Case 3/2018

Members:
S E Frost DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2017] AATA 3058

Decision date: 15 June 2017

SE Frost (Deputy President)

1. The applicants, LLUN and XUGV, are a married couple who at all relevant times were Australian residents for tax purposes.

2. In 2009 the Commissioner commenced an audit of the applicants' tax affairs. As a result of the audit the Commissioner was not satisfied with the returns the applicants had furnished for several income years - the 2001 to 2009 income years for LLUN, and the 2001 to 2010 income years for XUGV. In 2012 the Commissioner made amended assessments for each of the 2001 to 2009 income years (the First Amended Assessments ), and an original assessment for XUGV for the 2010 income year, in each case relying on s 167(b) of the Income Tax Assessment Act 1936 (the 1936 Act ). In addition to that, the Commissioner made an assessment under s 167(a) of the 1936 Act in respect of LLUN for the 2010 year, since even though no return had been lodged, the Commissioner formed the view that LLUN had derived assessable income during that year.

3. In 2013 the Commissioner carried out a second audit, this time only in relation to LLUN's affairs. A further batch of amended assessments was made for LLUN, again in reliance on s 167(b) of the 1936 Act, for the 2002 to 2008 income years inclusive (the Second Amended Assessments ).

4. Administrative penalty was also assessed against each of the applicants, at 75% of the tax shortfall amount for the first of the amendment years (2001) and at 90% of the shortfall for each remaining year.

5. The objections against the various assessments were largely unsuccessful. In some of the years the objections were allowed in part, but only for relatively small amounts. One of the objections - the one against LLUN's Second Amended Assessment for 2003 - was allowed in full, since it was found that the particular income amount identified related to a different year.

6. LLUN and XUGV have both applied to the Tribunal for review of the objection decisions.

WHAT TRIGGERED THE ASSESSMENTS?

7. The First Amended Assessments, and the original assessment for LLUN for the 2010 income year, were based on the Commissioner's view that the applicants had derived income from an interest they held in a Samoan superannuation fund. This fund, Entity 1 (see [36]-[38] below), was considered not to be a superannuation fund for Australian tax purposes but a foreign trust estate. The Commissioner assessed the applicants on what he found to be an interest in a foreign investment fund ( FIF ) for the purposes of the former Part XI of the 1936 Act.[1] Exhibit R1, T2–10 [9] and following; Exhibit R3, T2–6 [7] and following

8. The Second Amended Assessments were based on deposits made and interest credited to several offshore bank accounts which, although held in the name of third parties, were considered to be beneficially owned by LLUN.

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The Commissioner formed the view that the deposits and interest were assessable income of LLUN, and that they were not receipts of capital.[2] Exhibit R2, T2–21 [60] and following

THE ISSUES FOR DETERMINATION BY THE TRIBUNAL

9. The battleground in relation to the Second Amended Assessments remains broadly where it was at the time the Commissioner made those particular assessments.

10. As for the remaining assessments, the ground has shifted somewhat, with the parties now agreeing that the Samoan fund is actually an Australian resident, for reasons that will be explained later in these reasons. A prime area of dispute now, in relation to those assessments, is how the Samoan fund is to be characterised, and particularly whether it is a superannuation fund. The answer to that question will go some way to establishing the applicants' income during the relevant years.

11. In addition to those substantive issues, there are some fundamental questions that will need to be addressed concerning the burden of proof provisions in the tax legislation (see [17]-[20] below) and the statutory time limits imposed on the amendment of assessments (dealt with in [108]-[125] below).

12. To state the issues in that brief summary form disguises the complexity of the arrangements entered into by the applicants during the relevant years. The proceedings have identified funds and assets held not only in Samoa, but also in other locations including New Zealand, the United Kingdom and the United States of America, with Vanuatu, Jersey and the Isle of Man each playing a cameo role.

13. The applicants' activities have also generated extensive paperwork, with almost 15,000 pages of documents taken into evidence. Written statements were made, or affidavits sworn or affirmed, by 35 witnesses in addition to the applicants themselves. Oral evidence was given - either in person, by telephone, by videolink or by Skype - by witnesses in Australia, New Zealand, Samoa, Vanuatu, Singapore, the United Kingdom and the Netherlands. That evidence discloses an extensive, and sometimes quite secretive, array of entities, transactions, payments and relationships.

14. Some of the arrangements the applicants have entered into over the years are complicated and confusing. I am convinced that in some cases the applicants themselves do not fully understand the arrangements, or how or why they were implemented. Furthermore, the roles played by some of the players, or the reasons for their involvement, remain unclear. The task faced by the Tribunal is a difficult one.

15. It is convenient to start this fascinating journey by setting out the text of s 167 of the 1936 Act, and then moving on to a discussion of the applicants' burden of proof.

SECTION 167 OF THE 1936 ACT

16. Section 167 is headed 'Default assessment'. It provides 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.

THE BURDEN OF PROOF IN TAXATION PROCEEDINGS

17. Proceedings such as these, under Part IVC of the Taxation Administration Act 1953 ( TAA ) in relation to income years up to 2010, impose upon each of the applicants the burden of proving that the Commissioner's assessments are excessive: s 14ZZK(b)(i) of the TAA, as it existed prior to its amendment by the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013.

18.

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In the case of assessments made under s 167 of the 1936 Act, and provided they have been made within the statutory timeframe (s 170 of the 1936 Act - see [108]-[125] below), it is not enough for a taxpayer to show the Commissioner has made some error in the assessment. The taxpayer must positively prove his or her actual taxable income: cases such as
Commissioner of Taxation v Dalco (1990) 168 CLR 614,
Gashi v Commissioner of Taxation [2013] FCAFC 30,
Rigoli v Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529 and
Mulherin v Commissioner of Taxation [2013] FCAFC 115 make that clear. Here, and provided again that the assessments are not out of time, the applicants must at least:

19. It is also relevant to note that all of the amended assessments in this case (with the exception of the amended assessment for LLUN for the 2009 year - one of the First Amended Assessments) rely on 'fraud or evasion' opinions formed by the Commissioner.[3] Exhibit R1, T67; Exhibit R2, T31; Email from AGS dated 24 February 2017 If it were not for those opinions, the various amended assessments would be out of time: former s 170(2) of the 1936 Act for the income years up to and including 2004, and item 5 in the table in s 170(1) of the 1936 Act for the income years from 2005 onwards.

20. Where the Commissioner has formed such an opinion,[4] The statutory provisions differ slightly between the earlier and the later years, and will be explained in more detail later in these reasons: see [108] and following. the onus is on the taxpayer to prove that the conditions for the exercise of the amendment power did not exist. It is not the case that the Tribunal must itself form the opinion that there was evasion; instead the taxpayer must prove, on the balance of probabilities, that there was not:
Binetter v Commissioner of Taxation [2016] FCAFC 163 at [93]-[95].

IDENTIFICATION OF THE RELEVANT ENTITIES

21. I now turn to an identification of some of the entities involved, and the activities they were engaged in.

LLUN's business and the entities that operated it

22. In the 1980s LLUN went into business designing and manufacturing battery chargers for sale. Initially that business was conducted through a company called Entity 2 (which was later re-named Entity 3). In 1999 the business was restructured and two new companies were set up. The two companies that together constituted the battery charger business from 1999 onwards were Entity 4 and Entity 5 , although it was LLUN personally who held the registered patents for the battery chargers that the companies were manufacturing and selling. Entity 4 had about six employees; Entity 5 had none.

23. At all relevant times LLUN was the managing director of all three companies - Entity 4, Entity 2 and Entity 5. He also drew a salary from those companies.

24. XUGV worked closely with her husband in the business, and also drew a salary. She did all the administrative work in connection with the running of the business.[5] Exhibit A2, Tab 46, pages 4747–8 at [5]–[9]

Entity 6: Purchase and sale of a property in New Zealand

25. In the early 1990s, LLUN became interested in the possibility of investing in New Zealand. His understanding was that there was no capital gains tax in New Zealand.[6] Exhibit A2, Tab 47, page 4775 at [115]

26. He found a property (the Whitford Property ) that looked like an attractive investment.[7] Exhibit A2, Tab 47, page 4775 at [117] He had a friend named Tom Bayer whose firm, Pacific International Trust Company ( PITCO ), based in Vanuatu, provided corporate services to its clients.[8] Exhibit A2, Tab 47, pages 4775-6 at [118], [121] Mr

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Bayer suggested to LLUN that PITCO set up a company in Vanuatu to purchase the Whitford Property, and that LLUN lend the purchase price to that company.[9] Exhibit A2, Tab 47, page 4776 at [123] LLUN accepted the suggestion, and a company by the name of Entity 6 was incorporated by PITCO as a Vanuatu international company.[10] Exhibit A1, Tab 4, page 4014 Entity 6 was administered by PITCO staff.

27. In March 1994 Entity 6 executed a contract for the purchase of the Whitford Property for NZD850,000.[11] Agreed Facts [76] In April 1994 LLUN transferred USD510,000 (about NZD850,000) to PITCO's ANZ bank account in Hong Kong.[12] Exhibit A1, Tab 4, page 4033 The amount was recorded in an internal PITCO Journal as a 'loan' from LLUN.[13] Exhibit A1, Tab 4, page 4034 The Whitford Property was sold in December 2006 for NZD3,000,000. The proceeds were transferred into Entity 1 (see [36]-[38] below).[14] Exhibit A2, Tab 47, page 4762 at [9](iv)

28. The Commissioner claims Entity 6 held the Whitford Property on trust for LLUN and that the gain on its sale is attributable to LLUN.

Entity 8

29. Entity 6 was not the first Vanuatu company established for LLUN. In the late 1980s, LLUN had been actively looking for a house in Vanuatu that he could purchase.[15] Exhibit A2, Tab 51 (witness statement dated 13 October 2016), page 4800 at [9] He had also spoken to Tom Bayer around that time about the possibility of going into business with the Bayer Financial Group.[16] Exhibit A2, Tab 51, page 4800 at [10] Mr Bayer suggested the incorporation of a company in Vanuatu, in case the business venture came off. LLUN agreed with the suggestion, and had PITCO incorporate a company for him in Vanuatu.[17] Exhibit A2, Tab 51, pages 4800–4801 at [13] The company was called Entity 8 .[18] Exhibit A2, Tab 51, page 4801 at [16]

30. LLUN organised to transfer 'a large amount of [his] personal savings to Vanuatu on the expectation that this money would either be used to purchase a house in Vanuatu, or to fund whatever business activity [he] decided to perform in Vanuatu'.[19] Exhibit A2, Tab 51, page 4801 at [13]

31. LLUN said the money he transferred to PITCO in Vanuatu largely consisted of money he had inherited from his father, as well as personal savings and some money that had originally belonged to XUGV.[20] Exhibit A2, Tab 51, page 4801 at [15] He cannot recall how much he transferred. He thinks it was less than $1 million.[21] Exhibit A2, Tab 51, page 4801 at [17]

32. LLUN said the plans did not come off; he did not do anything with Entity 8; he let the company be deregistered.[22] Exhibit A2, Tab 51, page 4801 at [16] He does not think the money was brought back to Australia.[23] Exhibit A2, Tab 51, page 4801 at [18]

Entity 10

33. In the late 1990s, on advice from LLUN's then accountant and tax and financial adviser, LLUN's business invested in a structure involving the creation of a trust in New Zealand that could be used to confer benefits on employees of Entity 2. The trust was styled as an 'employee welfare fund' and was called Entity 10 . At the time of settlement the trustee of Entity 10 was a New Zealand company, Asiaciti Trust (New Zealand) Ltd. The Fund was administered by the Wellington (New Zealand) office of the Asiaciti Trust (see [47]-[50] below).[24] Agreed Facts [46] and [47] It was held out to LLUN that money settled on the trust would be tax deductible. By the end of 1998 Entity 2 had contributed about $2.6 million to the employee welfare fund and claimed tax deductions in respect of those contributions.[25] Exhibit A2, Tab 47, page 4764 at [19]

34. Some of the money contributed to Entity 10 was invested in hotels in the United States of America, and specifically in two entities named Mason LLC and Arroyo LLC.[26] Exhibit A2, Tab 47, page 4764 at [25]

35. In due course the Commissioner disallowed Entity 2's deduction claims in relation to the contributions to Entity 10, and made amended assessments. The company 'could not pay these assessments', according to LLUN, and Entity 2 eventually went into liquidation.[27] Exhibit A2, Tab 46, page 4749A at [25]

Entity 1

36. After the unsatisfactory outcome with Entity 10 LLUN discontinued his association with his former adviser and started to use the services of a different firm of accountants, Entity 15, and an individual adviser, Mr B. (Mr B had been a partner in the Entity 15 firm but had retired from the partnership in about 1996.[28] Exhibit A3, page 5048 at [48] ) Mr B told LLUN he was 'not happy' with the Entity 10 arrangement and thought it would be preferable to roll over the corpus of the welfare fund into what Mr B described as a Samoan superannuation fund. Mr B

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said the fund could generate income that would not be subject to tax in Australia. LLUN was interested in proceeding with Mr B's recommendation and he instructed Mr B to set up the fund.[29] Exhibit A2, Tab 46, page 4749 at [19]–[26]

37. The fund became known as Entity 1, with IRSS Nominees (30) Limited ( IRSS 30 ) as its trustee. Entity 1 was administered by Asiaciti Trust Samoa (see [47]-[50] below).[30] Exhibit A1, Tab 10, page 4749A at [25] At all relevant times one of the directors of IRSS 30 was Westco Directors Limited, which was an Asiaciti Trust service entity.[31] Agreed Facts at [33]

38. LLUN's understanding is that in about April 2001 the money held by Entity 10 in New Zealand was rolled over and then held by Entity 1 in Samoa.[32] Transcript, 14 November 2016, 97:22–98:4

Hua Wang Bank Berhad

39. Another Samoan entity connected with the applicants' activities is Hua Wang Bank Berhad ( HWBB ).

40. HWBB was incorporated in Samoa as an international company in January 1994 under s 14(3) of the International Companies Act 1987 (Samoa). The appointed directors of HWBB and the people who do the administrative work of HWBB have always been personnel of the Samoan office of the previously mentioned corporate service provider, the Asiaciti Trust (see also [47]-[50] below). The registered office of HWBB has at all times been in Samoa.[33] Agreed Facts [16]–[18]

41. In around April 1994, HWBB applied for an Offshore Banking Licence under the Off-shore Banking Act 1987 (Samoa). The application form stated that the sole shareholder of HWBB would act as agent or nominee for the beneficial owner, Mr B, and that the bank would 'act as the financial intermediary for clients of [Entity 15] and the related offshore entities of those clients'.

42. On 20 June 1994, the Minister of Finance of Western Samoa granted HWBB a 'B' Class Offshore Banking Licence under the Off-Shore Banking Act 1987 (Samoa).[34] Agreed Facts [20]

43. HWBB had a bank account with the Samoan branch of ANZ Bank.[35] Agreed Facts [24]

44. Hua Wang Finance ( HWF ) was a wholly owned subsidiary of HWBB.[36] Agreed Facts [25]

45. In around 2000, LLUN told Mr B that he wanted to obtain financing for his business. Mr B indicated he had a relationship with HWBB and LLUN should be able to get a loan facility of about $2 million from HWBB, with terms including deferral of payment of interest. LLUN considered the arrangement an attractive one, and at Mr B's suggestion a loan facility was set up, with a loan facility limit of $2 million and Entity 5 as the borrower.[37] Exhibit R8, pages 96–122 The initial 'draw-down' was $950,000, and the money was used to purchase a property near Forster where the applicants would end up living and grazing cattle (the Wallingat property ).[38] Exhibit A2, Tab 47, pages 4765-6 at [37]–[41] HWBB was able to advance that money because it had received a deposit of $999,000 into its ANZ bank account on 26 June 2000.[39] Exhibit R8, page 273 That amount had come from Normandy Finance & Investments Limited[40] Exhibit R8, page 274 (see [79]-[88] below). Normandy Finance, in turn, was able to deposit that amount to HWBB because it had received $1 million from European Bank Limited, a member of the Bayer Financial Group, only weeks before. That $1 million was Entity 8's money.[41] Exhibit A1, Tab 24, pages 4396–4397 at [14]–[15]

46. Further 'draw-downs' were made in the period up to 2010. By May 2010 the total amount owing to HWBB, including significant sums of capitalised interest, was around $3.65 million, almost twice the initial facility of $2 million.[42] Exhibit A2, Tab 47, page 4781

Asiaciti Trust

47. The Asiaciti Trust Group is headquartered in Singapore and has operations in Hong Kong, the Cook Islands, Samoa, New Zealand, Nevis and Uruguay with services elsewhere, including the British Virgin Islands, Bahamas, Cayman Islands and Seychelles.[43] Agreed Facts [2]

48. Asiaciti is a corporate services provider. Its services include the provision of international companies and trusts, trustee services, and international tax planning.[44] Agreed Facts [3]

49. The Group Managing Director and founder of Asiaciti is Graeme Briggs. Mr Briggs is one of the beneficial owners of Asiaciti.[45] Agreed Facts [4]

50.

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Asiaciti has had an office in Samoa since 1988. Asiaciti's operations in Samoa are carried out by its Samoan subsidiary, Asiaciti Trust Samoa Limited, formerly Western Samoa International Trust Company Limited.[46] Agreed Facts [5]

Lubbock Fine

51. Lubbock Fine is a chartered accountancy firm based in London that specialises in international taxation matters. Its business includes the operation and management of UK entities on behalf of clients.[47] Agreed Facts [61]

52. Lubbock Fine was often asked to manage UK entities for its clients. It carried out this function through Soleguard Limited, a corporate entity that is wholly owned by Lubbock Fine and whose directors are equity partners of Lubbock Fine.[48] Agreed Facts [63]

53. Lubbock Fine also maintained a number of service companies which acted either as the shareholders, corporate trustees, or in some cases as the company secretary of client entities. The service companies maintained by Lubbock Fine for these purposes included Lordhall Securities Limited, Guardheath Securities Limited, Soleguard and Barleigh Wells Limited.[49] Agreed Facts [64]

54. At all relevant times Hasmukh Vara was one of the key persons at Lubbock Fine with responsibility for the firm's corporate service business.[50] Exhibit A2, Tab 53, page 4812 at [5]

Montgomery Sterling

55. In about mid-2001 LLUN decided to invest money through a US-based fund manager called MS International Ltd, commonly referred to as Montgomery Sterling .[51] Exhibit A2, Tab 51, page 4801 at [19]

56. LLUN told Mr B he 'would like [Entity 1] to transfer $2 million to Montgomery Sterling for Montgomery Sterling to invest'.[52] Exhibit A2, Tab 51, page 4802 at [22] Mr B was against the idea but LLUN asked him to proceed anyway.[53] Exhibit A2, Tab 51, page 4802 at [23]–[24] The money was transferred to Montgomery Sterling in mid-2001. The investment was not successful, and within a short time about one-quarter of the money had been lost.[54] Exhibit A2, Tab 51, page 4802 at [25] LLUN put 'considerable effort' into the return of the money. With Mr B's assistance, the remaining funds were transferred back to Entity 1,[55] Exhibit A2, Tab 51, page 4802 at [26]–[27] apparently by the end of 2001.[56] Exhibit R9, page 641

Entity 33

Incorporation

57. On 23 March 2001 Mr B wrote to Mr Vara at Lubbock Fine, indicating that the firm would shortly be receiving instructions, from IRSS 30 as trustee for Entity 1, to establish a new UK company called Entity 33 .[57] Exhibit R8, page 426 In his letter Mr B said the purpose of the company was 'twofold':

58. On 6 April 2001, and as foreshadowed, Asiaciti Trust Samoa on behalf of IRSS 30 wrote to Lubbock Fine, confirming its instructions for the firm to arrange the incorporation of Entity 33, with the entire share capital of the company to be owned by IRSS 30 in its capacity as trustee of Entity 1.[58] Exhibit A2, Tab 53, page 4820 The precise content of that letter came as no surprise at all to Mr Vara or to the firm, since Lubbock Fine had in fact secured the incorporation of Entity 33 the day before, on 5 April 2001.[59] Exhibit R8, page 432 Lubbock Fine started administering the company as part of its business as a corporate services provider.[60] Exhibit A2, Tab 53, page 4812 at [7]

59. The sole director of Entity 33 at the time of incorporation, and this apparently remained the case until September 2009, was Soleguard.[61] Exhibit A2, Tab 53, page 4812 at [8]–[9] On and from incorporation, the shareholders of Entity 33 were Guardheath and Lordhall.[62] Exhibit A2, Tab 53, page 4814 at [28] According to the documentation, Guardheath and Lordhall held the shares as nominees, upon trust for IRSS 30 as trustee of Entity 1.[63] Exhibit A2, Tab 53, page 4814 at [28]; pages 4821–4824 As already mentioned, Soleguard, Guardheath and Lordhall are all Lubbock Fine service entities.[64] Exhibit A2, Tab 53, page 4813 at [24]

Administration

60. The Tribunal has been provided with a partly-executed 'agreement' made 'the 5th day of Arpil 2001' (sic) between IRSS NOMINEE (30) LIMITED (sic), identified as 'IRSS', and [Entity 33], identified as 'the Trustee', by which IRSS purports to appoint the Trustee 'as its nominee for the purposes of acquiring investments on its behalf'.[65] Exhibit A2, Tab 53, page 4825 The 'agreement' is signed by a 'duly authorised

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officer' of Westco Directors, on behalf of IRSS. It has not been signed by anyone on behalf of the Trustee,[66] Exhibit A2, Tab 53, page 4829 but Naresh Shah, a partner of Lubbock Fine, says that he recognises the document as 'similar to a Lubbock Fine template that is often adapted and executed by our office in situations where Lubbock Fine's clients ask Lubbock Fine to arrange for an entity to hold assets in a nominee capacity'.[67] Exhibit A2, Tab 53, page 4814 at [29]

61. In its letter dated 6 April 2001 Asiaciti Trust Samoa also asked Lubbock Fine to open 'an Australian dollar bank account in London and in due course a bank account in Jersey'.[68] Exhibit A2, Tab 53, page 4820 Eight accounts were opened with HSBC and four with Lloyds TSB.[69] Exhibit A2, Tab 53, page 4816 at [42] When asked, Mr Shah said he did not know whether any of the HSBC accounts were in Jersey, but he expressed the opinion that if Entity 33 was acting as a nominee and not carrying on business in the UK it would make no difference whether any of the accounts were in the UK or in Jersey.[70] Transcript, 22 November 2016, 243:35–244:10 Whether or not that opinion is sound, it seems that all eight HSBC accounts were opened in Jersey.[71] Exhibit A2, Tab 53, pages 4842–4850

62. During the relevant years Entity 33 maintained at least 13 bank accounts in the UK and Jersey.[72] Exhibit A2, Tab 53, page 4816 at [42]

Instructions

63. IRSS 30 (although this time referring to itself, once again incorrectly, as 'IRSS (30) Limited[73] Its name is IRSS Nominees (30) Limited - As Trustees of [Entity 1]') provided to Lubbock Fine a 'bank indemnity letter', also dated 5 April 2001, in which it authorised Lubbock Fine to take their instructions, in relation to the operation of the Entity 33 bank account/s, not only from itself but also from any person named in the schedule to the letter. Mr B's was the only name in the schedule.[74] Exhibit R8, pages 481–482

64. While Mr Shah accepted that Lubbock Fine would take instructions from time to time from Mr B in relation to the affairs of Entity 33, he tried to resist any suggestion that the firm would act on instructions from LLUN. He said the firm would regard any communications from LLUN as 'suggestions' that they were not obliged to follow, but they would do what he asked when they thought 'that's the correct way' to do things. 'At the end of the day,' he said, 'we, as a board of directors for [Entity 33] would, you know, accept instructions that sound sensible.'[75] Transcript, 22 November 2016, 258:24–28 In other words, and despite Mr Shah's quibbling with the language, Lubbock Fine would accept instructions from LLUN - if they thought the instructions were sensible. That seems a strange proposition to be putting forward. First, it is unclear to me precisely how the Lubbock Fine partners would have been in any position to assess how 'sensible' anything was that LLUN 'suggested', since the evidence does not suggest that they have any particular understanding (or any understanding at all) of Entity 33's affairs. Second, to take instructions from LLUN demonstrates an acceptance of LLUN's status as something other than is portrayed by the documentation (by reference to which LLUN is essentially a stranger). And third, the position described by Mr Shah seems to diminish the value of the 'bank indemnity letter' referred to in the previous paragraph. But there we are.

65. And finally on this point, I note that on 30 May 2001 Mr B wrote to Lubbock Fine in the following terms:[76] Exhibit R9, page 559

I confirm that in principle there is no problem dealing with [LLUN]. I have stressed to him, however, that this is not desirable from an income tax perspective as potentially it is starting to give [Entity 33] a control point in Australia. The difficulty is that this particular client is something of a worrier and tends to burn professional time needlessly. Thus for him to go direct to you rather than through me does have its advantages!

Ownership

66. In his witness statement Mr Shah addressed the question of the ownership of the money in the Entity 33 bank accounts. I infer that he felt compelled to do so because of a statement made to the banking organisation Lloyds TSB by his employee Mr Vara in a letter dated 27 February 2004. Mr Vara was the person within Lubbock Fine doing the majority of work administering Entity 33. He was the person receiving the client requests and communicating with the client.[77] Transcript, 22 November 2016, 248:31–34

67.

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In his letter to Lloyds TSB, Mr Vara had said:[78] Exhibit R2, T8–90

I hereby confirm that whilst the issued shares in [Entity 33] are registered in the name of this firm's nominee companies, Guardheath Securities Ltd and Lordhall Securities Ltd, the ultimate beneficial owner of the funds is [LLUN] whose details you already hold.

68. Mr Vara had also indicated to HSBC, in an earlier letter dated 17 August 2001:[79] Exhibit A14, Tab 70, page 1848

I would again advise that the ultimate beneficiary of [Entity 33] is [LLUN].

69. Referring specifically to Mr Vara's letter dated 27 February 2004, Mr Shah stated:[80] Exhibit A2, Tab 53, page 4817; Hasmukh Vara is referred to in the statement as ‘HV’, Lubbock Fine as ‘LF’, and Entity 33 as ‘[redacted]’.

[49] As I have already set out my understanding at all times was [Entity 33] held its assets for benefit of the trustee of a Samoan entity, '[Entity 1]'. Hasmukh Vara at no stage suggested to me that he regarded the assets as being held directly for [LLUN and XUGV], and nor did anybody else.

[50] I have searched the files that Lubbock Fine holds for [Entity 33] and I have not found a document that suggests in any way that the [applicants] have ever had a direct interest in [Entity 33] or its assets.

[51] Lubbock Fine's corporate services business frequently extends to the running of bank accounts that we operate for clients. As a matter of general practice, and pursuant to what is often described as 'Know Your Client' obligations, it is quite common for a commercial bank in the UK to require Lubbock Fine, when Lubbock Fine administers a company that opens or operates a bank account, to advise the bank of the identity of the company's ultimate beneficial owner.

[52] In circumstances where the owner(s) of a company's issued capital are in turn owned by somebody else, and there is in effect a chain of entities, the Know Your Client obligation requires Lubbock Fine to trace the ownership of a company up through a number of different entities in order to identify the natural person (or people) who own the head entity. In the case of [Entity 33] our ordinary practice would be to identify the principals and beneficiaries of [Entity 1] to Lloyds TSB as the ultimate beneficial owner of funds in the [Entity 33] bank accounts.

70. I note the very careful language used by Mr Shah in the quoted paragraph [50] - 'I have not found a document that suggests in any way …'. That is hardly surprising; all the documents are specifically designed not to point in that direction. The reality, though, may be a different thing entirely.

71. In cross-examination Mr Shah would not accept that LLUN was the 'ultimate beneficial owner' of the money in the Entity 33 accounts: [81] Transcript, 22 November 2016, 251:25–27

He wasn't the ultimate owner of the money. The ultimate owner of the money was the superannuation fund. He was the beneficiary of the fund.

72. Shortly afterwards he modified that statement, still maintaining that the ultimate owner of the money was Entity 1, while acknowledging both LLUN and XUGV were beneficiaries of the fund.[82] Transcript, 22 November 2016, 251:30–31 But that is not the way Mr Vara had put it - twice, in writing - to the banks.

73. What I am left with from Mr Shah's evidence is this: Mr Vara's statements to the banks were wrong, even though they accorded with Lubbock Fine's 'ordinary practice' (see [52] of Mr Shah's witness statement). I must say that Mr Shah seemed to have less difficulty in asserting that inherent incongruity than I have in accepting it.

The ITT transaction

74. On 14 January 2004, Entity 33 issued an invoice to ITT Aerospace of Fort Wayne, Indiana, for 80 battery processors and 550 cable assemblies. The address for Entity 33 is shown on the invoice as [redacted], in London.[83] Exhibit A14, Tab 70, page 1940 That is the address where Lubbock Fine conducts its business.

75. The total amount specified on the invoice is USD853,373.75.

76. On 6 February 2004, ITT Industries (presumably an entity related to ITT Aerospace) paid USD838,360 to Entity 33's Lloyds USD account.[84] Agreed Facts [143](j) On 29 July 2004, Entity 33 transferred USD792,320 (about AUD1.11 million) to Entity 4 in Australia.[85] Agreed Facts [167]

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Debit card

77. In late 2004 or early 2005, LLUN attended the Entity 15 offices in Sydney and was handed a parcel. Inside the parcel was a debit card, linked to an overseas bank account. LLUN understood that he was able to use the card freely to pay for goods and services. He understood the card would allow him to access and apply funds held by Entity 1.[86] Exhibit A2, Tab 47, pages 4769–4770 at [70]–[74]

78. In fact the card was linked to an account in the name of Entity 33 and held with Lloyds TSB in the UK.[87] Exhibit R9, page 808; Exhibit R2, T25 Each of LLUN and XUGV was an 'Authorised User' of the money in that account; they had completed and signed forms to that effect to accompany the application form signed by Lubbock Fine representatives, including Mr Shah.[88] Exhibit R9, pages 810–811 The bank called the debit card a 'Company Payment Card'.[89] Exhibit R9, page 808 The card was used frequently during the period April 2005 to August 2007 to pay for private expenditure incurred by LLUN and XUGV including restaurant meals, accommodation, travel, entertainment and clothing.[90] Exhibit R2, T25–612 to 645

Normandy Finance & Investments Limited

79. Normandy Finance is a UK company and a client of Lubbock Fine.[91] Exhibit A2, Tab 53, page 4818 at [54] It is administered by a company named Amicorp s.a.m, a corporate services provider that operates out of an office in Monaco.[92] Exhibit A1, Tab 5, page 4048 at [1], [3] and [5]

80. One of the directors of Normandy Finance is a Panamanian company named Egmont International Associates Inc. Another director, since 2007, is a person named Susan Beach. Ms Beach describes herself as a 'senior member' of Amicorp. She is also a director of Egmont International.[93] Exhibit A1, Tab 5, pages 4048–4049 at [1], [7] and [8]

81. The shareholders of Normandy Finance are companies controlled by the partners of Lubbock Fine.[94] Transcript, 24 November 2016, 375:18–23

82. At all relevant times the business of Normandy Finance has consisted of acting as a nominee to hold money belonging to other entities, and of lending money.[95] Exhibit A1, Tab 5, page 4049 at [18]; page 4050 at [21]

83. The only two people Ms Beach names as those with whom she has had 'significant dealings' in connection with Normandy Finance over the years are Mr B and Mr Vara.[96] Exhibit A1, Tab 5, page 4049 at [13]

84. It was Mr B who provided the instructions from time to time to Egmont International and to Ms Beach.[97] Transcript, 24 November 2016, 374:29–40; 376:8–9 Clients of Mr B would put money into Normandy Finance and the money would be moved from Normandy Finance to other destinations, and sometimes back to where it had come from.[98] Transcript, 24 November 2016, 380:36–40 It was Mr Vara who, on behalf of Lubbock Fine, operated the bank accounts for Normandy Finance and did the accounting work.[99] Exhibit A1, Tab 5, page 4049 at [14]–[15] Indeed, it was Ms Beach's general practice to send instructions to Mr Vara whenever Normandy Finance, as she put it somewhat mysteriously in her witness statement, 'has sought to implement a transaction involving money'.[100] Exhibit A1, Tab 5, page 4049 at [15]

Movements of funds

85. On 16 May 2000 European Bank Limited, a member of the Bayer Financial Group, transferred AUD1,000,000, the property of Entity 8, to Normandy Finance.[101] Exhibit A1, Tab 24, pages 4396–4397 at [14]–[15]

86. On 18 April 2001 an amount of AUD1,831,730 was transferred from HWBB's ANZ account to Entity 1's ANZ account. On the same day the same amount was transferred from Entity 1's ANZ account to an account held by Normandy Finance in Jersey.[102] Agreed Facts [140](e) That amount was the bulk (all but $2,000) of an amount received by HWBB from Asiaciti Trust New Zealand Limited on or around 12 April 2001 and apparently originating from Entity 10.[103] Exhibit A3, Tab 14, page 5207

87. Between 1 and 24 May 2001 four transactions that have no apparent rational explanation occurred between Entity 33 and Normandy Finance. They were:

88.

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What enabled the first of those transfers to be performed was the receipt, on around 23 April 2001, of $1,242,979 by Entity 33. That amount originated from Entity 10 but passed through HWBB and Entity 1 on its way to Entity 33 (and appears to have been depleted to some extent by transaction fees as it found its way along that path).[105] Exhibit A3, Tab 15, page 5209

Entity 39 and Entity 40

89. In around April 2008 LLUN started to explore whether he could set up an offshore entity 'that [he] would control'. He wanted to do this without the assistance of Mr B. LLUN initially thought he would ask Mr B to transfer the corpus of Entity 1 to this new offshore entity.[106] Exhibit A2, Tab 50, page 4793 at [2]

90. LLUN approached the office of an Isle of Man corporate service provider called Boston Limited. Boston incorporated two companies in the Isle of Man for LLUN. One of the two companies was called Entity 39 . LLUN cannot recall the name of the second company but he suspects it may have been called Entity 40 .[107] Exhibit A2, Tab 50, page 4793 at [3]–[5]

91. In mid-2008 LLUN and XUGV executed a settlement agreement with the liquidator of Entity 2. The settlement agreement required them to pay about AUD500,000 to the liquidator.[108] Exhibit A2, Tab 50, page 4794 at [8] LLUN says he contacted a personal friend of his, Susan Martin, borrowed that amount from her, and then he and XUGV paid the amount owing to the liquidator.[109] Exhibit A2, Tab 50, page 4794 at [9]–[13]

92. In about August 2008 LLUN contacted Mr B and asked him to organise for Entity 1 to transfer money to Entity 39. By now LLUN had changed his mind about transferring the entire corpus of Entity 1 to Entity 39 and instead decided to use Entity 39 and Entity 40 for the purpose of repaying the money that was now owed to Ms Martin. LLUN asked Mr B to transfer only AUD500,000 to Entity 39. Ms Martin wanted to be repaid in British pounds, so LLUN contacted Boston and asked them (a) to have Entity 39 advance AUD500,000 to Entity 40 as a loan, (b) to have Entity 40 convert the money into British pounds, and (c) to have the money paid to Ms Martin. Boston did as LLUN requested.[110] Exhibit A2, Tab 50, pages 4794–5 at [14]–[20]

93. Both Entity 39 and Entity 40 were wound up in around June 2009.[111] Exhibit A2, Tab 50, page 4795 at [25]–[27]

PRELIMINARY OBSERVATIONS

94. One remarkable aspect of the arrangements that LLUN, in particular, has got himself into is the apparent reluctance of human beings to get their fingerprints on anything. The arrangements have 'corporate service providers' at almost every turn, but precisely what these providers do (other than create documents and other paperwork and extract a fee from their clients) remains, regrettably, something of a mystery.

95. There are companies that are directors of companies. There are companies that are nominees of other companies that are directors of companies. There is a firm of accountants that appears to fulfil the role of a 'hired gun', available to anyone who wants to hide behind one or more of these structures - and to pay, presumably, a healthy fee for the privilege. There are movements of money that have no apparent purpose. There are characters in the shadows. And there is, as befits a story of this kind, the ever-present whiff of the tax haven.

96. But enough with the pejoratives. This case must be decided not on how it looks or smells, but on the proper application of the tax law to the factual findings I make. Before turning in that direction, I have a threshold question to consider, the answer to which will determine whether the applicants' case has fallen at the first hurdle. That question is whether I am satisfied that the applicants have fully disclosed their tax-related affairs: what I have described as requirement (ii) in [18] of these reasons.

HAVE THE APPLICANTS FULLY DISCLOSED THEIR WORLDWIDE, TAX-RELATED AFFAIRS?

97. In essence, the question is whether the applicants have now told the whole truth about their affairs during the relevant period.

98. I should start with some history.

99.

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Both applicants were examined by the liquidator of Entity 2 in 2006. LLUN now concedes that some of the answers he gave in his examination were untruthful, and knowingly so.[112] Transcript, 15 November 2016, 66:10–11 LLUN, at least, therefore concedes that in the past he has lied under oath.

100. It is also the case, and LLUN concedes this as well, that some of the information conveyed to the Commissioner during the tax audit was incomplete, or misleading, or downright false. There are multiple examples of this. In cross-examination LLUN acknowledged some of his answers to questions asked by the Commissioner during the audit were 'not the whole truth', 'not quite correct', 'less than candid'; on occasions he had been 'a bit obscure', 'a bit expedient', 'a little circumspect', 'cagey', 'trying to hide certain things'.[113] Transcript, 16 November 2016, 130–133

101. But all of that is in the past, according to LLUN. The current proceedings present for him an opportunity to 'come clean'.[114] Transcript, 16 November 2016, 135:20 He said:[115] Transcript, 16 November 2016, 135:10–13

[I]t was only when I - when we were finally convinced that we were going to be fortunate enough to have this aired in court that I wanted all the cards on the table, no punches pulled whatsoever.

102. The Commissioner remains sceptical. On the Commissioner's behalf it is submitted that LLUN's evidence has 'evolved' as the proceedings progressed and that he has provided information 'in stages and selectively'.[116] Respondent’s Final Written Submissions ( RWS ) at [26.4] There is some force in that submission. For example, LLUN had not made any reference to Entity 39 or Entity 40 until his fifth witness statement in these proceedings, dated 5 September 2016.[117] Exhibit A2, Tab 49 Nor did LLUN at any stage mention his use of the pseudonym Mr H (see [181] below); that fact only came out during the cross-examination of the accountant Mr Burmister on the twelfth day of the hearing.

103. The Commissioner also points to the ITT transaction as proof of the ability of the Entity 4 business to continue to generate income in late 2003/early 2004 despite the closing down of the Entity 4 factory in Artarmon, Sydney, some years earlier. For that reason the Commissioner submits that the applicants have failed to establish that the ITT transaction was a 'one-off' transaction, particularly in circumstances where the documentation indicates that activities were being undertaken on an ongoing basis.

104. For example, the Commissioner notes the information provided to Lloyds TSB on the applicants' behalf (and inferentially on their instructions, or at least with their concurrence) in 2010, for the purpose of opening a New Zealand dollar account for Entity 33 in the UK. It included a statement (made by Stephen Saunders of Lubbock Fine to Dawn Dellamura, the Lloyds account manager) that the company 'is looking to invest in a farm property in New Zealand and also in a specialist battery charging equipment plant in NZ'.[118] Exhibit R2, T21–262 It was also said that the estimated annual turnover of the company was £2 million.[119] Exhibit R2, T21–251 Both statements, in my view, are complete nonsense.

105. The reason those representations were made to the bank is exposed by an earlier email exchange, in which Ms Dellamura asked Mr Saunders for some 'background on the company and also the reason for the requirement for NZD'. Mr Saunders' response was a hopeful 'I suppose you can't just say that the funds are being converted to take advantage of a good rate at present' - which was very likely the true position. Unfortunately it was met by Ms Dellamura's dismissive 'Sorry that will not suffice, effectively they need rationale and also what is happening with the business but I am sure you will have this information to hand as you are close to the client'.[120] Exhibit R2, T21–262/263 In those circumstances, where the truth would not produce the desired outcome, the course of least resistance for Lubbock Fine was to say anything that would keep the bank happy. That is what it did.

106. I am satisfied, on the balance of probabilities, that the ITT transaction in 2003/2004, if not a 'one-off' transaction, was the last transaction completed by the Entity 4 business. The Artarmon factory had been disposed of, the battery charger patents had lapsed and the manufacture of the battery chargers for the ITT transaction had been subcontracted to another entity.[121] Exhibit A1, Tab 1, page 4002 at [21]; Transcript, 17 November 2016, 66:24–67:2 The applicants were now involved in the grazing of cattle on the Wallingat property but LLUN had not wanted to miss out on the 'substantial' revenue from the transaction.[122] Exhibit A2, Tab 47, pages 4771–2 at [87]–[91]

107.

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Despite the Commissioner's submission to the contrary, I find that neither of the applicants deliberately lied in the evidence they gave in these proceedings. I find instead that they made an honest attempt to explain their affairs in full, and that they have disclosed, with respect to the relevant period, all the activities they undertook that may bear on their Australian tax liability. I do not ignore the fact that LLUN on occasions claimed his poor memory rendered him incapable of answering some questions put to him; I find that unsurprising in a man of his age seeking to recollect events from up to 20 years ago. In summary, and except where indicated otherwise, I accept the applicants' evidence even in the absence of corroboration.

ARE ANY OF THE AMENDED ASSESSMENTS OUT OF TIME?

108. As the law applied in relation to the amendment of assessments for income years up to and including the 2004 year, the Commissioner was empowered to amend assessments 'at any time' under the then s 170(2) of the 1936 Act if 'there has been an avoidance of tax' and 'the Commissioner is of the opinion that the avoidance of tax is due to fraud or evasion'.

109. For income years from the 2005 year onwards, item 5 in the table in the current s 170(1) of the 1936 Act provides that the Commissioner may amend an assessment at any time 'if he or she is of the opinion there has been fraud or evasion'.

110. As indicated earlier in these reasons, the Commissioner formed the requisite opinion, in respect of each of the applicants, for each of the amended assessments under review (except the amended assessment for LLUN for the 2009 year, which was made within the normal amendment period). If the applicants can prove, on the balance of probabilities, that the conditions for the exercise of the amendment power did not exist, then those amended assessments will have been made out of time and will, as a result, be excessive. The task before the applicants, then, is to prove, on the balance of probabilities:

111. What is evasion? In
Morrison and Commissioner of Taxation [2015] AATA 114, I addressed that question and made the following observations, at [75]-[76]:

In
Denver Chemical Manufacturing Co v Commissioner of Taxation [1949] HCA 25; (1949) 79 CLR 296 Dixon J said at 313 that 'evasion':

… means more than avoid and also more than a mere withholding of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify finding evasion.

In
R v Meares (1997) 37 ATR 321, Gleeson CJ said at 323:

Although on occasion, it suits people for argumentative purposes, to blur the difference, or pretend that there is no difference, between tax avoidance and tax evasion, the difference between the two is simple and clear. Tax avoidance involves using, or attempting to use, lawful means to reduce tax obligations. Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people may feel entitled to disregard that difference, no lawyer can treat it as unimportant or irrelevant. It is sometimes said that the difference may be difficult to recognise in practice. I would suggest that in most cases there is a simple practical test that can be applied. If the parties to a scheme believe that its possibility of success is entirely dependent upon the revenue authorities never finding out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance.

112.

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Nothing has happened since I decided Morrison in 2015 to make me think it is wrong to approach the question by reference to those authorities.

113. This particular chapter of the story commences with the obvious point that the applicants disclosed in their tax returns only very modest amounts of income: by way of example, LLUN's returns led to original assessments of taxable income as low as $16 in 2008, $119 in 2009, $3,603 in 2004 and $6,041 in 2003. The high point (or perhaps low point, from LLUN's perspective) was 2007, when the taxable income originally assessed was $42,065.[124] Exhibit R1, T70–768 and following

114. When the Commissioner started asking questions, from 2009 onwards, LLUN told the Commissioner 'not the whole truth', his answers were 'not quite correct', 'less than candid', 'circumspect', 'cagey', 'slightly obscure', he was 'trying to hide certain things', all of which he was forced to concede during the hearing.[125] Transcript, 16 November 2016, 130:7; 131:13; 131:18; 133:2; 133:6; 133:10–12; 134:24; 133:14 He 'shut up about different things, hoping they would, in [Mr B's] words, go away'.[126] Transcript, 16 November 2016, 133:2–3 The fact is, some of his answers were untruthful, some were incomplete, some were misleading. He was being evasive, deliberately trying to conceal the true state of affairs from the Commissioner.

115. XUGV's position is slightly different, though no more favourable. She had provided inaccurate information in her tax returns when answering questions about her international affairs. For each of the relevant years there was the following series of questions in the tax return (although for the 2001 and 2002 years some of the questions were expressed slightly differently):

Did you have either a direct or indirect interest in a controlled foreign company (CFC)?

Have you EVER, either directly or indirectly, caused the transfer of property - including money - or services to a non-resident trust estate?

Did you have an interest in a FIF or FLP? [127] ‘FIF’ meant ‘foreign investment fund’; ‘FLP’ meant a life assurance policy issued by a non-resident.

During the year did you own, or have an interest in, assets located outside Australia which had a total value of AUD$50,000 or more?

116. For each year she answered 'N' (no) to each question.[128] Exhibit R6, pages 251–356 (So, for that matter, did LLUN.)[129] Exhibit R1, T85

117. As things have turned out, and specifically in reference to XUGV, the answer to the last question, at least, causes her some problems. In light of the money in Entity 1 from about April 2001, the answer is wrong, it is wrong for every year, and it is knowingly wrong. The tax agent who prepared XUGV's tax returns for the financial years 2001 to 2004, Glenn Harris (who at the time was working at Entity 15[130] A different person at Entity 15 was responsible for the lodgment of the 2005 return (Exhibit R6, page 282 for XUGV; Exhibit R1, T85–912 for LLUN) but the firm’s knowledge of the applicants’ affairs will have been the same. ), said neither LLUN nor XUGV had told him anything about offshore assets of $50,000 or more, otherwise he would have asked them for more details.[131] Transcript, 8 November 2016, 91:36–37 Dennis Messner, the tax agent for the 2006 and later years, said much the same thing as Mr Harris: he 'was not aware of any offshore entities or interests controlled by either [LLUN or XUGV]'.[132] Exhibit A2, Tab 31, page 4531 at [6]

118. Both Mr Harris and Mr Messner impressed me as careful tax professionals who were methodical in their gathering of the factual material underpinning the returns they drafted for their clients. That neither of them knew of the existence of Entity 1 can only be because LLUN and XUGV deliberately withheld the information from them. That meant the Commissioner would not find out about the Fund either. The applicants both engaged in evasion in not providing that information.

119. For completeness, I note that Mr B said that he 'would have thought' that he had disclosed to Mr Harris the existence of Entity 1,[133] Transcript, 13 December 2016, 595:5–6 but I find that he did not do so.

120. There has been discussion in some of the authorities about what the precise enquiry is when the Tribunal has to consider the question of fraud or evasion: see for example
Millar v Commissioner of Taxation [2015] FCA 1104 at [39], where the taxpayers put forward the

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proposition that 'the AAT was obliged to review the opinion that there had been fraud or evasion, not to review whether or not there was fraud or evasion as a matter of historical fact'. Griffiths J ultimately concluded at [149] that 'the applicants had to disprove fraud or evasion against the background of the Commissioner having formed a contrary opinion'. There was an appeal to the Full Court from his Honour's judgment but not on the evasion point.

121. More recently, the Full Court has dealt with the topic in
Binetter v Commissioner of Taxation [2016] FCAFC 163. At [93] Perram and Davies JJ (with whom Siopis J agreed on this point) said:

In cases where the amendment power depends on the formation of an opinion by the Commissioner of fraud or evasion, the difference between merits review by the Tribunal and an appeal to the Court is that the Tribunal re-considers whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion , whereas the Court will only interfere with the Commissioner's exercise of the amendment power if the Commissioner did not form the requisite opinion or the Commissioner's opinion that there was fraud or evasion is vitiated by some error of law: s 43 of the AAT Act;
Shell Co of Australia v Federal Commissioner of Taxation [1930] UKPCHCA 1; (1930) 44 CLR 530 at 544-5;
Jolly v Federal Commissioner of Taxation [1935] HCA 21; (1935) 53 CLR 206 at 212-4;
Avon Downs Pty Ltd v Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 at 360. Although the Tribunal re-examines whether, on the evidence before it, there was an avoidance of tax due to fraud or evasion, and is able to substitute its opinion for that of the Commissioner, the issue for the Tribunal is whether the taxpayer has discharged the onus of showing that the opinion that there was fraud or evasion should not have been formed, and therefore, that the statutory condition for the power to amend is not satisfied. Unless the taxpayer discharges that onus, the assessments are not shown to be excessive and the effect of s 14ZZK is that the Tribunal must affirm the amended assessments, such assessments having been made by the Commissioner in compliance with the statutory requirements:
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303;
Millar v Commissioner of Taxation [2015] FCA 1104; (2015) 67 AAR 490. In Millar Griffiths J correctly held that on a merits review before the Tribunal, the onus of proof imposed by s 14ZZK places on the taxpayer the burden of disproving fraud or evasion. (emphasis added)

122. The standard of proof is the normal civil standard, the balance of probabilities.

123. The question of whether there has been 'an avoidance of tax' in the 2001 to 2004 income years must be left for the time being; that issue will depend on the findings I make in relation to questions that I address below. But assuming for the moment that there has been an avoidance of tax by one or both of the applicants in those years, I find that neither applicant has proved that the avoidance of tax is not due to evasion. I also find that it has not been proved that the Commissioner's opinion that the avoidance of tax is due to evasion should not have been formed. Indeed, I go one step further, and make a positive finding of evasion in respect of each applicant.

124. Furthermore, in respect of LLUN for each of the 2005 to 2008 years, and in respect of XUGV for each of the 2005 to 2009 years, I find that it has not been proved that there has not been evasion. I also find that it has not been proved that the Commissioner's opinion that there has been evasion should not have been formed. Again, I go further, and make a positive finding of evasion in respect of each applicant.

125. It follows from those findings that none of the specified amended assessments for the 2005 and later income years are out of time. As for the amended assessments for the earlier income years, up to and including the 2004

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year, if there has been an avoidance of tax in any of those years, then any amended assessment will likewise have been made within the statutory time limit.

126. I will now move on to address the particular questions that remain in dispute.

WHAT IS THE PROPER CHARACTERISATION OF ENTITY 1?

127. The first question that arises in respect of Entity 1 is whether it is a superannuation fund for tax purposes.

128. There are two similar, but different, definitions of 'superannuation fund' in the tax legislation. In the 1936 Act, and unless the contrary intention appears, the expression means:[134] s 6(1) of the 1936 Act

129. In the Income Tax Assessment Act 1997 (the 1997 Act ), and again except so far as the contrary intention appears, the expression has the meaning given by s 10 of the SIS Act.[135] s 995-1(1) of the 1997 Act

130. What is relevant for both definitions, therefore, is the definition of 'superannuation fund' in s 10 of the SIS Act - that is:

131. Only paragraph (a) of that definition is relevant here.

132. Entity 1 was established on 18 May 2000 by a deed between Entity 42 (identified as 'the Principal Employer') and IRSS 30, 'the Trustee'.[136] Exhibit A12, pages 677 and following Entity 42 had been incorporated in Samoa, as an international company, in January 1994, with Westco Directors as its sole director.[137] Exhibit A15, pages 3119-20

133. Recital A to the Deed notes that the Principal Employer had agreed 'to establish an indefinitely continuing superannuation plan ("the Fund") to provide retirement and other benefits for certain of its employees'.

134. Clause 5 of the Deed provides that the Fund 'shall be managed and administered in all respects according to the Rules'.

135. Clause 8 provides:

The Fund shall be registered as an International Trust under the Samoa International Trusts Act 1987 and shall be governed by the laws of Samoa applicable to an International Trust.

136. The Definition provision is Rule 1.1. Relevant definitions include:

"Employee" means a person who is in the permanent employment of an Employer whether on a full-time or part-time basis and where the Employer is a corporation includes a working director, manager or secretary of the corporation.

"Employer" means the Principal Employer and any Associated Employer and in relation to a particular Employee or Member means, unless the context otherwise requires, the employer of that Employee or Member.

"Member" means an Employee who has made application for and been accepted for membership of the Fund. The term "Member" shall include former Employees who continue to have rights or contingent rights to Benefits.

"Normal Retirement Age" means in relation to any Member the age set out in Item 2 of the First Schedule or such other age as agreed between the Trustee and the Member PROVIDED THAT the Normal Retirement Age shall not in any case be later than age 65.

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"Principal Employer" means the Employer described in Item 3 of the First Schedule or any Employer carrying on business in succession to or in amalgamation with the Principal Employer as aforesaid which elects to assume by deed the obligations of the Principal Employer under this Deed in accordance with Rule 9.2.2.

137. The First Schedule specifies the Normal Retirement Age as 65 years, the Principal Employer as '[Entity 43]' (sic), and the 'Initial Number of Funds Members' as 'Two'. The Second and Third Schedules are the undated, but signed and witnessed, applications for membership by LLUN and XUGV respectively, in each case showing 1 July 1995 as the date they joined the 'Employer', Entity 42.

Subparagraph (a)(i) of the SIS Act definition - Is Entity 1 an 'indefinitely continuing fund'?

138. The expression 'indefinitely continuing fund' is not defined in the SIS Act, and there is no definitive authority explaining its meaning.

139. In
Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468; [2007] FCAFC 135, Stone and Allsop JJ, after noting that there had been no argument in that case about the meaning of the expression, observed at 480 [32] that the ordinary meaning of the word 'indefinite' is 'without distinct limitation of being or character; indeterminate, vague, undefined; of indetermined extent, amount or number'. Jessup J stated at 507-508 ([108]-[109]):

The term is not defined in the SIS Act, and has not been the subject of judicial exposition. Some light may be thrown on what was intended by s 14 of the SIS Act, which provided that the existence in the rules of a fund of a provision to avoid "a breach of a rule of law relating to perpetuities" would not prevent the fund in question from being an "indefinitely continuing" one. That tends to suggest that the legislature otherwise had something rather lengthy in mind. On the other hand, I doubt that "indefinitely" could be given a meaning effectively equivalent to "forever", since the rules of every fund would have to contain, one would have thought, reasonable and practical provisions for the fund to be wound up where it had to be.

… It may be that the relevant statutory meaning of "indefinitely" is "undefined" rather than "unlimited", but, in the absence of argument on the subject, I am not disposed to extend to the appellant the favour of adopting that meaning.

140. In
Baker and Commissioner of Taxation [2015] AATA 469, and picking up on those observations in Cameron Brae, Senior Member O'Loughlin said at [10]:

The sentiment to the effect that indefinite is not meant to be forever has a certain attraction to it as many contemporary superannuation funds, e.g. self-managed superannuation funds, implicitly, have an end date upon exhausting assets from which benefits may be paid but are nevertheless accepted as superannuation funds which entails acceptance that they are indefinitely continuing.

141. Of course, the fact that Recital A to the Entity 1 deed records the Principal Employer's agreement to 'establish an indefinitely continuing superannuation plan' does not mean that the fund established by the deed answers that description. Nevertheless, having regard to the views expressed in Cameron Brae and Baker, and in light of the fact that the Rules of Entity 1 do not contain a defined end date, I conclude that the Fund is an 'indefinitely continuing fund' for the purposes of subparagraph (a)(i).

Subparagraph (a)(ii) of the SIS Act definition - Is Entity 1 a 'provident, benefit, superannuation or retirement fund'?

142. In a masterstroke of circularity, subparagraph (a)(ii) provides that the Fund, to be characterised as a superannuation fund, must (in addition to satisfying subparagraph (a)(i)), be a superannuation fund. That calls for an analysis of the ordinary meaning of the expression 'superannuation fund'.

143.

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That question has been considered in a number of High Court cases, including
Scott v Commissioner of Taxation (No. 2) (1966) 40 ALJR 265 and
Mahoney v Commissioner of Taxation (1965) 13 ATD 519 (which went on appeal as
Mahony v Commissioner of Taxation (1967) 41 ALJR 232). In Cameron Brae, at 481 [34], after referring to those cases and others, Stone and Allsop JJ expressed the 'confident conclusion that a trust is only a superannuation fund if its sole purpose is for the payment of superannuation benefits'. In the same case Jessup J summarised the position as follows, at 505 [102]:

Thus, as a matter of common understanding, it would seem that a superannuation fund is a fund which has as its sole purpose the provision of benefits to participating employees upon their reaching a prescribed age (per Windeyer J [in Scott (No. 2)]) or upon their retirement, death or other cessation of employment (per Kitto J [in Mahony on appeal]).

144. The parties take opposing positions on how to determine whether a fund is a superannuation fund satisfying those requirements.

145. The applicants say the question is determined solely by reference to the trust deed that establishes the fund.[138] Applicant Closing Written Submissions ( AWS ) at [121] In their written submissions they rely principally on the two High Court decisions just referred to, Mahoney (at first instance) and Scott (No. 2). From the Mahoney decision the applicants focus on what Owen J said at 525:

In order to succeed the appellants must in the first place show that a fund was established. That, it seems to me, they have done by producing the deed of trust and proving that £500 was paid by the Company to the trustees to be dealt with by them in accordance with the trusts declared in the deed. …

Whether the Fund that was established was a provident, benefit or superannuation fund established for the benefit of employees is also a matter which must be determined from the language of the deed and its meaning cannot vary according to the motives of those who established it.

146. From Scott (No. 2), they cite Windeyer J's comment at 278, that:

… "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalized.

147. The applicants say the criteria established in these cases are satisfied here.

148. Importantly, they say, an entity that is properly characterised as a superannuation fund does not cease to answer that description when it engages in contravening conduct by, for example, failing to comply with the provisions of the SIS Act.[139] ACS at [136] And so, in the current case, the Tribunal is not concerned with the way in which Entity 1 was maintained or applied, but only with the question whether it was a superannuation fund.[140] ACS at [144]

149. The Commissioner, on the other hand, says the High Court authorities negate the applicants' proposition. Like the applicants, the Commissioner relies on certain extracts from Scott (No. 2), including a very long passage from pages 278-9, the most significant part of which is perhaps the following, at page 278:

There is no definition in the Act of a superannuation fund. … To say that all that one need to do to decide whether there was here a superannuation fund of the required kind is to study the deed is a mistake …

150. The Commissioner also notes that the previously cited extract from Owen J's judgment in Mahoney ([145] of these reasons) omits the following sentence:

Once it is conceded or proved that the payment was made and that the deed of trust was not a mere sham but a document intended to create and creating rights and obligations, it is not, in my opinion, open to the Court to go behind it and investigate the motives of those who controlled or advised the Company.

151. Now, although the Commissioner does not allege sham in these proceedings, that statement by Owen J does at least require (even on the applicants' submission) that the document - here, the deed establishing Entity 1 - is a document 'intended to create and creating rights and obligations'. And there is a real problem for the applicants on that count.

152.

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All the rights and obligations arising under the deed stem from the applicants being 'Employees' of the 'Principal Employer' or of any 'Associated Employer', each of those words and expressions as defined in the deed. I do not accept that the expression 'Principal Employer' is merely a label, next to which the name of any company in the world can be placed such that the company, in this case Entity 42, becomes the 'Employer' of the applicants by that fact alone. Rather, the 'Principal Employer' must be, in fact, an 'Employer' of the applicants, and the problem for the applicants is that it never was.

153. LLUN claimed in one of his witness statements that he remembered 'completing a single contract on behalf of Entity 42 which was for a gentleman from Singapore who was interested in vintage cars'.[141] Exhibit A2, Tab 46, page 4751 at [35] The contract was for the manufacture of a prototype battery charger in the 'early 2000s'.[142] Transcript, 14 November 2016, 113:1 But in cross-examination he described the arrangement quite differently - he said 'we did some work for somebody with a connection to [Entity 42]'[143] Transcript, 14 November 2016, 112:3–4 . In other words, while his witness statement suggested that it was Entity 42, through the physical labour provided by its 'employee' LLUN, manufacturing and supplying the battery charger, his oral evidence suggested that it was the 'gentleman from Singapore' who had the 'connection to [Entity 42]'.

154. I find that Entity 42 was never involved, on either side of the transaction, in the manufacture of the prototype battery charger in the early 2000s. The prototype charger was, as LLUN indicated, manufactured in Entity 4's factory in Artarmon and supplied to the customer. Entity 4, not Entity 42, was the supplier to the customer.[144] Transcript, 14 November 2016, 114:2–3; 117:6–18

155. LLUN struggled to explain where or how Entity 42 was meant to fit in, and the reason is that he did not know. In truth, Entity 42's name appears in the deed because the applicants' tax adviser Mr B said it should. Mr B also claims to have told LLUN that it was essential 'to do some paid work for Entity 42 so that it is valid to treat [Entity 42] as your employer. And [Entity 42] will have to enter a contract with one of your clients'.[145] Exhibit A3, page 5055 at [77] Whatever LLUN thinks he arranged to satisfy that requirement, he failed. I find that Entity 42 was never the applicants' employer, no matter what the Schedules to the deed say.

156. Indeed, in final submissions it was accepted by the applicants that they were never '"employees" of Entity 42 in the technical legal sense, or in the sense that they worked under the direction and control of Entity 42'.[146] ACS at [166](vi) That is a critical shortcoming; even Mr B acknowledged that the rules of Entity 1 were 'simply inapplicable' unless Entity 42 was the employer of both applicants at some stage.[147] Transcript, 14 December 2016, 736:46–737:2

157. Furthermore, the Rules of the Fund appear to have failed the test, propounded by Owen J in Scott (No. 2), at 278B-C, that a superannuation fund must be 'a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age' (my emphasis). This is because Rule 5.2(d) provides that a Benefit shall become payable in respect of a Member where the Member 'ceases to be in the Service of the Employer prior to the Normal Retirement Age for any reason other than death or Total and Permanent Disablement'. There is thus no age limitation imposed upon access to a Member's entitlement, despite the specification of '65 years' as the 'Normal Retirement Age' at Item 2 in the First Schedule to the Rules (and in the absence of any evidence that, in accordance with the definition of 'Normal Retirement Age', an alternative age had been agreed between the Trustee and any of the Members). In fact, there is evidence that XUGV received a payment from the Fund when she notified the Fund that she had retired and reached 55 years of age[148] Exhibit A1, Tab 15, page 4308 at [19]; Transcript, 18 November 2016, 70:20–71:18 - which is consistent with triggering an entitlement under Rule 5.2(d), but despite her not having reached the 'Normal Retirement Age'.

158. I find that Entity 1 is not a superannuation fund within the ordinary meaning of that expression.

159. It is therefore not a superannuation fund for the purposes of the 1997 Act.

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Paragraph (a) of the 1936 Act definition - Is Entity 1 a 'scheme for the payment of superannuation benefits upon retirement or death'?

160. It seems, as a result of the narrowing of the issues during the course of the proceedings, that it is not strictly necessary to consider the 1936 Act definition of 'superannuation fund'. However, in case I am wrong to conclude that way, I will address the issues raised by that definition.

161. The applicants note, correctly in my view, that the criterion in paragraph (a) of the 1936 Act definition 'appears to contain a purposive element'.[149] AWS [152] They then invite me to find that 'the main purpose of the [applicants], in forming Entity 1, was to make provision for future retirement'.[150] AWS [151], second occurring (page 41)

162. Even if I were to make that finding (which I do not, as I do not think the evidence supports it), it would not assist the applicants. That is because, in my view, to be within this criterion the fund must be a scheme for the payment of superannuation benefits upon retirement or death, and for nothing else. That criterion is not met, since under Rule 5.2(d) (discussed in [157] above) benefits may be paid for a reason entirely unconnected with either retirement or death. Entity 1 is not a scheme of the kind referred to in paragraph (a) of the 1936 Act definition.

163. I find that Entity 1 is not a superannuation fund for the purposes of the 1936 Act.

164. It follows that Entity 1 is not a superannuation fund for tax purposes.

Since Entity 1 is not a superannuation fund, what is it?

165. The documentation provides that the assets of Entity 1 were to be held 'by the Trustee upon trust for the benefit of Members in accordance with the provisions of [the Rules of the Fund]'.[151] Exhibit A12, page 706, clause 6.1 The Commissioner submits, the applicants accept, and I find, that Entity 1 is a resident trust estate because the central management and control of the trust estate was in Australia: s 95(2) of the 1936 Act. That is because the real decision-making for the trust estate was by Mr B and LLUN, even though the decisions were formally implemented by officers of Asiaciti Samoa:
Bywater Investments Limited v Commissioner of Taxation (2016) 339 ALR 39 at [63], [66].

ARE THE APPLICANTS 'PRESENTLY ENTITLED' TO THE INCOME OF ENTITY 1?

166. If the applicants are 'presently entitled' to a share of the net income of Entity 1, then that share is included in their assessable income: s 97 of the 1936 Act.

167. A beneficiary is 'presently entitled' to a share of the income of a trust estate if, but only if:

168. The Commissioner submits the applicants were beneficiaries sui juris with a vested and indefeasible interest in the income of the trust estate. There was no legal impediment to either of them calling for and receiving payment of their share of the net income, and accordingly each should be regarded as presently entitled to a proportionate share of the income of the trust estate.[153] RWS at [107]

169. The Commissioner further submits that the trustee, IRSS 30, had 'no discretion and only nominal legal control' of the property constituting Entity 1. I am invited to draw the inference that IRSS 30 held the trust property without any interest other than existing by reason of legal title as trustee, and without any duty to perform except to convey the property upon demand to the applicants or as they directed. This, it is said, amounts to the trust property being held on a bare trust for the applicants.[154] RWS at [108]

170.

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The applicants, in response to the Commissioner's position, submit that it is a legal impossibility for there to be a bare trust with the applicants as beneficiaries when there is a valid specific trust that says otherwise, and there has been no allegation of sham.[155] Transcript, 15 February 2017, 881:3–9

171. I do not accept the applicants' submission. The Commissioner does not have to allege sham - a common intention between parties that acts done or documents executed by them are different from the actual legal rights and obligations (if any) which they intend to create - for his argument to succeed. This is a straightforward question about the applicants' interest in the income of the trust estate. That is to be discovered by an analysis of the Fund Deed and Rules. That documentation comfortably establishes the correctness of the Commissioner's submissions summarised in [168]-[169] above. I accept those submissions. Each of the applicants was presently entitled to a proportionate share of the income of the trust estate. Each of them should be assessed accordingly.

WHAT IS THE PROPER CHARACTERISATION OF THE ENTITY 6 ARRANGEMENTS INVOLVING THE WHITFORD PROPERTY?

172. See [25]-[28] of these reasons for a brief summary of the establishment of Entity 6 and the transactions relating to the Whitford Property.

173. Apart from the documentary material available to the Tribunal, the main evidence about the Entity 6 arrangements was given by LLUN, by Mr Robert Bohn and by Mr Clifford Burmister. Mr Bohn is the Chief Executive Officer of both the Bayer Financial Group and PITCO.[156] Agreed Facts [101] Mr Burmister had been the Managing Director of PITCO between 1985 and 1992, during which time he lived in Vanuatu. Later, when based in New Zealand, Mr Burmister became the accountant and tax agent for Entity 6 from about 1999 onwards, and he also acted as the personal accountant for LLUN and XUGV after they moved to New Zealand in 2010.[157] Agreed Facts [104]–[106]

174. The Whitford Property was purchased in the name of Entity 6. Tom Bayer was the only shareholder of Entity 6, from the time of its incorporation in January 1994 until it was liquidated in 2007.[158] Exhibit A1, page 4032 Mr Bayer, as sole shareholder of Entity 6, made a statutory declaration at the time of purchase of the property in which he stated that Entity 6 'has entered into the transaction solely on its own behalf as the person beneficially entitled thereunder'.[159] Exhibit A12, Tab 5, page 51 Mr Bohn said Mr Bayer held his shares 'personally and beneficially'.[160] Exhibit A1, Tab 7, page 4065 at [43](ii); Transcript, 23 November 2016, 342:25–26 Mr Burmister's understanding was that Entity 6 owned the property beneficially, and not on trust. The tax returns lodged in New Zealand by Mr Burmister's firm declared rental earnings as income of Entity 6 as a company, not as a trust.[161] Exhibit A1, Tab 9, page 4078 at [23]

175. It is worth noting LLUN's own evidence relating to his foray into New Zealand in around 1994. He said in his witness statement dated 22 July 2014[162] Exhibit A2, Tab 47, pages 4761–4783 (emphasis added):

…

[115] In the early 1990s I became interested in the possibility of investing in New Zealand . The reason New Zealand drew my interest is that I had been told there is no capital gains tax in New Zealand, so any gains from appreciation of a New Zealand asset are tax free.

…

[117] During a trip to New Zealand I saw [the Whitford Property]. This property looked to me like an attractive investment.

[118] At about the same time I also talked to a personal friend, whose name was Tom Bayer, about ways of structuring an investment in New Zealand . …

…

[121] From our conversations Tom Bayer seemed to be knowledgeable about tax and financial matters, including the Australian tax system. … I also learned from my conversations with Tom Bayer that he ran a

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business of administering companies which was called PITCO. This made me think he would be able to assist with my investment in New Zealand.

[122] The investment in New Zealand occurred many years ago so my recollection is not entirely clear, but when I spoke to Tom Bayer in approximately 1994 about what I wanted to do in New Zealand I said words to the following effect:

' I want to buy assets in New Zealand so I can make tax free gains from re-sale of those assets . I assume there are ways for an Australian resident to do this but I don't know if a capital gain that is exempt from tax in New Zealand would also be taxed in Australia. Can you advise me?'

(emphasis added)

176. LLUN's evidence is that Mr Bayer responded in words to the following effect:[163] Exhibit A2, Tab 47, page 4776 at [123]

[LLUN], my recommendation is that you form a company outside Australia and use the company to make this investment in New Zealand. … But you can't hold the asset in your own name, otherwise you'll be liable to Australian tax.

For this to work there will have to be several conditions on how the company operates. Most importantly you can't be a director of the company and you can't run the company. My firm can provide directors for the company and you can place requests with the directors, but you can't exercise legal control over what the directors do.

Another condition is that you can't hold shares in the company. This doesn't mean you have to take it on trust that you will eventually get the benefit of the company's assets. The way we would structure the financing that will enable the company to buy assets in New Zealand is we will get you to make a loan to the company. You can't be taxed on an offshore company just because you lend it money. Also, the company could grant you an option entitling you to acquire any of the individual assets that the company buys with your loan money.

177. LLUN told Mr Bayer he would like to proceed with his suggestion.[164] Exhibit A2, Tab 47, page 4777 at [126]

178. LLUN claims to have been sent a signed document headed 'option agreement' (or something similar) granting him the right to acquire the Whitford Property from Entity 6 upon his payment of a nominal amount in the order of AUD5.00. LLUN says he no longer has a copy of that document.[165] Exhibit A2, Tab 47, page 4778 at [137]–[138]

179. There is a second relevant document, which has been provided to the Tribunal. This is a document, signed by LLUN and styled a 'Deed of Indemnity', which identifies LLUN as the 'Interested Party' and Entity 6 as 'the Company'.[166] Exhibit A1, Tab 4, pages 4044–4045 The document is undated but LLUN says he signed it in 1994.[167] Exhibit A2, Tab 47, page 4777 at [131] Clause 2.a) of the Deed authorises the 'Appointees' (essentially the PITCO entities engaged to provide services in relation to the administration of Entity 6) to 'act in accordance with suggestions given' by LLUN, but does not require them to do so.

180. When Mr Bayer first contacted Mr Burmister (in about 1999) to ask him to bring Entity 6's tax affairs up to date, Mr Bayer indicated that Mr Burmister would be dealing with the PITCO office, which he said would need to approve all the formal acts of the company. But he also indicated that Entity 6 had a contact in Australia who would be able to take queries about day-to-day matters concerning the rental property. He described this person, according to Mr Burmister, as a 'friend of the company'.[168] Exhibit A1, Tab 9, page 4076 at [8] This person was LLUN.[169] Exhibit A1, Tab 9, page 4076 at [10] In his witness statement Mr Burmister outlined his understanding of things, which was that Mr Bayer's contact in Australia did not have any legal authority to give instructions or to perform actions for Entity 6. Nevertheless, Mr Burmister said he assumed that anything LLUN said to him would generally represent the wishes of Entity 6's directors.[170] Exhibit A1, Tab 9, page 4077 at [12] and [14]

181. What Mr Burmister omitted to say in his witness statement, but did make clear during his cross-examination, is that when LLUN first made contact with Mr Burmister, LLUN

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identified himself as Mr H.[171] Transcript, 25 November 2016, 415:42–44; 416:44–45 Mr Bayer had previously indicated to Mr Burmister the name of the 'friend of the company', and Mr Burmister thought the name mentioned was Mr H.[172] Transcript, 25 November 2016, 415:36–37 But of course Mr Bayer knew all along that the person was LLUN. LLUN continued to identify himself as Mr H for a year or so.[173] Transcript, 25 November 2016, 421:43–45 In any event, Mr Burmister's understanding was that LLUN/Mr H was 'the party that Tom Bayer was referring to who I should deal with for the administration of the property'.[174] Transcript, 25 November 2016, 418:1–2 Indeed, sometimes LLUN would make regular and frequent contact with Mr Burmister (for example, Mr Burmister said 'there might be a maintenance matter to attend to or a rent review and so we would maybe talk, you know, five or six times that month'), but there were some months when there was no contact at all.[175] Transcript, 25 November 2016, 416:40–42

182. LLUN claims that he intended the money he provided to Entity 6 to fund the purchase of the Whitford Property would be an interest-free loan.[176] Exhibit A2, Tab 47, page 4777 at [133] He does not recall whether there was a written loan document between himself and Entity 6.[177] Exhibit A2, Tab 47, page 4777 at [134] The money was deposited into PITCO's bank account and was recorded in PITCO's general ledger as 'loan from [LLUN]'.[178] Exhibit A1, Tab 4, pages 4033–4034 No repayments of any kind, whether regular or otherwise, were made by Entity 6 to LLUN between 1994 and 2006, when the Whitford Property was sold.

183. The selling price of the Whitford Property was NZD3,000,000. The proceeds of the sale were transferred to HWBB, and then by HWBB to Entity 33 in the UK. The amount received by Entity 33 was AUD2,581,952 in January 2007. Accumulated rental income (totalling $39,864.44) was also transferred to Entity 33, being deposited in January 2007.[179] Agreed Facts [79]

184. In light of those facts, was the arrangement between LLUN and Entity 6 a 'loan', as he claims, or was it something different?

185. A loan is the transfer of money upon an agreement, either express or implied, to repay the amount (with or without interest). As Edmonds J said in
Commissioner of Taxation v Rawson Finances Pty Ltd [2012] FCA 753; (2012) 89 ATR 357 at 364 [20]:

The essence of a loan of money from A to B is a corresponding contemporaneous obligation on the part of B to repay the money transferred from A to B:
Commissioner of Taxation v Radilo Enterprises Pty Ltd [1997] FCA 22; (1997) 72 FCR 300 at 313 per Sackville and Lehane JJ;
Commissioner of Taxation v Firth (2002) 120 FCR 450 at [73] per Sackville and Finn JJ. Absent that obligation, the transfer of the money from A to B is something else - a gift, a payment by direction, a payment or repayment of an anterior obligation - but it is not a loan. The obligation of repayment is not proved by subsequent payment of the same amount, let alone a different amount, from B to A; that may be explicable by reference to another obligation or circumstance having nothing to do with the original payment from A to B. Rather, the obligation of repayment is proved by the terms of the contract under which the money was transferred from A to B.

186. The LLUN/Entity 6 arrangement was not a loan. I am not satisfied that Entity 6 ever took on an obligation to repay the amount provided by LLUN, either with or (as LLUN says) without interest. Although LLUN said he could not recall whether there was a written loan agreement between himself and Entity 6, I think it more likely, given the very careful way LLUN generally arranged his affairs, that any loan agreement would have been in writing. And even if LLUN himself had not retained a written document of that kind over the intervening 20-plus years, I find it strange that Entity 6 would not have done so.

187. Indeed, there are in evidence other documents relating to Entity 6 from around the same time or even earlier, including the company's Constitution dated 18 January 1994,[180] Exhibit A1, Tab 4, pages 4015–4030 its certificate of incorporation dated 19 January 1994,[181] Exhibit A1, Tab 4, page 4014 and the share certificate dated 19 January 1994.[182] Exhibit A1, Tab 4, page 4032 These documents were all provided to the Tribunal by Gillian Attapattu, the Financial Controller of European Trust Company Limited, a Vanuatu company (and

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member of the Bayer Financial Group)[183] Transcript, 23 November 2016, 325:34 that provides contract staff to PITCO.[184] Exhibit A1, Tab 4, page 4011 at [1] Ms Attapattu was also able to produce a page from PITCO's ANZ bank statement dated 16 April 1994 showing the deposit of LLUN's USD510,000,[185] Exhibit A1, Tab 4, page 4033 and the extract from PITCO's general ledger recording that amount as a 'loan'.[186] Exhibit A1, Tab 4, page 4034 That neither Ms Attapattu nor anyone else from Bayer/PITCO produced a loan document between Entity 6 and LLUN suggests there never was one. And I am not prepared to accept that Mr Bayer would have allowed any of his otherwise heavily paperwork-dependent entities to cause or permit a client to enter into a loan agreement without putting it in writing.

188. The Commissioner submits the proper finding for the Tribunal to make is that the Whitford Property was held by Entity 6 on resulting trust for LLUN. That seems to me to be the proper characterisation. As Dixon CJ said in
Wirth v Wirth (1956) 98 CLR 228 at 235:

Where a purchase was made in the name of a stranger who provided none of the purchase money the law was clear from a very early time that a resulting trust was presumed and the stranger could take beneficially only if he proved affirmatively that it was so intended.

1. I am not satisfied that an intention for Entity 6 to own the Whitford Property beneficially has been 'proved affirmatively'. Mr Bayer's statutory declaration to that effect carries little weight in circumstances where Mr Bayer himself did not give independent evidence to support that position. In making that assessment I do not ignore the medical certificate provided by Dr Jean-Philippe King of Port Vila, Vanuatu, stating that he has been treating Mr Bayer for Parkinson's disease since 2012.[187] Exhibit A9 That certificate says nothing about whether Mr Bayer is or is not capable of giving evidence either by telephone, videolink or Skype. Indeed, two of Mr Bayer's colleagues, Robert Bohn and Jean Laloyer, both of whom gave evidence via Skype from the Bayer Financial Group offices, said Mr Bayer attended the office on a regular basis. Ms Laloyer described Mr Bayer as 'semi-retired and a consultant'[188] Transcript, 23 November 2016, 310:24 and said he does come in to the office - not for the whole day, but 'mornings only'.[189] Transcript, 23 November 2016, 310:26–27 Mr Bohn said Mr Bayer does not attend the office on a daily basis, but he had been in that very morning.[190] Transcript, 23 November 2016, 343:32–34 Rather than illness, the real reason Mr Bayer did not give evidence is that he did not want to submit himself to cross-examination, as he made clear in his letter dated 6 June 2014 to Genevieve Rock, a paralegal working with the applicants' counsel Mr Hyde Page.[191] Exhibit A15, page 3121

2. The fact of the matter is that the Entity 6 arrangement was one under which LLUN (a) identified the property he wanted to buy; (b) provided the entire purchase price; (c) had a contractual entitlement to make 'suggestions' to the Appointees, with the likelihood that they would be followed; (d) was involved to some extent in the administration of the company's affairs; (e) could exercise for nominal consideration an option to purchase the property from Entity 6; and (f) ultimately instructed where the proceeds of sale, together with the accumulated rental income, should be paid. They are not factors that weigh in favour of LLUN's claim that the arrangement with Entity 6 was a loan. They point much more strongly in the direction of Entity 6 holding the property on trust for LLUN.

3. Also the fact that the tax returns were lodged on the basis that Entity 6 held the Whitford Property beneficially (apparently on Mr Bayer's instructions) may indicate nothing more than that the true position was misunderstood (or even possibly ignored), thus making the returns wrong.

4. The applicants submit that s 49A(2) of the Property Law Act 1952 (NZ)[192] Exhibit A19, Tab 4, page 8321 and following stands in the way of a finding that a trust existed. That provision states:

A declaration of trust respecting any land or any interest in land shall be manifested and proved by some writing signed by some person who is able to declare such trust or by his will.

5.

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But subsection (4) provides:

This section does not affect the creation or operation of resulting, implied, or constructive trusts.

6. Section 49A of the Property Law Act 1952 (NZ) creates no impediment to a finding that Entity 6 held the Whitford Property on resulting trust for LLUN. That is the finding I make. This particular type of resulting trust can also be described as a 'bare trust':
Herdegen v Commissioner of Taxation (1988) 84 ALR 271 at 281.

7. I agree with the Commissioner's submission that the trust in question had its central management and control in Australia as it was at all times subject to the direction of LLUN. That makes it a resident trust estate and there can be no doubt that LLUN had a present entitlement to the proceeds of the sale, pursuant to s 97 of the 1936 Act.

8. The consequence of those findings is that the capital gain on disposal is statutory income of LLUN, subject to the 50% discount in s 115-100(a) of the 1997 Act.

ENTITY 33

9. LLUN's case is that the assets of Entity 33 were held on trust for Entity 1, not for LLUN individually. That case is based on the documentation. Specifically his counsel points to the correspondence that flowed between IRSS 30 and Lubbock Fine in April and May 2001[193] Exhibit A1, Tab 11, pages 4247 and 4255 and the agreements and deeds that accompanied those items of correspondence.[194] Exhibit A1, Tab 11, pages 4256–4262

10. The Commissioner, on the other hand, submits that the assets are held on trust for LLUN, or at least that LLUN has not established that not to be the case.

11. The Commissioner says there is considerable evidence supporting his contention: Lubbock Fine's repeated assertion to Lloyds and HSBC that LLUN was the 'ultimate beneficial owner' of the funds in the Entity 33 bank accounts; LLUN's apparently unrestricted access to the funds in one of the Lloyds accounts through the use of the debit card; the fact that Lubbock Fine accepted and acted on instructions from LLUN even though to do so was inconsistent with the documentation, including in particular the bank indemnity letter.[195] See [64] & [77]–[78] of these reasons

12. Undoubtedly those factors, particularly the first and third, sit uncomfortably with the documentation.

13. Once again the applicants resist the Commissioner's contentions on the basis that the Commissioner has not argued sham. Once again I reject the applicants' submission in relation to sham, since an allegation of sham is not a necessary precondition to the acceptance of the Commissioner's contention.

14. Seemingly in common with the Commissioner, I have found it difficult to work out exactly what Entity 33 is all about. The Commissioner identified the applicants' case as that Entity 33 is a 'subsidiary' of Entity 1 and entitled to be treated as part of the superannuation fund.[196] RWS at [117] In their reply submissions, at [33], the applicants said the Commissioner got it wrong. The applicants noted their position was set out in AWS [48]-[53], which may be summarised in this way:

15. That is all well and good. But it only takes the applicants' case so far. If, as the applicants claim, the assets were held by Entity 33 on trust for Entity 1, how is it that LLUN was able to inject himself into a process that he was meant to have nothing to do with?[197] See [64] of these reasons It is not a satisfactory response to say that Lubbock Fine simply made a mistake by acting on instructions it should not have accepted. Mr Vara, the one person who knew more about the arrangements than anyone else at Lubbock Fine, was not called to give evidence. I infer that nothing he could have said would have assisted the applicants' case.

16.

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In addition to LLUN's ability to provide instructions in relation to Entity 33's affairs, LLUN had unfettered, and apparently unlimited, access to the money held in Entity 33's accounts, through the use of the debit card. The funds were replenished depending on the level of LLUN's expenditure.[198] Transcript, 16 November 2016, 150:7–10 It was a well that never ran dry.

17. The applicants submit that if there had been a misapplication of trust funds (such as by applying them for the benefit of LLUN rather than, as they assert was the correct position, for the benefit of Entity 1), 'the legal position simply is that there has been a misapplication of trust and all the cases say that where there is a misapplication of trust there is no liability'.[199] Transcript, 15 February 2017, 881:36–38 That may be so. But in what parallel universe would an entity such as IRSS 30 decline to take action if, as suggested, it were the beneficiary of funds which had been misapplied? It can hardly be suggested that IRSS 30 would have been unaware of the so-called 'misapplication' - everyone in this drama has a connection with everyone else. That the funds have been misapplied is a contention I do not accept.

18. I am not satisfied that the assets of Entity 33 were not held on trust for LLUN. I am not satisfied that LLUN did not have a present entitlement to the income of Entity 33. He should be assessed accordingly.

MONTGOMERY STERLING

19. Neither Entity 1 nor Entity 33 nor LLUN personally was a currency trader. When the money was invested in Montgomery Sterling and then lost, it was a loss of a capital nature. There is no deduction available under s 8-1 because s 8-1(2)(a) - no deduction for a loss or outgoing to the extent that it is 'a loss or outgoing of capital, or of a capital nature' - prevents it.

MISCELLANEOUS MATTERS

The Susan Martin/Entity 39/Entity 40 transactions

20. There is an inconsistency between LLUN's version of events (see [91]-[92] above) and XUGV's.

21. According to LLUN, he and his wife had to pay the liquidator of Entity 2 about $500,000. They did not have the funds, so they borrowed $500,000 from Susan Martin. To pay Ms Martin back, LLUN arranged for $500,000 to be transferred from Entity 1 to Entity 39, then to Entity 40 and finally to Ms Martin. This all happened in the period August to October 2008. I cannot see how that $500,000 extracted from Entity 1 could be anything other than a distribution to LLUN.

22. But quite apart from that, XUGV gave a version of events that included a payment from Susan Martin, into an account held by the applicants jointly, of an amount of $230,000 on 29 December 2008 (incorrectly identified by XUGV as 29 December 2009).[200] Exhibit A2, Tab 45, page 4658 at [56] XUGV described this as 'an instalment of the loan money Susan Martin had agreed to pay'. The loan document XUGV referred to was the undated loan agreement between her, as Borrower, and Ms Martin, as Lender.[201] Exhibit R10, page 1025 That agreement recorded an advance amount of $400,000 but the applicants' solicitors' trust account records show deposits totalling $538,000, apparently connected with the loan, on 18 and 21 July 2008.[202] Exhibit R10, page 1032 XUGV's version threw no light on the reason for, or even the existence of, the transactions involving Entity 39 and Entity 40 which, according to LLUN, were a central component of the overall arrangement.

23. It is impossible to reconcile the two versions. Neither version provides a rational explanation for Ms Martin's payment of $230,000 to the applicants, in December 2008, when the loan advance and repayment are supposed to have been over and done with by October.

24. I am not satisfied the amount of $230,000 is not undeclared income of the applicants.

Entity 8

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25. The Commissioner has invited the Tribunal to focus on the money LLUN deposited to Entity 8 in May 2000, even though that deposit occurred before any of the income years in dispute in these proceedings.

26. The Commissioner's argument proceeds as follows:[203] RWS at [149]–[154]

27. If indeed the initial deposit to Entity 8 was of an amount representing a deemed dividend to LLUN, that occurred in the 2000 income year and has no impact on the current proceedings. Furthermore, I find that the transfer of the $950,000 to HWBB does not amount to the derivation of income by LLUN. It is merely the placing of that amount on deposit with HWBB and has no tax ramifications for either LLUN or XUGV.

The 'rollover' from Entity 10 to Entity 1

28. The applicants claim the Commissioner has impermissibly changed his case in relation to the so-called 'rollover', in April 2001, from Entity 10 to Entity 1. This claim is put on the basis that the Commissioner had only ever contended that the applicants' liability to tax arose by way of their entitlement through Entity 1, and only after what the Commissioner had described as the 'income distribution' from Entity 10 to Entity 1.

29. In this regard the applicants rely on the Respondent's Statement of Facts, Issues and Contentions ( SFIC ) in relation to LLUN's applications, at [50]:

[Entity 10] was never an employee fund but was a trust. When the trust rolled all the assets over to [Entity 1] this was an income distribution to [Entity 1] representing interest on investments, and therefore it was held by [Entity 1] on behalf of the applicant. Alternatively the amount rolled over to [Entity 1] represented a member contribution.

30. While the reference there to 'the applicant' is a reference to LLUN, the corresponding SFIC in relation to XUGV's applications incorporates the same contention with respect to her.[204] Respondent’s SFIC in relation to XUGV’s applications, at [4]

31. The applicants say the case they have sought to meet is whether they are liable to be taxed by way of their entitlement through Entity 1, not on the prior movement of assets from Entity 10. They say they were encouraged to that position by correspondence between their counsel, Mr Hyde Page, and the office of the Australian Government Solicitor ( AGS ) representing the Commissioner.[205] Exhibit A20 Mr Hyde Page had put the question this way, on 27 September 2016:

ATC 1497

I refer to Paragraph 50 of the Amended SFIC. My interpretation of the Paragraph 50 contention is that the money transferred from [Entity 10] to [Entity 1] was either income of [Entity 1] on which the Applicant had a claim in accordance with the deed (rather than being held by the trustee in its own right, with no right to the money held by the Applicant either vested or contingent), or a contribution to the corpus of [Entity 1] on which the Applicant had a claim in accordance with the deed (rather than being held by the trustee in its own right, with no right to the money held by the Applicant either vested or contingent). I take it that what the Respondent is saying is the [Entity 10] money falls to be taxed to the Applicant under the various statutory provisions that the Respondent particular rises elsewhere in the SFIC (ie - s.97, s.529 etc) as reasons why the Applicant is liable to be taxed on the income and assets of [Entity 1]. Can you please confirm this?

32. The AGS response came the following day, in the form of a refreshingly straightforward 'That is correct.'

33. So the applicants say it is unfair that, on the final day of the hearing, they are asked to answer an alternative case put by the Commissioner which could have been foreshadowed much earlier but was not adverted to until almost literally five minutes before Mr Hyde Page got up to deliver his oral submissions in reply.

34. That is a superficially attractive submission but, with respect, it does not withstand scrutiny. It is not as if the applicants have been deprived of the opportunity to put on evidence that might have undermined a hitherto unknown case being put by the Commissioner (if, indeed, that is what it is). That is because the Commissioner's contention is essentially based on nothing more than a proper understanding of the Entity 10 deed[206] Exhibit R13 and the fact that the money that had been in Entity 10 found its way to Entity 1.

35. The only beneficiaries of Entity 1 were the applicants. They were also members and potential beneficiaries of Entity 10. There may have been other members of Entity 10 but there is no evidence that there were, or, if there were, who they were. So the applicants may have been deprived of the opportunity to put on evidence that there were other members, but what difference would that have made?

36. What is known is that the entirety of the money in Entity 10 ended up in Entity 1. But how did it get there? Clause 5.7(b) empowered the Trustee, upon reconstruction, merger or amalgamation of the Employer, to:

37. Entity 1 was not 'the same as or substantially similar to' Entity 10, so that provision does not authorise a direct payout to Entity 1.

38. Clause 7.3 deals with the payment of benefits to Members. Subclause (b) specifies that benefits shall only be paid for a purpose or purposes set out in subclause (a). As is to be expected with a deed dealing with something described as an 'employee welfare fund', the purposes set out in subclause (a) are all health- or welfare-related. They include reimbursement of medical, pharmaceutical, chiropractic, physiotherapy, dental and optical expenses of Beneficiaries; reimbursement of funeral expenses of a deceased Member; and the payment of gratuities to Members who are temporarily unable to perform their employment duties through sickness, injury, incapacity or disability.

39. The applicants did not give evidence that the payment from Entity 10 to Entity 1, or any part of it, bore the character of the payment of a benefit under clause 7.3. The reason they did not give evidence to that effect is not because they were deprived of the opportunity to do so by the Commissioner's late submission in respect of the 'rollover'; it is because the payment simply did not bear that character. If it had, I have no doubt they would have said so.

40.

ATC 1498

I have identified no other provision in the Entity 10 deed that would have authorised a direct payment to Entity 1. I find there was none. I find the payment from Entity 10 to Entity 1, although loosely described by the applicants as a 'rollover', was instead a distribution to the applicants, and then a contribution by them to the corpus of Entity 1. To the extent the distribution from Entity 10 was a distribution of the income of that Fund, it is assessable income of the applicants. They should be assessed accordingly.

ADMINISTRATIVE PENALTY

41. Administrative penalty is dealt with in Division 284 in Schedule 1 to the TAA.

42. Item 1 in the table in s 284-90(1) provides for a base penalty amount of 75% of a taxpayer's shortfall amount where a false or misleading statement is made to the Commissioner and the shortfall amount results from intentional disregard of a taxation law. There is an uplift factor of 20% for repeat behaviour, resulting in an effective penalty rate of 90%: s 284-220(1)(c).

43. These are the provisions by which the Commissioner made the penalty assessments and I consider the assessments entirely appropriate and correct.

44. A taxpayer's exposure to administrative penalty is to be judged by the behaviour at the time the false or misleading statement is made to the Commissioner. The penalty is lower if a shortfall amount resulted from recklessness (item 2 in the table - 50%) or from a failure to take reasonable care (item 3 - 25%) but neither of those levels applies here.

45. Subsequent behaviour, such as 'coming clean', is a factor that might appropriately be taken into account in considering whether an amount of penalty should be remitted, either wholly or in part, under s 298-20.

46. In this case there is no justification for any remission of the penalty. The statements, or omissions from statements, made to the Commissioner were designed to obscure the truth. They triggered extensive, and expensive, activity by the Commissioner's officers and legal representatives that would not have been necessary, or would have been significantly curtailed, if the full picture had been exposed in the very beginning.

47. There will be no reduction in the penalty assessed, except as a necessary consequence of any reduction in the shortfall amounts as a result of the Tribunal's findings.

SHORTFALL INTEREST CHARGE

48. Shortfall interest charge is imposed by s 280-100 in Schedule 1 to the TAA. It may be remitted wholly or in part if the Commissioner (or the Tribunal on review) considers it fair and reasonable to do so: s 280-160(1). In deciding whether or not to remit the charge, the Commissioner or the Tribunal must, as specified in s 280-160(2), have regard to:

49. Since s 280-160(2) expressly provides that it does not limit subsection (1), I am entitled, and indeed obliged, to have regard to any other factor that I consider relevant in deciding whether it is fair and reasonable to remit the charge. I have had regard to the factors specified in s 280-160(2) and in my view those factors point away from the exercise of the remission discretion in the applicants' favour. I have sought to identify additional factors that may be relevant to the exercise of my discretion but I have not identified any.

50. I do not consider it fair and reasonable to remit the shortfall interest charge to any extent, and so I decide not to do so.

DISPOSAL

51. It seems to me, having regard to the reasons I have expressed, that the Tribunal should set aside the decisions under review and remit each of them to the Commissioner for reconsideration in accordance with these reasons (although it may be that in some cases the reconsidered objection decision would be no different from the original).

ATC 1499

52. Unless the parties indicate, within five business days after the date of publication of these reasons, their view that the matters should not be disposed of in that way, that will be the decision of the Tribunal, and in accordance with s 43(5B) of the Administrative Appeals Tribunal Act 1975, that decision will come into operation at the commencement of the seventh business day after the date of publication of these reasons.

53. If the parties do indicate a contrary view then I will hear from them without delay, in light of the imminent expiry of my term appointment as a member of the Tribunal.

Footnotes

[1] Exhibit R1, T2–10 [9] and following; Exhibit R3, T2–6 [7] and following
[2] Exhibit R2, T2–21 [60] and following
[3] Exhibit R1, T67; Exhibit R2, T31; Email from AGS dated 24 February 2017
[4] The statutory provisions differ slightly between the earlier and the later years, and will be explained in more detail later in these reasons: see [108] and following.
[5] Exhibit A2, Tab 46, pages 4747–8 at [5]–[9]
[6] Exhibit A2, Tab 47, page 4775 at [115]
[7] Exhibit A2, Tab 47, page 4775 at [117]
[8] Exhibit A2, Tab 47, pages 4775-6 at [118], [121]
[9] Exhibit A2, Tab 47, page 4776 at [123]
[10] Exhibit A1, Tab 4, page 4014
[11] Agreed Facts [76]
[12] Exhibit A1, Tab 4, page 4033
[13] Exhibit A1, Tab 4, page 4034
[14] Exhibit A2, Tab 47, page 4762 at [9](iv)
[15] Exhibit A2, Tab 51 (witness statement dated 13 October 2016), page 4800 at [9]
[16] Exhibit A2, Tab 51, page 4800 at [10]
[17] Exhibit A2, Tab 51, pages 4800–4801 at [13]
[18] Exhibit A2, Tab 51, page 4801 at [16]
[19] Exhibit A2, Tab 51, page 4801 at [13]
[20] Exhibit A2, Tab 51, page 4801 at [15]
[21] Exhibit A2, Tab 51, page 4801 at [17]
[22] Exhibit A2, Tab 51, page 4801 at [16]
[23] Exhibit A2, Tab 51, page 4801 at [18]
[24] Agreed Facts [46] and [47]
[25] Exhibit A2, Tab 47, page 4764 at [19]
[26] Exhibit A2, Tab 47, page 4764 at [25]
[27] Exhibit A2, Tab 46, page 4749A at [25]
[28] Exhibit A3, page 5048 at [48]
[29] Exhibit A2, Tab 46, page 4749 at [19]–[26]
[30] Exhibit A1, Tab 10, page 4749A at [25]
[31] Agreed Facts at [33]
[32] Transcript, 14 November 2016, 97:22–98:4
[33] Agreed Facts [16]–[18]
[34] Agreed Facts [20]
[35] Agreed Facts [24]
[36] Agreed Facts [25]
[37] Exhibit R8, pages 96–122
[38] Exhibit A2, Tab 47, pages 4765-6 at [37]–[41]
[39] Exhibit R8, page 273
[40] Exhibit R8, page 274
[41] Exhibit A1, Tab 24, pages 4396–4397 at [14]–[15]
[42] Exhibit A2, Tab 47, page 4781
[43] Agreed Facts [2]
[44] Agreed Facts [3]
[45] Agreed Facts [4]
[46] Agreed Facts [5]
[47] Agreed Facts [61]
[48] Agreed Facts [63]
[49] Agreed Facts [64]
[50] Exhibit A2, Tab 53, page 4812 at [5]
[51] Exhibit A2, Tab 51, page 4801 at [19]
[52] Exhibit A2, Tab 51, page 4802 at [22]
[53] Exhibit A2, Tab 51, page 4802 at [23]–[24]
[54] Exhibit A2, Tab 51, page 4802 at [25]
[55] Exhibit A2, Tab 51, page 4802 at [26]–[27]
[56] Exhibit R9, page 641
[57] Exhibit R8, page 426
[58] Exhibit A2, Tab 53, page 4820
[59] Exhibit R8, page 432
[60] Exhibit A2, Tab 53, page 4812 at [7]
[61] Exhibit A2, Tab 53, page 4812 at [8]–[9]
[62] Exhibit A2, Tab 53, page 4814 at [28]
[63] Exhibit A2, Tab 53, page 4814 at [28]; pages 4821–4824
[64] Exhibit A2, Tab 53, page 4813 at [24]
[65] Exhibit A2, Tab 53, page 4825
[66] Exhibit A2, Tab 53, page 4829
[67] Exhibit A2, Tab 53, page 4814 at [29]
[68] Exhibit A2, Tab 53, page 4820
[69] Exhibit A2, Tab 53, page 4816 at [42]
[70] Transcript, 22 November 2016, 243:35–244:10
[71] Exhibit A2, Tab 53, pages 4842–4850
[72] Exhibit A2, Tab 53, page 4816 at [42]
[73] Its name is IRSS Nominees (30) Limited
[74] Exhibit R8, pages 481–482
[75] Transcript, 22 November 2016, 258:24–28
[76] Exhibit R9, page 559
[77] Transcript, 22 November 2016, 248:31–34
[78] Exhibit R2, T8–90
[79] Exhibit A14, Tab 70, page 1848
[80] Exhibit A2, Tab 53, page 4817; Hasmukh Vara is referred to in the statement as ‘HV’, Lubbock Fine as ‘LF’, and Entity 33 as ‘[redacted]’.
[81] Transcript, 22 November 2016, 251:25–27
[82] Transcript, 22 November 2016, 251:30–31
[83] Exhibit A14, Tab 70, page 1940
[84] Agreed Facts [143](j)
[85] Agreed Facts [167]
[86] Exhibit A2, Tab 47, pages 4769–4770 at [70]–[74]
[87] Exhibit R9, page 808; Exhibit R2, T25
[88] Exhibit R9, pages 810–811
[89] Exhibit R9, page 808
[90] Exhibit R2, T25–612 to 645
[91] Exhibit A2, Tab 53, page 4818 at [54]
[92] Exhibit A1, Tab 5, page 4048 at [1], [3] and [5]
[93] Exhibit A1, Tab 5, pages 4048–4049 at [1], [7] and [8]
[94] Transcript, 24 November 2016, 375:18–23
[95] Exhibit A1, Tab 5, page 4049 at [18]; page 4050 at [21]
[96] Exhibit A1, Tab 5, page 4049 at [13]
[97] Transcript, 24 November 2016, 374:29–40; 376:8–9
[98] Transcript, 24 November 2016, 380:36–40
[99] Exhibit A1, Tab 5, page 4049 at [14]–[15]
[100] Exhibit A1, Tab 5, page 4049 at [15]
[101] Exhibit A1, Tab 24, pages 4396–4397 at [14]–[15]
[102] Agreed Facts [140](e)
[103] Exhibit A3, Tab 14, page 5207
[104] Agreed Facts [143](b) and (c)
[105] Exhibit A3, Tab 15, page 5209
[106] Exhibit A2, Tab 50, page 4793 at [2]
[107] Exhibit A2, Tab 50, page 4793 at [3]–[5]
[108] Exhibit A2, Tab 50, page 4794 at [8]
[109] Exhibit A2, Tab 50, page 4794 at [9]–[13]
[110] Exhibit A2, Tab 50, pages 4794–5 at [14]–[20]
[111] Exhibit A2, Tab 50, page 4795 at [25]–[27]
[112] Transcript, 15 November 2016, 66:10–11
[113] Transcript, 16 November 2016, 130–133
[114] Transcript, 16 November 2016, 135:20
[115] Transcript, 16 November 2016, 135:10–13
[116] Respondent’s Final Written Submissions ( RWS ) at [26.4]
[117] Exhibit A2, Tab 49
[118] Exhibit R2, T21–262
[119] Exhibit R2, T21–251
[120] Exhibit R2, T21–262/263
[121] Exhibit A1, Tab 1, page 4002 at [21]; Transcript, 17 November 2016, 66:24–67:2
[122] Exhibit A2, Tab 47, pages 4771–2 at [87]–[91]
[123] Fraud has not been alleged in respect of either applicant; the only issue is evasion.
[124] Exhibit R1, T70–768 and following
[125] Transcript, 16 November 2016, 130:7; 131:13; 131:18; 133:2; 133:6; 133:10–12; 134:24; 133:14
[126] Transcript, 16 November 2016, 133:2–3
[127] ‘FIF’ meant ‘foreign investment fund’; ‘FLP’ meant a life assurance policy issued by a non-resident.
[128] Exhibit R6, pages 251–356
[129] Exhibit R1, T85
[130] A different person at Entity 15 was responsible for the lodgment of the 2005 return (Exhibit R6, page 282 for XUGV; Exhibit R1, T85–912 for LLUN) but the firm’s knowledge of the applicants’ affairs will have been the same.
[131] Transcript, 8 November 2016, 91:36–37
[132] Exhibit A2, Tab 31, page 4531 at [6]
[133] Transcript, 13 December 2016, 595:5–6
[134] s 6(1) of the 1936 Act
[135] s 995-1(1) of the 1997 Act
[136] Exhibit A12, pages 677 and following
[137] Exhibit A15, pages 3119-20
[138] Applicant Closing Written Submissions ( AWS ) at [121]
[139] ACS at [136]
[140] ACS at [144]
[141] Exhibit A2, Tab 46, page 4751 at [35]
[142] Transcript, 14 November 2016, 113:1
[143] Transcript, 14 November 2016, 112:3–4
[144] Transcript, 14 November 2016, 114:2–3; 117:6–18
[145] Exhibit A3, page 5055 at [77]
[146] ACS at [166](vi)
[147] Transcript, 14 December 2016, 736:46–737:2
[148] Exhibit A1, Tab 15, page 4308 at [19]; Transcript, 18 November 2016, 70:20–71:18
[149] AWS [152]
[150] AWS [151], second occurring (page 41)
[151] Exhibit A12, page 706, clause 6.1
[152] Harmer v Commissioner of Taxation (1991) 173 CLR 264 at 271; Dwight v Commissioner of Taxation (1992) 37 FCR 178 at 188-9
[153] RWS at [107]
[154] RWS at [108]
[155] Transcript, 15 February 2017, 881:3–9
[156] Agreed Facts [101]
[157] Agreed Facts [104]–[106]
[158] Exhibit A1, page 4032
[159] Exhibit A12, Tab 5, page 51
[160] Exhibit A1, Tab 7, page 4065 at [43](ii); Transcript, 23 November 2016, 342:25–26
[161] Exhibit A1, Tab 9, page 4078 at [23]
[162] Exhibit A2, Tab 47, pages 4761–4783
[163] Exhibit A2, Tab 47, page 4776 at [123]
[164] Exhibit A2, Tab 47, page 4777 at [126]
[165] Exhibit A2, Tab 47, page 4778 at [137]–[138]
[166] Exhibit A1, Tab 4, pages 4044–4045
[167] Exhibit A2, Tab 47, page 4777 at [131]
[168] Exhibit A1, Tab 9, page 4076 at [8]
[169] Exhibit A1, Tab 9, page 4076 at [10]
[170] Exhibit A1, Tab 9, page 4077 at [12] and [14]
[171] Transcript, 25 November 2016, 415:42–44; 416:44–45
[172] Transcript, 25 November 2016, 415:36–37
[173] Transcript, 25 November 2016, 421:43–45
[174] Transcript, 25 November 2016, 418:1–2
[175] Transcript, 25 November 2016, 416:40–42
[176] Exhibit A2, Tab 47, page 4777 at [133]
[177] Exhibit A2, Tab 47, page 4777 at [134]
[178] Exhibit A1, Tab 4, pages 4033–4034
[179] Agreed Facts [79]
[180] Exhibit A1, Tab 4, pages 4015–4030
[181] Exhibit A1, Tab 4, page 4014
[182] Exhibit A1, Tab 4, page 4032
[183] Transcript, 23 November 2016, 325:34
[184] Exhibit A1, Tab 4, page 4011 at [1]
[185] Exhibit A1, Tab 4, page 4033
[186] Exhibit A1, Tab 4, page 4034
[187] Exhibit A9
[188] Transcript, 23 November 2016, 310:24
[189] Transcript, 23 November 2016, 310:26–27
[190] Transcript, 23 November 2016, 343:32–34
[191] Exhibit A15, page 3121
[192] Exhibit A19, Tab 4, page 8321 and following
[193] Exhibit A1, Tab 11, pages 4247 and 4255
[194] Exhibit A1, Tab 11, pages 4256–4262
[195] See [64] & [77]–[78] of these reasons
[196] RWS at [117]
[197] See [64] of these reasons
[198] Transcript, 16 November 2016, 150:7–10
[199] Transcript, 15 February 2017, 881:36–38
[200] Exhibit A2, Tab 45, page 4658 at [56]
[201] Exhibit R10, page 1025
[202] Exhibit R10, page 1032
[203] RWS at [149]–[154]
[204] Respondent’s SFIC in relation to XUGV’s applications, at [4]
[205] Exhibit A20
[206] Exhibit R13

 

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