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Wang v FC of T

Judges:
Perry J

Court:

MEDIA NEUTRAL CITATION: [2024] FCA 585

Judgment date: 4 June 2024

Perry J

1. INTRODUCTION

1. The applicant, Mr Peter Wang, also known as Bing Xiang Wang and Raymond Wang, is a Chinese immigrant who became an Australian citizen in June 2009. He applied to the Administrative Appeals Tribunal for review of a decision of the Commissioner of Taxation not to allow his objection to the Commissioner's assessments (the objection decision ) for the income years ended 30 June 2014, 2015 and 2016 (the relevant years ). It was common ground that the applicant was an Australian tax resident for the relevant years. Each of the assessments in question were default assessments issued pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) ( ITAA 1936 ). Mr Wang also sought review in the Tribunal of the Commissioner's objection decision regarding the imposition of administrative penalties. The Tribunal affirmed the objection decision on the ground that the applicant "failed to discharge the onus of proof as he did not produce sufficiently reliable evidence to meet the statutory test": Tribunal's reasons ( TR ) [4].

2. The applicant challenges the decision of the Tribunal on an appeal on a question of law under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ( AAT Act ). For the reasons set out below, the appeal must be dismissed.

3. Finally, while a submission was made by the Commissioner to the effect that the untendered documents lodged by the Commissioner in the Tribunal pursuant to s 37 of the AAT Act (T-documents) were not in evidence before the Tribunal and there could therefore be no error in the Tribunal not having made findings of fact with respect to them, it is unnecessary to determine that question.

2. BACKGROUND

4. The following background is largely taken from the findings by the Tribunal and was not in dispute save where I otherwise explain.

2.1 The Commissioner's audit

5. The applicant did not lodge any income tax returns for the relevant years because he claimed that it was unnecessary for him to do so in circumstances where he had not derived any income.

6. An audit was conducted by the Commissioner of the applicant's financial affairs for the relevant years which concluded in January 2020. The ATO Position Paper indicated that the applicant held more than 25 Australian bank accounts in his name and/or as a joint holder with his former girlfriend, Ms Lin. He was also a signatory of multiple accounts in other names, including of various companies.

7. The applicant's former accountant, Mr Kenneth Chan, provided on 6 September 2019, a response to an initial position paper issued by the Commissioner as part of his audit. In that response, Mr Chan apparently stated, among other things, that " all business transactions are transfers between bank accounts by investors and that all [Mr Wang's] private wealth in Australia is from borrowed funds ": TR [17] (emphasis added). Further information and documents were provided by Mr Chan on behalf of the applicant to the Commissioner on 16 October 2019, including copies of translated alleged "IOUs", payment receipts, and loan agreements. Mr Chan also explained that the hotel business of Fujian Quanshou Huxin Hotel Co Ltd had been sold in May 2005, before the applicant migrated to Australia, and that the applicant's "asset backing was audited by Australian Immigration Department indicating that he holds 86% of the hotel business having $82 million capital and $28 million net asset": TR [17].

2.2 The Commissioner's assessments and the notice of objection

8. As earlier mentioned, on 16 January 2020, the Commissioner issued the applicant with default assessments for the relevant years pursuant to s 167 of the ITAA 1936 using the asset betterment methodology. The Tribunal explained that (at TR [18]):

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Broadly, this methodology entails identifying and calculating the betterment or increase based on the net assets (assets less liabilities) of a taxpayer as at 30 June of a particular year compared with the taxpayer's net assets as at 30 June of the previous year. The betterment represents the taxable income for that particular year.

9. The Commissioner used the income year ending 30 June 2013 as the starting base year for the purposes of applying the asset betterment methodology to determine the applicant's taxable income for the relevant years. The Commissioner did not consider that the various documents produced by the applicant explained his version of events. Assessments of administrative penalties were also issued by the Commissioner for the failure to lodge documents. Those assessments were summarised in the following table at TR [20]:


Year Taxable income Default assessments Penalty
2014 $6,446,072 $3,067,661.55 $2,300,746.15
2015 $4,511,115 $2,248,060.05 $2,023,254.05
2016 $1,975,891 $967,771.95 $870,994.75

10. A notice of objection to assessment was lodged by the applicant's then legal representatives on 6 September 2021 which referred to several grounds, as follows (at TR [21]):

  • • the default assessments are incorrect as Mr Wang earned no assessable income in Australia during the relevant years
  • • the private expenditure amounts were financed by loans from Mr Wang's Chinese friends loans
  • • although the gambled amounts were placed in Mr Wang's account, that money was actually deposited by his Chinese friends and the associated gambling losses were as a result of those friends losing their money.
  • • Mr Wang came to Australia with around $8.6 million personal wealth
  • • none of the properties acquired by Mr Wang were ever rented out
  • • Mr Wang did not have to file income tax returns for the Relevant Years as s 161 of the ITAA 1936 relevantly only requires someone who earns assessable income to lodge a tax. Mr Wang earned no assessable income despite holding significant personal assets and wealth and having significant personal expenditure
  • • Mr Wang should not have had administrative penalties imposed for failure to lodge documents because none were required to be lodged in the first place

11. The Commissioner notified the applicant on 11 May 2022 that his objections had been disallowed and provided reasons.

2.3 The Tribunal proceedings

12. On 5 July 2022, the applicant's new accountants lodged an application for review of the objection decision with the Tribunal.

2.3.1 The applicant's evidence

13. On 10 October 2022, the Tribunal directed, among other things, that:

2. On or before 24 February 2023, the Applicant must give to the Tribunal and the Respondent a Statement of Issues, Facts and Contentions and the evidence the Applicant intends to rely on.

…

4. On or before 21 April 2023, the Applicant must give to the Tribunal and the Respondent any evidence in reply that the Applicant intends to rely on or the Applicant is to notify the Tribunal and the Respondent in writing if the Applicant does not intend to rely on such evidence.

14. On 24 February 2023, the applicant filed two documents being a document titled 'Evidence and Witness Statement Lodgement required on or before 24th February 2023' and a separate document described as 'Witness Statement' signed by the applicant on 23 February 2023 ( Tribunal Exhibit A2 ).

15. The hearing before the Tribunal proceeded on 21-22 August 2023. On the first day, the applicant sought to tender a number of documents, namely:

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    (1) a few ideas about appealing to the Tax Office (English and Mandarin versions)
  • (2) supplementary explanation on purchase of 1 Albion Avenue, Glandore (English and Mandarin versions)
  • (3) supplementary explanation (English and Mandarin versions); and
  • (4) transaction documents such as a trust account receipt, an ANZ home insurance letter and a residential sale contract.

16. The Commissioner objected to the tender of these documents which were marked "X" for identification before the Tribunal (the X documents ). The Tribunal reserved its ruling on the receipt of these documents and, as I shortly explain, in its reasons rejected their tender.

17. In addition, the applicant gave oral evidence with the assistance of a Mandarin interpreter but was not cross-examined by counsel for the Commissioner - a point on which the applicant placed particular weight in this appeal. The applicant did not call any other witnesses.

2.3.2 The applicant's financial affairs and assets

18. It was not in issue that the applicant had purchased and sold properties in South Australia and Queensland before and during the relevant years, and had obtained investment loans from Australian banks for those purchases: TR [10]. Copies of the loan application forms were included among the T-documents provided to the Tribunal by the Commissioner pursuant to s 37 of the AAT Act. The Tribunal found that those forms revealed, among other things, that the applicant claimed he would earn rental income from the properties being purchased.

19. It was also not in issue that the applicant was involved in a proposed business venture through the company Whitsunday Chinatown Investment Pty Ltd of which he was a director and shareholder: TR [11]. As at 12 May 2014, the Tribunal found that the company had paid up share capital of $4 million. In 2014 the company purchased council land at Airlie Beach, Queensland, for the sum of $785,789 with a view to developing an area to be known as Airlie Beach Chinatown. The major attraction of the development was to be a high-rise casino resort complex with an approximate development value of $300 million. However, the project did not proceed due to objections from residents. The Tribunal found that the precise amount invested by the applicant in the proposed business venture and the company was "unclear", although the Commissioner was "understandably" of the view that the applicant was heavily involved: TR [11].

20. The applicant was also a director and shareholder of approximately 15 other Australian private companies, which have been deregistered save for two companies: CAI Entrepreneurs (Group) Pty Ltd and Window of China Pty Ltd (TR [12]). The Tribunal found that "it wasn't clear what those companies were involved in, nor for that matter did Mr Wang explain the past activities of all the other deregistered companies as well as his involvement": TR [12].

21. The Tribunal also found, according to information provided by Australian casinos of which the applicant was a member, that his gambling activities produced a "total player loss" in the order of approximately $2.3 million in the relevant years: TR [13].

22. Finally, the applicant had three motor vehicles registered in his name during the relevant years, namely, a Mercedes Benz S350 Model 2008 purchased in 2010, a Bentley Flying Spur Model 2010 purchased in 2012 and a Land Rover SW Model 2011 purchased in 2014 (which was disposed of during 2015): TR [14]. The applicant claimed to have been gifted the Mercedes Benz by his former girlfriend's family and to have won the Land Rover. The Tribunal found that, while there was no evidence about the gifted Mercedes Benz, there was evidence to support the applicant's claim that he won the Land Rover.

2.3.3 The Tribunal's findings with respect to the applicant's evidence

23. The applicant's submissions before the Tribunal were summarised by the Tribunal as follows (TR [2]):

Mr Wang submitted that he did not earn any taxable income in the Relevant Years, and he was not required to file any income tax returns. Mr Wang claimed that he derived no assessable income and that he was self-funded using his own capital as well as loans from third parties in China for his living

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expenses. However, according to the default assessments issued by the Commissioner, Mr Wang's taxable income for the Relevant Years was $6,446,072 for the 2014 income year; $4,511,115 for the 2015 income year; and $1,975,891 for the 2016 income year. That is, the disparity between what Mr Wang claimed he earned - being nil - and the total sum of the taxable income in the default assessments, was $12,933,078.

(Emphasis in original.)

24. In his oral evidence, the applicant said that he did a lot of business in China and, at one stage, had owned four hotels, a taxi hire business and factories: TR [31]. He also gave evidence that he never earned any rental income from the properties which he initially purchased in Australia to meet his business visa immigration requirements, despite representing to the banks that they would earn specific rental amounts. While the Tribunal found that it was unclear whether the applicant continued to receive any income overseas once he became a resident of Australia for tax purposes, the Tribunal found that the applicant was "adamant" that he had not derived any income in Australia and instead relied on wealth made in China: TR [32]. He also said that he had no or limited documents in relation to the proposed casino project at Airlie Beach due to the Queensland floods and that, whatever documents he did have had been thrown away by those residing in his residence: TR [33]. He also gave evidence that, as the founder of China-Australia Entrepreneurs Holdings Pty Ltd, he had assisted friends and colleagues coming from China to Australia with booking hotels and expanding the tourism businesses of his Chinese associates in Australia, and that he also assisted Chinese families migrating to Australia to purchase property including by placing it in his name: TR [34].

25. With respect to the gambling "total player loss", the applicant said that the gambling was not undertaken by him but by his Chinese friends and business colleagues who had transferred monies for gambling into his member account: TR [35]. While the applicant sought to rely on a signed document apparently from his Chinese friends translated from Mandarin into English in support of this explanation, the Tribunal found that it was not possible to test the authenticity and veracity of this document and other similar documents in the T-documents apparently provided by the applicant in the course of the tax audit because the applicant did not provide adequate explanations: TR [35].

26. In a critical passage on which the Commissioner placed particular weight, the Tribunal found at [36]-[37] of its reasons that:

I was not persuaded that Mr Wang was giving an honest and accurate account of his financial affairs. Mr Wang's evidence was limited and opaque, for example, as to the broad assertion that he lived off loans from third parties in China, and there were also inconsistencies and discrepancies. For example, he gave oral testimony that there were no loan documents because of cultural reasons, namely, he would not have entered into loan agreements with good friends. However, there were supposedly numerous loan agreements previously provided by Mr Wang during the tax audit to the Commissioner contained in the T-Documents which he did not reference in his oral testimony.

Mr Wang's evidence was not plausible in the absence of any probative, independent or contemporaneous evidence. There was no evidence, for example, before the Tribunal from his former professional advisers. When it came to his bank statements, many of which were contained in the T-Documents, Mr Wang readily accepted that he had mixed his personal financial affairs with those of the companies with which he was associated and could not differentiate nor substantiate the different entries in his bank accounts. Mr Wang provided no meaningful explanation to support his assertion that during the Relevant Years he was self-funded using his own accumulated wealth in China and loans from third parties in China. Mr Wang did not provide sufficiently reliable evidence to corroborate his claims .

(Emphasis added.)

27. With respect to the applicant's documentary evidence, the Tribunal accepted the Commissioner's submissions that there were shortcomings in the

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evidence which it took into account in giving the documents little weight: TR [39].

2.3.4 The Tribunal's conclusions

28. Applying the principles explained in
Commissioner of Taxation v Ross [2021] FCA 766; (2021) 174 ALD 77 and
Condon v Commissioner of Taxation [2023] FCA 561, the Tribunal found that it was incumbent on the applicant under s 14ZZK of the Taxation Administration Act 1953 (Cth) ( TAA ) to prove the assessments were excessive and what the assessment should have been for each of the relevant years in circumstances where there was no agreement between the applicant and the Commissioner to confine the issues in dispute: TR [50]-[51].

29. However, the Tribunal found that the applicant had failed to discharge his onus of proof "by his attempts to pick and choose his way through the asset betterment methodology and to seek to prove that particular items were incorrect or should not have been included", contrary to Ross and Condon: TR [52]-[53]. The applicant had therefore, in the Tribunal's view, failed to engage with the statutory test in s 14ZZK(b)(i) and to persuade it that the assessments were excessive and what the amounts of the assessment should have been: TR [54]. In particular, at [55]-[56] in a passage relied upon by the applicant to establish error, the Tribunal found that:

Put simply, Mr Wang has failed under the "all or nothing" approach because he only ever engaged on a limited basis, namely, he sought to selectively attack the Commissioner's default assessments rather than comprehensively explain what his taxable income was in the Relevant Years. Mr Wang's attempts were both inadequate and irrelevant in all the circumstances. It will be recalled that Mr Wang advanced only two grounds. First, he said that he supported himself using his own accrued wealth in China, all of it earned prior to his arrival in Australia. Secondly, he stated that he obtained loans from Chinese friends. However, Mr Wang did not put on sufficiently reliable evidence to substantiate the wealth he asserts he held at the time of his arrival in Australia, its source or the balance amount held by him at any time, especially during the Relevant Years. There was also no probative evidence regarding the alleged loans to Mr Wang.

Thus, the possibility of Mr Wang demonstrating errors in the asset betterment methodology did not advance Mr Wang's case as it fell short of what was actually required to discharge his onus under s 14ZZK(b)(i). The authorities make it patently clear that in order to demonstrate the excessiveness required by s 14ZZK(b)(i), Mr Wang had to show that the Commissioner's assessment of his taxable income was excessive relative to his actual taxable income for the relevant period (at [68] of Ross). Mr Wang failed to do that because he failed to prove what his actual taxable income was in each of the Relevant Years and what the assessments should have been.

(Emphasis in original.)

30. Accordingly, the Tribunal affirmed the objection decision.

3. DISPOSITION OF THE APPEAL

3.1 The issues on the appeal and the application to amend the notice of appeal

31. The notice of appeal identified four grounds of appeal:

  • 1. The Tribunal erred in finding that the Applicant had 'failed to engage with the statutory test' by failing to establish that the assessments were excessive and what the assessments should have been for each of the Relevant Years when:
    • a. If, as should have been the case, the Applicant's evidence that he did not earn any taxable income in the Relevant Years the assessments should have been zero, which in turn meant that the Commissioner's assessment as set out at [20] of the Reasons was excessive. The Tribunal should have made findings, and given adequate reasons, as to what the Applicant's income was for the Relevant Years;
    • b. The Tribunal failed to make findings as whether the Commissioner had made errors in the asset betterment methodology, instead finding at [56] that the mere possibility of demonstrating errors did not advance the Applicant's case. However the document referred to at [25] prepared by PPA Accountants set out

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      errors that were said to be made, which, if the primary argument was rejected, would have resulted in Adjusted Tax Payable for the Relevant Years of $4,936,463 rather than $10,392.553. The Tribunal erred by failing to make findings relevant to the alternative argument.
  • 2. The Tribunal gave inadequate reasons for rejecting the Applicant's evidence that he did not have any taxable income for the Relevant Years. The Tribunal did not properly analyse all of the evidence.
  • 3. The Tribunal erred in giving undue weight to the existence of corroborative documents as to source of funds, without giving consideration to the explanations as to why that documentary evidence was no longer available, including by reference to the passage of time and flood damage to the Applicant's property in 2015.
  • 4. The Tribunal erred by failing to admit into evidence the documents it had marked as 'X'.

32. In response to the Commissioner's submission that the notice of appeal did not raise a question of law, the applicant also sought, in his written reply submissions, leave to amend his notice of appeal to plead an additional question of law 1A and ground 1A, namely (at [6]):

[Question of law 1A:] The proper interpretation of the inter-relationship between ss 144ZZK and 167 of the Taxation Administration Act 1953 (Cth).

[Ground of appeal 1A:] The Tribunal erred in failing to construe ss 144ZZK and 167 of the Taxation Administration Act as meaning that if the Commissioner's assessment under s167 was 'excessive or otherwise incorrect' and the applicant can demonstrate how that excessiveness or incorrectness would have affected the Commissioner's assessment, then the applicant can demonstrate what the Commissioner's assessment 'should have been'.

33. The applicant also sought leave to amend the notice of appeal to include an additional question of law and ground of appeal 5 in response to the submission by the Commissioner that the T-documents were not in evidence before the Tribunal. Those amendments were as follows (at [16]):

An additional Question of Law:

5. Did the Tribunal err in failing to provide procedural fairness to the Applicant, who was not represented at the hearing by a solicitor or legal counsel, by not clarifying the status of the T documents and asking whether either party sought to tender or rely on them?

An additional Ground of Appeal:

5. The Tribunal erred in failing to provide procedural fairness to the Applicant by failing to clarify whether or not he wished to tender the T documents in circumstances where the learned Senior Member said that the T documents were 'part of the materials before me' without explaining whether or not regard would be had to them, and where the Respondent's counsel had submitted that the documents 'were not in evidence' and then made submissions about them 'even if they were in evidence'. In those circumstances it was procedurally unfair to fail to clarify the status of the T documents.

(Emphasis omitted.)

34. This application was opposed by the Commissioner on the following grounds.

  • (1) While the documents were available to the Tribunal by reason of the Commissioner having provided the documents to the Tribunal under s 37 of the AAT Act, the T-documents were not tendered by either party and were therefore not in evidence before the Tribunal. In those circumstances and given, among other things, that the Tribunal had made directions requiring the parties to file in advance of the hearing all of the evidence on which they relied, there was no lack of clarity as to the status of the T-documents and the new ground is untenable.
  • (2) The applicant is seeking to raise issues which it did not raise before the Tribunal in seeking to rely upon those documents.
  • (3) In any event the documents would not have had any material effect upon the outcome of the Tribunal's decision because the Tribunal would not have received the documents as evidence if the applicant had sought to tender them or, even if

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    received in evidence, they were not sufficiently probative.
  • (4) The applicant seeks to rely upon the documents in support of an impermissible challenge to the merits of the Tribunal's decision.

35. In my view, leave to amend to include the additional question of law 1A and ground 1A should be allowed because they clearly raise the question of law which otherwise underpins the applicant's existing grounds.

36. With respect to proposed question of law 5 and ground 5, however, leave to amend should be refused. Ultimately the applicant sought to rely in this proceeding upon the T-documents to suggest that the Tribunal erred in its "all or nothing" approach. It is against this context that the applicant seeks to allege a breach of procedural fairness on the ground that the Tribunal did not clarify the status of the T-documents in circumstances which the applicant alleges required that clarification. However, for the reasons below, the short point is that the proposed ground is based on a fundamentally misconceived understanding of the operation of s 167 of the ITAA 1936 and s 14ZZK(b)(i) of the TAA. Accordingly, even if the applicant had sought to rely upon the T-documents before the Tribunal in support of his attack on the correctness of certain aspects of the objection decision, they could not have made any difference to the outcome of the Tribunal's decision.

3.2 Ground 1: did the Tribunal err in applying the "all or nothing" approach?

3.2.1 The applicant's submissions

37. The applicant's submissions with respect to ground 1 can be summarised as follows.

  • (1) The applicant accepted that he had the burden of proving that the assessment was excessive or otherwise incorrect and what the assessment should have been: Written Submissions of the Applicant ( AS ) at [3].
  • (2) However, he contended that, if he could prove that there were errors in the default assessment and could prove the dollar value of those errors, it would follow that the default assessment should be reduced to that extent and the authorities to the contrary were wrongly decided. Specifically, in his submission:

    the taxpayer must show not only that the assessment is incorrect, but also what correction needs to be made to make it correct, or more nearly correct. If there are errors by the Commissioner in making the default assessment then, it is submitted (notwithstanding there is authority to the contrary) that the errors are relevant to working out what the assessment ought to have been. In that context the language of the statute connotes that the assessment in question must include the Commissioner's assessment.

    (AS at [8]; citations omitted.)

  • (3) Where there are errors in the default assessment, it may involve "an arbitrary and capricious exercise of administrative power" as, while the Commissioner may have some latitude in making default assessments under s 167 of the ITAA 1936, "such an assessment must be based on a genuine attempt to determine the taxpayer's taxable income. That is, the assessment must be based on some reasonable or rational grounds and cannot be simply a guess or estimate made on 'no intelligible basis', or by 'plucking figures from the air' at random": AS at [7] (emphasis omitted; citations omitted).

38. With respect to the second proposition above, it appears that the applicant put the proposition in two ways: as a formal submission that, upon the proper construction of s 14ZZK(b)(i) of the TAA, the authorities upholding the so-called "all or nothing" approach were wrongly decided (accepting that it was not possible for this Court to depart from High Court authority); or that the authorities should be understood or interpreted differently: Transcript ( T )-27.5-44.

39. In addition, while accepting that a failure to cross-examine will not always amount to acceptance of the witness' testimony, the applicant submitted that, in the absence of any cross-examination or positive evidence to the contrary, there was no basis for rejecting his evidence that he did not have any taxable income for the relevant years, or the Tribunal's reasons were inadequate. Specifically, the applicant submitted that:

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Despite the [applicant's] evidence, the Tribunal in a cursory way and without analysing the same held at [55]:-

"…. Mr Wang did not put on sufficiently reliable evidence to substantiate … its source…. There was also no probative evidence regarding the alleged loans to Mr Wang."

It is submitted that the Applicant has provided a reasonable explanation with supporting documentation that his sources of funds were not income in nature. There was no positive evidence to the contrary. What there was were inferences the Commissioner sought to draw from the value of assets it said the Applicant held in Australia. However, if the Applicant had provided an explanation thereof, and that explanation was not cross examined on, and there was no positive evidence to rebut it, then there was either no basis for rejecting the Applicant's evidence or alternatively the reasons are inadequate.

Similarly, the Commissioner referred to money going into and out of his bank accounts. As set out in the summary of evidence, explanations were provided (e.g. as to loans, repayment of a capital amount) - the Commissioner did not have positive evidence to the contrary and did not cross examine on these explanations.

(AS at [19]-[21].)

40. He also submitted that a failure to consider the applicant's explanation as to why the amount of the assessment was excessive is a failure to undertake the statutory review function: AS at [22]-[24], citing
Le v Commissioner of Taxation [2021] FCA 303; (2021) 172 ALD 367; and
Ma v Federal Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 at 230 (Burchett J).

3.2.2 Relevant statutory provisions

41. Ground 1 turns on a proper understanding of s 14ZZK(b)(i) of the TAA. That section falls to be considered in the context of the distinction between an assessment under s 166 of the ITAA 1936 and an assessment made pursuant to the power in s 167.

42. Section 166 concerns assessments made by the Commissioner in the ordinary course and provides that:

From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:

  • (a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and
  • (b) the amount of the tax payable thereon (or that no tax is payable); and
  • (c) the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).

43. On the other hand, s 167 empowers the Commissioner to make default assessments in certain circumstances as follows:

If:

  • (a) any person makes default in furnishing a return; or
  • (b) the Commissioner is not satisfied with the return furnished by any person; or
  • (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

44. As Derrington J explained in Ross at [40], there is a clear distinction between the two forms of assessment:

Section 166 requires, unequivocally, an evidence-based calculation of a person's taxable income, tax payable thereon, and tax offset refunds. By contrast, s 167 authorises the Commission to form a judgment as to the amount on which tax ought to be levied, once one of the matters in sub-paragraphs (a), (b) or (c), on which the power is conditioned, is satisfied. Broadly speaking, the substance of those matters is that, in the circumstances, the Commissioner is unable to make an accurate assessment in accordance with s 166.

(Emphasis in original omitted; emphasis added.)

45.

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If dissatisfied with an assessment, a taxpayer may object to the assessment in accordance with Part IVC of the TAA: s 175A of the ITAA 1936. Specifically, the taxpayer may apply under s 14ZZ of the TAA to the Tribunal for review of the Commissioner's decision or appeal against the decision to the Federal Court. In the present case, the applicant chose to apply to the Tribunal for review of the objection decision. The AAT Act applies in relation to the review by the Tribunal of reviewable objection decisions subject to the modifications set out in Division 4 of Part IVC: s 14ZZA of the TAA.

46. As both parties accepted, the onus of proof on an application for review is imposed on the taxpayer by s 14ZZK of the TAA. That section relevantly provides that:

On an application for review of a reviewable objection decision:

  • (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
  • (b) the applicant has the burden of proving:
    • (i) if the taxation decision concerned is an assessment-that the assessment is excessive or otherwise incorrect and what the assessment should have been;

47. Section 14ZZK(b)(i) is in the same terms as s 14ZZO(b)(i) of the TAA imposing the onus of proof on a taxpayer who applies instead to the Federal Court for review.

48. This version of s 14ZZK came into effect with respect to assessments made on or after 1 July 2013 and which relate to the income year 2013-2014 or to later income years: see sch 5 item 27 of the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (Cth). As such, it applied to all of the assessments challenged in the present case. However, as Derrington J observed in Ross at [45]:

Prior to the amendments, s 14ZZK provided that an applicant had the burden of proving that an assessment was "excessive" and did not expressly require, as it now does, proof of "what the assessment should have been". While this might be taken to suggest that some lower burden of proof applied previously, that is not the case and the latter requirement has always formed part of the taxpayer's burden of proof in challenging an assessment. See also the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2013 Measures No 1) Bill 2013 [7.36] - [7.38]. Accordingly, as Counsel for each of the parties accepted at the hearing, which version of s 14ZZK is inconsequential in terms of the burden of proof that applies.

49. It follows that the authorities which considered the nature of the onus imposed by s 14ZZK prior to its amendment remain relevant for the interpretation of the section in its current form.

3.2.3 The nature of the onus of proof under s 14ZZK(b)(i)

50. The principles governing the discharge of the burden under s 14ZZK(b)(i) are well-established. They were helpfully explained by Derrington J in Ross at [46]-[48] by reference to relevant authority and in the context, as here, of a default assessment made using the "asset betterment method":

The parties generally agreed that the effect of s 14ZZK(b)(i) is that the taxpayers bear the burden of proving, on the balance of probabilities, both that the assessment is "excessive" and, also, what the assessment should have been to make the assessment right, or "more nearly right":
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88; [1936] ALR 425 (Trautwein) per Latham CJ;
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623-5; 90 ALR 342 at 343-5 (Dalco) per Brennan J and at CLR 632-4; ALR 350-1 per Toohey J;
Gashi v Commissioner of Taxation (2013) 209 FCR 301; 296 ALR 497; [2013] FCAFC 30 (Gashi) [61]-[67]. It was also not in dispute that the onus is to the civil standard, being the balance of probabilities. It should always be kept steadily in mind that the rationale for the onus imposed by s 14ZZK(b)(i) is that the facts relating to a taxpayer's taxable income are peculiarly within their knowledge and they must be taken to know what their income is and how it was derived: Trautwein at CLR 87. It follow that there is no undue harshness in requiring a taxpayer,

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who has failed to lodge a return or whose return is not compliant with the taxation legislation, to bear the onus of establishing their true taxable income for the relevant income year.

Whilst the overarching principles surrounding the onus might be succinctly stated as they are above, a question arose in the present matter as to the application of the onus in the context of a challenge to a default assessment founded upon the "asset betterment method". In particular, the parties differed as to the manner in which the onus might be discharged in that context.

Some guidance as to that question can be gleaned from a more granular analysis of the principles concerning the onus as they have been synthesised in the authorities. In general terms, the relevant authorities establish as follows:

  • (1) An assessment under s 166 is fundamentally different to an assessment under s 167 and, necessarily, the manner in which they can be challenged are also fundamentally different: Gashi at [61]-[67];
    Rigoli v Commissioner of Taxation (2014) 141 ALD 529; [2014] FCAFC 29 (Rigoli) at [12].
  • (2) The assessment by the "asset betterment method" is a legitimate form of assessment: Trautwein at CLR 86-7, 99-100 and 105; even though it necessarily involves an amount of guesswork and, whilst almost certainly inaccurate to some extent, it is no part of the Commissioner's duty to establish what judgment he has formed in making a s 167 assessment: Gashi at [55];
    George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 204; [1952] ALR 961 (George). Clearly enough, any inaccuracy follows from the circumstances which impel the Commissioner to make a default assessment, being that a process of calculating assessable income less deductions is not possible: Rigoli at [12].
  • (3) It is not part of a review of an objection decision concerning an assessment under s 167 to seek to identify the facts the Commissioner adopted for the purpose of making the assessment and whether those facts disclose a taxable income: Gashi at [55]; George at 204. The principal fact which the Commissioner is required to determine in making an assessment pursuant to s 167 is "the amount of income upon which … income tax ought to be levied": Gashi at [56].
  • (4) It is insufficient to discharge the burden under s 14ZZK(b)(i) in relation to an assessment under s 167, whether based on the asset betterment method or otherwise, to merely demonstrate that the Commissioner formed a judgment about the taxpayer's taxable income on a wrong basis and that the amount assessed far exceeded the taxpayer's taxable income: Gashi at [62]; Rigoli at [12].
  • (5) In order to establish that an assessment under s 167 is excessive, a taxpayer must positively prove their "actual taxable income" and, in doing so, must demonstrate that the amount of tax levied by the assessment exceeds their actual substantive liability: Gashi at [63]; Dalco at CLR 623-5; Trautwein at CLR 88;
    Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 at 230; 27 ALD 601 at 605 (Ma); by, in effect, furnishing a return of actual income which involves establishing both sides of the equation:
    Bosanac v Commissioner of Taxation (2019) 267 FCR 169; [2019] FCAFC 116 (Bosanac (FC)) at [57].
  • (6) In the context of a s 167 assessment based on the asset betterment method, the taxpayer must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and that may be achieved by an accepted denial of any undisclosed source of income, providing acceptable evidence of how the taxpayer spends their time, and demonstrating a reasonable explanation for any appearance of the possession of assets: Ma at FCR 230; ALD 605; Gashi at [64]-[65]. 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 . "[I]f 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": Gashi at [65].

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  • (7) The converse is that it is insufficient for a taxpayer to prove that an item in their asset betterment statement was wrong or should not have been included : Gashi at [63]-[67]; Rigoli at [12]. If they do not also satisfactorily explain the source or sources for the other unexplained wealth, that is that they were derived from non-income sources, the onus under s 14ZZK(b)(i) will remain unsatisfied: Gashi at [66]. A deficiency in proof of the excessiveness of the assessment results in the challenge failing: Dalco at CLR 624-6; ALR 346-7. Necessarily, this prevents a successful challenge to an assessment being made by a process of "picking and choosing" part or parts of the increased wealth relied upon by the Commissioner and attacking them as being improperly included as part of the taxpayer's taxable income: Gashi at [66]; Rigoli at [25]. A process which involves attacking elements of the Commissioner's calculation and facts in respect of which the taxpayer chooses to lead evidence is not sufficient. The same is true for a default assessment not based on the asset betterment method: Rigoli at [12].
  • (8) These principles can result in a situation where the default assessment can be assumed to be inaccurate in some respects but, in the absence of the taxpayer establishing what their actual taxable income was, it must nevertheless stand: Gashi at [77]-[79]; Woellner and Zetle, "Satisfying The Taxpayer's Burden Of Proof In Challenging A Default Assessment - The Modern Labours Of Sisyphus?"
    [2014] JlALawTA 11.
  • (9) The ultimate question in Part IVC proceedings relating to an assessment made under s 167 is whether the amount of the assessment is excessive. That places no burden on the Commissioner to show that the assessments were correctly made: Dalco at CLR 623-4; ALR 345. The manner in which the taxpayer can discharge the burden may vary with the circumstances but "absent agreement with the Commissioner to confine the issues for determination in a Pt IVC proceeding, 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": Gashi at [61]. See also Dalco at CLR 624; ALR 346.
  • (10) There may be cases where the amount of taxable income depends upon the legal complexion of known facts or upon specific factual questions. In such a case, a taxpayer may successfully discharge the onus by establishing that the Commissioner included in their taxable income amounts which ought not to have been included: Dalco at CLR 624; ALR 347. However, such a situation would only arise where the Commissioner agrees to a process which is different to that described above by confining the scope of the dispute between him and the taxpayer to certain enumerated amounts. One might expect some clear expression of that agreement, involving as it does an abandonment of the advantages accorded to the Commissioner in s 167 in respect of defaulting taxpayers.

(Emphasis added.)

51. Applying these principles, Derrington J relevantly in Ross allowed the Commissioner's appeal, holding that the Tribunal had erred in its approach by only considering certain items in the asset betterment statements which the taxpayers had selected for contention. Justice Derrington held at [75]-[76] that:

It can be immediately observed that, absent an agreement between the parties to confine the issues in dispute, the process described in paragraph [8] of the Tribunal's reasons involved an erroneous application of the onus under s 14ZZK(b)(i) in relation to a default assessment pursuant to s 167. The amount of taxable income in an assessment under that section is not the starting point for the taxpayers in advancing their objections or applications for review and nor do the items specified in an asset betterment statement (which, in a general sense, support the Commissioner's judgment of their taxable income) prima facie identify the issues which are in dispute between the parties. As the authorities make clear, a taxpayer must positively prove what their taxable income actually is and that onus is not satisfied by merely showing that some element in the Commissioner's

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assessment is wrong. A process of picking and choosing between the several elements on which the Commissioner relied in making the default assessment does not suffice because it proceeds on the misapprehension that an assessment made pursuant to s 167 is a proxy for a calculation of a taxpayer's actual taxable income.

It is abundantly clear from its decisions and reasons for decisions that the Tribunal applied the erroneous approach foreshadowed in paragraph [8] of those reasons. It made no attempt to ascertain whether the taxpayers had established what their actual taxable income was, but merely assumed that the default assessments identified the amounts which constituted the taxpayers' taxable income, save to the extent to which they were successfully challenged. In the absence of an agreement between the parties to confine the issues in dispute, that constituted an error of law which justifies setting aside the Tribunal's decisions.

52. His Honour therefore held at [114] that the Tribunal erred in applying s 14ZZK(b)(i) and overlooked the taxpayers' obligation to establish the true amount of their assessable income.

53. Justice Derrington reiterated these principles subsequently in
Condon v Commissioner of Taxation [2023] FCA 561 which was also a case in which a default assessment had been made by the Commissioner applying the asset betterment methodology. In that case, the taxpayer argued that he was not confined by the "all or nothing" approach based on the Full Court's decision in
Haritos v Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315. This is the same argument put by the applicant in this case. Justice Derrington explained in Condon at [29] that the description of the "all or nothing" approach is sometimes used to describe the consequence of the principles set out above, namely, that "either the taxpayer is able to establish what their assessable income is or else the appeal fails."

54. Applying the principles summarised in Ross and the authorities referred to therein, Derrington J in Condon held that the taxpayer's reliance on Haritos was misplaced. Among other things, his Honour held that:

  • (1) the Full Court's observations in Haritos were obiter (at [36]);
  • (2) those observations did not apply where the taxpayer is faced with having to establish what their actual income is, as opposed to a case where there is agreement reducing the issues to a number of disputed amounts which may increase or decrease the taxpayer's taxable income (at [37]-[40]);
  • (3) Haritos was concerned with the statutory obligations of the Tribunal when conducting a review pursuant to s 43 of the AAT Act as modified by s 14ZZJ of the TAA, and the application of the onus of proof set by s 14ZZK, and not an appeal to the Federal Court from a decision of the Commissioner to which the onus set by s 14ZZO applied (at [41]); and
  • (4) nothing in Haritos or Le alters the established principles concerning the operation of s 14ZZK(b)(i) (and s 14ZZO(b)(i)) and, if they did, they would be inconsistent with the established Full Court authorities discussed in Condon, and should not be followed (at [43], citing
    Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, [135] and [147]).

55. Notwithstanding that the third point above does not apply to this proceeding, I consider that the other points made by Derrington J are equally applicable.

56. Justice Derrington also held at [44] that the passages in Le on which the applicant relied did not assist him either:

In the first place, notwithstanding the fact that the decision in Haritos seemed to underpin Logan J's decision in Le, for the reasons expressed above, it is not clear that it can properly be understood as capable of doing so. The Full Court was most clearly concerned with the Tribunal's obligations to make findings in relation to contested transactions. In any event, it does not appear that the decision in Le has the effect attributed to it by Mr Condon. There, Logan J postulated a situation in which the assessment in question was shown to be "excessive in a particular amount". In the

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context of an assessment under s 167 of ITAA36, and the application of the asset betterment method, such a scenario could only realistically arise where the material before the Tribunal had established the amount of the taxpayer's assessable income and demonstrated that other receipts of money or transactions that may have occurred in the relevant years and that might have suggested a greater level of income were adequately explained. That is clearly different from the situation where the taxpayer has failed to satisfy the Tribunal that all of the receipts, and unexplained expenditures or increases in wealth, were not referable to assessable income, such that the taxpayer had failed to establish what their assessable income was. The point being made by Logan J in Le can, in this way, be understood as a practical one, and not an observation as to the proper application of the onus of proof.

(Emphasis in original.)

57. To the extent to which the applicant made a formal submission that the decisions in Ross and Condon were wrong, no argument was put to the effect that they were clearly and plainly wrong. Further and in any event, they were clearly correct and set out principles well-established by High Court and Full Court authority binding upon me, as the references to authorities in the above passages make clear. Furthermore, as Derrington J explained in Condon at [45]-[47], the decision of Nettle J in
Bosanac v Commissioner of Taxation [2019] HCA 41; (2019) 374 ALR 425 affords recent support for the "all or nothing" approach.

3.2.4 The applicant has not established that the Tribunal erred in rejecting his claim to have had no taxable income

58. The applicant submitted that the Tribunal fell into error in finding that he could not succeed by challenging aspects of the Commissioner's default assessment and that it was irrelevant if the Commissioner made incorrect judgments or assumptions. In this regard, the applicant submitted that (AS at [5]-[6]):

It is agreed that there is authority that it is not sufficient for a taxpayer merely to show that the ATO has made a mistake in the process of its assessment, that the taxpayer must establish definitively what their taxable income was, and show that this is less than the amount assessed by the ATO.

The fact that there are errors in assumption though by the ATO is directly relevant to the veracity of the Applicant's argument that he had no taxable income. That is, an explanation as to disputed items helps directly prove the Applicant's case that he has no taxable income.

59. The argument to this extent rises no higher than bare assertion and is directly contrary to the well-established principles outlined above requiring a taxpayer to positively prove their actual taxable income when seeking to establish that a default assessment based on the asset betterment method of calculation is excessive. For example, the Full Court held in
Gashi v Federal Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301 at [66]-[67] in dismissing the appeal:

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.

… Even if Mr Gashi was able to prove that one or more of the items listed in the Asset Betterment Statement… 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 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.

See also e.g.
Commissioner of Taxation v Rawson Finances Pty Ltd [2023] FCA 617; (2023) 116 ATR 458 at [147] (Perry J).

60. Equally and for the same reason, the applicant's submission that where

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there are errors, the default assessment may be arbitrary and capricious is based upon a misapprehension as to the nature of the statutory onus. It also misapprehends the nature of a default assessment achieved by using the asset betterment method and conflates the different kinds of assessment undertaken under ss 166 and 167 of the ITAA 1936. Whereas the former involves a calculation based upon evidence as to taxable income, as the Full Court also held in Gashi at [55]:

The asset betterment method, and the resulting assessment, is necessarily a guess to some extent and "almost certainly inaccurate in fact": Trautwein at 87. It is therefore "no part of the duty of the commissioner to establish affirmatively what judgement he formed [under s 167 of the 1936 Act], much less the grounds of it, and even less still the truth of the facts afforded the grounds":
George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 204.

61. The applicant also submitted that the Tribunal ought to have found that he had proved, on the balance of probabilities, that his funds were not taxable income but instead derived from his accrued wealth in China before he migrated to Australia and subsequently from loans from third-party lenders. He relied upon his own evidence in this regard and the fact that he was not cross-examined. Specifically, he submitted that:

the Applicant has provided a reasonable explanation with supporting documentation that his sources of funds were not income in nature. There was no positive evidence to the contrary. What there was were inferences the Commissioner sought to draw from the value of assets it said the Applicant held in Australia. However, if the Applicant had provided an explanation thereof, and that explanation was not cross examined on, and there was no positive evidence to rebut it, then there was either no basis for rejecting the Applicant's evidence or alternatively the reasons are inadequate.

(AS at [20].)

62. Insofar as the applicant relied upon there being no positive evidence to the contrary, the applicant impermissibly seeks to shift the onus of proof of taxable income to the Commissioner.

63. Furthermore, as the Commissioner submitted, it was open to the Tribunal on its assessment of the whole of the evidence adduced by the applicant, including its assessment of the applicant's own credit, to find that the evidence was insufficiently probative to discharge the onus under s 14ZZK(b)(i). That evidence was comprised only of the applicant's own oral testimony and Tribunal Exhibit A2 as explained above at [14]. In this regard, the Tribunal's reasoning for rejecting the applicant's "no income" case and finding that the applicant had failed to provide sufficiently compelling evidence to discharge the statutory onus was rational and compelling. Specifically, the reasons included the Tribunal's findings that:

  • (1) the applicant's evidence was "limited and opaque" and the Tribunal was not persuaded that he "was giving an honest and accurate account of his financial affairs" (TR [36]);
  • (2) the applicant's evidence was "not plausible in the absence of any probative, independent or contemporaneous evidence" having regard, by way of example, to the absence of evidence from the applicant's former professional advisers (TR [37]);
  • (3) there were inconsistencies and discrepancies such as between the applicant's oral testimony that there were no loan documents for cultural reasons, on the one hand, and his provision of numerous alleged loan agreements during the tax audit to the Commissioner in the T-documents, on the other hand (TR [36]);
  • (4) the applicant had failed to provide any "meaningful explanation" in support of his assertion that he was self-funded during the relevant years using his own accumulated wealth in China and loans from third parties in China (TR [37]); and
  • (5) the Tribunal gave "little weight" to the applicant's documentary evidence for three reasons: (a) the documents were written in the third person and were akin to submissions; (b) it was unclear how the applicant came to prepare the documents given his assertions that he was

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    entirely reliant on his legal and accounting representatives with respect to the management of his financial affairs; and (c) it was questionable as to how and by whom the documents had been prepared in English in light of the fact that the applicant does not speak English (TR [38]-[39]).

64. The applicant's submissions also seem to stray into the area of impermissible merits review in asking this Court to accept the veracity of his evidence.

65. The submission as to the weight to be given to the failure to cross-examine the applicant on his evidence is equally misconceived. The applicant contended that it was significant that he was not cross-examined on his evidence that he had no Australian income for the relevant years, that the source of funds for those years came from the realisation of assets in China, as to his explanations that there was no rental income, and as to the loans: AS at [16], [20]-[21].

66. To the extent that the submission is effectively that there was a breach of the rule in
Browne v Dunn (1893) 6 R 67, the submission cannot be accepted. That rule, as Flick and Perry JJ held in
Sullivan v Civil Aviation Safety Authority [2014] FCAFC 93; (2014) 226 FCR 555 at [140]:

… is a rule also founded in basic common sense and fairness. "The rule is essentially one of fairness":
VN Railway Pty Ltd v Federal Commissioner of Taxation (2013) 211 FCR 188 at [49] per Tracey J. If a submission is to be advanced that a person's account of events is not to be accepted, it is not "fair" for an opponent to allow that account to go unchallenged in cross-examination and to deny to the person concerned an opportunity to give an explanation of his account.

67. However, as their Honours also held at [145]:

  • • any generally expressed "principle of law" applicable to the decision-making functions of the Tribunal relying upon the "rule" in Browne v Dunn was rightly abandoned during the hearing of the appeal and that the reformulated ground [i.e. as a failure to take into consideration a relevant matter] is to be rejected as but an impermissible attempt to impose curial principles analogous to that rule upon administrative decision-making processes;
  • • any generally expressed "principle of law" founded upon procedural fairness which requires the Tribunal to take into account in all cases a failure to put matters to a witness applicable is also to be rejected;

68. This is not to suggest, as their Honours also accepted in Sullivan (at [93]-[97]), that the rules of evidence cannot guide the Tribunal in its fact-finding task notwithstanding s 33(1) of the AAT Act providing that the Tribunal is not bound by the rules of evidence, given that the Tribunal must proceed by reference to rationally probative evidence.

69. Further and in any event, even in curial proceedings "the circumstances in which Browne v Dunn will require matter to be put to a witness in cross-examination will depend upon the nature of the pre-trial preparation there has been, and whether that pre-trial preparation has been sufficient to give notice to a witness of the submission ultimately intended to be put to the court:"
West v Mead [2003] NSWSC 161; (2003) 13 BRP 24.431 at [98] (Campbell J); see also
Allied Pastoral Holding Pty Ltd v Commissioner for Taxation (Cth) [1983] 1 NSWLR 1 at 16 (Hunt J) (on which the applicant sought to rely). In the present case, it cannot seriously be suggested that the applicant was not on notice of the need for him to prove positively that he had no taxable income and that the Commissioner contended that his evidence was insufficient. Specifically, the applicant was properly put on notice as to the Commissioner's case by the respondent's outline of argument lodged with the Tribunal on 1 August 2023: see at [23]-[24], [27], and [29]-[38]. As such the unfairness against which the rule in Browne v Dunn is directed simply does not arise.

3.2.5 The alleged failure to consider the alternative limb of the applicant's argument

70. The applicant's submission that the Tribunal failed to appreciate the two limbs to the applicant's challenge to the default assessments in finding that the applicant's approach to selectively attacking the default assessments, was irrelevant to the scope of the enquiry under s 14ZZK(b)(i).

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To the contrary, the Tribunal rejected as irrelevant the applicant's "attempts to pick and choose his way through the asset betterment methodology and to seek to prove the particular items were incorrect or should not have been included": TR [52]. In so doing, the Tribunal proceeded on a correct understanding of decisions of this Court and the High Court establishing the need for a taxpayer to positively prove their actual taxable income including: Ross at [48] (Derrington J), citing Gashi at [63]-[67];
Rigoli v Federal Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529 at [12], [25];
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624-625 (Brennan J, with Mason CJ and Dawson, Gaudron and McHugh JJ agreeing at 617, 627 and 634 respectively); and Condon at [29] (Derrington J). It follows that this is not a case where the Tribunal failed to discharge its statutory review function because it did not consider a material basis on which an applicant sought to prove an assessment to be excessive: cf Le at [64] (Logan J).

71. On the appeal, relying upon the Full Court's decision in Haritos, the applicant submitted that he was not confined to the "all or nothing approach" and was entitled to succeed even if he could establish errors in the Commissioner's calculations of taxable income which would have resulted in a substantial reduction in tax payable by the applicant for the relevant years: T-44.4-12. In effect, the submission was that the applicant could "chip away" at aspects of the Commissioner's application of the asset betterment methodology and, by demonstrating error in certain aspects of it, could thereby achieve a corresponding reduction in taxable income. The applicant therefore sought to run the same arguments as those rejected by Derrington J in Condon but without arguing that that decision was clearly and plainly wrong. This alone would suffice to reject his contention.

72. In any event, in my view Derrington J was plainly correct in Condon for the reasons given by his Honour and summarised above. In particular, in the passage relied upon by the applicant in Haritos, the Full Court considered in obiter at [235]-[236] that:

The third way in which the appellants put their argument that the Tribunal misused the burden of proof section is related to the second. The appellants submitted that even if Mr Haritos' evidence was correctly rejected, they had nevertheless established subcontractor expenses of at least a certain amount. The Tribunal was not entitled to adopt what the appellants described as an "all or nothing" approach. If an "at least" figure was established on the evidence, then the Tribunal should have made a finding in accordance with that evidence.

We think that proposition is correct. If a taxpayer claims his or her expenses were $10, but fails to prove that fact because their evidence is rejected, this does not prevent the Tribunal from finding that the expenses were $5 where there is other satisfactory evidence establishing expenses of at least that amount. In our opinion, the burden of proof section does not dictate a different conclusion.

73. However, the present case is clearly distinguishable. In contrast to Haritos, there was no agreement with the Commissioner to confine the issues for determination on the review. So much was common ground. As such, the applicant's burden of proof under s 14ZZK(b)(i) was not limited in this way. It follows, as Ms Marr, counsel for the Commissioner, correctly submitted:

it's fallacious to jump straight in and to seek to, in effect I suppose, reverse engineer the default assessment, which was never a mathematical, methodical, computational process, to seek to reverse engineer that by challenging discrete items and then subtracting those and saying, "What's left is my actual taxable income. The parts that aren't challenged, that's the right amount". That's not the way in which a taxpayer needs to go about satisfying that onus.

(T-61.6-11.)

3.3 Ground 2: alleged failure to give adequate reasons

74. Ground 2 raises the question of whether the Tribunal properly analysed the evidence and gave adequate reasons for rejecting the applicant's contention that he earned no income in the relevant years. The

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Commissioner accepted that the failure to provide adequate reasons can constitute an error of law at least where the provision of adequate reasons is a requirement of the statutory exercise of power:
Civil Aviation Safety Authority v Central Aviation Pty Ltd [2009] FCAFC 137; (2009) 179 FCR 554 at [41] and [49]. However, in the Commissioner's submission, the Tribunal complied with its duty to provide written reasons under s 43(2B) of the AAT Act.

75. Section 43(2B) requires the written reasons of the Tribunal to "include its findings on material questions of fact and a reference to the evidence or other material on which those findings were based." The Tribunal will discharge this duty "if its reasons disclose its findings of fact, the evidence on which they were based and the logical process by which it moved from those findings to the result in the case":
Secretary, Department of Employment and Workplace Relations v Homewood [2006] FCA 779; (2006) 91 ALD 103 at [40] (French J). However, as Hill J explained in
Commissioner of Taxation v Studdert (1991) 33 FCR 75 at 78:

The Tribunal is not … a court and the obligation imposed upon it by s 43B must be read accordingly. In determining whether s 43B has been complied with, it is necessary to consider the reasons of the Tribunal as a whole and determine whether there has been "substantial compliance": see
Bisley Investment Corp v Australian Broadcasting Tribunal (1982) 59 FLR 132, per Lockhart J (at 151-152), and per Sheppard J (at 155-156).

76. I have earlier summarised the Tribunal's reasons. In my view there is no merit in ground 2. As the respondent submitted:

The reasons provide a sound and logical basis to support the Tribunal's finding that the applicant had failed to prove his assertion that he earned no taxable income, and clearly expose how the Tribunal evaluated the applicant's evidence to reach this conclusion. Read fairly and as a whole, the applicant cannot be said to be left in the position of not knowing why he did not succeed. The rationale is plainly revealed.

(Respondent's outline of submissions on appeal at [49].)

77. Ultimately it would appear that the complaint as to allegedly inadequate reasons is founded on the same misconceptions as to the onus of proof imposed by s 14ZZK(b)(i), namely, the failure by the Tribunal to accept the applicant's evidence as to why he said that he did not earn any taxable income in the relevant years and his alternative case seeking to attack discrete aspects of the default assessment. For the reasons I have earlier given, no legal error is apparent in the manner in which the Tribunal dealt with those contentions and its reasons expose the basis on which those findings were made in compliance with s 43(2B) of the AAT Act.

3.4 Ground 3: alleged error in giving undue weight to the incomplete corroborative evidence

78. The applicant contended that the Tribunal erred in giving undue weight to the incomplete documentary evidence as to the source of his wealth in the relevant years, without considering his explanations as to why the documentary evidence was no longer available. In particular, he submitted that the Tribunal failed to have due regard to the length of time that had passed since the applicant sold his Chinese business in 2005; the periods of time when he was not an Australian resident for tax purposes; and his explanation that the documents stored at the applicant's premises in 2015 were damaged by floods.

79. Ground three of the appeal can be dealt with shortly.

80. First, the notice of appeal does not properly identify an error of law. The applicant's disagreement with the Tribunal's decision in terms of the weight given to particular evidence or lack thereof is in truth a disagreement with the merits of the Tribunal's decision which this Court lacks power to consider on an appeal on a question of law:
Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 41 (Mason J);
Federal Commissioner of Taxation v Primary Health Care Ltd [2017] FCAFC 131; (2017) 252 FCR 496 at [21]. As for example, Jagot J held in
Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; (2013) 133 ALD 39 at [119]:

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The weight to be given to evidence is a matter for the Tribunal alone. The Tribunal was entitled to weight the evidence as it saw fit provided that in so doing it did not lose sight of the decision it had to make (whether on the whole of the evidence Rawson had discharged the burden of proving the assessments were excessive) and reached conclusions that were reasonably open on the evidence.

81. Furthermore, the weight given by the Tribunal to the incomplete documentary evidence as to the source of the applicant's wealth in the relevant years was reasonably open to it. Nor was any contention made that the weight given to that aspect of the applicant's case was legally unreasonable so as to give rise to a question of law.

82. Secondly, it was incumbent on the applicant to positively prove that he derived no taxable income for the relevant years. In the absence of satisfactory documentary evidence, the applicant's case depended primarily on his own testimony. In the circumstances, it was reasonably open to the Tribunal to find that the applicant had not discharged his onus, given the Tribunal's reasons (set out above) as to why the applicant's evidence was insufficient to substantiate his claims as to the sources of his wealth in the relevant years.

83. The Commissioner also contended that, with the exception of the documents relating to the ownership of the Cairns property which were said to have been destroyed in the 2015 floods, none of the matters raised by ground 3 were raised by the applicant before the Tribunal as an explanation for his lack of corroborative documentary evidence. However, given that the ground must fail in any event, it is unnecessary to determine this issue.

3.5 Ground 4: failure to accept the documents marked X into evidence

84. Ground 4 simply states that the Tribunal erred by failing to admit the X documents into evidence. As such, it manifestly fails to identify any error of law. In any event, no error is apparent.

85. In its reasons, the Tribunal ruled that the X documents should not be considered by it, accepting the Commissioner's position that the applicant had been afforded a reasonable opportunity to prepare and present his evidence: TR [42]. The Tribunal further expanded upon its reasons for so finding at TR [42]-[43] as follows:

Mr Wang did not foreshadow producing further evidence, aside from his oral testimony, at any stage before the hearing, even though there was correspondence between PPA and the Commissioner on 18 August 2023 (see [39] above). While the Tribunal does allow considerable latitude to parties because, amongst other things, it is not bound by the rules of evidence, all requests for leave to file documents late must be reviewed on a case-by-case basis. I have also considered that in the present matter Mr Wang was represented, both at the hearing and throughout the audit and objection stage, albeit by different representatives. I have also considered that, as with the other documents provided in English and Mandarin by Mr Wang, there were questions as to the authenticity of some of the documents and who had prepared them, who had translated them and if they were accurate and relevant. I was not prepared to adjourn the matter to allow the Commissioner to properly consider the documents. This was not appropriate in circumstances where the parties had filed and exchanged hearing certificates on 20 April 2023 representing the matter was ready for hearing.

Furthermore, my decision to not accept the documents marked ' X ' as material before the Tribunal, and to also not adjourn the matter for a resumed hearing, is fortified by the fact that, for the reasons explained further below, even if they were accepted, they would not have assisted Mr Wang in altering the outcome in these proceedings. This is because the documents appeared to only deal with discrete challenges to the Commissioner's asset betterment methodology rather than present a holistic explanation by Mr Wang for the Relevant Years. I am satisfied that the appropriate course is not to accept the documents marked ' X '.

(Emphasis in original.)

86.

ATC 28698

In his submissions, the applicant focuses upon the reasons given by the Tribunal at TR [43]. Specifically, the applicant contended that:

The Tribunal, having a degree of flexibility as to its practice and procedure, had the discretion to receive into evidence the documents that were marked 'X'. A reason given for not exercising that discretion, in addition to their lateness was at [43], that even if they were accepted they would not have assisted Mr Wang in altering the outcome of the proceedings because they only involved 'discrete' challenges. This misses the point that the Commissioners case was based on guessing what the Applicant's income might have been applying the asset betterment method. Challenges to assumptions that underly that methodology are directly relevant to working out whether the Applicant's evidence that he had no income ought to be accepted.

(AS [32]; emphasis added.)

87. As such, the alleged error in the Tribunal's decision, as explained in the applicant's submissions, is based upon the same misapprehension as to the nature of a default assessment under s 167 of the ITAA 1936 and the statutory onus as that which underlies ground 1 of the notice of appeal. As earlier explained, the asset betterment method and resulting assessment necessarily involve a "guess" as to the taxpayer's income and, absent an agreement to confine the issues, the applicant does not discharge the onus under s 14ZZK(b)(i) by demonstrating that particular items included in the asset betterment methodology were incorrect or should not have been included. As such, the ground is misconceived. No error is therefore shown in the Tribunal's ruling that even if the X documents were accepted, they could not have assisted the applicant in altering the outcome in these proceedings.

4. CONCLUSION

88. For the reasons set out above, the application must be dismissed. As the applicant has been wholly unsuccessful, there is no reason why the applicant should not pay the Commissioner's costs. In this regard, the Commissioner relied upon the affidavit of Kevin Ó Seighin, Government Lawyer employed by the respondent, and affirmed on 22 April 2024 in support of a lump sum costs order in the sum of $26,847.64, including the anticipated costs of the hearing before me on 29 April 2024. I am satisfied, on the basis of Mr Ó Seighin's affidavit, that the amount claimed by way of a lump sum is fair and reasonable, and that it is appropriate for a lump sum costs order to be made in the sum claimed.

THE COURT ORDERS THAT:

  • 1. The application is dismissed.
  • 2. The applicant is to pay the respondent's costs fixed in the sum of $26,847.64.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


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