong and Mr Andrew Teh were shareholders and directors in two companies relevant to this case - Hanwood Dale Pty Ltd[3] Exhibit A7. (Hanwood Dale) and Jenola Falls Pty Ltd[4] Exhibit A8. (Jenola Falls). In each case Mr Teh was the majority shareholder.

8. The applicant from 1985 to early May 1996 practised at the Rosebank clinic situated in South Clayton and from then until June 1998 at the Springvale clinic which is located at Springvale.

9. Medical practices do not need to be operated by medical practitioners. From the time the applicant commenced at Rosebank in 1985 until December 1987 or early 1988, the clinic was operated by CPS Pty Ltd,[5] Exhibit A4, paragraph 33. thereafter until May 1996 by Supercare Family Medicine Centres Pty Ltd (Supercare). The evidence revealed that Dr Ian McGoldrick and his brother, Mr Bryan McGoldrick, were the medical administrator and administrative officer respectively of Supercare. Dr McGoldrick's wife, Dr F Bentley, also worked for Supercare. Supercare operated a number of medical practices in metropolitan Melbourne. In the last year of Supercare's operation of Rosebank, that is from April 1995-April/May 1996, it was claimed that Supercare licensed Mr John Chong to operate the practice. The applicant then transferred to the new clinic at Springvale. It was claimed that until the period ending 30 June 1998 that Mr John Chong operated the Springvale practice.

10. From 1985 until at least the end of 1998 the costs of the vast majority of patients seen by the applicant were covered by payments made by the Health Insurance Commission (HIC) (now Medicare). Where only the fee set by the HIC is paid for the service rendered the payment can be assigned by the patient to the treating practitioner. This involved the patient completing and signing the form of authorisation contained on the HIC claim form. After rendering the treatment the medical practitioner completes the form by recording the service provided. One copy of the form is given to the patient, another is retained by the practice and the third is forwarded, with other similar forms collated and placed with a covering sheet, to the HIC for payment.

11. In the applicant's case the operator of the practice requested the HIC provide a "pay group link". A pay group link assigns the payment to be made by the HIC to the treating medical practitioner to a nominated third party. This is not a step undertaken under any legislative authority. In this case from 1 July 1993 to April 1995 Rosebank had a pay group link authorising the payments to be made to Supercare, between May 1995 and May 1996 while the practice remained at Rosebank and for the balance of the period until 30 June 1998 when the practice was located at Springvale the pay group link was claimed to be made to Mr John Chong.

The evidence

12. From late 1985 the applicant practised at the Rosebank clinic. At that time the clinic was operated by CPS Pty Ltd. In late 1987 the clinic was purchased and was from then operated by Supercare. The applicant said she understood that Dr McGoldrick was the principal of Supercare and her dealings were with him and his brother. From the time she commenced with the clinic in 1985 until just prior to the commencement of the 1993 tax year there had been various arrangements made with respect to the applicant's remuneration depending on her circumstances, largely associated with her taking maternity leave commencing in 1986. One feature of the arrangements was that the clinic operator did not deduct income tax from the amounts paid to the applicant.

13. Another feature relevant to the period from her commencing at the clinic to at least 30 June 1998 was that that the applicant claimed there were no written agreements or other written records between the applicant and any of those she claimed employed her. A draft agreement was referred to in letter dated 30 December 1987 from a firm of solicitors which the applicant accepted as acting for her family.[6] Exhibit R11. Curiously the letter was addressed to the applicant's husband. The letter refers to a draft agreement between the applicant and Supercare and comments on some of the clauses. In particular the letter nominated the applicant to receive 55% of the gross fees collected and recommended the incorporation of a clause that the applicant be responsible for the payment of any other medical practitioners engaged at the clinic. The applicant said she had no memory of the letter and could not recall there being a draft agreement.[7] Transcript, 13 August 2008, page 154.

14. In April 1992 the applicant was facing bankruptcy as the result of guarantees which she had given with respect to her husband's supermarket business being called upon.

15. In late April 1992 the applicant met with Dr McGoldrick and explained, among other things, the financial difficulties she was facing.[8] Exhibit A4, paragraph 83. In her oral evidence the applicant maintained that at that time she trusted Dr McGoldrick and regarded him as a father figure.[9] Transcript, 12 August 2008, page 44.

16. In April 1992 the applicant claimed to be working at Rosebank three days a week. She claimed to receive 55% of the HIC payments made as the result of consultations carried out by her, including procedures carried out under her instruction by nurses. Because she was the designated clinic manager the applicant was paid 15% of the HIC payments made in relation to consultations carried out by other medical practitioners engaged at the clinic. Because of difficulties experienced with cheques not being honoured by Supercare, the applicant claimed that she would receive a cheque from Supercare covering her entitlement as well as that of the other doctors. The applicant negotiated that cheque into her account and then paid the doctors from her account.[10] Exhibit A4, paragraph 48. The other doctors were also paid by reference to the number of patients seen but at the rate of 40% of the HIC fees. In her oral evidence the applicant was unable to recall whether she deducted income tax when paying the other doctors.[11] Transcript, 13 August 2008, page 210.

17. Supercare did not deduct the income tax payable by the medical practitioners[12] Transcript, 13 August 2008, page 210. or make any superannuation guarantee contributions[13] Transcript, 12 August 2008, page 56. when the latter became compulsory in 1993 or deduct the Medicare levy. Each medical practitioner was responsible for paying his/her own professional indemnity insurance. Otherwise all the costs of running the clinic, administrative and other staff, premises, materials etc were paid by Supercare. It is the applicant's evidence that this arrangement suited her as she could practise medicine without incurring the time, and effort and engaging in administrative duties associated with operating of a clinic. She had earlier in her career operated a practice in partnership with another medical practitioner and she said she was not minded to do so again.

18. The applicant claims it was agreed in April 1992 that she would from thereon be employed as a medical practitioner for three days a week at times of her choice and be paid $2,000 per fortnight.[14] Exhibit A4, paragraph 85, and Transcript, 12 August 2008, page 92. In her oral evidence the applicant maintained that the three days was to be the minimum time she worked.[15] Transcript, 13 August 2008, pages 158-160 and 201. At the same discussion in April 1992 the applicant asserted that Dr McGoldrick raised the possibility of her acquiring a share in the practice at some future time was raised but no binding commitment was given.[16] Exhibit A4, paragraph 84(c).

19. In late July 1992 she again met with Dr McGoldrick. At that time the applicant's bankruptcy was pending. The applicant stated that she had been advised that she could earn up to $39,000 per annum without having to make any contribution to her trustee in bankruptcy. If she earned more than $39,000 she would be obliged to pay a percentage of her income on a sliding scale up to $65,000 and thereafter 50% after tax.[17] Exhibit A4, paragraphs 89-93. The applicant informed Dr McGoldrick that she would only work to earn $39,000, as she had made offers previously to the creditors to compromise the debt but these offers had been rejected.[18] Exhibit A4, paragraph 128. The applicant claimed that the creditors were vindictively disposed towards pursuing her as she was a medical practitioner, whereas they had not pursued the wife of another guarantor involved.[19] Exhibit A4, paragraphs 90-94, and Transcript, 12 August 2008, pages 44-46. According to the applicant Dr McGoldrick was anxious for her to remain at Rosebank as he regarded her as a "key member of the team".[20] Exhibit A4, paragraph 91. In her initial statement to the Tribunal the applicant stated that she was to continue working three days a week. In the amended statement subsequently filed the applicant stated that she also had the option of undertaking additional hours. It was the applicant's evidence that she would not be remunerated for any extra hours worked.[21] Exhibit A4, paragraph 96. She was to be paid a salary of $1,500 per fortnight (being $39,000 per annum).[22] Exhibit A4, paragraph 96(b). It was also agreed that the applicant would no longer continue as the practise manager and she would not continue to be paid the 15% of HIC payments made in respect of other patients seen by other consulting medical practitioners at the practise.

20. In late July 1992 and between then and early October 1992 the applicant claimed that she was instructed by Supercare to submit requisitions for 55% of the gross total HIC billings at Rosebank whether the consultations had been carried out by the applicant or other medical practitioners.[23] Exhibit A4, paragraph 99(a). After her fortnightly payment of $1,500 the applicant maintained that the balance was to be paid at the direction of Dr McGoldrick to "AG Png".[24] Exhibit A4, paragraph 99(c). From mid October 1992 to early August 1994 the requisition forms, completed by the applicant, showed varying amounts to be paid to other doctors at the clinic, in one case a payment to "Marketing Investments", some to unidentified person named as "AP Png" with the balance to be made out to "cash cheques".[25] Exhibit A4, paragraph 104(c). The applicant told the Tribunal that Dr McGoldrick either came to the clinic or rang her with instructions as to how to complete the requisitions.[26] Transcript, 12 August 2008, page 50. The applicant said that she made no enquiries as to who "AP Png" was or what was to happen to the cheques which were made out to cash.[27] Exhibit A4, paragraphs 104(c) and (d). It was, she maintained, not any of her business.[28] Exhibit A4, paragraph 105. The arrangements stated by the applicant were confirmed in a letter signed by Dr Bentley and addressed to the applicant's trustee in bankruptcy dated 12 October 1992.[29] Exhibit A3.

21. The applicant maintains that the arrangement outlined above continued until August 1994. She stated that during this time, since her husband was largely unemployed he assumed responsibility for looking after the house and children, that she became bored. To keep her boredom at bay the applicant said she undertook extra work at the clinic but for no reimbursement.[30] Exhibit A4, paragraph 127. In fact, as demonstrated in the finding with respect to an unrelated appeal by the applicant to the Professional Services Review Tribunal, the applicant was seeing an extraordinarily large number of patients.[31] ST documents, ST42, paragraphs 23, 42 and 43: it was determined that the applicant was providing 60 or more services per day on 84% of her working days. She was working six days a week and while seeing less patients on Saturday there numbers recorded were still high particularly for the period after she commenced at Springvale. The applicant confirmed that she constantly worked at this pace.

22. On 13 August 1992 the applicant was declared bankrupt. In the statement of affairs dated 11 August 1992 and filed for purposes of the bankruptcy Dr Bentley is nominated as being the applicant's employer on two occasions.[32] Exhibit R5, questions 16 and 24. In her oral evidence the applicant told the Tribunal that Dr Bentley was, at the time, the wife of Dr McGoldrick. The applicant also named Dr Bentley as her employer on an income questionnaire filed with the trustee in bankruptcy.[33] Exhibit R6. The applicant told the Tribunal that as Dr McGoldrick's wife she (the applicant) thought Dr Bentley would have an interest in Supercare. The applicant said she had had minimal contact with Dr Bentley - meeting her on one occasion and speaking with her over the telephone on another.[34] Transcript, 12 August 2008, page 115. The latter conversation concerned the applicant correcting the positioning of a container containing needles in the applicant's consulting room at the Rosebank clinic practice.

23. In 1993 Dr McGoldrick asked after the applicant's family. She claimed to have told him her husband had been out of work since January of that year. She also claims to have explained that her brother-in-law, Mr John Chong, was working at a failing fruit and vegetable business on a minimum wage and was experiencing difficulty in making ends meet.[35] Exhibit A4, paragraph 108. While the fruit and vegetable business was struggling she said Mr John Chong believed it to have future growth potential. The owners had offered to sell it to Mr John Chong. After advice from the applicant and her husband Mr John Chong entered into a partnership agreement with a family friend, Mr Andrew Teh, whereby Mr Teh provided the purchase price and Mr John Chong was to contribute his knowledge and skill to the operation of the business. Mr John Chong was to repay his minority share for the purchase of the business from its future profits.[36] Exhibit A4, paragraph 113.

24. In June 1993 the applicant claimed Supercare invited the applicant's husband and Mr John Chong to tender for operating a courier service between Supercare's clinics and to provide security services for the various premises from which Supercare operated.[37] Exhibit A4, paragraph 115. The applicant maintained that her husband declined to participate, because he was an undischarged bankrupt, but that Mr John Chong proceeded to be awarded the business in partnership with Mr Teh.[38] Exhibit A4, paragraphs 116-117.

25. In December 1993 Hanwood Dale purchased a residential house on Grandview Road in Wheelers Hill. The applicant and her husband agreed to rent the property paying a similar rent to that which they were paying for another property in the same suburb.[39] Exhibit A4, paragraphs 120 and 122. The applicant said that the Grandview Road property was "…newer, better appointed and better positioned" than their former rented property.[40] Exhibit A4 paragraph 122. However, it was the applicant's evidence that by the end of 1994 she was struggling to pay the rent. She claimed it was difficult for her to meet the financial demands arising from increased private school tuition fees for her elder child and preschool fees for the younger child on her salary of $1,500 per fortnight when her husband remained unemployed.[41] Exhibit A4, paragraph 124. It was agreed between Mr John Chong and the applicant and her husband that the payment of rent would be suspended and paid in the future when the applicant and her husband could afford it.[42] Exhibit A4, paragraph 125. It was the applicant's oral evidence that her husband purchased the Grandview Road property in 2003 from Hanwood Dale.[43] ST documents, ST50 and Transcript, 13 August 2008, page 181. It was also the applicant's oral evidence that while her husband had told her that he had arranged for the payment of the outstanding rent to his brother, she had no knowledge of when this occurred or the source of the money paid by her husband. The applicant claimed that she did not discuss her husband's financial affairs with him very often.[44] Transcript, 13 August 2008, page 193.

26. In early 1995 Dr McGoldrick asked the applicant about her future plans regarding continuing at Rosebank following her expected discharge from bankruptcy in August of that year. This was again raised in March 1995 at which time Dr McGoldrick stated that Supercare was proposing to dispose of those clinics not operating financially successfully. He reportedly told the applicant that this did not include Rosebank where, because of the skill and commitment of the applicant, the operation had been a financial success. Dr McGoldrick wanted the applicant to commit to staying at Rosebank for three years after her discharge from bankruptcy.[45] Exhibit A4, paragraph 131. In March 1995 Dr McGoldrick is said to have informed the applicant that Supercare had ceased operating the courier and security business awarded to John Chong and Mr Teh as part of a cost cutting measure.[46] Exhibit A4, paragraph 133.

27. In early April 1995 the applicant claimed that Dr McGoldrick offered her an incentive to remain at Rosebank following her discharge from bankruptcy. The offer was that Supercare would license the Rosebank clinic operation to the applicant for no upfront fee with 100% control to her and upon her assuming all of the costs associated with the running of the practice in return for a 15% license fee.[47] Exhibit A4, paragraph 134. The 15% presumably refers to 15% of the HIC payments. The applicant refused the offer as she claimed it did not accord with the way in which she wanted to conduct her practise of medicine.[48] Exhibit A4, paragraph 135.

28. In May 1995 the applicant claimed Mr John Chong discussed with Supercare taking the license on the same financial arrangement as had been offered to the applicant. Mr John Chong is said to have approached the applicant to commit to remaining with the practice for a one year period, which was the term of his license agreement with Supercare. Mr John Chong offered to pay the applicant a higher remuneration and engage her husband to assist in the administration of Rosebank. The applicant stated that Mr John Chong reminded her that he had been paying the rent for the Grandview Road property and that he would "appreciate" some gratitude in return.[49] Exhibit A4, paragraph 136.

29. Because Mr John Chong had been paying the rent for their residence the applicant said she agreed to give the commitment sought provided the year commenced from the date Mr John Chong reached agreement with Supercare to take the licence provided that this was done prior to the applicant's discharge from bankruptcy.[50] Exhibit A4, paragraph 139. The applicant maintained that Mr John Chong secured the license from Supercare to operate the clinic commencing from 1 June 1995.

30. The applicant claimed not to be involved in any of the negotiations between Mr John Chong and Supercare to operate the Rosebank clinic[51] Exhibit A4, paragraph 141. and not to be aware of the terms and conditions negotiated.[52] Exhibit A4, paragraph 144. At or about that time the applicant and the other staff at the clinic were said to become employees of Mr John Chong. The applicant and the other medical practitioners at the clinic signed a group link payment authority to authorise the HIC payments to be made to Mr John Chong.[53] Exhibit A4, paragraph 148. The applicant stated that she continued to receive a salary of $1,500 per fortnight.

31. The applicant claimed that Dr McGoldrick, his brother, and subsequently Supercare's solicitor, mistakenly sent draft licensing agreements for her to sign. Despite protests from the applicant to Dr McGoldrick and his brother, a later letter from Supercare's solicitors containing a draft agreement were sent to the applicant naming her and a "Mr Ho" as the prospective licensees.[54] Exhibit A4, paragraph 154. The latter proposed draft included a clause restricting the applicant from undertaking medical practise within a radius of 10kms from Rosebank for a five year period.[55] Exhibit A4, paragraph 156. The applicant denied knowing a "Mr Ho".[56] The Tribunal takes “Mr Ho” to be reference to the applicant’s husband something the applicant accepted in Exhibit A4, paragraph 192.

32. Thereafter the applicant claimed a further draft license agreement was sent to the applicant naming her as the sole licencee.[57] Exhibit A4, paragraph 155(f). The applicant informed her solicitor that as an employee of Mr John Chong she was not in negotiation with Supercare and that in any event, she would not sign any agreement containing a restrictive covenant.[58] Exhibit A4, paragraph 157.

33. The applicant's solicitor unsuccessfully tried to sort the issue out over the telephone with Supercare's solicitor.[59] Exhibit A4, paragraphs 159-160. Supercare's solicitors continued to write to the applicant. The applicant stated that no written agreement was ever signed between Supercare and Mr John Chong[60] Exhibit A4, paragraph 163. although the latter took over the operation of the clinic in May 1995.[61] Exhibit A4, paragraph 164. On 16 April 1996 the applicant's husband, with her consent, wrote to Dr McGoldrick's brother at Supercare.[62] Exhibit R10. The letter gives a month's notice of the applicant and her husband terminating the license with Supercare for the operation of Rosebank. The applicant claimed that the letter was sent because she and her husband were so tired of receiving approaches from Supercare for them to be Supercare's licensees at Rosebank that they decided to respond on the basis of accepting Supercare's understanding, even though they knew it not to be the case.[63] Exhibit A4, paragraph 196, and Transcript 12 August 2008, page 140.

34. In August 1995 Mr John Chong and the applicant discussed her future terms and conditions. It was agreed, he having reminded her of his paying the rent for the last two years for the Grandview Road residence, that he would continue to pay her the same salary ($1,500 per month) in exchange for three days work per week chosen at the convenience of the applicant with the possibility of her undertaking further work. He would also provide her with a fully maintained car.[64] Exhibit A4, paragraph 165. The applicant was provided with Range Rover which she stated cost about $100,000.[65] Exhibit A4, paragraph 167. The car was to be used to visit patients too sick to physically attend the practice.

35. In late February 1996 and after the applicant informed him that she would be leaving Rosebank at the expiry of Mr John Chong's one year license period, Dr McGoldrick offered to sell the applicant the practice for $350,000.[66] Exhibit A4, paragraph 168. Dr McGoldrick proposed Mr John Chong as continuing to operate the practice post the sale.[67] Exhibit A4, paragraph 168.

36. Despite her earlier expressed reservations about taking responsibility for a medical practice, the applicant saw the offer as an opportunity provided that she could negotiate a reduced price.[68] Exhibit A4, paragraph 171. The applicant stated that she reminded Dr McGoldrick of Supercare's earlier commitment to reward her loyalty during the period of her bankruptcy by discounting and financing any sale price. Dr McGoldrick responded the financial circumstance of Supercare was such that it could not honour that undertaking.[69] Exhibit A4, paragraph 172. Dr McGoldrick's withdrawal of the earlier promise of assistance annoyed the applicant [70] Exhibit A4, paragraph 173. and his "condescending and insulting manner" made her "furious."[71] Exhibit A4, paragraph 176(f). The applicant determined, and told Mr John Chong so, she would not work beyond the one year period of the license because of concerns that Supercare would "always be in the background making demands of and harassing me…".[72] Exhibit A4, paragraph 174.

37. Following the above Mr John Chong asked the applicant if she would work for him if he opened another medical practice. Mr John Chong had been considering opening another clinic in nearby Springvale. He offered the applicant the same terms and conditions as she was receiving at Rosebank.[73] Exhibit A4, paragraph 178.

38. The applicant's husband met a Mr Jimmy Goh at a function.[74] Exhibit A4, paragraph 183. Mr Goh had a property in Springvale which he had been unsuccessfully trying to sell for $160,000. The property had previously been used as a blood sampling centre and it had all the necessary permits to operate as a medical practice.[75] Exhibit A4, paragraph 186. The applicant's husband inspected the property and contacted Mr John Chong representing to the latter that he (the applicant's husband) had an option to purchase the property which could then be rented to Mr John Chong.[76] Exhibit A4, paragraph 187. The applicant's husband negotiated the purchase of the property from Mr Goh at $140,000 with interest only payments for two years and the capital to be paid at the expiry of that period.[77] Exhibit A4, paragraph 189. It was agreed that Mr John Chong would lease the premises.

39. In early May 1996 Dr McGoldrick and other staff from Supercare arrived and after Dr Pang had finished tending to a patient of the applicant, escorted the applicant from the premises and locked the premises.[78] Exhibit A4, paragraph 199. A week later the applicant commenced at Springvale.

40. Supercare made a subsequent demand for the applicant to pay $75,000 and threatened legal action and to report the applicant to the authorities regarding claimed irregularities associated with her bankruptcy. The threats repeated were allegedly to the applicant by Mr Bryan McGoldrick in a later telephone conversation.[79] Exhibit A4, paragraph 202. The threat to issue legal proceedings was never carried out. However, in 1996 as being part of the applicant's undeclared earnings during the period of her bankruptcy[80] Exhibit A4, paragraph 212. the applicant's trustee in bankruptcy made enquires of the applicant as to "cash cheques" and stated that he would need to interview the applicant. This was not followed up because, according to the applicant, the trustee did not receive information promised to be provided by Mr Bryan McGoldrick.[81] Exhibit A4, paragraph 215.

41. The applicant claims that she was registered in her married name as a group employer under the Income Tax Assessment Act1936 (ITAA). She was paid when employed by Supercare by cheque issued in her maiden name.[82] Exhibit A4, paragraph 221(b). Upon receipt of the cheque she would remit the tax instalment payable to the respondent. At the end of the financial year, using her married name, she would issue a group certificate in her maiden name. This arrangement continued when Mr John Chong continued to operate Rosebank under license from Supercare[83] Exhibit A4, paragraph 222. and subsequently at Springvale.[84] Exhibit A4, paragraph 226.

42. In 1999 the applicant was the defendant in Supreme Court proceedings in Victoria in which the respondent was seeking an injunction. In paragraph nine of an affidavit sworn for purposes of the case the applicant claimed that her husband was unemployed and had been so continuously for approximately four years.[85] Exhibit R8. In paragraph 20 the applicant claimed to have received a wage or a commission depending on the time of the arrangement and that the group link payee "kept the balance of such money."

43. The respondent submitted that it was in fact the applicant and her husband, Mr Joe Chong, who operated the practice from either April 1996 when at Rosebank and/or for the time the practice was located at Springvale. The applicant maintained that Mr John Chong operated the practice throughout that period. Support is found for the respondent's submission in following documents:

  • (a) a letter from the applicant's husband on his behalf and that of the applicant to Mr Bryan McGoldrick dated 16 April 1996 in which Mr Joe Chong states that:

    "…Dr. Ho and myself have been running this Centre [Rosebank] for the past 11 months since the 15th of May 1995 on the basis of a license ageement (sic) which both Supercare and our ourselves, through our solicitors, are still negotiating the precise terms.

    …

    As you are aware, in discussions between your Mr. Ian McGolderick (sic) and myself during March 1995, we agreed to review the new arrangement after a trial period of 12 months. During this trial period we had a lot extra burdens placed on us with the management and financial part of the practice.

    After much consideration and deliberation, I have come to the common agreement with my wife, Jessica, that this agreement has not been financially viable for us. Therefore, I am now giving you one month's notice as agreed, to terminate our arrangement to run the Centre effective on the 19th of May1996. Should you require Dr. J. Ho to continue working in the above clinic, please make your own arrangements to discuss this with her.

    Thank you for the opportunity to operate in one of your clinics.

    Yours truly,

    J. Chong"[86] Exhibit R10.

    This letter was stated to be in response to what the applicant described as exasperation because of Supercare's continuous efforts to license the practise to her and her husband whereas in fact it should have been licensed to Mr John Chong.[87] Exhibit A4, paragraph 96. The applicant acknowledges in her statement that her husband requested her advance consent to the sending of the letter.

  • (b) a file note made by a bank employee dated 16 April 1997, relating to the finances of Jenola Falls, which describes the banker's understanding that Mr Joe Chong was trading under the business name of the Springvale Medical Clinic.[88] Exhibit R16. The note also contains the following "Business was bought by Joe Chong, however it was registered in his brother Mr John Chong's name due to Joe's bankruptcy…".
  • (c) The Professional Services Review Tribunal decision referred to the applicant leaving Rosebank in May 1996 "…to establish her own practice in Springvale."[89] ST documents, ST42, paragraph 2.2.
  • (d) the applicant under her letterhead at the Springvale clinic wrote to the ANZ bank on 3 February 1998 applying for finance for the purchase of the real estate on which the Springvale clinic was located.[90] Exhibit R15. The purchase was to be in the name of the applicant's husband and the applicant stated in the covering letter that "we" (a clear reference to the applicant and her husband) had delayed the settlement to the end of February 1998. The respondent submitted that the fact the application was made in her name establishes that the applicant did have involvement with the purchase of the property contrary to her evidence that she had no such involvement.[91] Transcript, 13 August 2008, pages 173-174.

44. Mr Mahoney in his evidence said he had located reference to a payment of $75,000 from Mr John Chong to Supercare. When it was put to Mr Mahoney in examination by Mr Rosenbaum that this may be a reference to a payment made by Mr John Chong as part of the license agreement said to cover the period May 1995-May 1996, Mr Mahoney agreed that this was a possibility.[92] Transcript, 13 August 2008, page 221. The Tribunal notes it is the same amount that Supercare was demanding from the applicant by way of damages upon her leaving the Rosebank clinic. That it could be for the latter is also a possibility. No evidence concerning the date of issue of the cheque and no enquiry was apparently made of Mr John Chong so other possibilities may equally exist.

45. An interview with officers from the Australian Taxation Office (ATO) was conducted on 26 August 1998 with the applicant in the presence of her accountant. The applicant was asked about what arrangements had been made for her in during the period of her bankruptcy. The applicant is reported as responding that she was to be paid a salary of $1,500 per fortnight and that her brother-in-law, Mr John Chong, was to perform courier services for Supercare. In answer to a question as to whether the courier services were equivalent to 55% of the gross fees of her practise (less the $1,500 paid to her per fortnight) the applicant responded that "…presumably Ian [Dr McGoldrick] would pay my brother-in-law a sum that would be equivalent to what I received under the old arrangement."[93] ST documents, ST10, page 2. If the report of that conversation is correct then it is abundantly clear that the companies associated with Mr John Chong were to receive the balance, after deduction of $1,500 per fortnight, which would otherwise have been paid to the applicant, had the arrangement which persisted before her bankruptcy continued after her bankruptcy.

46. The T documents contain copies of a number of what the applicant has described as "requisitions". Also included, where they are available, are deposit slips for money paid into bank accounts, as well as bank statements identifying the payer and the payee.[94] Exhibit R9 is the collated extracts with a guide prepared by the respondent for transactions in 1993. The documents collated in Exhibit R9 are part of the documentation found in T documents. The respondent claims moneys said to be requested by the applicant in the requisitions are able to be matched to money noted on the deposit slips or payee bank statements as being paid into nominated bank accounts.

47. There are 10 examples each containing a number of documents contained in Exhibit R9. Each example commences with a document number in top right hand corner of the relevant requisition and has been used for identification in the Tribunal's analysis. Each requisition is stated to be for "professional services" for a stated period. It is accepted that the requisitions are those submitted by the applicant to Supercare, including $1,500 for her and the payment to be made to any other doctors engaged at the clinic for the stated period. It is also accepted that the requisition forms contain notations made by Supercare staff as to the how the amounts paid are to be constituted and the cheque numbers document the cheques which were drawn. In the following analysis the Tribunal has only addressed the amounts requisitioned for cash. All transactions occurred in the post 1 July period of the 1993 tax year.

Document 81

48. Document 81 is a requisition for $9,045.83 in cash for the period 28 June-11 July. No notation is contained on the requisition form directing how many and in what sums the cash payment is to be made. A NAB bank statement in the name of Supercare records five sequentially numbered cheques totalling $9,045.85 as being drawn on 26 July. A copy of a deposit slip in the name of Hanwood Dale dated 26 July records $6,000 in cash and $9,045.85 in cash/cheque. The reverse of the deposit slip records five cheques each for $1,500 and one cheque for $1,545.85 as being for deposit. A bank account statement in the name of Hanwood Dale records cash/and or cheques to the total value of $15,045.85 as being deposited on 26 July. While the Tribunal notes the requisitioned amount contains a cent figure of 0.83 in the deposited amount the cent figure is 0.85. This also occurs in the transactions recorded for Document 89. The Tribunal accepts it as being the likely practise of Supercare to round figures to the nearest 0.05. Accordingly nothing turns on the discrepancy.

Document 82

49. Document 82 requisitions $9,042.77 for the period 12-27 July. The requisition notation made by Supercare staff records six sequentially numbered cheques, five of which are for $1,500 each and the sixth for $1,542.75. Copies of each of the cheques are attached. A NAB bank statement for Supercare records the withdrawals of five amounts each of $1,500 and one $1,542.75 bearing the same cheque numbers of the issued cheques from the account of Supercare on 5 August. A bank statement issued 6 August records cash and/or cheques totalling $9,042.75 as being deposited into the account of Jenola Falls.

Document 83

50. Document 83 requisitions $9,447.60 in cash for the period 26 July-8 August. Six sequentially numbered cheques each in the sum of $1,574.60 are notated on the requisition form by Supercare staff. Cheques drawn on Supercare's account each for $1,574.60 and each dated 10 August are recorded in the NAB bank statement record cheques bearing the same numbers and for the same amounts on the requisition form are recorded as being drawn on Supercare's account. The bank statement of Jenola Falls records $9,447.60 as being deposited on 12 August.

Document 84

51. Document 84 requisitions $11,050.20 in cash for the period 8 August-22 August. Copies of six sequentially numbered cheques drawn on Supercare's account each for $1,578.60 and dated 27 August are attached. Six cheques bearing the same numbers are recorded as being drawn against Supercare's account on 27 August in a NAB statement issued on that day. An amount of $15,938.60 is shown as being deposited into the account of Jenola Falls on 27 August. Given the amount recorded as being deposited in the Jenola Falls account is different from the amount recorded as being drawn against the Supercare account, and that there is nothing other than the dates to associate the two, the Tribunal draws no conclusion from this transaction.

Document 85

52. Document 85 requisitions $11,182 in cash. A Supercare staff notation on the requisition dated 9 September records four consecutively numbered cheques as being drawn each for $2,795.50. A copy of one of those cheques is attached. Two of the same numbered cheques are recorded on Supercare's NAB statement each for $2,795.50 issued on 13 September and the remaining two on recorded in a statement issued 15 September. A deposit slip dated 13 September records an amount of $11,491 as being deposited into the Jenola account of which $5,591 is recorded as being cheques drawn on the Supercare account. An amount of $11,491 is shown on the bank statement for Jenola as being deposited on 13 September, and a further deposit of $5,591 is shown as being made on 15 September.

Document 86

53. Document 86 requisitions $11,121.20 in cash for the period 6-18 September. The notation made by Supercare staff on the requisition form records four sequentially numbered cheques each for $2,500 and the next numbered cheque for $1,121.20 were issued. The first cheque is for $2,500 and is dated 27 September and the balance are dated 29 September. The NAB bank statement for Supercare issued records all five cheques as been drawn on 30 September. The bank statement for Jenola Falls issued 26 October records $1,121.20 as being deposited on 30 September. No identifiable record is made of where the balance ($10,000) was deposited.

Document 87

54. Document 87 requisitions $9,444 in cash for the period 19 September-3 October. The notation by Supercare staff record four sequentially numbered cheques each for $2,361 on 13 October and copies of the cheques confirm the details. The NAB bank statement for Supercare shows the same four cheques as being drawn on 14 October that day. The bank statement for Jenola Falls records a deposit of $9,444 as being made on 14 October.

Document 88

55. Document 88 requisitions $10,387.64 for the period 4-17 October. The notation made by Supercare staff record four sequentially numbered cheques each for $2,000 and a fifth for $2,387.65. Copies of three of the cheques for $2,000 and the cheque for $2,387.65 confirm the details for four of the cheques dated 27 October. The NAB bank statement for Supercare records a withdrawal of $2,000, being one of the sequentially number cheques notated on the requisition form. The NAB bank statement issued 28 October for Supercare records three cheques bearing the same sequential numbers notated on the requisition form as being drawn. A deposit slip dated 26 October records a cheque for $2,000 for deposit into the Hanwood Dale account. The bank statement issued 26 October in the name of Hanwood Dale records a deposit of $2,000. The Tribunal is satisfied that the latter deposit is one of the cheques issued by Supercare in response to the requisition. Other cash/cheques are recorded as being deposited in the Jenola Falls account on 27 and 29 October. However the amount deposited, while larger than the total of the remaining cheques earlier identified, cannot be found to be referable to the balance of the money drawn on the Supercare account as there is insufficient identifiable connection between the cheques and the deposits.

Document 89

56. Document 89 requisitions $8,924.74 in cash for the period 18-31 October. The notation completed by the Supercare staff on the requisition records four sequentially numbered cheques three for $2,225 each and one for $2,249.75. Copies of two of the cheques confirm the details in respect of two of the cheques, with one minor difference (the cheque issued is for $2,249.75 whereas $2,249.74 was requisitioned. The Tribunal is satisfied that it is likely that Supercare rounded off at 0.05. Despite the minor difference the cheque is for the amount requisitioned as it bears both the same notated cheque number and amount as that recorded on the requisition form. The NAB bank statement issued on 12 November for Supercare records the same sequentially numbered cheques as being drawn on that day. A bank statement issued 22 November records $8,924.75 as being deposited into the account of Hanwood Dale on 12 November.

Document 90

57. Document 90 is a requisition for $9,474.95 for the period 1-13 November. The notation made on the requisition by the Supercare staff records four sequentially numbered cheques, the first three for $2,500 each and the fourth for $1,974.95. The first cheque for $2,500 is dated 22, the second 23 and the remainder 24 November. Copies of all the cheques confirm the details. The NAB bank statement for Supercare records all four cheques as being drawn on 25 November. The bank account of Hanwood Dale issued 6 December records a deposit of $9,474.95 as being made on 25 November.

Document 91

58. Document 92 is a requisition for $9,827.80 for the period 14-28 November. The notation made by Supercare staff on the requisition records five sequentially numbered cheques, four for $2,000 each and the fifth for $1,827.80. Copies of two of the cheques issued for the $2,000 amounts are dated 6 and 7 and the remaining two on 8 December. The two cheques dated 8 December are recorded on a statement issued on 9 December as being withdrawn from Supercare's NAB account on 8 December. Two cheques each for $2,000 are recorded on a deposit slip in the name of Hanwood Dale and are dated 7 December. A bank statement records a deposit of the same amount on 20 December into the Hanwood Dale account. The Tribunal is satisfied that the $4,000 deposited in to the Hanwood Dale account is constituted by the two cheques dated 6 and 7 December. No record is available which shows the deposit of the balance.

Document 92

59. Document 92 is a requisition for $9,037.30 for the period 29 November-12 December. The notation on the requisition form made by the staff of Supercare records four sequentially numbered cheques, three of which are for $2,300 each and the fourth is for $2,137.30. Copies of the cheques confirm the details and show that the three cheques for $2,300 are dated 20, 21 and 22 and the cheque for $2,137.30 23 December. The NAB bank statement record the cheques dated 20 and 21 December as being drawn on Supercare's account on 21 December. A statement issued 24 December shows the remaining two cheques as being drawn on that day. A deposit slip dated 21 December in the name of Jenola Falls records two cheques for $2,300 each and the bank statement issued on 24 December for Jenola Falls records a deposit of $4,600 as occurring on 21 December. A deposit slip dated 24 December records $4,437.30 in the name of Hanwood Dale and that amount is recorded as being deposited into its account in a bank statement on 24 December.

Summary of transactions relating to requisitions (exhibit R9)

60. The Tribunal is satisfied that despite the incomplete nature of the transactions recorded in documents 84, 86, 88 and 91 that the above analysis demonstrates, by reference to the sequence of events and the timing involved, that cash cheques requisitioned by the applicant through a five month period in 1993 consistently found their way into the bank accounts of Hanwood Dale and Jenola Falls. The applicant told the Tribunal that it was Dr McGoldrick who directed her how to complete the requisition forms either when he visited the clinic or over the telephone. This aspect of the evidence is linked to the applicant's assertions that Hanwood Dale and Jenola Falls were engaged to carry out courier and security duties for Supercare. There would seem to be no logical reason, even if it was to be accepted that the two companies were so engaged, that their fees should be paid by way of cash cheques. Payment by cash cheques would make it virtually impossible for Supercare to justify tax deductibility for the alleged services provided and would appear to ignore the issue of goods and services tax liability.

61. There is mention of an agreement pursuant to which the services were said to be provided. In an interview organised by the respondent and conducted on 16 September 1998, Mr Bryan McGoldrick denied that Supercare has ever engaged either Hanwood Dale or Jenola Falls to provide services and claimed never to have seen a copy of any agreement that they do so.[95] ST documents, ST15, page 2. A letter on Supercare letterhead and addressed to "Hanwood Security and Courier Services" (Hanwood Security) dated 25 June 1993, signed by "Adam Hemming" who is described as "Services Manager", is said to confirm an arrangement whereby Hanwood Security would provide exclusive courier and security services for all Supercare clinics for a three year period.[96] ST documents, T2. The Tribunal assumes because of the similarity in the names that Hanwood Security is a registered business name of Hanwood Dale. The letterhead used is that of Supercare's head office. In an interview with the officers of the respondent held on 16 September 1998 Mr Bryan McGoldrick is reported as saying he had never seen the letter of 25 June 1993, that Supercare had used other couriers and that another firm had provided security services to the only two clinics which required security.[97] ST documents, ST15, page 2. Mr McGoldrick denied that he had ever heard of "Adam Hemming" before the name was mentioned to him at the meeting and that a person by that name had never been employed by Supercare. He also denied that his brother, Dr Ian McGoldrick, would have been involved in making such an arrangement. It was Mr Mahoney's evidence that he had carried out a search of the respondent's records relating to Supercare and no one named Adam Hemming has ever been recorded as working at Supercare.[98] Transcript, 14 August 2008, page 251. The Tribunal is not able to determine how, or under what circumstances, the letter of 25 June 1993 came into existence. The Tribunal is however satisfied, on the balance of probabilities that on the material and evidence before it, including the letter of 25 June 1993, that no agreement between Supercare and either or both of Jenola Falls or Hanwood Dale, including Hanwood Security, ever existed.

62. While only six months of requisitions and payments has been analysed the Tribunal is requested by the respondent to apply the conclusions reached to the whole of the period under review. The method utilised by the applicant in submitting her tax returns remained unchanged throughout the period, despite the change in operator of the surgery from 1995. The evidence does not disclose any other change in the way the applicant or the operator approached their respective roles.[99] See the similarly completed requisition document at T documents, T20 and T26. That being the case, the Tribunal accepts that what occurred in respect of the first six months of the period under review persisted through out the period to the end of the 1998 tax year.

63. The Tribunal's finding as to who completed the requisition forms is discussed later in these reasons.

The applicant's submission

64. The applicant's submission is put in the alternative:

  • (a) the applicant in the pre 1992/1993 tax year received 50% of the HIC allowed fee for patients seen by her or who received medical procedures by staff as authorised by her, and a 15% practice management fee for patients seen by other medical practitioners for her services. The same arrangement applied for patients whose fees were paid by authorities such as Workcover and the Transport Accident Commission. This arrangement applied until the period prior to the applicant becoming bankrupt in on 13 August 1992. The period for bankruptcy is three years. The applicant then undertook to work on a salary designed to result in her not having to make payments to her creditors in bankruptcy who she claimed were vindictively pursuing her. She claims to have continued to work for a salary after her discharge from bankruptcy to the period ending 30 June 1998.
  • (b) On behalf of the applicant it was also submitted that no proper basis was established by Mr Mahoney for the amounts stated in the amended assessments. Mr Mahoney was also criticised for accepting what was said by Mr Bryan McGoldrick without further checking what he said could be confirmed by reference to documentation of third parties. It was also submitted that Mr Mahoney had not turned his mind to determining the true state of the business or financial relationship between the applicant on the one hand and Supercare and subsequently Mr John Chong on the other. It was submitted that Mr Mahoney in conducting his audit was "fixated" on what Mr Rosenbaum described as the applicant's "guilt".[100] Transcript, 14 August 2008, pages 270 and 272.

The respondent's submission

65. The respondent submitted that s 20A of the Health Insurance Act 1973 (the HIA Act) applied to create a statutory contract between the HIC and a medical practitioner who provided services in exchange of payment by the HIC. The HIA Act authorised the patient to assign the payment of the HIC benefit to the medical practitioner, and the patient did so by signing the authorisation on the face of the HIC form. It was submitted that, as matter of law, that contract was discharged upon the HIC making payment for the service provided. It was a separate matter, and not one governed by the HIA Act, if the medical practitioner then authorised the amount otherwise receivable by him/her to be assigned to a third party. Regardless of the latter occurring it was submitted that the payment authorised by the patient to be remitted from the HIC was taxable income derived by the medical practitioner who provided the service.

66. If the applicant did not derive income as the result of the application of the HIA Act provisions then it was submitted that she did so as the result of receiving "ordinary" income, that is, income from personal exertion.[101] See s 6(1) of the ITAA. Alternatively the respondent submitted that for the 1996-1998 tax years Part IVA of the ITAA applied to include the HIC patient payments as assessable income. The respondent also submitted that the penalties imposed under s 226J were properly imposed and that the Tribunal should not exercise the discretion open to it to cancel or reduce them. Finally the respondent submitted that the late lodgement penalty for the 1998 tax year ought be affirmed.

Tribunal's consideration

67. In approaching its consideration of the evidence the Tribunal has taken into account the cultural aspect which was noted at the outset of these reasons. To some extent what the applicant described is born out by the facts. An example of this is seen in the letter of advice from a solicitor concerning a draft agreement proposed between the applicant and Supercare.[102] Exhibit R11. Ordinarily it might be expected that a solicitor sending such a letter would send it to the party expected to ultimately sign the agreement. In this case the letter was addressed to the applicant's husband, when he was not a party to, or directly concerned in, the proposed agreement. However, many of the oral negotiations relied on by the applicant and the other documentation did not involve her husband. In such circumstances the applicant's evidence must be approached on what the applicant stated or claimed occurred, with out reference to her husband.

68. In his oral submission Mr Rosenbaum emphasised that the only sworn evidence before the Tribunal was the uncontradicted evidence of the applicant and that her evidence should be accepted by the Tribunal. The Tribunal has before it not only the statements and oral evidence of the applicant but also the material contained in the T and ST documents and the exhibits. A witness's uncontradicted evidence may not necessarily be accepted by the Tribunal. The Tribunal must assess the credibility of an applicant where that is directly in issue or any other witness and is entitled to do that both against the other material before it and by reaching its own conclusion from observation of the witness when giving evidence as to the witness's credibility.

69. The Tribunal has considered the submission made on behalf of the respondent that the applicant's income is derived form the payments made by the HIC and that despite an arrangement whereby those payments can be directed to a third party they remain as income in the hands of the treating medical practitioner. In the first instance s 20A(1) of the HIA Act requires the payment of a Medicare benefit to an "eligible person" for the provision of a professional service given or authorised by a practitioner. A number of terms are defined in s 3(1) of the HIA Act and relevantly they are as follows:

" clinically relevant service means a service rendered by a medical or dental practitioner or an optometrist that is generally accepted in the medical, dental or optometrical profession (as the case may be) as being necessary for the appropriate treatment of the patient to whom it is rendered.

eligible person means an Australian resident or an eligible overseas representative.

item means an item in the table.[103] The table sets the fee payable for the service rendered by the medical practitioner.

medical expenses means an amount payable in respect of a professional service.

medical practitioner means a person registered or licensed as a medical practitioner under a law of a State or Territory …

medicare benefit means a medicare benefit under Part II.

practitioner means a medical practitioner or a dental practitioner.

professional service means:

  • (a) a service (other than a diagnostic imaging service) to which an item relates, being a clinically relevant service that is rendered by or on behalf of a medical practitioner…"

Section 8 in Part II of the HIA Act defines "service" to mean a professional service.

70. Section 20(1) of the HIA Act provides that a Medicare benefit is payable to a person who incurs medical expenses in respect of a professional service. Section 20 is expressed to be subject to the other provisions constituted in Part II of the HIA Act. Thus s 20 is to be read as being subject to s 20A. Section 20A(1) is as follows:

  • "(1) Where a medicare benefit is payable to an eligible person in respect of a professional service rendered to the eligible person or to another eligible person, the first-mentioned eligible person and the person by whom, or on whose behalf, the professional service is rendered (in this subsection referred to as the practitioner) may enter into an agreement, in accordance with the approved form, under which:
    • (a) the first-mentioned eligible person assigns his or her right to the payment of the medicare benefit to the practitioner; and
    • (b) the practitioner accepts the assignment in full payment of the medical expenses incurred in respect of the professional service by the first-mentioned eligible person."

71. Section 20A constitutes a statutory contract by which a patient's right to be reimbursed by the HIC is assigned to the practitioner in full discharge of the costs chargeable by the practitioner. The payment to the practitioner for a medical service rendered to a patient is income derived from personal exertion of the practitioner.[104] s 6(1) of the ITAA. The practitioner is, relevantly in this case, a medical practitioner by definition. The operator of a clinic may or may not be a medical practitioner. Thus, while Supercare was the operator of Supercare it is not a registered medical practitioner. Again by definition of the term "professional service" it is the service provided by the practitioner to the patient for which an item fee is payable. Thus, for instance, Supercare cannot be a practitioner for the purposes of the definition as no professional service is rendered by it to as patient. Nor, in the context of the provisions, can it be said that a service was rendered "on behalf of" Supercare, as Supercare, is unable to provide professional service which extends to "a clinically relevant service".

72. The respondent's submissions that s 20A of the HIA Act limits the assignment only to the medical practitioner rendering the service to the patient. That agreement for the assignment must be in a prescribed form. No further provision in the HIA Act exists for further assignment of the benefit. These legislative measures provide further support for the finding which the respondent urges on the Tribunal.

73. Thus in the Tribunal's opinion neither CPS Pty Ltd, Supercare or Mr John Chong are providing the type of service which is contemplated by s 20A of the HIA Act. A "professional" can assign payment to a third party but that assignment per se does not constitute income in the hands of the third party as the third party has not derived it by personal exertion. Only a medical practitioner has, under the provisions of the HIA Act, the capacity to achieve that outcome. This effectively determines that the income generated by the applicant from HIA sources is derived income for the purposes of the ITAA. However, even if the Tribunal is incorrect in this interpretation, the evidence is such that it leaves the Tribunal satisfied that the applicant was not an employee of the Supercare or Mr John Chong during the period 1 July 1993-30 June 1998. The following reasons address this conclusion.

74. The applicant denied that she was operating her own practice from Rosebank with an operator or administrator, whoever that may have been from time to time, said to be operating the clinic. From 1993 the applicant claimed to be an employee of the operator. The material however does not support the applicant's version of what was occurring. The Tribunal finds it odd that, despite the letter from the applicant's solicitor addressed to her husband,[105] Exhibit R11. which clearly refers to a draft agreement between Supercare and the applicant, that she had no knowledge of there being a proposed written agreement and further that no concluded written agreement was reached. Even despite that letter being addressed to the applicant's husband and taking into account the applicant's evidence concerning the cultural aspects governing her relationship with her husband, it is unlikely that she would not have been made aware by him or by Supercare of the existence of a proposed agreement. That the applicant had no memory of any such draft is also unlikely.

75. Aside from the lack of any written agreement, the applicant's version of the arrangements is not consistent with other documentation created by or for her, for example her statement made on two separate occasions to her trustee in bankruptcy that she was employed by Dr Bentley.[106] Exhibits R5 and R6. While the applicant denied that it was her who completed the bankruptcy documentation, in each case she agreed her signature appeared on the documents and in each case she has certified the details as being true. She made no assertion in any statement prepared for or relied on in this proceeding that Dr Bentley was her employer.

76. A letter dated 12 October 1992 signed by Dr Bentley, who is described as the medical director of Supercare, is addressed to the applicant's trustee.[107] Exhibit A3. It confirms the applicant currently working part time for a salary of $1,500 per fortnight. The letter is on stationary from Supercare's head office. It is not a personal letter from Dr Bentley. A fair reading of the letter could not result in anyone construing it as anything other than a letter from Supercare. On the applicant's own evidence the applicant had had very little contact with Dr Bentley. It is not for the Tribunal to reach any conclusion as to her motivation for making the unsustainable claim that Dr Bentley was her employer in documents she certified as containing true and correct details prepared for her trustee in bankruptcy. What the Tribunal draws from this is that it demonstrates that the applicant is prepared to make inconsistent statements to different authorities in order to best suit what she sees are her purposes at the time.

77. The Tribunal is unable to accept the applicant's evidence when she claimed that no income tax was deductible by the employing company or person from what she claimed were payments of a salary. From 1993 no superannuation guarantee contributions were made from her salary nor any Medicare levy deduction. The deduction of income tax by the employer[108] s 221C(1A) of the ITAA. and the payment of the superannuation guarantee[109] s 16 of the Superannuation Guarantee (Administration) Act 1992. are the responsibility of the employer. The Tribunal is not satisfied to accept the applicant's less than convincing justification that she thought for doctors the rules may not be so strict.[110] Transcript, 12 August 2008, page 90. Aside from being an employer herself in the past when she deducted employees" tax, the applicant had an accountant who was advising her on her tax affairs. Her accountant would have been able to tell her of the compulsory requirements, had she bothered to ask. It is likely that she would have raised the issue with her accountant as it was something about which, on her own evidence, she raised with her alleged employers when discussing her financial arrangements with them.[111] The applicant claims that she raised the issue of tax with CPS Pty Ltd after discussing it with her accountant: see Exhibit A4, paragraph 8 and Transcript, 12 August 2008, pages 89-90. Aside from the information which the applicant could have obtained from her own accountant it seems highly unlikely that both CSP Pty Ltd and Supercare would not have abided by the legal requirements and failed to deduct the applicant's tax and superannuation guarantee contribution if, in fact, she was an employee.

78. In any event the Tribunal is not satisfied that the applicant received the advice she claims she received from her accountant as to how to organise her tax returns. It would have been easy enough for her accountant to have been called to substantiate her assertions. That he was not called leaves the Tribunal satisfied that it was unlikely that he gave, for want of a better description, the bizarre advice she described on how to submit her group tax form. An individual cannot employ him/herself by using different names, as the applicant purported to do on her group certificate. The fact that she did so leaves the Tribunal satisfied that she was aware that the conduct she was engaging in was undertaken for the purpose of misleading the respondent, and not for her stated purpose to ensure she paid income tax.

79. The Tribunal does not accept that the applicant was required to fill out requisitions as directed by Dr McGoldrick. There would seem to be no point in Dr McGoldrick requesting her to complete the requisitions. If what she asserts is true then her salary was known to Supercare, the information about the hours the other doctors worked was recorded and was therefore also known. Supercare could in those circumstances have adopted the usual course and paid the salaries and could use the excess revenue for its own purposes. It did not need the applicant to requisition it to make cheques payable to "cash" or to any other party. As an employer that was a decision it could make for itself. What the Tribunal is satisfied about is that the applicant made an arrangement with Supercare in the period immediately preceding her bankruptcy to pay her the HIC payments due to her at her direction. This permitted her to have access to cheques which could be cashed.

80. The above is confirmed for the 1993 year by the information contained in Exhibit R9 where the money from the cash cheques found its way on at least nine occasions into accounts associated with the applicant's brother-in-law. It is claimed by the applicant in her interview with the respondent's officers that the payments were to be the equivalent of what she would otherwise have received had she not become bankrupt. The Tribunal is satisfied that the arrangement did not take place as claimed by the applicant. The evidence leaves the Tribunal satisfied that Supercare did not have any connection to either Jenola Falls or Hanwood Dale, whether in the provision of courier or security services or otherwise. The Tribunal is left satisfied that the arrangement was set up so that a proportion of income earned by the applicant would be paid at her direction in cheques drawn to cash against Supercare's account.

81. The applicant claimed that she had no knowledge as to how the cash cheques ended up being paid into the accounts of Hanwood Dale and Jenola Falls. It is not necessary for the Tribunal to determine how this occurred, other than to repeat it did not occur as the result of Supercare making payments to the companies for services provided by them to it. It is sufficient for the Tribunal to find a connection between what the applicant claimed were payments said to be drawn by Supercare and sources associated with the applicant in circumstances where the applicant can provide no satisfactory explanation as to how this may have come about. The Tribunal is satisfied that that connection existed. While it is not strictly necessary to make a finding, the evidence (including the above, the statements attributed to the applicant, and what was noted at the interview with the ATO) points to the applicant operating a medical practice from the premises and support being supplied by Supercare and subsequently by Mr John Chong on the basis that the applicant retained 55% of the HIC and other earnings from undertaking medical consultations with the balance being paid to Supercare or Mr John Chong for the provision of the support services.

82. The Tribunal has considered the submission made by the respondent that in fact the applicant and her husband, and not Mr John Chong, were operating either or both of the Rosebank and Springvale clinics in the period following May 1995. The note[112] Exhibit R16. recording the ANZ banker's understanding of the circumstances contains a number of errors (for example, that Mr Joe Chong was a major shareholder in Jenola Falls whereas a printout dated 13 August 2008 of the historical record from the Australian Securities and Investment Commission does not record Mr Joe Chong as ever being a shareholder in Jenola Falls[113] Exhibit A8. ). There is no evidence or other material before the Tribunal which supports Mr Joe Chong as being a shareholder in Jenola Falls. The note is a third party's understanding of the situation as conveyed by Messrs Joe and John Chong. Whether what the bank was being told was correct or not, or whether the bank misunderstood what it was being told, is not a matter for the Tribunal. The record of the bank does not constitute a sound basis, either standing alone or in conjunction with other documents, to leave the Tribunal satisfied that the Mr Joe Chong was the operator of the Springvale clinic.

83. The letter signed by the applicant's husband but written with her consent to Mr Bryan McGoldrick dated 16 April 1996[114] Exhibit R10. is indeed a curious document. If accepted the letter provides strong support for the submission that the applicant and her husband were in fact operating the Rosebank clinic for the period in which the applicant in her evidence claimed that Mr John Chong was doing so. The applicant's evidence as to why this letter was generated is not able to be accepted by the Tribunal because the Tribunal considers that it is more probable than not that the reason given is untrue. There is nothing which satisfactorily confirms the contents in the evidence or material before the Tribunal. The finding of the Professional Services Review Tribunal,[115] ST documents, ST42. that the applicant left Rosebank in order to establish a new practice at Springvale, constitutes what could reasonably be described as its background fact finding with respect to the applicant's history in the profession. It is not part of the essential fact finding made by that Tribunal. This Tribunal does not accept it as constituting evidence which this Tribunal could accept as supporting a conclusion that the applicant, or the applicant and her husband, were the operators of the practice.

84. The letter of 16 April 1996 refers to solicitors acting on behalf of the applicant and her husband, trying to reach agreed terms for the operation of the Rosebank clinic for the period post May 1995 with Supercare. If this is correct it would seem to imply involvement by the applicant and her husband in negotiating an agreement. It is also curious that, rather than writing themselves and committing to something which the applicant claims is not true, it would be more likely that the applicant and her husband would instruct their solicitors to set the record straight with Supercare's solicitors. A further letter, not relied upon by the respondent in its submission, dated 23 November 1998 contained in the ST documents and apparently signed by the applicant's husband, contains answers to questions asked by Mr Mahoney concerning the operation of the practise in the 1996/1997 year. In that letter the applicant's husband states, among other things, that he is unable to provide cheque numbers for payments made to medical practitioners at the clinic as he "…could not locate my cheque books."[116] ST documents, ST23. The letter would seem to confirm that Mr Joe Chong was responsible for paying the doctors rather than Mr John Chong, whereas it was the latter who the applicant claimed in her evidence was the operator of the practice. The letter does not mention the applicant as being involved in the operation of the clinic, other than as an employed medical practitioner.

85. While it is possible that the $75,000 payment identified by Mr Mahoney as being from Mr John Chong to Supercare was made as payment or part payment of the license paid by Mr John Chong, this is by no means certain. The Tribunal additionally notes that the applicant requested a pay group link payment for HIC payments to be paid to Mr John Chong for the period May 1995 to the end of the 1998 tax year. Finally the Tribunal notes that Messrs Joe and John Chong have the same initials, both being J K Chong, and that this may lead to some confusion as to who is being referred to unless their given names are identified.[117] See for example, Exhibit R1 at Tab 4 on the final two pages which are the request for pay group link forms issued by the HIC. The first is dated 10 May 1996 and the second 12 May 1995. Both name the payee as “J K Chong” and in each case the payee is required to sign the form. While the Tribunal is not constituted by a handwriting expert and has no expertise in the field of handwriting, the signatures appear quite different. The Tribunal cannot and does not need to determine who signed the documents. The Tribunal is however satisfied that the signatures are so markedly different that a question arises of whether the same person could have signed both documents. The applicant, in her evidence, claimed not to be able to recognise the signature on either document. Given it would have to be either her husband or Mr John Chong and given the extensive relationship claimed with the latter, that the applicant was unable to recognise either signature is curious – unless both documents were signed by a party or parties other than her husband and Mr John Chong. However, this latter scenario would seem to be improbable. All these issues cloud the Tribunal's ability to reach a determination as to who operated the clinics from May 1995 to 30 June 1998.

86. In the absence of the Tribunal being able to determine any involvement by the applicant, the applicant's husband, or both of them, in the operation of the clinics in the post May 1995 period the Tribunal accepts Mr John Chong as most likely to be the operator.

87. Despite the Tribunal's inability to find that the applicant was involved in the operation of the clinics in the period post May 1995, from the evidence and material canvassed in paragraphs 56-63 and the findings made with respect to the cash cheques requisitioned the Tribunal does not accept the applicant as a credible witness. The Tribunal is satisfied that the applicant was not in fact only working as an employed medical practitioner during the entire period 1 July 1993-30 June 1998. The evidence and material leave the Tribunal satisfied that the applicant so arranged her affairs that in addition to the relatively modest amount she claimed to have received as salary, her income was augmented by other sums paid in cash to her at her direction.

88. The Tribunal has not found it necessary to address the deficiencies claimed by Mr Rosenbaum to exist in the audit conducted by Mr Mahoney. Mr Mahoney is not obliged to exclude possibilities related to evidence gathered during the course of an audit. The onus is on the taxpayer to justify her tax returns as filed. The conclusion reached by the Tribunal does not support such a finding. The finding is not undermined by the claimed deficiencies in the methodology or extent of investigation carried out by Mr Mahoney. The respondent bears no onus of proof.

89. In view of the finding made by the Tribunal it is not necessary to address the issue of whether the applicant was involved in a scheme for the purposes of Part IVA of the ITAA for the tax years ending 1996-1998.

90. The applicant was directed to pay a penalty under the provisions of s 226J of the ITAA at a rate of 75%. The findings made by the Tribunal, which amount to finding the shortfall of tax paid was caused by an intentional disregard by the applicant taxpayer to pay income tax, support the imposition of such a penalty. Having regard to the facts as found, the Tribunal can see no justification for exercising the discretion granted in s 177A(1) of the ITAA to reduce the amount payable by the applicant. The applicant was also late in lodging the tax return for the 1998 year and a late lodgement penalty under s 163B of the ITAA was applied. There was no evidence which challenged the application of the late lodgement penalty and Mr Rosenbaum conceded in his reply that the return was filed late. Interest in accordance with s 163AA of the ITAA is also payable.

91. The Tribunal raised the issue of whether, if it was to make a determination in the terms it has, the applicant would be entitled to the benefit of legitimately claimable tax deductions. Mr Sest informed the Tribunal that this had been accounted for in the figures contained in the amended assessments. The determination is made on that basis. In the unlikely event that this transpires not to be the case the applicant has leave exercisable no later than 14 days after the notification of the determination to make a written submission setting out the grounds and material, including material already filed and before the Tribunal, evidence relied on and to request the Tribunal to address this aspect. The material is to be served on the respondent and the respondent has seven days in which to submit a reply, including any material or reference to material already filed, which it believes is relevant for the Tribunal to consider. The Tribunal will address the issues raised or decide how best they ought be addressed.

92. For the reasons expressed, and subject to the terms set out in paragraph 91, the decisions under review are affirmed.

Footnotes

[1] Transcript, 12 August 2008, page 57.
[2] Transcript, 13 August 2008, page 193.
[3] Exhibit A7.
[4] Exhibit A8.
[5] Exhibit A4, paragraph 33.
[6] Exhibit R11.
[7] Transcript, 13 August 2008, page 154.
[8] Exhibit A4, paragraph 83.
[9] Transcript, 12 August 2008, page 44.
[10] Exhibit A4, paragraph 48.
[11] Transcript, 13 August 2008, page 210.
[12] Transcript, 13 August 2008, page 210.
[13] Transcript, 12 August 2008, page 56.
[14] Exhibit A4, paragraph 85, and Transcript, 12 August 2008, page 92.
[15] Transcript, 13 August 2008, pages 158-160 and 201.
[16] Exhibit A4, paragraph 84(c).
[17] Exhibit A4, paragraphs 89-93.
[18] Exhibit A4, paragraph 128.
[19] Exhibit A4, paragraphs 90-94, and Transcript, 12 August 2008, pages 44-46.
[20] Exhibit A4, paragraph 91.
[21] Exhibit A4, paragraph 96.
[22] Exhibit A4, paragraph 96(b).
[23] Exhibit A4, paragraph 99(a).
[24] Exhibit A4, paragraph 99(c).
[25] Exhibit A4, paragraph 104(c).
[26] Transcript, 12 August 2008, page 50.
[27] Exhibit A4, paragraphs 104(c) and (d).
[28] Exhibit A4, paragraph 105.
[29] Exhibit A3.
[30] Exhibit A4, paragraph 127.
[31] ST documents, ST42, paragraphs 23, 42 and 43: it was determined that the applicant was providing 60 or more services per day on 84% of her working days. She was working six days a week and while seeing less patients on Saturday there numbers recorded were still high particularly for the period after she commenced at Springvale.
[32] Exhibit R5, questions 16 and 24.
[33] Exhibit R6.
[34] Transcript, 12 August 2008, page 115.
[35] Exhibit A4, paragraph 108.
[36] Exhibit A4, paragraph 113.
[37] Exhibit A4, paragraph 115.
[38] Exhibit A4, paragraphs 116-117.
[39] Exhibit A4, paragraphs 120 and 122.
[40] Exhibit A4 paragraph 122.
[41] Exhibit A4, paragraph 124.
[42] Exhibit A4, paragraph 125.
[43] ST documents, ST50 and Transcript, 13 August 2008, page 181.
[44] Transcript, 13 August 2008, page 193.
[45] Exhibit A4, paragraph 131.
[46] Exhibit A4, paragraph 133.
[47] Exhibit A4, paragraph 134. The 15% presumably refers to 15% of the HIC payments.
[48] Exhibit A4, paragraph 135.
[49] Exhibit A4, paragraph 136.
[50] Exhibit A4, paragraph 139.
[51] Exhibit A4, paragraph 141.
[52] Exhibit A4, paragraph 144.
[53] Exhibit A4, paragraph 148.
[54] Exhibit A4, paragraph 154.
[55] Exhibit A4, paragraph 156.
[56] The Tribunal takes “Mr Ho” to be reference to the applicant’s husband something the applicant accepted in Exhibit A4, paragraph 192.
[57] Exhibit A4, paragraph 155(f).
[58] Exhibit A4, paragraph 157.
[59] Exhibit A4, paragraphs 159-160.
[60] Exhibit A4, paragraph 163.
[61] Exhibit A4, paragraph 164.
[62] Exhibit R10.
[63] Exhibit A4, paragraph 196, and Transcript 12 August 2008, page 140.
[64] Exhibit A4, paragraph 165.
[65] Exhibit A4, paragraph 167.
[66] Exhibit A4, paragraph 168.
[67] Exhibit A4, paragraph 168.
[68] Exhibit A4, paragraph 171.
[69] Exhibit A4, paragraph 172.
[70] Exhibit A4, paragraph 173.
[71] Exhibit A4, paragraph 176(f).
[72] Exhibit A4, paragraph 174.
[73] Exhibit A4, paragraph 178.
[74] Exhibit A4, paragraph 183.
[75] Exhibit A4, paragraph 186.
[76] Exhibit A4, paragraph 187.
[77] Exhibit A4, paragraph 189.
[78] Exhibit A4, paragraph 199.
[79] Exhibit A4, paragraph 202.
[80] Exhibit A4, paragraph 212.
[81] Exhibit A4, paragraph 215.
[82] Exhibit A4, paragraph 221(b).
[83] Exhibit A4, paragraph 222.
[84] Exhibit A4, paragraph 226.
[85] Exhibit R8.
[86] Exhibit R10.
[87] Exhibit A4, paragraph 96.
[88] Exhibit R16.
[89] ST documents, ST42, paragraph 2.2.
[90] Exhibit R15.
[91] Transcript, 13 August 2008, pages 173-174.
[92] Transcript, 13 August 2008, page 221.
[93] ST documents, ST10, page 2.
[94] Exhibit R9 is the collated extracts with a guide prepared by the respondent for transactions in 1993. The documents collated in Exhibit R9 are part of the documentation found in T documents.
[95] ST documents, ST15, page 2.
[96] ST documents, T2.
[97] ST documents, ST15, page 2.
[98] Transcript, 14 August 2008, page 251.
[99] See the similarly completed requisition document at T documents, T20 and T26.
[100] Transcript, 14 August 2008, pages 270 and 272.
[101] See s 6(1) of the ITAA.
[102] Exhibit R11.
[103] The table sets the fee payable for the service rendered by the medical practitioner.
[104] s 6(1) of the ITAA.
[105] Exhibit R11.
[106] Exhibits R5 and R6.
[107] Exhibit A3.
[108] s 221C(1A) of the ITAA.
[109] s 16 of the Superannuation Guarantee (Administration) Act 1992.
[110] Transcript, 12 August 2008, page 90.
[111] The applicant claims that she raised the issue of tax with CPS Pty Ltd after discussing it with her accountant: see Exhibit A4, paragraph 8 and Transcript, 12 August 2008, pages 89-90.
[112] Exhibit R16.
[113] Exhibit A8.
[114] Exhibit R10.
[115] ST documents, ST42.
[116] ST documents, ST23.
[117] See for example, Exhibit R1 at Tab 4 on the final two pages which are the request for pay group link forms issued by the HIC. The first is dated 10 May 1996 and the second 12 May 1995. Both name the payee as “J K Chong” and in each case the payee is required to sign the form. While the Tribunal is not constituted by a handwriting expert and has no expertise in the field of handwriting, the signatures appear quite different. The Tribunal cannot and does not need to determine who signed the documents. The Tribunal is however satisfied that the signatures are so markedly different that a question arises of whether the same person could have signed both documents. The applicant, in her evidence, claimed not to be able to recognise the signature on either document. Given it would have to be either her husband or Mr John Chong and given the extensive relationship claimed with the latter, that the applicant was unable to recognise either signature is curious – unless both documents were signed by a party or parties other than her husband and Mr John Chong. However, this latter scenario would seem to be improbable.

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