Liang & Anor v FC of T

Judges:
Logan J

Court:
Federal Court of Australia

MEDIA NEUTRAL CITATION: [2024] FCA 535

Judgment date: 14 May 2024

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Logan J

(REVISED FROM TRANSCRIPT)

1. The aphorism, "Those who cannot remember the past are condemned to repeat it," is attributed to the Spanish-American philosopher George Santayana: The Life of Reason (Vol 1), Reason in Common Sense (1905), p 284. That aphorism commended itself to the authors of a thought-provoking paper concerning the burden of proof in the challenging of a default assessment, namely, Robin Woellner and Julie Zelter, 'Satisfying the Taxpayer's Burden of Proof in Challenging a Default Assessment - the

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Modern Labours of Sisyphus?' (2014) Journal of the Australasian Law Teachers Association 119, 132.

2. The theme in that article is that, notwithstanding many judicial expositions concerning the meaning and effect of the onus of proof provision in respect of a taxation appeal or review, it is frequently misunderstood, such that lessons from history are evidently forgotten and resultant earlier errors repeated. That particular aphorism and the reflective discussion of authority in that article have given much pause for thought for me in respect of what should be the fate of this appeal from the Administrative Appeals Tribunal (Tribunal) in respect of the review of an objection decision. And that is so even though the underlying assessments were raised not under s 167 of the Income Tax Assessment Act 1936 (Cth) (1936 Act) as default assessments but, rather, as amended assessments issued pursuant to s 166 of the 1936 Act.

3. The applicable onus of proof provision is the same, namely, that stated in s 14ZZK of the Taxation Administration Act 1953 (Cth) (TAA). Thus, it was for the applicants to prove the assessments to be excessive. That provision has its counterpart in respect of appeals heard in the original jurisdiction of this Court against an objection decision: see s 14ZZO. In turn, each of these provisions is but a contemporary manifestation of earlier such provision in income tax law: see, notably, the immediate predecessor, the former s 190(b) of the 1936 Act.

4. It is very important when considering whether the Tribunal's decision was affected by an error of law in relation to the meaning and effect of s 14ZZK of the TAA in this case, to understand that, before the Tribunal, and as recorded in [10] of the Tribunal's reasons, in relation to the taxation liability issue:

The Commissioner has confined the dispute in issuing the amended assessments under s 166 of the ITAA 1936 to the Deposits made into the bank accounts of the Property Trustee Company.

5. As the Tribunal then observed:

That was a forensic decision made by the Commissioner. Therefore, Mr Chen and Ms Li have to prove that the Deposits made into the Property Trustee Company's bank accounts in the 2017 and 2018 income years are not income within the meaning of s 6-5 of the ITAA 1997.

6. In referring to the applicants as "Mr Chen" and "Ms Li", the Tribunal was adopting pseudonyms. Those pseudonyms were necessary given the election of the applicants for their review hearing to be conducted, as was their right, in private. That privacy was lost as a necessary consequence of the institution by them, in this Court's original jurisdiction, of a statutory appeal against the Tribunal's decision under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). Thus, the references to Mr Chen and Ms Li should be understood as references to Zhi Dong Liang, and Lai Chu Yeung, the present applicants respectively. It is, however, convenient, this identity having been noted, to retain, in the course of these reasons for judgment, the use of the Tribunal's pseudonyms. Further, it is likewise convenient to retain the Tribunal's nomenclature in respect of various trusts and corporate trustees with which this case is concerned.

7. Although the further amended notice of appeal is prolix as to the questions of law and grounds of appeal, Mr Klank of counsel, who appeared for the applicants, made, with commendable forensic discernment, it clear that there were two essential questions of law and related grounds of appeal. These were whether the Tribunal had misunderstood the meaning and effect of s 14ZZK of the TAA in the circumstances of this case and, related to that, whether the Tribunal had failed to discharge its statutory function of merits review, notwithstanding reaching a conclusion that it could not rely upon either the oral evidence of each of the applicants or, by virtue of that, the descriptions given to the various deposits in the books of account of the Property Trust.

8. There is a subsidiary issue in the appeal, the fate of which is dependent upon the fate of the challenge to the Tribunal's review of the objection decision in respect of the amended income tax assessments, that concerns penalty. Suffice it to say that if the

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Tribunal's decision in respect of the objection decision concerning the amended income tax assessments is quashed, the decision insofar as it relates to penalty will necessarily fall as well. There was once an objection by the Commissioner of the competency of the appeal but that has been abandoned.

9. Before turning in detail to the basis of the challenge, it is necessary to recite the factual background before the Tribunal, insofar as it was both not controversial and controversial. As to the former, there are also certain necessary admissions made, with all of the commendable candour and fairness one might expect of the Commonwealth's chief revenue officer, by his counsel, Ms A Lee and Ms K Chan.

10. It was uncontroversial before the Tribunal that Mr Chen and Ms Li were husband and wife. Also uncontroversial was that they controlled two businesses, or that they conducted businesses, namely restaurant and takeaway businesses at various locations in Victoria via trustees of two discretionary trusts, which the Tribunal termed Trading Trust 1 and Trading Trust 2. It was also uncontroversial before the Tribunal that they controlled the corporate trustee, which the Tribunal termed Property Trustee Company, of another trust, which the Tribunal termed Property Trust, which conducted property investment activities.

11. It was accepted in the Tribunal by the Commissioner that the Property Trustee Company conducted only property investment activities and that the only such property investment activities were those evidenced in the material before the Tribunal. It was common ground before the Tribunal that Mr Chen and Ms Li were both the controllers of the trustees of the various trusts just mentioned, as well as beneficiaries of those three trusts.

12. In the 2017 and 2018 income years, deposits were made into the bank account of the Property Trustee Company totalling $735,825, collectively the Deposits. Also common ground was that the Property Trustee Company made a number of property acquisitions in those income years.

13. In issuing his amended assessments, the Commissioner treated the Deposits as ordinary income of the Property Trust in terms of s 6-5 of the Income Tax Assessment Act 1997 (Cth) (1997 Act). In turn, in terms of a basis for assessment, that led to a conclusion that there had been a commensurate understatement of the net income of the Property Trust under s 97 of the 1936 Act. Consequentially, in his amended assessments of Mr Chen and Ms Li, the Commissioner increased their assessable income on the basis that they were presently entitled beneficiaries of the net income of the Property Trust. It was this which informed the amended assessments.

14. Related to those amended assessments were penalties imposed on each of Mr Chen and Ms Li at the rate of 50% for recklessness as to the operation of the tax laws. The Commissioner declined to exercise a discretion to remit the applicable penalties.

15. The objection decision in respect of which was under review by the Tribunal concerned each of these issues.

The Particular Deposits

16. Detail concerning the particular Deposits and the Property Trust is offered by the Tribunal at [28] and [29] of its reasons as follows:

28. The Property Trust is a discretionary trust established by a deed of settlement in January 2013. At all material times, Mr Chen and Ms Li were primary beneficiaries of the Property Trust. Ms Li's mother and Mr Chen's father are secondary beneficiaries of the Property Trust (Mr Chen's mother was also a second beneficiary until she passed away in March 2016). Mr Chen's father resides in Australia and has remained here since his arrival in October 2018 whereas Ms Li's mother resides in Hong Kong and has visited Australia on several occasions.

29. During the 2017 and 2018 income years, the following deposits were made into a Commonwealth Bank of Australia ( CBA ) bank account and into a Westpac bank account, each in the name of Property Trustee Company, as indicated below:

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No.	Date	Amount	Bank Account	Description
1	22 Feb 2017	$113,350	CBA	Cash Deposit Victorian Rural Branch
2	29 Mar 2017	$100,000	CBA	Cheque Deposit Victorian Rural Branch
3	01 May 2017	$150,000	CBA	Cash Deposit Melbourne CBD Branch
4	02 May 2017	$95,000	Westpac	Deposit Victorian Rural Branch
5	14 May 2018	$50,000	CBA	Cash Deposit Victorian Rural Branch
6	07 Jun 2018	$7,475	CBA	Cash Deposit Victorian Rural Branch
7	27 Jun 2018	$220,000	CBA	Cash Deposit Victorian Rural Branch
Total		$735,825

17. As to property acquisitions by the Property Trustee Company, in the 2017 and 2018 income years, the Tribunal found that those acquisitions were as set out in [34] of its reasons:

34. It was not in dispute that Property Trustee Company purchased a number of properties in around the 2017 and 2018 income years, the relevant details of which are, as follows:

• (a) March 2017 - completion of purchase of a Melbourne residential unit for $628,000 ( First Melbourne Unit );
• (b) June 2017 - completion of purchase of a Melbourne residential unit for $658,000 ( Second Melbourne Unit ); and
• (c) 2 July 2018 - completion of purchase of two vacant rural lots in Victoria for $148,000 each ( Two Vacant Lots ).

18. In the oral evidence, Mr Chen and Ms Li stated that their parents loaned or provided equity contributions to the Property Trust to fund the acquisition by the Property Trustee Company of the First Melbourne Unit, the Second Melbourne Unit and the Two Vacant Lots.

19. Further detail concerning the Deposits is offered by the Tribunal, at [69] - [79], it is not necessary to set out that detail.

20. The Tribunal was not impressed with the evidence of either Mr Chen or Ms Li. The reasons offered by the Tribunal for this are to be found in [80] - [83]:

Summary re Evidence

80. There were numerous shortcomings in the written and oral evidence of the three witnesses regarding the Deposits. First, despite the numerous affidavits put forward by Ms Li and Mr Chen, their written and oral evidence were at a very high level of abstraction. They provided very few details about the circumstances in which the cash totalling $735,825 was allegedly given to them for the Property Trust. This was despite the amounts in cash being significant. According to Ms Li, the cash that was loaned by her mother was found in a plastic box in a drawer in the spare room in their home after Ms Li's

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mother had directed her to take the cash from that box. At least in respect of the cash which was Deposit 2, Ms Li was unclear as to whether her mother loaned the money to her or the Property Trust. Ms Li stated they did not go into that level of detail. Nor were there any details as to the terms of any loans in the evidence of Ms Li or Mr Chen. Similarly, the circumstances in which the cash claimed to have been provided as equity contributions by Mr Chen's parents to the Property Trust were also ambiguous and vague. No further details were provided by their evidence, including any dialogue that one might expect, for example if the cash were given in the form of loans, when repayments were to occur.

81. Secondly, Mr Dong's oral evidence was that all Deposits represented loans from either Ms Li's mother or Mr Chen's parents. This contradicted both Mr Chen and Ms Li's evidence, who stated that the cash given by Mr Chen's parents were for equity contributions to the Property Trust, albeit with no discernible terms. Significantly, Mr Dong's evidence was also in conflict with the general ledgers and financial statements that were prepared for the Property Trustee Company and Property Trust by RF based on instructions from Ms Li. Thirdly, it transpired that Ms Li and Mr Chen were also confused about the details regarding Deposit 3 where they both subsequently changed their oral evidence after refreshing their memory (see [74] above). This was despite the fact that Ms Li had instructed RF to prepare the general ledgers and financial statements from time to time, ostensibly on the basis that amounts from her mother represented loans and amounts from Mr Chen's father represented equity contributions. Fourthly, Ms Li's written and oral evidence was inconsistent with her prior statements given to officers of the ATO during the course of the audit. She had stated in earlier meetings with ATO officers that all the Deposits were referable to amounts borrowed from her mother and her father-in-law (see [40] above).

82. Fifthly, I do not find Ms Li's evidence that she went back to the same plastic box and drawer in the spare room in her home to access further monies when the Property Trust wished to borrow subsequent amounts (after asking her mother for further advances) to be credible. Deposit 2 was in the amount of $100,000 made on 29 March 2017, and Deposit 3 was in the sum of $150,000 made on 1 May 2017, both of which, at a minimum, were said to have been loans from Ms Li's mother where the cash was apparently retrieved from the same plastic box (see [72] and [74]). Furthermore, Deposit 4 in the amount of $95,000 made on 2 May 2017 (the next day after Deposit 3) is also recorded in the general ledgers of Property Trustee Company as a loan from Ms Li's mother (see [32] above), and it is perplexing that neither Ms Li nor Mr Chen could recall anything about this Deposit despite it being made only a day after Deposit 3 (see [75] above). Sixthly, when it came to questions regarding the fact that Ms Li's mother and Mr Chen's parents had not declared any monies on their incoming passenger cards when arriving in Australia from overseas, Ms Li refused to answer any further questions (see [74] above). Mr Chen also declined to answer questions when counsel for the Commissioner probed whether he knew that his father kept large amounts of cash in their home (see [79] above).

83. While it may be generally accepted that there is no issue with taxpayers engaging in cash transactions (cash is after all a legal form of tender), it is also the case that undocumented transactions involving large amounts of cash would naturally attract the Commissioner's interest in tax audits. The predicament for taxpayers is that, absent any independent corroboration of the alleged sources of the cash, the reliability of the evidence of the taxpayers becomes critical. The manner in which such evidence is to be approached by the Tribunal is in accordance with the well-established principles in the case of
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148 ( Imperial Bottleshops ) at 155 per Hill J.

21.

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These reasons culminated in a rejection of the reliability of the evidence of Mr Chen and Ms Li, at [84] of the Tribunal's reasons:

84. Having regard to the above, it is appropriate to summarise the position with respect to the evidence in these proceedings. The vagueness and the numerous inconsistencies of the evidence of Mr Chen and Ms Li lead the Tribunal to the position that it cannot accept their evidence as being sufficiently reliable. This is despite the fact that the evidence of Ms Li and Mr Chen was sometimes virtually identical. This is because their interests in the disputes were aligned and their statements consequently self-serving (see Imperial Bottleshops). Their evidence, in the absence of any independent contemporaneous documentation or records, was not credible in all the circumstances. Even if their evidence regarding the different cultural attitudes to cash were accepted (see [62] and [64] above), it would carry little weight. This is because the evidence was similarly high-level and anecdotal in nature. Significantly, that evidence failed to support the position of Mr Chen and Ms Li as it did not relevantly address how and where Ms Li's mother and/or Mr Chen's parents obtained the cash and brought it to Australia. It may be that some matters advanced by one or both of Ms Li and Mr Chen were truthful, but in the absence of sufficiently reliable evidence, the Tribunal was not satisfied to the requisite degree. It follows that the Tribunal cannot be satisfied, on the balance of probabilities, that the Deposits were cash provided by Ms Li's mother and or Mr Chen's parents.

22. Having made this finding, the Tribunal stated at [85] and under the heading "Have the Applicants Discharged Their Burden of Proving the Assessments of Income Are Excessive?" the following:

85. In circumstances where the Tribunal rejected the evidence of the Applicants as explained above, it is difficult to see how they can discharge their burden of proving the assessments are excessive. The Applicants nevertheless submitted there is no evidence to support the finding that the Deposits constituted ordinary income of the Property Trust. …

23. Part of that submission, as the Tribunal recorded at [89(d)] and [89(e)] was as follows:

• (d) Even if the evidence supporting the Applicants' positions are disregarded [sic], there is nothing to positively indicate that the Deposits were anything but loans and/or equity contributions to the Property Trust. A finding that the Deposits were income of the Property Trust is inconsistent with the conduct and outcome of the tax audit.
• (e) There is no presumption that all moneys which a taxpayer receives from any source forms part of his or her assessable income: see, for example,
  Elsey v Federal Commissioner of Taxation (1969) 121 CLR 99 at 108, per Windeyer J. That is, a deposit in a bank account is not prima facie income unless proved otherwise.

24. The reference to the conduct and outcome of the tax audit need not be explored further. Of the alternative submission for the applicants, the Tribunal observed, at [90]:

90. The Applicants' arguments are misconceived as the case is about the burden of proof which a taxpayer has to discharge under s 14ZZK(b) of the TAA and not about the basis upon which the assessments were issued …

25. The Tribunal then repeated a reference to a discussion offered at [7] and [8] of the Tribunal's reasons concerning the discharge of the onus of proof. The Tribunal stated in those paragraphs:

7. The ultimate issue for determination by the Tribunal is whether the Applicants discharged their onus of proof by demonstrating that the income tax assessments issued to them were excessive or otherwise incorrect and what the assessments should have been, for the purposes of s 14ZZK(b)(i) of the TAA. The standard of proof in taxation review proceedings is the balance of probabilities. This standard requires the allegation to be made out to the Tribunal's reasonable satisfaction, with the degree of satisfaction varying based on matters such as the gravity of the fact to be proved or the

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inherent unlikelihood of the occurrence of a given description:
Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 (per Dixon J). The manner in which a taxpayer can discharge the burden of proof varies with the circumstances:
Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624 per Brennan J.

8. If the Applicants cannot satisfy the Tribunal that the assessments issued by the Commissioner to them were excessive, the Tribunal must dismiss the application for review "irrespective of the Tribunal being satisfied or not satisfied that the facts as found by the Tribunal give rise to the amount of the liability in the impugned decision":
Re Eastwin Trade Pty Ltd and Commissioner of Taxation [2017] AATA 140 at [79] (per SM Taylor SC) citing
Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; at [111] (per Jagot J, as her Honour then was). This is because s 14ZZK(b)(i) gives rise to what has been described as "a rebuttable presumption of law that an assessment is not excessive":
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 314 (per Jacobs J). That is, the assessments made by the Commissioner are "prima facie right" and "remain right" until the taxpayer shows they are "wrong":
Trautwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63 at 88 (per Latham CJ). The Commissioner is under no obligation to tender evidence in support of his assessments:
Gauci v Federal Commissioner of Taxation (1975) 8 ALR 155 at 160 (per Mason J). In a nutshell, to persuade the Tribunal that the assessments are excessive or otherwise incorrect, the Applicants must identify a coherent factual and legal position and persuade the Tribunal that that position is correct (see
Warner v Hung (No 2) [2011] FCA 1123).

26. As to [7], and having regard to s 33 of the AAT Act and
Sullivan v Civil Aviation Safety Authority (2014) 226 FCR 555, one might, with respect, quibble with the reference by the Tribunal to the balance of probabilities and
Briginshaw v Briginshaw (1938) 60 CLR 336, which borrows from the field of civil litigation and courts exercising judicial power. These concepts, though used by way of analogy sometimes, are not strictly applicable to administrative decision-making. The latter requires reasonable satisfaction based on material which need not be in accordance with rules of evidence, but which must be rationally and logically probative of factual conclusions reached administratively. However this may be, that particular quibble did not, with respect prudently, feature as a basis of challenge to the Tribunal's decision.

27. It is now necessary, before turning to authority concerning the burden of proof, to recite some further facts which were common ground, or at least not disputed on the hearing of the appeal. It was accepted on behalf of the Commissioner that the material before the Tribunal disclosed, and that the position was, that the Property Trustee Company engaged only in property investment. In other words, it did not provide services to anyone. It was further accepted that the Deposits did not constitute interest, dividends or the like. It was further accepted that the Deposits did not constitute an opportunistic gain made with a profit-making purpose in the course of the carrying on of a business such that the gain could, having regard to what was stated in
Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199, at 209, form part of the ordinary income of the Property Trust.

28. The essential submission on behalf of the applicants was that, even accepting that it had been dissatisfied with the oral evidence of Mr Chen and Ms Li, it behoved the Tribunal nonetheless to consider whether, on the material before it and having regard to what was not at issue, the assessments had nonetheless been proved to be excessive. It was submitted that the Tribunal had failed to do this, and in so doing had thereby failed to discharge its statutory function of reviewing, on the merits, the objection decision. It was put that, on the material before the Tribunal and given what was not in dispute, that material ought to have led to a conclusion that Mr Chen and Ms Li had nonetheless proved the assessments to be excessive.

29.

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These propositions were contested by the Commissioner on the basis that on the true meaning and effect of s 14ZZK, Mr Chen and Ms Li had failed to prove the assessments to be excessive.

30. Given the reference by the applicants, both before the Tribunal and at the forefront of submissions on the appeal, it is as well to commence a consideration of whether the applicants' submissions should be upheld by setting out the passage from
Elsey v Commissioner of Taxation (Cth) (1969) 121 CLR 99 (Elsey) relied upon. In that case, at [108], Windeyer J stated:

The taxpayer has "the burden of proving that the assessment is excessive" (s. 190). But, unless it appears that there were facts on which the Commissioner could properly rely for including a particular receipt of money as part of the taxpayer's assessable income, that burden is, I consider, discharged. I do not think the Act requires one to start with a presumption that all moneys which a taxpayer receives from any source form part of his assessable income.

31. Regard to Elsey discloses that Mr Elsey's evidence was not regarded by Windeyer J as entirely satisfactory. That did not, however, as the report of the case discloses, axiomatically lead to the dismissal of Mr Elsey's taxation appeals.

32. It is always necessary to read judicial observations in the context of the case in which they are made. Read out of context, it is certainly possible to regard the second sentence in the passage quoted from Elsey as entailing a misstatement of the meaning and effect of the then s 190 (now s 14ZZK and s 14ZZO) by, in effect, inverting an onus of proof. I do not, however, with respect, consider that is what was intended in the context of that particular case by Windeyer J. Rather, it seems to me that all that his Honour was intending to convey was that if there were a particular confined issue as to the basis for the assessment and the evidence before the Court disclosed that that basis did not exist, then the onus of proof would be discharged. The third sentence in the passage quoted is, in my respectful view, unremarkable and correct in the sense that a mere receipt by a taxpayer is not to be equated with income under ordinary concepts. However, the burden of proving that a receipt is not income under ordinary concepts always remains with the taxpayer.

33. It is now necessary, given the reliance on this passage from Elsey, to make reference to the fate of those observations in later High Court authority.

34. In
Krew v Commissioner of Taxation (Cth) (1971) 45 ALJR 324, at 326, Walsh J stated:

In
McAndrew v. Federal Commissioner of Taxation (1956), 98 C.L.R. 263, the court was concerned with an appeal to the Court against the Commissioner's assessment and not with an appeal from a board of review. But the opinions I have stated are supported by the reasons given by the court in that case. I refer to the joint judgment of three members of the court in which, at p. 271, the view is expressed that even without s. 190 (b) the burden of establishing his objections would be cast upon the taxpayer and I refer, also, to what was said by Kitto J. at p. 273.

I think that some of the submissions made to me failed to recognize the foregoing considerations. It was said that, where there is a surplus of assets, over those which would be explained by returned income, there is no presumption that that surplus is income, or is assessable income. In a sense that is true: cf. Elsey v. Commissioner of Taxation (Cth) (1969), 43 A.L.J.R. 415, at p. 422.

35. It is evidenced from this passage, in my view, that Walsh J approved the observation made in the third sentence of the passage quoted from Elsey.

36. Reference should now be made to
McCormack v Commissioner of Taxation (Cth) (1979) 143 CLR 284 (McCormack). In that case, at 291, Barwick CJ repeated observations which he had earlier made in
Gauci v Commissioner of Taxation (Cth) (1975) 135 CLR 81 (Gauci), at 87, with respect to the onus of proof. His Honour had there stated:

No doubt s. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it

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may properly be concluded that the property was acquired with the relevant purpose, the assessment is thereby shown to be excessive. As I have said, there is no presumption of purpose to aid the assessment. In particular, s. 190 does not raise any such presumption.

37. His Honour then affirmed those statements.

38. Other judgments delivered in McCormack express a preference for reviews concerning s 190 which had been expressed by Mason J in Gauci. Thus, at 300 to 301, Gibbs J stated:

In George v. Federal Commissioner of Taxation, the Court, after referring to various provisions of the Act, including s. 190, said:

"From these provisions both in their present form and in their slightly different earlier form, the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income … 'The justice of that burden cannot be disputed. From the nature of the tax, the commissioner has, as a rule, no means of ascertainment but what is learnt from the taxpayer, and the taxpayer is presumably and generally, in fact, acquainted with his own affairs. The onus may prove to be dischargeable easily or with difficulty according to circumstances': per Isaacs A.C.J., Federal Commissioner of Taxation v. Clarke."

In McAndrew v. Federal Commissioner of Taxation Kitto J. referred to "the general policy, so clearly evinced in Pt IV of the Act (comprising ss. 161 to 177) and s. 190 (b), of making all assessments unchallengeable except in so far as the taxpayer may displace them on appeal". There is no reason why that policy should have been excluded in relation to appeals brought to the Supreme Courts from boards of review, and it would be most anomalous if on such an appeal the taxpayer did not bear the burden of proving the assessment excessive, when on a reference to a board, and on an appeal direct to the Supreme Court, and on any further appeal brought from the Supreme Court, the taxpayer does bear that burden. Moreover, if s. 190 (b) applies only to references or appeals of the kind mentioned in s. 187, the same must be true of s. 190 (a), yet it is well recognized that the provisions of that paragraph, which limit the taxpayer to the grounds stated in his objection, apply not only on a reference or appeal under s. 187, but on a further appeal, whether brought under s. 196 (1) or s. 200: see Archer Brothers Pty. Ltd. v. Federal Commissioner of Taxation and cases there cited. For these reasons, with the greatest respect, I consider that on the proper construction of the Act the provisions of s. 190 (b) were applicable on the present appeals to the Supreme Court and to the Federal Court, because those courts were required to apply the same rule as that which applied in the Board of Review. However, even if s. 190 (b) did not apply, the result would be the same. On the appeal to the Supreme Court, the appellant sought to show that the assessments made by the Commissioner and confirmed by the Board of Review were excessive, and on ordinary principles she bore the burden of proving the facts necessary to make out her case: see McAndrew v. Federal Commissioner of Taxation; Krew v. Federal Commissioner of Taxation.

[footnote references omitted]

39. Also noteworthy, for present purposes, is an observation, at 302, by Gibbs J concerning what might be the fate in terms of discharging of an onus of proof if a taxpayer was disbelieved. His Honour stated:

And the fact that the taxpayer was disbelieved could, in appropriate circumstances, give rise to an inference adverse to the taxpayer's case (Steinberg v. Federal Commissioner of Taxation). Nevertheless, if the proper inference to be drawn from the evidence is that the taxpayer bought the property for a purpose other than that of profit-making by sale, the appeal will succeed. An obvious example would be a case in which it

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clearly appeared that a taxpayer purchased a house and for many years thereafter occupied it as his own home. In those circumstances the natural inference, in the absence of evidence to the contrary, would be that the taxpayer had bought the house for the purpose of dwelling in it, and the fact that the taxpayer was not an honest witness would hardly matter. However, if the taxpayer's evidence of the purpose with which he acquired the property is not accepted, and it does not appear from the other evidence on the balance of probabilities that he did not acquire the property for the purpose of profit-making by sale, he will fail to discharge his onus of proof.

[emphasis added - footnote references omitted]

40. His Honour then made reference to Barwick CJ's statement in Gauci, but expressed particular disagreement with that, stating, at 303:

To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26 (a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.

41. His Honour expressly approved the following statement by Mason J, at 89 - 90, in Gauci, at 302 - 303:

The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail. … The crux of the matter is that when in a s. 26 (a) case an appellant seeks to overcome the onus created by s. 190 (b) by adducing evidence as to his intentions with a view to establishing the purpose of the acquisition was not a s. 26 (a) purpose and that evidence is not accepted, he has not discharged the onus which he bears. At best, from the appellant's viewpoint, the evidence stands in a situation in which it is equivocal, neither establishing a s. 26 (a) purpose nor denying the existence of such a purpose. At worst, the judge may, in the circumstances, be able to infer the existence of a s. 26 (a) purpose. In either event the appellant fails to discharge the onus and the appeal fails.

42. In his separate judgment in McCormack, at 306, Stephen J expressly agreed with all that Gibbs J had stated concerning s 190(b) and further stated that he regarded as correct the statement made by Mason J, concerning the operation of s 190(b), in Gauci.

43. In his separate judgment, at 314 - 315, Jacobs J, who had been a member of the Court in Gauci, offered an explanation of s 190 which includes, notably, what seems to me to be an endorsement of what Windeyer J stated in the passage quoted from Elsey. Thus, his Honour stated:

There is by virtue of s. 190 (b) a rebuttable presumption of law that an assessment is not excessive. That is only another way of stating that the burden lies upon the taxpayer to prove that the assessment is excessive. The discharge of that burden where the basis

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of the assessment is a purpose of resale at a profit will require the tribunal to be satisfied on the balance of probabilities that there was no such purpose. In Gauci's Case the question arose how the tribunal may be satisfied. Must it be able to point to positive evidence, which it finds acceptable, that there was no such purpose? Or is it sufficient if the tribunal be satisfied that all the relevant facts are known and that those facts disclose nothing from which it could be inferred that there was such a purpose? In Gauci it was decided that the latter was the correct approach. The burden has then been discharged of showing that the assessment was excessive because it was not properly based on fully explored facts.

The fact that a taxpayer gives evidence that he had no such purpose will, if it be not accepted, often lead to a conclusion against him. That may be for either of two reasons. First, the fact that a taxpayer is not believed in his evidence of his purpose may enable the court to conclude that he is in his own interest concealing his true purpose and thus an inference of that true purpose may be drawn. In the present case there was no finding of deliberate concealment by the tribunal who saw and heard the taxpayer giving evidence. Secondly, a conclusion against a taxpayer in the predicated circumstances will often be because the reason for not accepting his evidence is not a declining to regard him as a witness of frankness and truth but an acceptance of other evidence which shows either directly or inferentially that his evidence of his purpose is unacceptable. In that kind of case the facts and circumstances outweigh the direct evidence of intention. Ex hypothesi there is something in the known relevant facts from which it may be inferred that there was the requisite purpose. However, in the case where the tribunal refuses to place any weight upon the taxpayer's evidence as a result of his demeanour as a witness, or where his evidence is not available because he is incapable or is dead, and yet the relevant facts, having been made known, disclose nothing from which it can fairly and safely be inferred that he had the requisite purpose, then there is nothing upon which the assessment could have been properly based and thus it is shown to be excessive. This approach was expressed by Windeyer J. in Elsey v. Federal Commissioner of Taxation as follows:

The taxpayer has 'the burden of proving that the assessment is excessive' (s. 190). But, unless it appears that there were facts on which the Commissioner could properly rely for including a particular receipt of money as part of the taxpayer's assessable income, that burden is, I consider, discharged.

44. The remaining judge in McCormack, Murphy J, also expressly approved, at 323, the views concerning section 190 offered by Mason J in Gauci.

45. Those views concerning s 190 offered by Mason J in Gauci must, in light of McCormack, be regarded as definitive.

46. That conclusion is reinforced by reference to another case which featured in the course of submissions, namely,
Macmine Pty Ltd v Commissioner of Taxation (Cth) (1979) 53 ALJR 362 (Macmine).

47. In that case, at 366, Gibbs J expressly adopted his reasons in McCormack, and in so doing, approved the views expressed by Mason J in Gauci. So too, at 371, did Stephen J. The latter's judgment is noteworthy for present purposes, for a reference to Elsey in this passage, also at 371:

In my view, s. 190(b) has nothing to say about any particular presumption of fact concerning the taxpayer's affairs. With great respect to those who thought otherwise, to treat s. 190(b) as meaning precisely what it says does not seem to me to involve any "presumption that all moneys which a taxpayer receives from any source form part of his assessable income" -
Elsey v. Federal Commissioner of Taxation (1969) 121 CLR at 108, nor any "presumption that property cannot be regarded acquired as an investment, as a hedge against the loss of value in the currency … a presumption that property is acquired for the purpose of resale at a profit" -
Steinberg v. Federal Commissioner of Taxation (1975) 134 CLR 640, at 686-687, …

48.

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That reference to Elsey by Stephen J does, in my view, constitute an approving reference, at least to the third sentence of the passage quoted but not in the sense of a presumption which reversed the onus of proof.

49. In Macmine, Jacobs J offered, at 375 - 376, what one might regard, with respect, as an explanation of statements which he had made earlier in Gauci. In particular, the following might be noted in relation to a case where, as here, a taxpayer's evidence was not considered satisfactory. His Honour stated, at 375:

If it were correct that Sheppard J [the trial judge on the tax appeal] took the view that an onus of proof lay upon the Commissioner then it would be clear that he had fallen into error. Gauci's Case does not establish such a proposition. It could hardly do so in light of an abundance of authority to the effect that by s. 190(b) the basis of the Commissioner's assessment is presumed correct and for a taxpayer to upset the assessment it must be shown to be incorrect.
George v. Federal Commissioner of Taxation (1952), 86 C.L.R. 183;
McAndrew v. Federal Commissioner of Taxation (1956), 98 C.L.R. 263;
Steinberg v. Commissioner of Taxation (1974-75), 134 C.L.R. 640.

What can be taken from the decision in Gauci's Case is no more than this - when all the relevant facts are known, and those facts disclose no material from which it may be concluded or inferred that the property was acquired with the dominant purpose of resale at a profit or from the carrying on of a profit-making undertaking or scheme the proper inference is that there was no such purpose or no such profit-making undertaking or scheme. The decision is thus to be regarded not as the decision on where the onus lies but on a particular way in which the onus may and, in appropriate cases, should be regarded as satisfied. The onus of proving a negative may not be able to be satisfied in any other way. This form of "negative proof" assumes that the relevant facts have been placed before the court and are known and no doubt the taxpayer has the obligation of satisfying this condition.

I am not satisfied that Shephard J was in error in respect of the onus of proof or in his understanding of Gauci's Case. He stated the Commissioner's argument on s 190(b), after stating he would not accept the general tenor of Mr McMahon's evidence, in these terms:

The Commissioner's approach, on the basis that that would be my view of the evidence, was to submit that, by reason of the provisions of s. 190(b) of the Act, the onus was upon the company to show that the assessments in question were excessive, and that my rejection of Mr McMahon's evidence must lead to a finding in the Commissioner's favour because the onus resting upon the company had not been discharged.

In my view this submission was obviously wrong and was rightly rejected. There was no "must" about it.

[emphasis in original and added]

50. The remaining judge, Murphy J, reiterated an approval of observations made by Mason J in Gauci. His Honour also referred, at 380, to Elsey, stating:

I do not think the Act requires one to start with a presumption that all moneys which a taxpayer receives from any source forms part of his assessable income.

51. Murphy J opined that that construction "… turns s. 190(b) upside down".

52. In my view, the Tribunal has forgotten, with respect, that a rejection of the evidence of Mr Chen and Ms Li did not inexorably lead to a conclusion that the objection decision must be affirmed. That rejection did not relieve the Tribunal from its obligation to review, on the merits and on the material before it, the objection decision in light of the issue as refined and particular concessions. The question was always whether Mr Chen and Ms Li had proved the assessments to be excessive. It remained possible, and their submissions to the Tribunal embrace this, nonetheless for the assessments to be shown to be excessive just on other material before the Tribunal and what was common ground.

53. Given the way in which the parties had confined the issue, if that material admitted of,

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and only of, a conclusion that whatever the Deposits were, they were not ordinary income, the Tribunal was obliged to set aside the objection decision. And that was so even though the Tribunal had rejected the descriptions offered by Mr Chen and Ms Li as also reproduced in the books of account.

54. It was for Mr Chen and Ms Li to demonstrate that the character of the Deposits in the hands of the recipient Property Trustee Company was not income under ordinary concepts. As to what constitutes income under ordinary concepts, I do no more than follow the observations on that subject made by Hill J, with the approval of Lockhart and Gummow JJ, in
Commissioner of Taxation (Cth) v Cooling (1990) 22 FCR 42, at 50, and following, under the heading 'Whether The Payment Was Income In Ordinary Concepts'.

55. In terms of the material before the Tribunal, including concessions, these Deposits were not income from services, were not interest, were not dividends, were not opportunistic profit-making gains. It is also conceded, as indeed the very amount of the Deposits would suggest, that those Deposits were not in the nature of rent in respect of the investment properties. The material before the Tribunal ought, in my view, to have led the Tribunal inexorably to a conclusion that whatever these Deposits might be, they were not, in the hands of the Property Trustee Company, income.

56. I explored with counsel what to do with this case in terms of findings of fact, having regard to the nature of the appeal and in particular s 44(7) of the AAT Act. It seems to me it was not gainsaid that it was open to the Court to make whatever necessary findings of fact were open on the material before the Tribunal. Those findings cannot, of course, contradict conclusions as to credibility. But even accepting those, the material before the Tribunal and the concessions, in light of the way in which the issue was confined, persuade me that, to the extent necessary, the finding of fact that ought to be made is that these Deposits did not constitute income under ordinary concepts.

57. In recent times, Full Courts of this Court have made a number of pronouncements concerning the onus of proof in tax appeals and reviews: see
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301;
Rigoli v Federal Commissioner of Taxation (2016) 102 ATR 612;
Mulherin v Commissioner of Taxation (Cth) (2013) 96 ATR 835, and
Buzadzic v Federal Commissioner of Taxation [2024] FCAFC 50. Each of these cases emphasises the obligation evident enough, one might think, from the text of s 14ZZK and s 14ZZO, of a taxpayer to prove an assessment to be excessive. However, some care must be taken in respect of cases concerning the onus of proof to understand whether the assessment was one raised on a default basis and an estimate of taxable income or whether, as here, the issue for decision was confined.

58. In cases where an estimate has been made of a taxpayer's income, it is always for the taxpayer to show what his, her or its income was. As to this, a point made by then Senior Member McCabe (as he then was) in
PNGR and Commissioner of Taxation (2013) 97 ATR 1072 is surely right. In such cases, if a taxpayer fails to establish what the assessment should have been, in other words, what their true taxable income was, then even if it is accepted that the amended assessments were excessive, if there remains uncertainty as to the correct amounts of taxable income, the onus of proof will not have been discharged. That is not to say that an onus of proof in a default assessing context might not be able to be discharged if, on the material, taxpayer's demonstrated that their taxable income was not more than a particular amount: see
Imperial Bottleshops Pty Ltd v Commissioner of Taxation (Cth) (1991) 22 ATR 148, at 167.

59. In this case, given the way in which the issue was confined, it was not sufficient for the Tribunal merely to act upon a rejection of the evidence of Mr Chen and Ms Li. The Tribunal remained obliged, particularly in light of the deliberate submission made to it, as to what ought to be concluded even if their evidence were rejected, to determine whether, on the material before it, the Deposits constituted income under ordinary concepts. This, it failed to do.

60. Nothing in what I have said ought in any way to be a discouragement for the

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Commissioner to confine issues in taxation appeals or reviews in the way in which he did in this case. Quite the reverse. It was an exemplary display of good public administration and fairness to taxpayers for the Commissioner so to have identified the issue for determination by the Tribunal. Unfortunately, the Tribunal, in my view, has failed to appreciate that the issue as so confined did not mean that the case stood or fell on a credibility conclusion concerning the evidence of Mr Chen and Ms Li.

61. What follows from the foregoing is that this appeal must be allowed.

62. The circumstances of the case are such that it is overwhelmingly a case where, to the extent necessary, the findings of fact based on concession or material before the Tribunal should be made as recited by me acting under s 44(7). It is in neither Mr Chen or Ms Li's, nor the Commissioner's, interests for the case to be remitted to the Tribunal. That is so, given the way in which the appeal was conducted, which assumed against Mr Chen and Ms Li that the Tribunal's findings as to their credibility should stand, but that there was nonetheless error of law in the Tribunal's decision.

THE COURT ORDERS THAT:

• 1. The appeal be allowed.
• 2. The Administrative Appeal Tribunal's decision of 30 November 2023 be quashed.
• 3. In lieu thereof, it be ordered that the objection by the applicants to their amended assessments for the income years ending 30 June 2017 and 30 June 2018 be allowed in full.
• 4. The matter be remitted to the respondent for the making of all necessary amended assessments to give effect to the Court's orders.
• 5. The respondent pay the applicants' costs of and incidental to the appeal, including the abandoned notice of objection to competency, in a lump sum to be fixed by a registrar, if not agreed.