FC of T v Bazzo; Bazzo v FC of T
Judges:Colvin J
Court:
Federal Court of Australia
MEDIA NEUTRAL CITATION:
[2024] FCA 452
Colvin J
1. In January 2015, the Commissioner of Taxation issued notices of amended assessment in respect of the taxable income of Ms Tina Bazzo for the income years ended 30 June 2009, 2010 and 2011. The amended assessments were issued under s 167 of the Income Tax Assessment Act 1936 (Cth) ( ITAA36 ) which provides that an assessment may be issued where the Commissioner is not satisfied with a return for a year of income that has been furnished by any person (amongst other circumstances). The assessments were issued based upon a form of asset betterment calculation. The assessments included penalties determined on the basis of an opinion formed by the Commissioner that there had been fraud or evasion; an opinion that also rested upon the asset betterment calculation.
2. Ms Bazzo lodged objections to the assessments. In April 2016, the Commissioner partly allowed the objections and issued amended assessments. Ms Bazzo sought review in the Administrative Appeals Tribunal of those amended assessments as provided for by s 14ZZC of the Taxation Administration Act 1953 (Cth) ( TAA ).
3. On 30 June 2016, the Commissioner issued a special assessment under s 168 of the ITAA36 in respect of Ms Bazzo's income for the year ended 30 June 2016. It concerned an amount of income that Ms Bazzo was alleged to have derived from the sale of a property in Anketell. Ms Bazzo objected to the assessment. The objection was disallowed and Ms Bazzo sought review in the Tribunal.
4. On the application for review by the Tribunal of the objection decisions, Ms Bazzo had the burden of proving, as to each assessment, 'that the assessment is excessive or otherwise incorrect and what the assessment should have been': s 14ZZK(b)(i) of the TAA.
5.
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The Tribunal determined that the Commissioner's first objection decision should be varied in a number of respects, namely:- (1) To allow the objection to the inclusion of eight properties in the assessments for the 2009 and 2010 years.
- (2) To allow the objection to the inclusion in the assessments for the 2009, 2010 and 2011 years of monies passing through a NAB Flexi Account and two Bendigo Bank accounts as the income or property of Ms Bazzo.
- (3) To allow the objection to a 20% uplift in penalties for the 2010 and 2011 years.
- (4) To allow the objection by remitting the penalty in respect of an amount for director's fees being returned in the wrong year.
6. The Tribunal upheld the second objection decision. There is no ongoing issue concerning the special assessment issued in 2016.
Appeal by Commissioner
7. The Commissioner has exercised the statutory right of appeal conferred by the TAA. In response, Ms Bazzo has raised a number of points of contention and has advanced a cross-appeal. The appeal and cross-appeal must be confined to questions of law: s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth). Where there is a right to appeal on a question of law, the existence of a question of law is both the qualifying condition for the application and its sole subject matter:
Brown v Repatriation Commission (1985) 7 FCR 302 at 304; and
Federal Commissioner of Taxation v Brixius (1986) 16 FCR 359 at 363-364. Further, the Court exercises original, not appellate, jurisdiction and does so in proceedings which are in the nature of judicial review:
The Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue [2001] HCA 49; (2001) 207 CLR 72 at [15].
8. As the appeal must be on a question of law, the fact-finding function remains with the Tribunal. The fact-finding process undertaken by the Tribunal may be evaluated on appeal, but only for the purpose of determining whether it conformed to legal requirements as to the nature of the fact-finding task required to be undertaken by the Tribunal. As to these matters, see
Haritos v Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 at [194] (Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ).
9. The Court also has discretionary authority to make findings of fact as to matters that were before the Tribunal as part of its adjudicatory task, but only where those findings are not inconsistent with those findings of fact made by the Tribunal which are not themselves infected by an error of law: s 44(7) of the Administrative Appeals Tribunal Act. In the present instance, neither party invited the Court to make factual findings. Rather, they claimed either that (a) if certain contentions were upheld, then different orders could be made by this Court on the basis that they followed as a matter of necessary logic from the Tribunal's findings; or (b) there would need to be remitter of limited aspects of the matter for reconsideration by the Tribunal. As to remitter, the ultimate position of both parties was that the terms of any remitter should be considered once the outcomes of the appeal and cross-appeal were known.
10. Before considering the issues raised by the appeal and the cross-appeal it is necessary to provide an overview of what was determined by the Tribunal.
Overview of Tribunal's reasoning
11. After dealing with the circumstances giving rise to the assessments and describing the competing contentions of the parties, the Tribunal began by considering the relevant law concerning an application for review under s 14ZZK(b)(i) of the TAA in a case where an assessment had been made under s 167 of the ITAA36 using an asset betterment statement.
12. The Tribunal was aided by a recent comprehensive review of the relevant authorities undertaken by Derrington J in
Commissioner of Taxation v Ross [2021] FCA 766. The Tribunal quoted from key parts of the reasons in that decision. It referred to relevant passages to the effect that it was insufficient for a taxpayer to prove that an item in an asset betterment process was wrong or should not have been included. Rather, the ultimate question is whether the assessment is excessive and, as to that question, there is no burden placed upon the Commissioner. Further, absent agreement with the Commissioner to confine
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the issues for determination, the Commissioner is entitled to rely upon any deficiency in the taxpayer's proof of the excessiveness of the amount assessed in seeking to uphold the assessment. As to any such agreement: 'One might expect some clear expression of that agreement, involving as it does an abandonment of the advantages accorded to the Commissioner in s 167 in respect of defaulting taxpayers' (as quoted by the Tribunal from Ross at [48(10)]).13. The Tribunal then noted that in the case before the Tribunal there was no agreement to the effect that the default assessment was a calculation of actual taxable income from which items might be challenged, leaving the remainder as the taxpayer's actual taxable income (para 68). The Tribunal then made clear that it well understood the purport of relevant authority as explained in the passages quoted from Ross by stating:
[Ms Bazzo] establishing that components or a component of the asset betterment calculation on which the [Commissioner] based the s 167 of the ITAA 1936 default assessment … should not have been included, could (potentially) establish that the assessment was not in the correct amount, but would not, of itself, establish that it was 'excessive or otherwise incorrect' for the purposes of s 14ZZK(b)(i) of the TAA. As a matter of logic, in order to establish that an assessment was excessive, it would be necessary to establish what it should have been, that is, establish what the actual taxable income was.
14. Driving the point home, the Tribunal then said (para 69):
As was the case in Ross, in the present case the parties correctly agreed that the effect of s 14ZZK(b)(i) of the TAA is that the taxpayer bears the burden of proving, on the balance of probabilities, both that the assessment is 'excessive' and, also, what the assessment should have been.
15. The Tribunal then quoted the following passage from Kitto J, the judge at first instance, in
George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 189:
… in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment. That will involve him, of course, in accounting for the increase in his assets, and it may well be that the commissioner will direct his efforts mainly or even wholly to endeavouring to meet the evidence the appellant adduces on this point. But the source of the increase in the assets is not the actual issue in the case; even if it were proved, for example, that that source consisted of winning bets on the racecourse, the issue would still be whether or not from any source the appellant derived as much taxable income as the assessment treats him as having derived.
16. The Tribunal then analysed the contents of the asset betterment statement relied upon by the Commissioner as the basis for the relevant assessments and the reasons for decision in relation to the objections by Ms Bazzo. The Tribunal's analysis in this regard assumes some significance because, as the Tribunal explained, the assessments were based to some extent upon an asset betterment analysis and to some extent upon identified 'other income'. As the Tribunal said, the relevant assessments 'had four components some of which would not ordinarily be described as asset betterment' (para 71). In particular, the Tribunal understood that the 'private expenses' identified in the asset betterment analysis were added to the identified asset position on the basis that the payment of those expenses from bank accounts and credit cards indicated the extent of undeclared taxable income (paras 82-85). In that regard, the Tribunal quoted from the Commissioner's reasons for the decision refusing Ms Bazzo's objection where the Commissioner referred to the unexplained expenses from the bank accounts in the following way (para 82):
The Commissioner considers that the funds in your bank accounts used to meet personal expenses or to repay loans used to acquire assets are assessable as ordinary income under section 6-5 of the [Income Tax Assessment Act 1997 (Cth)] as these funds
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represent income from unexplained sources or unidentified business activities.
17. Section 6-5 provides that a taxpayer's assessable income includes income according to ordinary concepts. Therefore, as to the monies used to meet personal expenses and to repay loans they were identified in the relevant assessments as income, not as unexplained assets. This distinction which the Tribunal identified in the early part of its reasons forms an important contextual aspect when considering later parts of the Tribunal's reasons.
18. After analysing the basis upon which the assessments had been issued, the Tribunal stated (para 86):
The core issue in the present case is, firstly, whether the assets on which the asset betterment calculation was made are, or were, the property of [Ms Bazzo] and, secondly, whether the amounts withdrawn from or paid into the accounts in the [Ms Bazzo's] name were, as she claims, not for her benefit. That second issue is also largely determined by whether the various properties in relation to which the payments were made were properties beneficially held by [Ms Bazzo], or were properties held by her on trust for others. As noted above, it was those issues which were the subject of the evidence and the submissions at the hearing.
19. The 'core issue' as described by the Tribunal had two parts. First, whether assets used by the Commissioner to make the asset betterment calculation were assets of Ms Bazzo. Second, whether amounts withdrawn from or paid into bank accounts in Ms Bazzo's name were, as she claims, not for her benefit. The second issue was identified as being connected with the first. However, the expression of the core issue did not allude to the further question whether payments made from Ms Bazzo's bank accounts that did not relate to the properties (that is, payments to meet personal expenses) were taxable income.
20. Given the preceding context in which (a) the obligation of the taxpayer to prove all sources of income was firmly emphasised; (b) there was an express finding that there was no relevant agreement that would allow Ms Bazzo to focus upon challenging items in the asset betterment statement; and (c) the Tribunal's express recognition that aspects of the relevant assessments depended upon the identification of monies used to meet personal expenses (rather than property-related expenses) as personal income, it is most unlikely that the above passage was intended to narrow the Tribunal's focus in a way that would be inconsistent with those statements. Rather, in my view, the Tribunal was directing its attention to the main issues that, in its view, were 'the subject of the evidence and the submissions at the hearing'. This indeed had been the case, a matter that is confirmed by regard to the materials before the Tribunal and the submissions advanced by the parties. They focussed principally upon issues in relation to the properties and the property-related expenses.
21. Nevertheless, as will emerge, a number of the issues in the appeal to this Court concerned whether the Tribunal had become distracted in some way from a proper understanding of what Ms Bazzo was required to demonstrate in order to succeed before the Tribunal by focussing upon what it described as the 'core issue', being (a) whether certain properties in her name were held on trust; and (b) whether certain payments said to have been made in relation to those properties were from, or otherwise indicated, undisclosed income. It will be necessary to return to this aspect. However, in addressing that aspect of the case, the submission for the Commissioner to the effect that the passage quoted above manifested some narrowing by the Tribunal of its understanding of what Ms Bazzo had to establish to succeed should not be accepted. Other submissions advanced by the Commissioner to support the claim of error by the Tribunal in allegedly narrowing its approach to its task are dealt with separately below when addressing the issues in the appeal.
22. Returning to the Tribunal's reasoning, the Tribunal next undertook a lengthy analysis of the evidence in relation to the properties that Ms Bazzo claimed were not her property because they were held by her on trust. The analysis commenced with the heading 'The Properties claimed by the Applicant to be held on trust for other entities'. In the course of that analysis, the Tribunal referred
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to evidence about the land development activities in which Ms Bazzo and her partner were involved and the way in which various holding costs relating to those activities were met by way of direct debit from the NAB Flexi Account in Ms Bazzo's name. The Tribunal dealt in detail with the 'eight properties in question'. In that regard, the Commissioner's original assessment had been made on the basis that there had been some 230 properties registered in the name of Ms Bazzo that formed part of her unexplained wealth, but by the time of the proceedings before the Tribunal the Commissioner had accepted that all but eight of those properties were indeed not beneficially owned by Ms Bazzo.23. In its reasons, the Tribunal dealt with the evidence concerning the properties and the payments from the NAB Flexi Account in considerable detail (paras 87-239). Those paragraphs included the consideration of evidence from Mr Bay (in the form of two reports) and 'DCW' (in the form of two affidavits) each of whom had undertaken analysis of various accounting records (paras 214-239).
24. Having completed its detailed consideration of the evidence as to the properties and the payments from the NAB Flexi Account, the Tribunal then commenced a section of its reasons headed 'Closing submissions'. It began as follows (para 240):
As noted earlier, the parties made oral closing submissions as well as providing written closing submissions. The [Commissioner's] closing submissions were to the following effect:
- (a) [Ms Bazzo] is required to positively prove her actual taxable income. In doing so, she must demonstrate that the amount of tax levied by the assessment exceeds her actual substantive liability. In the context of a s 167 of the ITAA 1936 assessment based on the asset betterment method, [Ms Bazzo] must prove that the identified unexplained accumulated wealth was derived from non-income sources.
- (b) The evidence that [Ms Bazzo] has adduced in support of her applications is not capable of discharging the burden of proving that the assessments are excessive, or otherwise incorrect, and what the assessments should have been.
25. Significantly, the Tribunal began by directing attention to submissions by the Commissioner which reinforced the nature of the burden faced by Ms Bazzo (as correctly stated by the Tribunal in its earlier analysis of the law).
26. Thereafter, the Tribunal summarised (over the course of seven pages) the submissions advanced for the Commissioner as to the credibility of Ms Bazzo and witnesses called by Ms Bazzo to support her application. The Tribunal then summarised (over the course of five pages) the submissions advanced for Ms Bazzo as to the credibility of those witnesses.
27. The Tribunal then made findings as to credibility of the witnesses. The Tribunal accepted Ms Bazzo's evidence that the eight properties were held on trust by her for the benefit of third parties (para 256). The Tribunal also found that there were reasons not to accept the evidence of Ms Bazzo's partner (referred to by the Tribunal as A) and concluded (para 258):
If I were having to rely solely on A's evidence to find that [Ms Bazzo] held properties in the land developments on trust, or that her bank accounts, in particular the ANZ Flexi Account [sic], were used to facilitate those developments, [Ms Bazzo] would most likely fail. However, that is not the case. A's evidence about the practices that he, [Ms Bazzo] and others followed in undertaking these developments, is consistent with the evidence of [Ms Bazzo], Mr Bay, DCW and with the documentary evidence. That documentary evidence is not just the deeds of trust and the accounts kept by [Ms Bazzo] and A's companies, but is also the bank statements, settlement statements and tax returns which are substantially consistent with [Ms Bazzo] and A's evidence.
28. The 'ANZ Flexi Account' appears to in fact be a reference to the NAB Flexi Account. Therefore, the Tribunal not only accepted that all the properties were held by Ms Bazzo on trust for third parties, but also found that the NAB Flexi Account was used to facilitate the development of those properties.
29.
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The Tribunal then dealt with the evidence of Mr Bay and DCW (para 259ff). As to their evidence, the Tribunal said (para 260):I appreciate that the [Commissioner] bears no burden of proof in such matters, however, in my view it takes more than each of Mr Bay or DCW accepting the somewhat self-evident general proposition that accounts are only as good as the information that is put into them (see [232] above) to render their reports and their evidence given at the hearing of no, or significantly diminished, probative value. As noted earlier, neither of them was cross-examined on any particular transactions referred to in their reports or their conclusions to illustrate that their reliance on certain records rendered their analysis and conclusions invalid.
(emphasis added)
30. The Tribunal then reasoned (para 261):
However, having made the above observations, there is a distinction between the reports of Mr Bay and DCW. As set out in [259] above and in the more detailed description of Mr Bay's reports (see [214]-[233] above), Mr Bay was able to rely on third-party records and documentation to a greater extent than DCW. Further, Mr Bay was an independent consultant accountant specialising in forensic analysis with considerable experience and qualifications. Prior to his being approached to prepare the reports, he had had no contact with [Ms Bazzo] or any of her associated entities. For those reasons I accept the conclusions reached by Mr Bay in his reports (see [223] above). I am, however, unable to accept DCW's conclusions on the balances of [Ms Bazzo's] loan accounts, which were largely reliant on the financial statements and journals for [Gucce] Holdings Pty Ltd, prepared by others. Also, unlike Mr Bay, DCW had an historical relationship with [Ms Bazzo], having worked for [Ms Bazzo's] group of companies (see [235] above) and with A, through his employment by M Nominees Pty Ltd. Accordingly, he cannot be considered to be independent. Further, DCW's conclusions in relation to the balances of the loan accounts relied significantly on his assessment of the nature of transactions as either being personal expenses or being related to development of properties. That exercise must necessarily involve a degree of subjectivity.
(footnotes omitted)
31. The following should be noted about the reasoning in the above paragraph:
- (1) The Tribunal accepted in an unqualified manner the evidence of Mr Bay.
- (2) The Tribunal did not accept the evidence of DCW.
- (3) As to Mr Bay, the Tribunal had earlier explained the nature of his two reports. The key finding as to his evidence is expressed in terms that 'I accept the conclusions reached by Mr Bay in his reports', that is both of Mr Bay's two reports. There is no indication that the Tribunal is taking a different view as to matters that bear upon one report rather the other. The reasoning as to why Mr Bay's reports should be accepted does not indicate that any distinction is being drawn between them.
- (4) The cross-reference to para 223 is to a conclusion reached by Mr Bay in his first report to the effect that 'amounts deposited to the NAB [Flexi] Account represent deposits made to facilitate payments to multiple lenders and on behalf of multiple entities and beneficiaries'. Mr Bay's second report (summarised at para 229ff) deals with the separate matter of the loan account shown in the accounts of Gucce Holdings Pty Ltd.
- (5) I accept the submission for Ms Bazzo that the reference to para 223 is a typographical error and it should be read as referring to para 233 (which comes at the end of the consideration of both reports of Mr Bay) and is expressed in the following terms:
The above represents, in effect, the entire cross-examination of Mr Bay. He was not cross-examined on any particular aspect of either of his reports or challenged on any of the analysis or conclusions contained in his reports.
- (6) Therefore, it is clear that the Tribunal accepted both reports by Mr Bay.
32.
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The Tribunal then dealt with submissions advanced by the Commissioner concerning the application of the principle in Jones v Dunkel, whether deeds of trust concerning the properties were shams, the formalities required for deeds, the provisions of the Stamp Act 1921 (WA) and the failure by Ms Bazzo to provide documents in response to requests (paras 262-289). Each of those passages, like the submissions they addressed, were concerned with matters relating to the properties. They were all points that had been raised by the Commissioner.33. The Tribunal then commenced a section of reasoning that dealt with Ms Bazzo's income more broadly. It was set out under the heading 'Sources of income'. The reasoning is from paras 290-294. It will be necessary in due course to address the detail of those paragraphs because they assumed significance for the Commissioner's case on appeal. At this stage, it is sufficient to note that the reasoning began in the following way:
At paras 167-79 of his written closing submissions, the [Commissioner] referred to a lack of evidence led by [Ms Bazzo] as to how she earned her income, and what corporate structure she had in place to do so. The [Commissioner] claimed that '[i]n the absence of clear evidence concerning the sources of [Ms Bazzo's] wealth, she has not discharged her onus'
34. The balance of the Tribunal's reasons followed the same structure as the Commissioner's written closing submissions. They next deal with 'Bank accounts'. As to the NAB Flexi Account, the Tribunal found that the relevant monies in the account were amounts relating to loans for the purchase of properties that were not beneficially held by Ms Bazzo and were not her monies (paras 295-300).
35. As to the separate claim concerning monies in an Investec Account, the Tribunal was 'not satisfied that [Ms Bazzo discharged her onus of establishing that the moneys passing through [the] account were not for her benefit or should not be treated as income' (para 306).
36. As to two Bendigo Bank accounts, the Tribunal found that Ms Bazzo had discharged her onus on the basis that the amounts in those accounts, like those in the NAB Flexi Account, concerned the properties and were not amounts for her benefit (paras 310, 313).
37. The next matter addressed was the loan to Gucce Holding Pty Ltd. As to that matter, the Tribunal did not accept that Ms Bazzo had established an explanation as to why the payment of $1,000,000 (said to have been received by Ms Bazzo as repayment of a loan) should not be treated as income (para 318).
38. The Tribunal then summarised the competing contentions of the parties as to penalties (paras 319-323) and indicated that they would be addressed at the end of the reasons. It then dealt with the issue about the validity of the amended assessments for the years 2009 and 2010 under s 170(1) of the ITAA36 (paras 324-325). Section 170(1) of the ITAA36 provides for the circumstances in which the Commissioner may amend an assessment, one of which being where the Commissioner forms the opinion that there has been fraud or evasion.
39. The Tribunal then addressed what it described as the issues for determination. It began by saying: 'I am satisfied that [Ms Bazzo] has established, on the balance of probabilities, that each of the 2009, 2010 and 2011 default assessments and the 2016 special assessment was excessive or otherwise incorrect' (para 326). It recorded again its finding that Ms Bazzo held the eight properties on trust for others (para 327). It also recorded its acceptance that the NAB Flexi Account and the two Bendigo Bank accounts were not held for her benefit and that the funds that passed through those accounts should not be treated as her income (para 328).
40. The necessary consequence of these findings was that, as to those aspects, it had been established by her, to the satisfaction of the Tribunal, that the properties were not her assets and that the monies passing through the accounts were borrowings made as trustee. Consequently, there was no need to demonstrate sources of those funds that were not her taxable income. It meant that much of the force of the Commissioner's case had fallen away.
41. Then, having reached that conclusion, the Tribunal returned to what Ms Bazzo had to prove under s 14ZZK(b)(i) and said (para 329):
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As the [Commissioner] correctly points out, a finding that the assessments were excessive or otherwise incorrect is only half the requirement of s 14ZZK(b)(i) of the TAA. [Ms Bazzo] must also establish, on the balance of probabilities, what the assessment should have been: in other words, what her actual taxable income was for each of the years. She does not do that by starting with the assessments issued by the [Commissioner] and deducting from the assessments items which are shown to have wrongly been included. The steps necessary to satisfy this element of s 14ZZK(b)(i) of the TAA are described by Derrington J in Ross at [47] as set out in [66] above.(emphasis added)
42. Here the Tribunal, in its own language, clearly and correctly states the burden that Ms Bazzo was required to discharge.
43. The Tribunal then quoted particular passages from Ross to the effect that a taxpayer must prove positively their actual taxable income, including the statement that: 'The taxpayer must account for the unexplained increase in assets by explaining the source of those assets and identifying that those sources are not taxable'. Significantly, at this point the Tribunal again correctly states that Ms Bazzo does not discharge her onus 'by starting with the assessments issued by the [Commissioner] and deducting from the assessments items which are shown to have wrongly been included'. The quotes from Ross reinforce that the Tribunal understood that Ms Bazzo, as the taxpayer, must positively prove her actual taxable income and account for the unexplained accumulated wealth the subject of the asset betterment method.
44. However, as has been mentioned, the extent of that unexplained increase had substantially diminished by reason of the findings as to the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts. That is part of the circumstances that pertain when it comes to considering the Tribunal's approach to whether Ms Bazzo had proven positively the extent of her taxable income. The Tribunal found that the eight properties and the monies in the bank accounts were in Ms Bazzo's name as trustee, not for her personal benefit.
45. As to Ms Bazzo's income, the Tribunal then said (para 330):
[Ms Bazzo's] basic contention is that her actual income was as declared in the returns that she lodged for each of the years in question. At paras 528-671 of her affidavit dated 8 November 2017 [Ms Bazzo] set out what she said were the sources of her income for each of the years in question. These included:
- (a) director's fees paid by [Gucce] Holdings Pty Ltd;
- (b) salary paid to her by M Nominees Pty Ltd;
- (c) dividend payments; and
- (d) interest generated on bank accounts.
46. As the reference to the paragraphs in the affidavit of Ms Bazzo indicates, her evidence as to these matters was long and detailed. It was given by reference to the entries in bank statements for her accounts, all of which were produced.
47. The Tribunal accurately described the nature of that evidence in the next paragraph of its reasons (para 331) as follows:
In these paragraphs [Ms Bazzo] sets out the assets that she held in each of the relevant years, the living expenses (including holiday expenses) that she incurred in each of the years and sought to explain the flow of funds through her many bank accounts and credit cards. At para 635 of her affidavit of 8 November 2017, [Ms Bazzo] referred to the $1,000,000 payment that she received from [Gucce] Holdings Pty Ltd in February 2011 which she claimed was repayment of a loan. For the reasons set out at [316]-[318] above, I do not accept [Ms Bazzo's] explanation of this payment.
(emphasis added)
48. Then the Tribunal said (para 332):
In the present case, it being a ITAA 1936 s 167 assessment based on the asset betterment method in each year, [Ms Bazzo], as described by Derrington J at [47(6)] of Ross, must demonstrate that the identified unexplained accumulated wealth
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was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the [Commissioner] should not be treated as income. As stated above, I accept that [Ms Bazzo] has, on the balance of probabilities, established that the eight properties were not held beneficially by her and that she has explained why the funds going through the NAB Flexi Account and the two Bendigo Bank accounts referred to in [328] above, were, as Derrington J described it at [47(6)] of Ross, 'derived from non-income sources'. I do not accept that she has discharged that onus in respect of the other bank accounts and credit cards identified by the [Commissioner]. In relation to those other accounts and credit cards, we have little more than [Ms Bazzo's] assertion that the funds were not used by her for her benefit. Unlike the NAB Flexi Account, there was no detailed analysis based on bank statements or other third-party documents provided by [Ms Bazzo].(emphasis added)
49. Then, in the next paragraph (para 333), the Tribunal said:
While the above represent my findings on those issues, my role is to review the objection decision …
50. Therefore, it is apparent that the Tribunal intended, by that point, to have recorded its findings on whether Ms Bazzo had established the extent of her income. The Tribunal had already addressed the detailed submissions of the Commissioner concerning the credibility of the account given by Ms Bazzo. In this part of its reasons, where it recorded its findings as to Ms Bazzo's income, the Tribunal stated the respects in which it did not accept the evidence of Ms Bazzo as to the extent of her income. It did so by the emphasised passages quoted above. If there had been other respects in which that evidence was not accepted then it would be expected to be found at this point. There are two respects in which the evidence was not accepted, namely:
- (1) the $1,000,000 said to have been a loan from Gucce Holdings Pty Ltd; and
- (2) the amounts 'passing through' the bank accounts and credit cards (a description that appears to include the Investec Account which had been found not to be conducted as trustee) but excluding only the NAB Flexi Account and the two Bendigo Bank Accounts.
51. It will be necessary to return to these aspects of the Tribunal's decision. However, it is important to observe that the Tribunal deals separately with 'the other bank accounts and credit cards'. The Tribunal recognised that there was a separate question to the issue of unexplained wealth and that concerned whether the funds 'passing through' those accounts was taxable income of Ms Bazzo.
52. The use of the expression 'passing through' received some attention in submissions. In my view, considered in context, it reflects the way the Commissioner raised the assessments and Ms Bazzo had sought to challenge them. On the Commissioner's case all the funds that had been received into all the bank accounts in Ms Bazzo's name and then expended should be treated as her income. On the Tribunal's findings, only the monies 'passing through' the NAB Flexi Account and the two Bendigo Bank Accounts were not Ms Bazzo's money and were expended by her as trustee. Which left the amounts 'passing through' the other bank accounts. As to those monies the Tribunal recognised that the burden upon Ms Bazzo was to show that it should not be treated as her income, that is as money that indicated the extent of undeclared taxable income.
53. Returning to the sequence of the Tribunal's reasoning, the Tribunal then considered whether the matters on which Ms Bazzo had succeeded were matters that had been raised in her objection decision because of the operation of s 14ZZK(a) of the TAA, which limits the grounds of review that can be agitated by Ms Bazzo. The Tribunal concluded that the matters agitated before it were consistent with the matters raised by way of objection (paras 333-335).
54. The Tribunal then dealt with the matter of penalties and whether there had been a valid exercise by the Commissioner of the power to amend the assessments for the 2009 and 2010
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assessments on the basis of fraud or evasion at the time of original assessment.55. As to penalties, part of the Tribunal's reasons concerned the interpretation and application of s 284-220(1)(c) of Schedule 1 to the TAA. It provides for one of the circumstances in which a base penalty amount will be increased by 20%. It applies in cases where a base penalty has been worked out under particular items 'previously'. The Tribunal found that the reference to 'previously' should be interpreted to mean 'on a previous occasion' as distinct from 'in respect of a previous accounting period'. On the basis of that interpretation, the Tribunal determined that the 20% additional penalty that had been imposed by the Commissioner for the 2010 and 2011 assessments had been imposed incorrectly 'because at the time that the penalties were worked out in respect of those years, a penalty had not 'previously' been applied in respect of the 2009 year' (para 345).
56. The Tribunal then found that the amended assessments for the 2009 and 2010 years were validly issued (paras 355-360).
57. Finally, as to matters presently relevant, the Tribunal expressed its conclusion in the following terms (paras 361-363):
For the reasons set out above, I have found that the properties listed in [87], which were included by the [Commissioner] in the 2009 and 2010 default assessments, were not beneficially owned by [Ms Bazzo]. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2009 and 2010 default assessments to allow the objection to the inclusion of those properties in the default assessments.
Further, for the reasons set out above, I have found that the moneys passing through the NAB Flexi Account and the Bendigo Bank accounts…were not for the benefit of [Ms Bazzo]. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2009, 2010 and 2011 default assessments to allow the objection to the inclusion of money passing through those accounts as [Ms Bazzo's] income…
Further, for the reasons set out above, I have found that neither s 284-220(1)(a) nor s 284-220(1)(c) applies. Accordingly, the correct or preferable decision is to vary the objection decision in relation to the 2010 and 2011 default assessments to allow the objection to the 20 per cent uplift to the penalties under s 284-220 of the TAA.
Two possible foundations for the Tribunal's final conclusion, and the scope of the appeal
58. It is possible that a conclusion of the kind reached by the Tribunal was the consequence of findings that Ms Bazzo had satisfied the Tribunal that she had no taxable income beyond that which was identified in the Commissioner's assessments but that she had failed to discharge her onus as to all items in that analysis save for the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts. That is to say, the Tribunal was satisfied that the monies 'passing through' the other bank accounts and visa cards constituted the extent of Ms Bazzo's income even though it did not accept the explanations as to why that income was not taxable income. However, it did accept that the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts were not her monies and so, to that extent, her explanation was accepted.
59. It is also possible that a conclusion of the kind reached by the Tribunal was the consequence of findings that Ms Bazzo had satisfied the Tribunal that the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts were not undisclosed income or derived from undisclosed income, but the Tribunal had simply failed to consider whether Ms Bazzo had discharged her onus to prove the extent of her actual income. Instead, at the final hurdle it had misapplied the law that it had stated and had not required Ms Bazzo to discharge her onus to demonstrate that the assessments were excessive. That is to say, despite is repeated and correct statement of the nature of the burden that Ms Bazzo had to discharge, it had made no affirmative finding as to the extent of Ms Bazzo's income according to ordinary concepts in the relevant years.
60.
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As will emerge, the distinction between those two possibilities and the competing contentions between the parties as to which of the two possibilities was the way in which the Tribunal reasoned was at the heart of the Commissioner's appeal to this Court. The cross-appeal by Ms Bazzo also concerned that issue, but raised further issues concerning the Tribunal's conclusions that she had failed to discharge her onus in a number of respects. However, the cross-appeal grounds must be approached with a proper understanding of the overall way in which the Tribunal reasoned.61. There were also issues raised by both parties as to the Tribunal's approach to penalties and a claim by Ms Bazzo that the Tribunal erred in reaching its conclusion as to the validity of the amended assessments for the 2009 and 2010 years.
The Commissioner's case in this Court
62. The Commissioner contended that the Tribunal had made no finding as to what Ms Bazzo's taxable income was in each of the relevant years. Therefore, so it was submitted, the Tribunal did not know all the material facts and, in consequence, could not find that the amount assessed for each year was wrong or excessive. This aspect of the Commissioner's case rested on two alternative propositions.
63. The first proposition (the subject of ground 1A) was to the effect that the Tribunal had limited its findings to determining whether Ms Bazzo had explained the source or sources of her income in respect of three main categories of wealth referred to in her objection. On that basis it was contended that the Tribunal had misinterpreted and misapplied s 14ZZK(b)(i) of the TAA. In consequence, so it was said, the Tribunal had failed to make a finding as to whether Ms Bazzo had proved her sources of income in each of the relevant years.
64. The second proposition (the subject of ground 1) was to the effect that even if Ms Bazzo had proven the entirety of her income according to ordinary concepts, because she had lost as to some aspects of what she said was not income, she had failed to discharge the requirements of s 14ZZK(b)(i) of the TAA. On the Commissioner's case, s 14ZZK(b)(i) operated in an 'all or nothing' way so that a taxpayer had to prove affirmatively that the full amount of the assessment was not assessable income. In consequence, as the Tribunal had found that Ms Bazzo had failed to adduce evidence to prove the position affirmatively as to part of the assessment amount, it ought to follow that Ms Bazzo had failed to discharge the burden of proving what the assessment should have been and therefore that the assessment was excessive.
65. In addition, the Commissioner claimed (ground 2) that the Tribunal had erred in its proper construction of s 284-220(1)(c) of Schedule 1 to the TAA concerning the additional 20% penalty for the 2010 and 2011 years. The contention was that the additional penalty was properly imposed for those years and the Tribunal was wrong in law to conclude to the contrary.
Ms Bazzo's case in this Court
66. Ms Bazzo disputed the Commissioner's contentions (by grounds 1A and 1) that there had been error in the Tribunal's approach to the burden of proof that the taxpayer was required to discharge under s 14ZZK(b)(i). She claimed that the Tribunal had accepted her evidence as to all items that could potentially be included in her income but did not accept her claim that some of those items were not taxable income. Ms Bazzo also disputed the Commissioner's alternative claim that s 14ZZK(b)(i) mandated the adoption of an 'all or nothing' approach.
67. Ms Bazzo claimed separately that if the Tribunal had failed to find that all items that could potentially be included in her taxable income had been identified then, on the basis of the conclusions that the Tribunal had reached, that conclusion ought to have been reached by the Tribunal (in effect as a necessary consequence of its findings). Consequently, the Tribunal ought to have concluded that computation of her taxable income had been demonstrated because some of those items had been shown to be assessable income and the balance were shown not to be assessable income (contention ground 1 and cross-appeal ground 3).
68. As to the additional 20% penalty, Ms Bazzo accepted that the Tribunal had been in error as to what was meant by the reference to 'previously' in s 284-220(1)(c) of Schedule 1. That concession was properly made: see
Bosanac v Commissioner of Taxation [2019] FCAFC 116; (2019) 267 FCR 169 at [139]-[149]; and Ross at [194]-[198]. However, she contended that by reason of the Tribunal's error, it had failed to consider a submission advanced for Ms Bazzo that the amount of the 20% uplift should be remitted because its 'mechanical' operation in a case where there was a single audit resulting in assessments for successive years produced an outcome that was unjust (contention ground 2 and cross-appeal ground 2).
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69. Ms Bazzo separately claimed that there had been errors in respect of each of the three respects in which the Tribunal had not accepted her case as to the extent of her taxable income, namely (a) the $1,000,000 received from Gucce Holdings Pty Ltd ( Gucce Loan Amount ); (b) the amount 'passing through' her Investec Account ( Investec Account Amount ); and (c) the amounts 'passing through' her other bank accounts and credit cards (other than the NAB Flexi Account and the two Bendigo Accounts) ( Other Accounts Amount ).
70. As to the Gucce Loan Amount, Ms Bazzo said that the Tribunal had misapprehended her evidence in a way that had infected the Tribunal's conclusion because it meant that the Tribunal either (a) made a finding without evidence; or (b) reasoned in a way that was irrational, illogical and not based on findings or inferences supported by logical grounds (cross-appeal ground 4).
71. As to the Investec Account Amount, Ms Bazzo said that the Tribunal reasoned in a way that was infected by legal error because it treated funds that had been held by her in a bank account for a number of years as if they were income when they could not be so treated (cross-appeal ground 6). Ms Bazzo submitted that only the interest accruing on that amount could be found to be income. The ground was also expressed as a failure to take into account a relevant consideration, although it was not put in that way in submissions.
72. As to the Other Accounts Amount, it was said (cross-appeal ground 5) that the Tribunal had asked itself the wrong question by considering whether the amounts in the accounts were 'for her benefit' when the Tribunal was concerned with whether Ms Bazzo had proven the extent of her assessable income. In consequence, it was said that the Tribunal failed to consider her evidence that sought to explain why the deposits into the accounts were non-income in nature. It was also said that the Tribunal erred in concluding that there was no more than the assertion of Ms Bazzo to support her submission that the Other Accounts Amount was not income. It was submitted that in fact her evidence was a detailed account of the nature of the deposits into each of the accounts over the relevant period and had included all of the relevant bank statements.
73. The Commissioner had amended the assessments for the 2009 and 2010 tax years relying on the power to do so under s 170(1), item 5 of theITAA36 if there was fraud or evasion on the part of Ms Bazzo. Ms Bazzo claimed that the Tribunal adopted the incorrect approach to its task in determining whether there was fraud or evasion for the purposes of amending the assessments. Ms Bazzo contended that instead of forming its own view as to those matters (which it was required to do on review), the Tribunal simply concluded that it was satisfied that the Commissioner held the requisite opinion and that it was not arrived at capriciously, or fancifully, or upon irrelevant or inadmissible grounds. In doing so, the Tribunal was said to have made an error of law (cross-appeal ground 1).
74. Finally, Ms Bazzo alleged error in the Tribunal's finding that the shortfall in the income that she had declared in her returns for 2009 to 2011 was the result of more than negligence or recklessness, but rather, was deliberate conduct on her part to disregard the legislation or regulations (cross-appeal ground 7). In part, success on this ground depended upon the challenges to the Tribunal's findings about the Gucce Loan Amount, Investec Account Amount, and the Other Accounts Amount.
Issues for determination
75. Accordingly, the following issues arise for determination:
- (1) Did the Tribunal limit its findings concerning the extent of Ms Bazzo's income to considering whether Ms Bazzo had explained the sources of her
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income in respect of categories of wealth referred to in her objection? - (2) If no to (1), was the Tribunal legally obliged to conclude that Ms Bazzo otherwise failed to discharge her onus because the Tribunal found that she had failed to show that the Gucce Loan Amount, the Investec Account Amount and the Other Accounts Amount were not part of her income?
- (3) Did the Tribunal err as to the Gucce Loan Amount in a respect that invoked a question of law?
- (4) Did the Tribunal err as to the Investec Account Amount in a respect that invoked a question of law?
- (5) Did the Tribunal err as to the Other Accounts Amount in a respect that invoked a question of law?
- (6) Taking account of the answers to (3) to (5), has error on a question of law been demonstrated as to the Tribunal's finding that there was deliberate conduct by Ms Bazzo to disregard her taxation liabilities?
- (7) Did the Tribunal adopt the incorrect approach as a matter of law in determining whether there was fraud or evasion by Ms Bazzo of a kind that justified the amended assessments for the 2009 and 2010 tax years?
- (8) Did the Tribunal fail to consider a submission advanced for Ms Bazzo as to why the additional 20% penalty imposed by s 284-220(1)(c) of Schedule 1 of the TAA should have been remitted?
Each of these issues is considered below.
Issue (1): Did the Tribunal limit its findings concerning the extent of Ms Bazzo's income to considering whether Ms Bazzo had explained the sources of her income in respect of categories of wealth referred to in her objection?
76. It was common ground that, in Ross, Derrington J had correctly summarised the law as to the taxpayer's task in the Tribunal in advancing an objection to an assessment issued by the Commissioner under s 167 of the ITAA36. As has been mentioned, it is the taxpayer's burden to demonstrate both that the assessment is excessive and what the assessment should have been. Further, in the absence of some form of agreement between the Commissioner and the taxpayer narrowing the issue to one concerning whether assets identified as the basis for the assessment were derived from income, the taxpayer cannot use any matter stated by the Commissioner as the basis for the assessment as a means of discharging that burden. That is to say, the taxpayer cannot pick and choose as to matters in the assessment.
77. The consequence is that the taxpayer must prove on the balance of probabilities the extent of the taxpayer's income according to ordinary concepts in order to be able to demonstrate what the assessment should have been. Absolute precision is not required, but there must be sufficient proof.
78. In the present case, as has been explained, the Tribunal correctly and consistently stated the nature of the burden of proof that had to be met by Ms Bazzo. Indeed, at the point of making the key findings (paras 326-335), the Tribunal first reasoned that the assessments were excessive or otherwise incorrect by reason of the inclusion of the eight properties and the amounts in the NAB Flexi Account and the two Bendigo Bank Accounts (paras 326-328) and then said in a passage that has already been quoted (para 329):
As the [Commissioner] correctly points out, a finding that the assessments were excessive or otherwise incorrect is only half the requirement of s 14ZZK(b)(i) of the TAA. [Ms Bazzo] must also establish, on the balance of probabilities, what the assessment should have been: in other words, what her actual taxable income was for each of the years. She does not do that by starting with the assessments issued by the [Commissioner] and deducting from the assessments items which are shown to have wrongly been included.
(emphasis added)
79. Significantly, the Tribunal then followed up that reasoning with a quotation from a key part of the reasoning of Derrington J in Ross. The Tribunal introduced the quoted passage by saying it was of 'particular relevance'. The quoted passage described two matters which must be demonstrated by the taxpayer in
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order to establish that an assessment under s 167 using an asset betterment statement is excessive, namely:- (1) the taxpayer must positively prove their actual taxable income and that the amount of tax levied by the assessment exceeds their actual substantive liability; and
- (2) in a case where the asset betterment method is used, the taxpayer must account for the unexplained increase in assets by explaining the source of the assets and identifying that those sources are not taxable.
80. The inclusion of the quotation is another manifestation of the Tribunal's correct understanding of the nature of the burden of proof upon Ms Bazzo as the taxpayer.
81. In the reasoning that followed, the Tribunal addressed the two matters that it had identified.
82. The Tribunal began immediately after the quoted passage from Ross, by stating that Ms Bazzo's 'basic contention is that her actual income was as declared in the returns she lodged for each of the years in question' (para 330) (emphasis added). Significantly, the Tribunal then referred to the extensive evidence that had been given by Ms Bazzo by way of affidavit concerning that income and described that affidavit as '[setting] out what she said were the sources of her income for each of the years in question'. It identified the paragraphs where this evidence was set out by Ms Bazzo.
83. In the next paragraph, the Tribunal referred to the identified paragraphs in the affidavit of Ms Bazzo as also having set out the assets that she held in the relevant years, her living expenses and as having 'sought to explain the flow of funds through her many bank accounts and credit cards' (para 331). The Tribunal then referred to its earlier finding to the effect that it did not accept Ms Bazzo's explanation as to the Gucce Loan Amount of $1,000,000.
84. Having described this evidence by Ms Bazzo, the Tribunal then referred back to Ross and repeated that Ms Bazzo 'must demonstrate that the identified unexplained accumulated wealth [that is, identified assets] was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the [Commissioner] should not be treated as income' (para 332) (emphasis added).
85. The two aspects to the inquiry expressed in that quoted passage reflected the Tribunal's view of the particular way in which the Commissioner supported the relevant assessments for the 2009, 2010 and 2011 years. As has been explained, the Tribunal understood the Commissioner's reasoning to rely upon unexplained wealth in the form of the eight properties and unexplained income, being the amounts received into the various bank accounts. That is to say, the assessments were not simply based upon the asset betterment method. They also included identified amounts received into bank accounts which were said to be income that was then used to meet expenses.
86. As the Tribunal had explained earlier in its reasons (para 70) in dealing with the nature of the burden that falls upon the taxpayer in a case like the present:
The cases to which the parties referred fall into two broad categories. There are those, including Ross and George, in which the taxpayer seeks to explain increases in the taxpayer's net wealth as coming from non-income sources. The second category of cases is those in which the taxpayer seeks to establish that the property on which the asset betterment assessment was made was not the taxpayer's property or that the transaction treated as income had been mischaracterised.
87. Plainly, the Tribunal had in mind the significance of the second category in the case at hand. When it came to Ms Bazzo's case, if the eight properties and the monies from the NAB Flexi Account (and the two Bendigo Bank accounts) were shown to be property that was not her property then there was no call for any explanation as to Ms Bazzo's source of funds for that wealth. It was not her wealth. Much of the Commissioner's case before this Court was expressed at a level of generality that failed to engage with that aspect of the particular circumstances that pertained in the present instance.
88. The Tribunal's understanding of the difference between the
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unexplained accumulated wealth (on the one hand) and whether the funds in other accounts and credit cards in Ms Bazzo's name should not be treated as income (on the other hand) is revealed by its ultimate description of what Ms Bazzo must demonstrate. It has already been quoted, but is repeated here for ease of reference (para 332):In the present case, it being a ITAA 1936 s 167 assessment based on the asset betterment method in each year, [Ms Bazzo], as described by Derrington J at [47(6)] of Ross, must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the [Commissioner] should not be treated as income.
(emphasis added)
89. The emphasised words in the above passage show that the Tribunal understood the difference between the unexplained wealth aspect of the case and the non-disclosed income aspect of the case. Part of the Commissioner's assessment was not based upon an asset betterment analysis at all. It was based upon a claim of undeclared income.
90. As to what the Tribunal concluded as to these two aspects, the Tribunal then said (para 332):
As stated above, I accept that [Ms Bazzo] has, on the balance of probabilities, established that the eight properties were not held beneficially by her and that she has explained why the funds going through the NAB Flexi Account and the two Bendigo Bank accounts referred to in [328] above, were, as Derrington J described it at [47(6)] of Ross, 'derived from non-income sources'. I do not accept that she has discharged that onus in respect of the other bank accounts and credit cards identified by the [Commissioner]. In relation to those other accounts and credit cards, we have little more than [Ms Bazzo's] assertion that the funds were not used by her for her benefit. Unlike the NAB Flexi Account, there was no detailed analysis based on bank statements or other third-party documents provided by [Ms Bazzo].
(emphasis added)
91. The language used in the above reasoning indicates that the Tribunal was dealing with the question whether the unexplained wealth was derived from non-income sources. The finding is expressed in terms that indicate that the Tribunal considered that the determination of the question whether the funds passing through the other bank accounts and credit cards should be treated as income depended upon Ms Bazzo's evidence about whether the funds were used for her benefit and whether there was a detailed analysis of those funds 'based on bank statements or other third-party documents'. It will be necessary, in dealing with Issue (5), to consider what was meant by the Tribunal by this aspect of its reasoning. What is relevant at this point is whether the Tribunal made an ultimate finding as to the full extent of Ms Bazzo's income, not whether a question of law arises that demonstrates error as to the basis for the finding that Ms Bazzo had not discharged her onus 'in respect of the other bank accounts and credit cards' (terminology that includes the Investec Account Amount).
92. The Tribunal then said: 'While the above represent my findings on those issues, my role is to review the objection decision and, exercising the powers under s 43(1) of the Administrative Appeals Tribunal Act 1975 (Cth) [to affirm, vary or set aside the objection decision]' (para 333) (emphasis added) (footnote omitted). As I have already explained at the outset of these reasons when dealing with the whole of the Tribunal's reasons, the Tribunal then considered whether the matters raised by Ms Bazzo had been raised as part of the objection process and concluded that they had.
93. The final step in this key part of the Tribunal's reasoning was to state (para 335):
Given my findings as summarised above, I consider that the correct or preferable decision is to vary the objection decision to allow [Ms Bazzo's] objections to the inclusion of the eight properties in the assessments issued in each of the years, as well as the NAB Flexi Account and the
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Bendigo Bank accounts … This will reduce the assessments for the 2009, 2010 and 2011 years …(emphasis added)
94. Twice in this passage of reasoning, the Tribunal refers to what has gone before as its 'findings'. It had carefully identified the two aspects of what it was required to find; one about proof of actual taxable income and the other about the unexplained increase in assets. Read in context, there can be no real doubt that the Tribunal meant and intended that the findings it had set out dealt with both those two aspects. Its repeated, consistent and correct statements as to what it was required to find provide important contextual matters for understanding the extent of the findings that it did make. That is to say, it is unlikely that the Tribunal having clearly explained what it was required to find then made some radically different finding.
95. As has been explained, the Tribunal had referred earlier to the paragraphs from the Commissioner's written closing submissions to the effect that Ms Bazzo had not discharged her onus concerning the sources of her wealth. Those submissions were made at a time when the main focus of the Commissioner's submissions was to maintain that Ms Bazzo had not demonstrated that the eight properties and the monies in the NAB Flexi Account, the two Bendigo Bank accounts and the Investec Account were properties and money that were dealt with in her name as trustee. Therefore, the Commissioner was maintaining that there was a very extensive amount of unexplained wealth that was held by Ms Bazzo. The Commissioner's case in that regard, which occupied most of the hearing before the Tribunal was unsuccessful.
96. In consequence, the Tribunal having disposed of the main part of the Commissioner's case, the remaining issue was whether the monies passing through the accounts other than the NAB Flexi Account and the two Bendigo Bank accounts was income. The issue as to the monies in those other accounts as understood by the Tribunal (for reasons that it explained) was not about whether the balances in those accounts were unexplained wealth but rather whether or not they were income.
97. As has been explained, the Tribunal was not satisfied that Ms Bazzo had demonstrated that the amounts passing through those other accounts were not income. In doing so, it approached those amounts as if they were the full extent of the amounts received by Ms Bazzo that might be described as income. That is to say, the Tribunal either assumed or found that there were no further amounts beyond those included in the other accounts that might be taxable income. Alternatively, it simply overlooked the point when making its ultimate findings.
98. For reasons that have been given concerning the clear and consistent articulation by the Tribunal of its correct understanding that Ms Bazzo had the burden of demonstrating the extent of her income it appears most unlikely that the Tribunal simply made an assumption in that regard or overlooked the question entirely. Subject to one final matter, for reasons that I have given, I would conclude that the reasons of the Tribunal should be read as finding that the Gucce Loan Amount, Investec Account Amount and Other Accounts Amount demonstrated the extent of moneys received by Ms Bazzo in the relevant years that may have been taxable income, however it was not persuaded that Ms Bazzo had discharged her onus to prove that those amounts, being monies passing through her accounts, was not taxable income.
99. The one final matter concerns the Commissioner's reliance upon the Tribunal's earlier reasoning concerning Ms Bazzo's 'Sources of income'. The relevant passage in the Tribunal's reasons appeared much earlier and was as follows (paras 290-294):
At paras 167-79 of his written closing submissions, the [Commissioner] referred to a lack of evidence led by [Ms Bazzo] as to how she earned her income, and what corporate structure she had in place to do so. The [Commissioner] claimed that '[i]n the absence of clear evidence concerning the sources of [Ms Bazzo's] wealth, she has not discharged her onus'.
The above argument assumes that [Ms Bazzo] did have other sources of income, in
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particular income generated by property developments utilising a corporate structure. That may have been the case, however, the [Commissioner] does not point to evidence on which I could make that assumption. Further, it was not a matter specifically raised by the [Commissioner] in the audit, the objection decision or in the statements of facts issues and contentions. It was also not a matter on which [Ms Bazzo] was cross-examined. Understandably, [Ms Bazzo's] evidence sought to address the objection decision, which, at page 1 of 15 of the reasons for decision, summarised the objection made by [Ms Bazzo] as being that:
- (2) You were incorrectly assessed on the proceeds of property sales where you were not the beneficial owner of the properties.
- • You were incorrectly assessed on deposits in bank accounts held in your name where the deposits were not for your benefit.
- • You were incorrectly assessed on withdrawals from bank accounts held in your name where the withdrawals were not for your benefit.
It was the elements of the above objections that were not allowed by the objection decision which [Ms Bazzo] purported to address by her evidence.
In the above paragraphs of his written closing submissions, the [Commissioner] identified possible sources of income and assets which [Ms Bazzo] may have had, which [Ms Bazzo] has not adequately explained. However, they were not matters specifically identified by the [Commissioner] in the objection decision except insofar as they may emerge from or were included in the transactions in the bank accounts identified and discussed under the heading 'Bank Accounts' at pages 11-14 of 15 in the objection decision.
[Ms Bazzo's] closing submissions did not specifically respond to these paragraphs of the [Commissioner's] closing submissions. Insofar as potential unexplained income or wealth was identified in the asset betterment calculation, then I consider those below.
100. The first point to note is that the Tribunal at this stage of its reasons is directing its attention quite specifically to the matters raised in the identified paragraphs in the written submissions. They have not been overlooked. The next point to note is that the Tribunal recognises that the point being made concerns whether Ms Bazzo has discharged her onus. It does not misunderstand the burden. The Tribunal makes the point that the Commissioner does not point to any evidence on which an assumption may be based that there is income beyond that referred to in the asset betterment statement. That is not to reverse the onus. It is simply to observe that there is no basis beyond what is in the asset betterment statement to suggest that there is undisclosed income. It is an observation made in a context where Ms Bazzo must demonstrate that the assessment is excessive.
101. The final point to note is that, in contradistinction to its later reasoning when determining the issues, the Tribunal does not make findings at this point as to whether Ms Bazzo has discharged her onus. Rather, the Tribunal describes the circumstances in which Ms Bazzo came to give her evidence. It lists matters which, in its view, have relevance to the submissions made by the Commissioner which are to the effect that Ms Bazzo has not addressed certain matters. The Tribunal explains why, having regard to those matters, it is understandable that Ms Bazzo's evidence focussed upon the matters dealt with in the asset betterment calculation and the reasons of the Commissioner for rejecting Ms Bazzo's objections. The Tribunal also expresses the view that the Commissioner has not advanced any kind of affirmative case as to the extent of Ms Bazzo's income beyond that included in the asset betterment calculation which identifies possible sources of income and assets that are unexplained.
102. These are all matters that are relevant to whether Ms Bazzo's own account as to the extent of her own income is sufficient to discharge her onus. They are matters which it was proper for the Tribunal to address and ultimately bring to account when making its findings as to whether Ms Bazzo had discharged her onus in the latter part of its reasons.
103.
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Importantly, the submission advanced by the Commissioner was a particular one, namely that 'very little evidence' had been led by Ms Bazzo about how she earned her income and 'what corporate structure she had in place' to do so. The nature of that submission explains the focus by the Tribunal at this point in its reasons on why Ms Bazzo's evidence may have focussed on the matters addressed in the asset betterment calculation and the Commissioner's reasons for not upholding the objections.104. Taking these matters into account, in the context of the whole of the reasons, I am not persuaded that the reasoning by the Tribunal at this point manifests some misunderstanding of the burden that Ms Bazzo was required to discharge.
105. I am reinforced in this view by a consideration of what was actually said in the Commissioner's written closing submissions. Those written submissions had been provided by the Commissioner after all evidence had been received by the Tribunal and written and oral closing submissions for Ms Bazzo had been presented to the Tribunal. For reasons explained below, it is necessary to have a broad understanding of what was addressed by the submissions. That is because much of the Tribunal's reasons followed the sequence of the Commissioner's written closing submissions and responded to the points raised.
106. The Commissioner's written closing submissions began as follows:
To succeed in her application, Ms Bazzo must positively prove her actual taxable income. In doing so, she must demonstrate that the amount of tax levied by the assessment exceeds her actual substantive liability. In the context of a section 167 assessment based on the asset betterment method, Ms Bazzo must prove that the identified unexplained accumulated wealth was derived from non-income sources. She must provide acceptable evidence of how she spends her time and demonstrate a reasonable explanation for any appearance of the possession of assets.
Ms Bazzo's applications fail at every level. For the reasons explained below, the evidence that Ms Bazzo has adduced in support of her applications is not capable of discharging the burden of proving that the assessments are excessive, or otherwise incorrect, and what the assessments should have been.
It follows that the tribunal should not disturb the Commissioner's assessments of Ms Bazzo's taxable income for the relevant income periods.
107. The Commissioner's written submissions then set out detailed contentions as to the credibility of the evidence of the witnesses. Much of it was taken up with submissions as to why the Tribunal should make adverse findings as to the credibility of the evidence of Ms Bazzo and her partner. It also advanced contentions as to why the evidence of Mr Bay and DCW should not be accepted. None of those submissions raised issues as to whether Ms Bazzo had proved the extent of her income. Rather they focussed upon aspects of the evidence that were concerned with the properties, the NAB Flexi Account and other matters that had been addressed by the Commissioner in the asset betterment statement and the reasons for disallowing Ms Bazzo's objections. As has been explained, the Tribunal addressed those submissions before considering the issues concerning Ms Bazzo's income and assets. No issue is taken with that aspect of the Tribunal's reasons. In particular, no issue is raised by the Commissioner with the Tribunal's express finding (para 256) that:
In relation to the other grounds cited by the [Commissioner] for treating [Ms Bazzo] as an unreliable or dishonest witness, as noted at [245] above, [Ms Bazzo's] responsive submissions in [242] largely address those grounds. Insofar as the answers provided by [Ms Bazzo] may fall short of fully answering the allegation raised by the [Commissioner], I do not consider that such shortfall should cause me to disbelieve [Ms Bazzo's] critical evidence relating to the practice followed by [Ms Bazzo and her partner] in relation to the many property developments undertaken since around 2000.
108. Therefore, the Tribunal had made a generally favourable assessment of Ms Bazzo's evidence, accepting that her closing submissions 'largely address[ed]' the
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matters raised by the Commissioner concerning her evidence about the extent to which her interest in the eight properties and funds in the bank accounts was as trustee.109. That position is reinforced by the Tribunal's reasoning (para 289) rejecting a submission that her previous failures to provide documents requested by the Commissioner was a matter that reflected adversely on her credibility. As to that submission the Tribunal found:
[Ms Bazzo] is not on trial in these proceedings for having failed to cooperate with the [Commissioner], or for having failed to produce documents pursuant to s 264 of the ITAA 1936. I have assessed [Ms Bazzo's] credibility on the basis of all of the evidence, including her evidence at the hearing, and I do not accept the [Commissioner's] contention that [Ms Bazzo's] claimed failure to provide documents in a timely manner (even if that were the case) impacts the credibility of her evidence in relation to the matters that are to be decided in these proceedings.
110. So, significantly, the Commissioner's detailed submissions as to why Ms Bazzo's evidence should be rejected as not credible were substantially rejected by the Tribunal.
111. Returning then to the sequence of the Commissioner's written submissions, after dealing with credibility issues there was the short section under the heading 'Sources of income'. It was those submissions that the Tribunal referred to in the first sentence of the part of its reasons under the same heading (as quoted above at [99]).
112. The Commissioner's submissions as to 'Sources of income' (paras 167-179) were as follows:
Very little evidence, including documentary evidence, was led about how Ms Bazzo earned her income, and what corporate structure she had in place to do so. In the absence of clear evidence concerning the sources of Ms Bazzo's wealth, she has not discharged her onus.
Focusing on the most significant matters, the deficiencies in Ms Bazzo's evidence regarding her sources of income are discussed below.
Ms Bazzo does not give evidence, other than very general evidence, about her land development activities in 2009, 2010 and 2011.
Ms Bazzo has given written evidence about her share portfolio over the relevant income years. However, no information is provided as to which shares were sold, and when, or from which shares she was receiving dividends. Yet her assertions should be capable support by corroborating documentary evidence, but no documentary evidence is provided. In her witness statement of 2 May 2017, she asserts she derived a net capital gain of $11,687 in the year ended 30 June 2009 from the sale of shares on the ASX. For the year ended 30 June 2010, she said her income was derived from administrative payments from MNWA, and dividends from shares. For the year ended 30 June 2011, she said her income was derived from dividends from shares and interest from an interest earning bank account. Similar statements are made in her affidavit of 8 November 2017 at [521(b)].
Ms Bazzo refers to various superannuation funds held by her in the relevant income years, however only some statements for those funds are provided. She gives no evidence of attempts to obtain further statements.
In the financial year ended 30 June 2009, Ms Bazzo asserts that she received a 'salary' of $30,000 from Mammoth Nominees. In other evidence Ms Bazzo describes this as an 'administrative payment'. No supporting documentation is produced.
In the financial year ended 30 June 2010, Ms Bazzo says that she received $3,600 for doing some work for Mammoth Nominees. There is nothing which explains or documents what this payment was for, or the work involved.
In the financial years ended 30 June 2010 and 30 June 2011, Ms Bazzo says she received dividends from shares. Whilst she lists the relevant shares, she provides no
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supporting documentation to evidence the payment of any dividends.In each of the financial years, Ms Bazzo asserts her daily living expenses were shared with Mr Caratti, she was not the account holder of any utilities at her residence at 2 Duncraig Road and that Gucce paid for the gas and electricity for 2 Duncraig Road. No explanation is provided as to why Gucce was paying for these expenses, for example, it is not said that she was running the business of Gucce from home. Even if that were the case, how can Gucce be responsible for 100% of these expenses at Ms Bazzo's private residence?
Ms Bazzo says that she drove a Mercedes Benz CLK 320, purportedly owned by Gucce and driven by her for business purposes, yet no documentation evidencing ownership of the vehicle, or a log book recording her work trips, is provided.
In the Liberty Finance application of 17 November 2005, Ms Bazzo represented to Liberty Finance that she had $1.95 million of annual income. Ms Bazzo supported the loan application by reference to her assets, including many of the properties the subject of the present applications, which she now contends she was not the beneficial owner of. The internal loan submission of Liberty Finance stated that 'she has a portfolio of property in various entities, residential and commercial …'. [Ms Bazzo] seeks to gain some comfort from this obscure remark but it really goes nowhere. The fact that [Ms Bazzo] may have held some other unidentified assets in various companies does not mean Liberty understood the properties at HB8378 were held in other companies or that they included the 9 properties the subject of these proceedings.
Ms Bazzo said in cross-examination that the information in the loan application, and the declaration she made, were correct. If that is so, Ms Bazzo must explain how only three years later, her income is dramatically less than $1.95 million and her assets are significantly less than what appears at HB 8378. Her attempts to explain away the problem were most unsatisfactory.
The Liberty Finance application does not distinguish between properties she held beneficially and those she held as bare trustee and it is plain that she is using property she claims to be holding on bare trust as collateral for a loan to her, personally.
(footnotes omitted)
113. These submissions occupied only 13 paragraphs out of a total of 347 paragraphs of written closing submissions from the Commissioner. Further, in a number of respects, they too concerned Ms Bazzo's evidence that her property development activities were being undertaken as trustee for others (see the first three and last three paragraphs). In other respects, they concerned matters which may be seen to bear upon whether the monies in her bank accounts other than the NAB Flexi Account and the two Bendigo Bank accounts (being the only accounts that she said were used for the properties of which she was trustee) were income or were amounts derived from income.
114. Therefore, to a considerable extent those submissions were addressed by the Tribunal's findings accepting Ms Bazzo's evidence that she acted as trustee in respect of the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts. It is important to consider the way that the Tribunal approached the matters raised in the 13 paragraphs alongside the matters addressed by Ms Bazzo in her submissions as to credibility that the Tribunal found had 'largely address[ed]' the criticisms of her evidence. Those submissions as summarised by the Tribunal included the following:
- (1) 'In relation to the claim that [Ms Bazzo] made misrepresentations in the loan application to Liberty Finance, in particular the representations as to [Ms Bazzo's] income being inconsistent with what she now claims, indicating that she has failed to disclose all her sources of income, [Ms Bazzo's] response was that, when read as a whole, the loan application did not make any misrepresentation to Liberty Finance as to her income, nor did the amount referred to as income in that loan application give any indication as to the amount that was [Ms
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Bazzo's] own assessable income' (para 242(b)). - (2) 'In relation to the [Commissioner's] claim that [Ms Bazzo] failed to disclose all of her bank accounts in response to the s 264 notice, [Ms Bazzo] gave a cogent and convincing explanation as to why only the accounts identified in the response were so identified - namely, that [Ms Bazzo] understood the question to be referring to bank accounts in contradistinction to loan accounts or credit card accounts' (para 242(h)).
115. Returning to the course of the Commissioner's closing submissions, the submissions under the heading 'Sources of income' were followed by very detailed submissions under the heading 'Beneficial ownership of properties' (paras 180-232). They were considered expressly and in detail in the Tribunal's reasons and, as has been explained, the Tribunal accepted Ms Bazzo's evidence about the eight properties.
116. Next, submissions were advanced under the heading 'Bank accounts' (paras 233-295). They began by referring to the contention by Ms Bazzo that 'various bank accounts' (that is, the NAB Flexi Account and the two Bendigo Bank accounts) 'were utilised to fund the mortgages for properties for which she holds as bare trustee for other entities'. As has been explained, these matters were also considered in detail by the Tribunal and Ms Bazzo's explanation was accepted. These submissions did not refer to the other bank and visa accounts.
117. Then the written submissions addressed what was described as 'Purported loan to Gucce Holdings' (paras 296-303). As has been explained, this aspect of the Commissioner's case was accepted by the Tribunal.
118. Therefore, the vast majority of the Commissioner's submissions were directed to matters of credibility (particularly Ms Bazzo's credibility), the claims by Ms Bazzo that the properties were held on trust, the claims by Ms Bazzo concerning the amounts in the NAB Flexi Account and the two Bendigo Bank accounts and the purported loan to Gucce. Save for Ms Bazzo's evidence as to the loan, her evidence as to those matters was accepted.
119. The Tribunal's approach to the matters raised in paras 167-179 of those submissions (addressed below) must be evaluated in the above context. It must also be evaluated with due regard to the structure of its reasons which express its 'findings' on the issues of the income and assets of Ms Bazzo much later in its reasons where it refers to Ms Bazzo's basic contention as to the extent of her income.
120. That is to say, the Tribunal is addressing the matters raised in paras 167-179 of those submissions in circumstances where it has made findings as to Ms Bazzo's credibility in respect of that part of her evidence which concerns her claim that she was acting as trustee and where its reasoning as to whether Ms Bazzo has discharged her onus is to be found much later in the reasons in the key passage already described (paras 326-335). The Tribunal is also dealing with the submissions as part of a sequence of reasoning addressing the matters raised by the Commissioner's written closing submissions before determining the issues and making its findings.
121. Which leaves the last paragraph of the Tribunal's reasons under the heading 'Sources of income'. It refers to the fact that the closing submissions of Ms Bazzo do not specifically respond to the particular points raised by the Commissioner and then concludes with the statement (para 294): 'Insofar as potential unexplained income or wealth was identified in the asset betterment calculation, then I consider those below'.
122. It was suggested for the Commissioner that this conclusion (in the context of what had gone before) manifested a misunderstanding by the Tribunal of its task and as to the nature of the burden that fell on Ms Bazzo. However, as has been explained, that would be a most curious false step in circumstances where the Tribunal, throughout its reasons, consistently and correctly described the nature of the onus (including when making its findings on the issues).
123. Rather, considered in context, it appears that the Tribunal was doing no more than indicating that it is the reasoning that follows that deals with potential unexplained income or wealth 'insofar' as it was identified in the asset betterment statement. It is simply
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indicating that having addressed the reasons why there may be very little evidence about Ms Bazzo's income more generally, it addresses the evidence about the aspect of the case that is concerned with the unexplained income or wealth as identified in the asset betterment calculation in what is to follow (in order to explain why it makes no observations about that aspect at this point in the reasons).124. Indeed, as has been explained, in the sections that follow, that is what the Tribunal did. It dealt with those topics (which are also the next topics addressed in the Commissioner's closing submissions). They are 'Beneficial ownership of properties', 'Bank accounts' and 'Purported loan to Gucce Holdings'.
125. For those reasons, the Tribunal's reasoning under the heading 'Sources of income' does not indicate error in the Tribunal's approach to the onus that Ms Bazzo was required to discharge.
126. Therefore, I am satisfied that the Tribunal accepted that the detailed affidavit material of Ms Bazzo to which it referred had disclosed the extent of her income in the relevant years. The only qualifications to the Tribunal's acceptance of what Ms Bazzo had said about the extent of her income were the findings it made. It accepted that the eight properties and the monies in the NAB Flexi Account and the two Bendigo Bank accounts were not her assets (and therefore not indicative of further income), but did not accept her evidence about the Gucce Loan Amount. Of what was left, the Tribunal did not accept that Ms Bazzo had discharged her onus as to what was in the various other bank and visa accounts (that is, the Investec Account Amount and the Other Accounts Amount). By reason of Ms Bazzo's failure to discharge the onus as to those amounts they were to be treated as the taxable income of Ms Bazzo or as having been derived from her taxable income in the relevant years.
127. It follows that I do not accept the Commissioner's case as to Issue (1). It should be determined in the negative (that is, in Ms Bazzo's favour).
128. For completeness, I note that submissions were advanced by the Commissioner to the effect that the failure by the Tribunal to deal specifically with each of the alleged deficiencies identified in paras 167-179 of the Commissioner's written closing submissions showed that the Tribunal had failed to make any findings as to whether it accepted Ms Bazzo's 'basic contention' or the evidence she adduced in support of that basic contention and thereby as to whether Ms Bazzo discharged her onus to demonstrate the extent of her taxable income. The claim by the Commissioner was to the effect that no finding was made as to whether Ms Bazzo had proved her sources of income. For reasons that I have given, the Tribunal did make such a finding.
129. Ms Bazzo sought to meet that submission by demonstrating the extent of the evidence that had been led by her as to her income. Although that was a matter of context to which there could be regard in understanding the Tribunal's reasons, it was not for this Court to evaluate whether there was sufficient evidence to support the finding. Significantly, the Commissioner did not contend in the alternative that if the finding had been made there was some question of law that arose as that finding. For example, there was no claim that any such finding was unreasonable or illogical or not rationally supported. Nor was there a claim that there had been a failure to consider a submission advanced by the Commissioner. No doubt this is because the Tribunal plainly turned its mind to the submissions made and there was a significant amount of evidence adduced by Ms Bazzo as to the extent of her income.
130. It follows that there is no need to address the detailed submissions advanced for Ms Bazzo on the present appeal as to why the matters raised in the Commissioner's closing submissions under the heading 'Sources of income' were not correct or should not have been accepted. It also follows that it is not necessary to consider the alternative case advanced by Ms Bazzo that the Tribunal was in error in not making a finding that the extent of Ms Bazzo's income was confined to amounts passing through the bank accounts which were not otherwise found to have been demonstrated to be income according to ordinary concepts (or sourced from such income).
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131. The next issue raises a question as to the proper construction of s 14ZZK(b)(i). As has been mentioned, the Commissioner's contention is that s 14ZZK(b)(i) operates in an 'all or nothing' way so that a taxpayer has to prove affirmatively that the full amount of an assessment was not assessable income. The Commissioner's contention was that the failure by Ms Bazzo to establish that the Gucce Loan Amount, the Investec Account Amount and the Other Accounts Amount was non-taxable income meant that the Tribunal ought to have found that Ms Bazzo failed to show that the Commissioner's assessments were excessive.
132. On the Commissioner's approach, a taxpayer who is assessed on the basis that income in a particular year is, say, $500,000 and who then establishes that the full extent of the amounts received by them during the relevant year is, say, $1,000,000 and who claims successfully that all those amounts except for $10,000 are not income according to ordinary concepts with the consequence that they fail to demonstrate that all of the income as assessed was not taxable income, fails to discharge the statutory burden of showing that the assessment is excessive or otherwise incorrect. In oral submissions, senior counsel for the Commissioner intimated that there may be some room to allow for instances where the remainder was 'at the margin'. Precisely how that was to be found in the statutory language was not addressed. However, the submission advanced was to the effect that the taxpayer had to prove that all the amounts the subject of the assessments were not taxable income in order to discharge the burden imposed by s 14ZZK(b)(i).
133. Of course, a taxpayer who fails to establish the extent of the taxpayer's income according to ordinary concepts will be unable to demonstrate that the assessment is excessive, but that is because the full extent of the taxpayer's income remains unknown. That aspect of the Commissioner's case has been addressed in dealing with Issue (1). It is no basis to uphold the Commissioner's contention as to Issue (2) which is advanced even if Issue (1) is not determined in favour of the Commissioner (which, for reasons already given, I have determined to be the case). Further, as has been explained, a taxpayer has a separate burden of demonstrating what the assessment should have been. It is not enough to show that the assessment was excessive. That too is a separate matter.
134. Strangely, the Commissioner's 'all or nothing' submission was advanced by reference to various passages in the decided cases none of which was concerned with the proposition for which the Commissioner contended. Rather, the authorities were concerned with instances where, for various reasons, the taxpayer failed to prove the extent of the taxpayer's income according to ordinary concepts. Senior counsel for the Commissioner accepted as much in oral submissions.
135. The only authority advanced as stating the 'all or nothing' approach contended for by the Commissioner was
Gashi v Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301. Reliance was placed by the Commissioner upon the passage of reasoning in that case at [66]-[67] (Bennett, Edmonds and Gordon JJ) being as follows:
Consistent with that view, even if a taxpayer was able to prove that an item in the asset betterment statement was wrong or should not have been included, but did not adequately explain the source or sources for the otherwise unexplained increase in wealth, the taxpayer would not discharge the onus under s 14ZZO of the TAA.
Against that background, it is apparent that Mr Gashi's appeal grounds are misconceived. Even if Mr Gashi was able to prove that one or more of the items listed in the Asset Betterment Statement (or in paragraph [59] above) was wrong or should not have been included, that of itself would not have been sufficient to discharge the onus he bore under s 14ZZO of the TAA. Mr Gashi was required to demonstrate the unexplained accumulated wealth in each of
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the relevant years was from non-income sources. Mr Gashi did not show the source or sources of funds from which he acquired the increase in assets in each of the relevant years. In fact, he did not attempt to do so. Mr Gashi therefore failed to discharge the onus under s 14ZZO of the TAA. The appeal on grounds 6(a) and (b) is also dismissed. Mr Gashi having made out none of the grounds of his appeal, the appeal must be dismissed.
136. Importantly, the above passage was introduced by the opening words as being consistent with 'that view', being the view explained in the preceding paragraphs ([63]-[65]) in the following terms:
A taxpayer who seeks to establish that a s 167 assessment based on the asset betterment method of calculation is excessive must positively prove his or her 'actual taxable income' and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer: Dalco at 623-5 and Trautwein at 88. The taxpayer must show that the unexplained accumulated wealth was from non-income sources. The manner in which a taxpayer discharges that burden is not defined or specified - it varies with the circumstances: Dalco at 624.
So, for example, in
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 at 230, Burchett J said that, in seeking to establish that an assessment under s 167 was excessive, that burden may be discharged:… [I]f 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.
Justice Burchett identified a number of steps - identification of sources of income, explanation of a taxpayer's activities and an explanation of the source or sources of a taxpayer's assets. The steps identified by Burchett J are not surprising. In addressing a s 167 assessment based upon an asset betterment statement, a taxpayer must account for an unexplained increase in assets. The taxpayer must explain the source or sources of those assets and then identify whether that source, or those sources, are taxable. Put another way, if the disclosed 'actual' taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive. And, of course, that unexplained increase in assets cannot be viewed in isolation - it must also take into account the expenditure during that period.
137. What is described in the above passage is an obligation on the part of the taxpayer to establish the extent of the taxpayer's income. Further, the extent of the income (or other non-taxable sources of funds) must be sufficient to explain the extent of the assets. If the taxpayer's evidence as to income (or other sources of funds) is insufficient to explain the extent of the assets then the taxpayer will have wholly failed. That is because there is an unknown value which the taxpayer must establish. The subsequent passage at [66]-[67] must be read in that context.
138. As the passage in Gashi at [67]-[68] (relied upon by the Commissioner) makes plain, it was not the mere failure to demonstrate that an amount included in the asset betterment statement should not have been included that was considered to be the reason why Mr Gashi wholly failed in his challenge to the assessment. What their Honours were addressing was an instance where a taxpayer demonstrated that an item included in an asset betterment analysis was wrongly included but the taxpayer 'did not show the source or sources of funds from which he acquired the increase in assets in each of the relevant years'. Further, Mr Gashi made no attempt to explain the source of his funds. In consequence, there was no basis upon which a conclusion could be reached as to the extent of the taxpayer's income.
139. The present case was not like Gashi for at least two reasons. First, as has been observed, the assessments were not true asset betterment assessments. In part they were made on the
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basis that the monies 'passing through' the bank accounts were income. A claim of that kind did not require an explanation as to the source of the wealth, it required an explanation as to why the identified amounts were not income. Second, to the extent that the assessments were based on the eight properties being unexplained wealth and the monies in the NAB Flexi Account and the two Bendigo Bank accounts being assets of Ms Bazzo, those claims were not upheld. Those assets were in Ms Bazzo's name as trustee only. Which left only the claim by Ms Bazzo that she had disclosed all of her income and that the monies passing through the other bank and visa accounts were explicable. Her claim as to the Investec Account Amount was that it was received by her as trustee. That was not accepted. Her claim as to the Gucce Loan Amount is that it was received as repayment of a loan. That was not accepted. Her claim as to the balance was that the source of the funds was her disclosed income. She was found not to have discharged her onus as to that claim.140. As explained in my reasoning concerning Issue (1), the Tribunal did make a finding as to the extent of Ms Bazzo's income. It was to the effect that the amounts passing through the bank and visa accounts other than the NAB Flexi Account and the two Bendigo Bank accounts represented income from unexplained sources or unidentified business activities.
141. The consequence was that Ms Bazzo had explained the relevant 'unexplained assets' (on the basis that she held them as trustee) and had demonstrated that she had no other sources of income beyond that which passed through the bank and visa accounts, but as to the amounts passing through those accounts had only demonstrated that the amounts passing through the NAB Flexi Account and the two Bendigo Bank accounts were not taxable income (or derived from taxable income). The submission for the Commissioner to the effect that, in those circumstances Ms Bazzo had not discharged her onus under s 14ZZK(b)(i) must be rejected. It finds no support in the language of the statutory provision. An assessment that is shown to be for an amount that is more than the demonstrated taxable income of the taxpayer is excessive.
142. The contention advanced by the Commissioner to the effect that s 14ZZK(b)(i) operates in an all or nothing way such that a taxpayer who fails to demonstrate that the whole of the amount in the disputed assessment is not assessable must be rejected.
Issue (3): Did the Tribunal err as to the Gucce Loan Amount in a respect that invoked a question of law?
143. As to the Gucce Loan Amount, the Tribunal summarised the evidence given by Ms Bazzo (para 314). The summary included the following statement (para 314(h)):
[Ms Bazzo] said that in or about October 2010, [Gucce] Holdings paid her $1,000,000 which represented payment of the $896,607.43 plus interest of $103,392.57.
144. However, Ms Bazzo's evidence was not to that effect. Her evidence was to the effect that the entirety of the amount of $1,000,000 was repayment of principal.
145. It appears that the Tribunal's error may be explained by the following submission advanced to the Tribunal in oral submissions by way of opening for Ms Bazzo. It concerned Ms Bazzo's evidence about the Gucce Loan Amount:
And then on page 183 [of an affidavit of Ms Bazzo] she talks about how the sale of Wittenoom Street took place in 06 and how she loaned those funds into Gucce for a couple of years, and then Gucce repaid part of that loan - on all of that loan plus interest in the October 2010, which is described in paragraph 692
146. The affidavit of Ms Bazzo to which reference was made described how an amount of $896,607.43 to which Ms Bazzo said she was entitled from the sale of two adjoining properties that occurred in or around 2006 was 'subsequently transferred to Gucce Holdings so Gucce Holdings owed me $896,607.43'. The explanation given was that the loan was first extended to another company and then was transferred to Gucce Holdings. Then, at para 692, the affidavit deposed:
On or about October 2010, Gucce repaid to me the outstanding amount of the loan (i.e. $896,607.43) together with additional funds owing to me in the amount of $103,392.57.
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A total payment to me in the amount of $1,000,000 is shown the account statement for the Westpac Classic Account (…4999) on 19 October 2010, a copy of which is at page 2032 of TMB-1.
147. There was no evidence given about the 'additional funds'. The relevant general ledger entry for that amount for 12 October 2010 referred to 'Sale of Raffles Apartment'. There was no explanation given by Ms Bazzo of that description.
148. Before the Tribunal, Ms Bazzo's case about the Gucce Loan Amount had been put in the following way in written opening submissions for Ms Bazzo:
One of the deposits was the sum of $1 million deposited into the account on 19 October 2010. This amount was a partial repayment to the applicant by Gucce of the shareholder loan owing by Gucce to the applicant. That sum of $1 million consisted of the following two amounts:
- (a) The repayment by Gucce of $103,392.57 is shown in the accounts for the shareholder loan owing by it at T127.1582.
- (b) The repayment by Gucce of $896,607.43 is shown in the accounts for the shareholder loan owing by it…. This amount reflected the proceeds from the earlier sale of the properties that the applicant had owned beneficially …: Bazzo Nov 2017 [44], [47], [674], [676]-[692].
149. Significantly, there is no express statement in the above submission that the amount of $103,392.57 is for a separate amount of principal that was said to have been advanced at a different time. However, it is described as a 'repayment' not as an amount of interest. As I have noted, regard to the relevant ledger entry simply refers to 'Sale of Raffles Apartment'. This indicates that the proceeds from that sale were the source of the payment. They do not indicate its character.
150. In its reasons, the Tribunal recorded the following submissions by which the Commissioner raised issues with Ms Bazzo's explanation (para 315(a) to (d)):
Firstly, the evidence, in particular the deed of priority between the Adelaide Bank and HFL Australia, suggests that Adelaide Bank received the entire proceeds of the sale. At the time of sale of 6 Wittenoom Street, for $840,000 on 24 April 2006, the deed of priority remained in place. The settlement statement recorded that the payout to Adelaide Bank was $374,080.93 and the payout to HFL Australia was $433,000.
HFL Australia then required [Ms Bazzo] to give a charge over money to be deposited into an account by [Ms Bazzo], presumably for HFL to discharge its mortgage. No explanation is proffered for HFL Australia asking [Ms Bazzo] for substitute security for a second mortgage, when it ought to have received $433,000 at settlement, to discharge its loan.
Secondly, no evidence was provided as to the circumstances of the transfer of the purported loan from G218 Pty Ltd to [Gucce] Holdings Pty Ltd.
Thirdly, in a s 264 notice from the ATO dated 8 March 2013, [Ms Bazzo] was requested to provide details of all current and finalised loans made to relatives, friends and companies during the period 1 July 2007 to 30 June 2011. On 26 August 2013, [Ms Bazzo] provided the following answer, 'No loans were made to relatives, friends or anyone else during the period.' [Ms Bazzo] did not answer any questions in relation to [Gucce] Holdings Pty Ltd specifically. The [Commissioner] said that this evidence is telling: either [Ms Bazzo] was not truthful in her response to the [Commissioner] in respect to the s 264 notice, or she was not being truthful to the Tribunal. [Ms Bazzo's] only explanation for her response to the [Commissioner] was that her accountants may have misunderstood the question. However, given that [Ms Bazzo] signed the letter enclosing the response to the ATO, it is more likely that there was no loan provided to [Gucce] Holdings Pty Ltd.
(footnote omitted)
151. The Tribunal began its reasoning as to these submissions by stating that the Commissioner's submissions 'have considerable merit' (para 316). It referred to 'a singular lack of relevant documentation … to substantiate the convoluted process which
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resulted in her being paid $1,000,000 by [Gucce] Holdings Pty Ltd'. Then the Tribunal said:Her assertion that the $1,000,000 paid to her represented $896,607.43 plus interest of $103,392.57, remarkably coming to exactly $1,000,000, smacks of an accounting, post-the-event concoction.
152. It also said: 'There is certainly a lack of contemporaneous, third-party documentation to support critical components of her story'. It then said:
Further, there is no documentary evidence, or even a legal basis put forward, for interest being charged on the claimed loan of $896,607.43 which, by coincidence, caused the amount payable to be exactly $1,000,000. Where is the loan agreement pursuant to which this interest was payable?
153. The Tribunal found that her 'story' was 'at odds with what little evidence is available' (a reference to aspects of the evidence other than interest on the loan). It also found that Ms Bazzo's evidence about the loan was inconsistent with the answers she gave in response to the s 264 notice and that her answers to cross-examination on the point were 'unconvincing' (para 317).
154. The Tribunal concluded (para 318):
I do not accept [Ms Bazzo's] evidence. The obvious explanation for the answer given in response to the s 264 notice is that it was correct, there was no loan. As [Ms Bazzo] said, the answer was prepared by the accountants who were familiar with the relevant companies' accounts. I do not accept that [Ms Bazzo] has established an explanation as to why the payment of the $1,000,000 should not be treated as income.
155. The case for Ms Bazzo in this Court was that the Tribunal had fundamentally mischaracterised the evidence in making its finding and that the finding was 'irrational, illogical and not based on findings or inference supported by logical grounds'. The whole of that submission was based on the point concerning interest.
156. For the Commissioner it was contended that an error of that kind had not been made by the Tribunal because it had acted on the way the case was opened for Ms Bazzo and, in any event, there were other aspects of the evidence that were relied upon to support the conclusion.
157. I accept that there is a basis for claiming that the Tribunal made a factual error in relation to part of the amount of $1,000,000 relating to interest. However, it is not an error which leaves the Tribunal's conclusion without any factual basis or without any logical foundation. There are a number of other reasons given by the Tribunal for its factual conclusion that there was no loan. They are reasons that, as a matter of logic, stand independently of the interest point.
158. To point to factual error is not to raise a question of law. This is not an instance, like Haritos at [217]ff where the Tribunal misunderstood the legal significance of evidence (in that case, that it could be corroborative of evidence given by another witness even if it did corroborate the precise figures of that other witness). Nor is it a case where the Tribunal has reasoned without any evidentiary basis for its conclusion or made a factual finding that was not supported by any logical grounds. It is for Ms Bazzo to identify the relevant question of law in order to exercise the available statutory right of review.
159. In the result, I am not satisfied that the alleged error raises a question of law of the kind alleged.
Issue (4): Did the Tribunal err as to the Investec Account Amount in a respect that invoked a question of law?
160. As to funds deposited into Ms Bazzo's Investec Account in the 2009 income year, the Tribunal rejected the account given by Ms Bazzo. Her evidence was to the effect that the monies in the account came from G N Land Company Pty Ltd. The Commissioner's contention (as summarised by the Tribunal (para 302(c)), was as follows:
The money paid into the account appears to have been withdrawn by [Ms Bazzo] on 1 November 2008 from an account with Integrity AvantGard which had been in her name since at least August 2003 and deposited into the Investec account on 1 November 2008.
161. The Tribunal reasoned that the documentary evidence appeared to support the
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Commissioner's contention that 'the money paid into the Investec account came from [Ms Bazzo's] own resources, not from G N Land Company Pty Ltd' (para 303). However, the issue about whether the money came from G N Land Company Pty Ltd was found by the Tribunal to 'largely become irrelevant' when 'according to [Ms Bazzo] the whole of the $610,323.13 balance of the Investec account was withdrawn in July 2009 and … applied to a loan taken out by another of [Ms Bazzo's] companies' (para 306). As to that payment, the Tribunal said:It can be assumed that the payment of the $610,323.13 was made at the direction of [Ms Bazzo], who remained the account holder throughout, or pursuant to some right granted by [Ms Bazzo] for those moneys to be drawn from the account. In the absence of any explanation supported by evidence indicating the contrary, I am entitled to assume that the money withdrawn from the Investec account was used for [Ms Bazzo's] benefit. It was clearly not used for the benefit of G N Land Company Pty Ltd. I am not satisfied that [Ms Bazzo] has discharged the onus of establishing that the moneys passing through this account were not for her benefit or should not be treated as income.
162. In support of her cross-appeal, Ms Bazzo submitted that, on the Tribunal's own findings, the deposit of funds into the Investec bank account was from her own funds. Therefore, so it was submitted, the transfer of funds from one of her bank accounts to another was not the derivation of income by her, nor was the withdrawal of funds from one of her bank accounts. Those submissions criticised the terms of the Tribunal's ultimate finding that Ms Bazzo had not discharged an onus of establishing that 'moneys passing through' the account 'were not for her benefit or should not be treated as income'.
163. The criticism is misplaced. It confuses the separate questions that arise where the asset betterment method is used as the basis for an assessment under s 167 (as explained by Derrington J in Ross in the passage quoted by the Tribunal at para 329 of its reasons). The taxpayer must prove their actual assessable income. But, where the assessment is based on the asset betterment method, the taxpayer must account for the unexplained increase in assets.
164. Ms Bazzo had sought to demonstrate that the moneys in the Investec account were not for her benefit and, for that reason, were assets derived from non-income sources. In order to discharge her onus, Ms Bazzo had to demonstrate the source of the money in the account and that the source was not taxable. Ms Bazzo could not discharge that onus by demonstrating that the amount of money in the bank account was her money. Rather, she had to demonstrate as to those monies why they were not her income and explain why the asset that they represented was not derived from income.
165. The Tribunal's finding concerns the money that was in the Investec account for a time. It is that money that is an unexplained asset. It is properly described as money 'passing through' the account. It is money that, on the undisputed findings of the Tribunal, is passing through at Ms Bazzo's direction.
166. In any event, the Tribunal made no finding that the money came from an account in Ms Bazzo's name (being her AvantGard account). This appears from the statement that 'the documentary evidence does little to support either party's submissions' (para 304) and the fact that the Tribunal's only finding is that the Investec Account Amount was Ms Bazzo's money because it was paid out at her direction. It was that finding and the fact that Ms Bazzo had provided no explanation as to why the money was not her money (or should not be treated as income) that supported the Tribunal's conclusion that Ms Bazzo had not discharged her onus.
167. For those reasons, the submissions for Ms Bazzo in support of the cross-appeal as to the Investec Account Amount must be rejected.
Issue (5): Did the Tribunal err as to the Other Accounts Amounts in a respect that invoked a question of law?
168. As has been explained, when the Tribunal came to determining the ultimate issues it first concluded that the assessments were excessive or otherwise incorrect because of the inclusion of the properties and the NAB Flexi Account and the two Bendigo Bank accounts which were not her assets. The
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Tribunal then re-stated its earlier analysis of the law to the effect that Ms Bazzo had the burden of also establishing what her actual taxable income was for each of the relevant years. It stated that two of the matters described by Derrington J in Ross were of particular relevance in the present case, namely:- (1) demonstrating actual taxable income; and
- (2) demonstrating that the unexplained accumulated wealth on which the asset betterment statement was based was derived from non-income sources.
169. The Tribunal's reasoning as to (1) and (2) has already been addressed in dealing with Issue (1). As to (2), (already quoted, but repeated here for ease of reference) the Tribunal found (at 332) as follows:
In the present case, it being a ITAA 1936 s 167 assessment based on the asset betterment method in each year, [Ms Bazzo], as described by Derrington J at [47(6)] of Ross, must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the [Commissioner] should not be treated as income. As stated above, I accept that [Ms Bazzo] has, on the balance of probabilities, established that the eight properties were not held beneficially by her and that she has explained why the funds going through the NAB Flexi Account and the two Bendigo Bank accounts referred to in [328] above, were, as Derrington J described it at [47(6)] of Ross, 'derived from non-income sources'. I do not accept that she has discharged that onus in respect of the other bank accounts and credit cards identified by the [Commissioner]. In relation to those other accounts and credit cards, we have little more than [Ms Bazzo's] assertion that the funds were not used by her for her benefit. Unlike the NAB Flexi Account, there was no detailed analysis based on bank statements or other third-party documents provided by [Ms Bazzo].
(emphasis added)
170. In her cross-appeal, Ms Bazzo focusses upon the emphasised passage. It was said to involve two legal errors by the Tribunal.
171. The first error was said to be that the Tribunal asked itself the wrong question by asking whether the bank accounts were for Ms Bazzo's benefit. This, it was said, revealed a misunderstanding of the case advanced by Ms Bazzo concerning the Other Accounts Amounts. Her claim before the Tribunal, so it was contended, did not involve any assertion that the amounts in the bank accounts other than the NAB Flexi Account and the two Bendigo Bank accounts were held by her on trust. Rather, she gave evidence to support her claim that the deposits into the accounts were not income in nature and made a submission to the Tribunal on that basis. The contention advanced was that the Tribunal erred in law in failing to consider that submission.
172. The second error is said to be that the Tribunal was in error in concluding that there was little more than assertion that the funds were not used for her benefit. It was submitted that by that approach the Tribunal failed to consider Ms Bazzo's 'extensive' evidence by which she produced all of the bank statements and credit card statements for the accounts and gave a detailed identification of the nature of the deposits into the accounts.
173. Ms Bazzo's submission that the Tribunal misunderstood the nature of her case when it came to the Other Accounts Amount must be accepted. Her case as to the amounts in those accounts was quite different to her case as to the amounts in the NAB Flexi Account and the two Bendigo Bank accounts. She accepted that the amounts shown as deposits in the other banks accounts and credit cards were her monies. She gave detailed evidence to the effect that various deposits were (a) her declared salary and wages; (b) amounts deposited by her son (who was then a minor) for share trading by him; (c) an insurance payout; (d) payment of Medicare benefits; (e) a director's fee from Gucce Holdings Pty Ltd; (f) a tax refund; (g) the Gucce Loan Amount; (h) transfers of her own funds from other investment accounts; and (i) transfers of her own funds to pay credit card amounts. There is no reference to this evidence in the Tribunal's reasons. The
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nature of the case advanced by Ms Bazzo as to these amounts, namely that they were not taxable income, is not addressed by considering whether the funds were 'used by her for her benefit'.174. Further, the above evidence was quite detailed. It appears that much of it was not challenged by cross-examination. It may be that the Tribunal was correct to say that it was not subject to the same sort of analysis as the NAB Flexi Account (for which there was the analysis of Mr Bay and the provision of supporting documents). However, it was not correct to characterise the evidence on the issue as little more than assertion by Ms Bazzo.
175. The Commissioner contended that there were allegations by Ms Bazzo that the amounts passing through bank accounts and credit cards were held by her as trustee. It was also said to be significant that the relevant findings were introduced by a statement (correctly expressed) that Ms Bazzo 'must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and further in this case, to explain the transactions, and why the funds passing through accounts and credit cards in her name that have been identified by the [Commissioner] should not be treated as income'. This was said to provide a basis for concluding that the Tribunal was considering whether the funds passing through the 'other accounts and credit cards' in her name should not be treated as income.
176. With respect to senior counsel, I find the purport of this submission difficult to follow. In particular, I do not understand how the words 'not used by her for her benefit' might be construed to be a finding by the Tribunal as to the evidence given by Ms Bazzo to the effect that the deposits into the other accounts and credit cards, though admittedly her money, were either declared income or amounts that were not income. That is especially so in circumstances where the terminology 'for her benefit' indicates an issue about whether the monies were received by her as trustee, an issue which was not raised as to the Other Accounts Amount. Further, the issue as to the Other Accounts Amount was not about the character of the funds 'passing through' the other accounts and credit cards. It was an issue about the character of the funds deposited into those other accounts and credit cards, particularly whether the amounts deposited were unexplained income of Ms Bazzo.
177. For those reasons, save to the extent of the findings by the Tribunal as to the Gucce Loan Amount and the Investec Account Amount, Ms Bazzo has demonstrated error of law by the Tribunal concerning its findings as to the Other Accounts Amount.
178. It was submitted for Ms Bazzo that once there was regard to the evidence that had been given by Ms Bazzo there was only one conclusion that could be reached, namely that Ms Bazzo had demonstrated that the Other Accounts Amount was not undeclared income and did not indicate the existence of undisclosed income. That is to say, on the evidence the Tribunal was bound to find that the amounts were not income. On that basis, it was submitted that the Court should not refer that matter back to the Tribunal but should simply make its own adjustment to the relevant assessments. Rather, the appropriate order to correct the error was to make a different order to that which had been made by the Tribunal.
179. During oral submissions, I characterised the contention as a kind of futility point. However, that is not correct. The Court was not being asked to accept that there was error and make no order on the basis that no purpose would be served by remitting the matter to the Tribunal. Rather, what the Court was being invited to do was to reach its own affirmative factual conclusion as to matters which required views to be reached as to whether Ms Bazzo's account should be accepted. Although much of Ms Bazzo's evidence was accepted, it was not the case that the entirety of her evidence was accepted by the Tribunal such that this Court might treat her evidence as uncontroversial.
180. Further, as I mentioned at the outset, there was no submission advanced as to why it was appropriate for the Court to exercise its limited power to make factual findings on an appeal under s 44 of the Administrative Appeals Tribunal Act.
181. In those circumstances, it is necessary for the matter to be remitted for the Tribunal to make the necessary findings. Those required findings are confined to whether the Tribunal
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was satisfied that Ms Bazzo had discharged her onus to show that the amounts deposited into the other bank and visa accounts, comprising the Other Accounts Amount, were income that had been included in her disclosed income or were otherwise explained (such as on the basis of the claim that they represented monies received from her minor son for the purposes of his share trading).Issue (6): Taking account of the answers to (3) to (5), has error on a question of law been demonstrated as to the Tribunal's finding that there was deliberate conduct by Ms Bazzo to disregard her taxation liabilities?
182. It was common ground that the resolution of Issue (6) flowed from the outcome of Issues (3), (4) and (5). Only if all three of those issues were resolved favourably to Ms Bazzo did she contend that this Court should conclude that there was no basis for the finding that there was deliberate disregard of taxation liabilities to sustain the 75% penalty finding on the shortfall. On the other hand, if all three of those issues were resolved favourably to the Commissioner then no error had been demonstrated and the 75% penalty aspect of the Tribunal's decision would stand. In the result, I have determined Issues (3) and (4) in the Commissioner's favour and Issue (5) in Ms Bazzo's favour. The consequence is that the penalty issue must form part of the remitter to the Tribunal.
Issue (7): Did the Tribunal adopt the incorrect approach as a matter of law in determining whether there was fraud or evasion by Ms Bazzo of a kind that justified the amended assessments for the 2009 and 2010 tax years?
183. It is common ground that the Tribunal could only amend the assessments if there was fraud or evasion at the time of the original assessment. In that regard, the Tribunal reasoned as follows (para 359):
The fact that I have found that certain of the items included in the asset betterment calculation undertaken by the [Commissioner] upon which he based the Fraud or Evasion Opinion (see [33] above) were either explained by [Ms Bazzo] or should not be treated as income, does not affect whether the [Commissioner], as a matter of fact held the requisite opinion. I am satisfied that the [Commissioner] held the requisite opinion, and I am satisfied that that opinion was not based upon a misconception of the meaning of the word 'evasion' or that it was arrived at 'capriciously, or fancifully, or upon irrelevant or inadmissible grounds'.
(footnotes omitted)
184. However, the task for the Tribunal was not to evaluate whether the Commissioner held the requisite opinion, but rather to form its own view as to whether there had been fraud or evasion.
185. For reasons I have given, I have not accepted that the Tribunal was in error as to the Gucce Loan Amount or the Investec Account Amount. Therefore, a submission for Ms Bazzo that if there were findings of error as to each of Issues (3), (4) and (5) then that would provide a basis for a conclusion by this Court that there had been no fraud or evasion by Ms Bazzo does not arise for consideration.
186. For the Commissioner it was submitted that certain adverse findings that were made by the Tribunal amounted to findings that the conduct of Ms Bazzo had been blameworthy. In particular, the Commissioner points to findings by the Tribunal that there was a failure to include all sources of income and the failure was a result of Ms Bazzo's intentional disregard of the taxation law. Further, it was found to be deliberate conduct in disregard of the legislation.
187. It was submitted that these findings meant that the Tribunal had itself independently considered the matter and had formed its own conclusion that there was evasion. However, as I have explained that was not the basis upon which the Tribunal ultimately dealt with the matter. I am not prepared to conclude that the Tribunal's findings were intended to express some form of implicit conclusion that there was a basis for the Tribunal to itself reach the same view as the Commissioner on the issue. Further, for reasons I have given, some aspects of the Tribunal's reasoning will be remitted. Therefore, the circumstances in which the Tribunal expressed those views may be revisited.
188.
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It follows that error has been demonstrated and that aspect of the matter must be remitted to the Tribunal.Issue (8): Did the Tribunal fail to consider a submission advanced for Ms Bazzo as to why the additional 20% penalty imposed by s 284-220(1)(c) of Schedule 1 of the TAA should have been remitted?
189. As has been mentioned, there is no dispute that the Tribunal was in error as to its approach to what was meant by 'previously' when it came to the 20% uplift in penalties. Ms Bazzo contends that, in consequence, the Tribunal did not consider a submission advanced by Ms Bazzo that the penalty should be remitted in circumstances where it applied mechanically as the outcome of a single audit.
190. The Commissioner says that the submissions by Ms Bazzo as to why the penalties imposed should be remitted were considered by the Tribunal and were rejected. In that regard, the Tribunal found as follows (para 338):
In relation to the uplift of 20 per cent under s 284-220 of the TAA, other than failing to disclose income, I am not satisfied that [Ms Bazzo] 'took steps to prevent or obstruct the [Commissioner] from finding out about a shortfall'. While it may be argued that [Ms Bazzo] could have responded more promptly to some of the requests for production of information or documents during the audit, and it could be argued that she ought to have kept better records, any failure in that regard was, at worst, an act of omission rather than the taking of a step to prevent or obstruct the [Commissioner] in the audit and in finding out about a shortfall.
(footnotes omitted)
191. The quoted language is taken from s 284-220(1)(a) of the TAA. Therefore, the above passage is not directed to the application of s 284-220(1)(c) which is the subject of the Commissioner's appeal (ground 2). As to that provision, the Tribunal did not address any submission as to whether the penalty should be remitted. It simply found (incorrectly) that the provision did not apply.
192. The Commissioner sought to contend that other parts of the Tribunal's reasons addressed the submission as to why penalties should be remitted. However, the other reasoning concerned the remission of other penalties. It cannot be safely concluded that the Tribunal would reason in the same manner as to the application of s 284-220(1)(c).
193. The Tribunal has been shown to have erred in the manner alleged.
Conclusion and orders
194. For the reasons that have been given, the appeal by the Commissioner must be dismissed and the cross-appeal must be upheld. As requested by the parties, I will receive submissions as to the precise terms upon which the matter should be remitted to the Tribunal for reconsideration. I will also provide the parties with an opportunity to make submissions as to an order as to costs. I will make directions for the filing of proposed orders and submissions. If the parties seek a further oral hearing as to the terms of those orders then they should indicate that they do so at the time of filing those submissions. Subject to such further order, the question of the limited terms of remitter will be determined on the papers.
THE COURT ORDERS THAT:
- 1. The appeal is dismissed.
- 2. The cross-appeal is allowed.
- 3. Within seven days each party do provide a minute of proposed orders to give effect to these reasons including any order as to costs.
- 4. Within 14 days each party do provide written submissions of no more than five pages together with any necessary affidavit in support of the orders sought by that party which are not agreed.
- 5. Subject to further order, the question of the orders to be made on the cross-appeal be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
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