Case P100 (Public hearing: Clyne v. F.C. of T.)

Judges:
HP Stevens Ch
JR Harrowell M
BR Pape M

Court:
No. 1 Board of Review

Judgment date: 26 November 1982.

H.P. Stevens (Chairman)

This is the first of the three much publicised (by the taxpayer) references of Peter Leopold Clyne. The references relate to assessments for the years ended 30 June 1978, 1979 and 1980 - the assessed taxable incomes being $115,087, $218,791 and $238,232 respectively. As requested by the taxpayer the references were the subject of a public hearing with newspaper reporters and others present.

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2. The references raise quite a number of separate issues some of which are common to all three years. However others apply only in relation to specific years. Accordingly it is proposed in this first set of reasons to deal with all the 1978 issues and, where such are common to the later years, to merely refer back in the subsequent sets of reasons to those for 1978. Thus the 1979 and 1980 reasons will be basically restricted to the issues peculiar to those individual years.

General

3. Born in Vienna in 1927 the taxpayer came to Australia as a refugee in 1939. He was admitted to the bar in March 1950 and struck off - having been found guilty of professional misconduct - in 1959 (see
Clyne v. N.S.W. Bar Association (1960) 104 C.L.R. 186 ). Until the late 1960s he acted as a tenancy advocate and was involved in property development. The taxpayer had had nothing much to do with taxation until asked by Rydge's to do a book about tax avoidance ( Adventures in Tax Avoidance published in 1969). Prior to acceptance of a post as magistrate in Zambia, a bankruptcy notice and petition had been issued, and following a sequestration order of 10 March 1972 he left Zambia for Zurich. From October 1972 to September 1975 he was mostly in Vienna although he made some visits to the U.S.A. For some unexplained reason during this period he instructed a Liechtenstein attorney to form an anstalt in that country - Warlock Investments Etablissement (Vaduz) - hereinafter called Warlock - being registered on 29 November 1973. At, or about the same time, another anstalt - Peclyn - was also formed but, as the Board was not given any further information in relation thereto, it will not be mentioned again. In September 1975 he went to the U.S.A. and later ``escaped'' (after being convicted there) to Australia. He arrived back on 2 June 1976 still bankrupt, without a passport and possessing, it is said, less than $2,000. By a document dated 1 July 1976 he appointed himself sole agent of Warlock to, inter alia, carry on his ``profession of international consultant'' in Australia on behalf of Warlock.

4. On his arrival back he returned (despite his apparent lack of resources) to the Sebel Town House where he had lived for some time prior to his departure for Zambia. He then ``declared war'' on the Commissioner of Taxation, writing books, holding seminars, giving lectures, etc., designed to assist people to reduce their taxation liabilities (to nil if possible). One of his suggested ``gambits'' was to refuse to lodge returns of income (also not to keep records) and he carried out his own advice. Although in July 1977 he advised a Deputy Commissioner of Taxation that he was working as agent for Warlock and had no taxable income as a result, he was prosecuted for the non-lodgment of a return of income for the year ended 30 June 1977 (see
Clyne v. D.F.C. of T. 80 ATC 4527 - final judgment 19 November 1980).

5. Despite the non-lodgment of any returns of income the Commissioner on 9 July 1979 issued an assessment for the year ended 30 June 1979 based on a taxable income of $206,042. On 10 July 1979 sec. 218 notices were issued and certain accounts were frozen - including $57,000 in a building society account. Action was taken by the taxpayer and one segment thereof resulted in a settlement before Holland J. on 7 August 1979 - $47,000 of the $57,000 was returned and the taxpayer undertook to co-operate with the Commissioner with a view to lodging returns for the years ended 30 June 1977, 1978 and 1979 by 31 August 1979. To this end discussions were held with officers of the Commissioner and, in due course, returns of income for those years bearing date 24 August 1979 were lodged.

6. Each return was apparently a nil return accompanied by an annexure which, inter alia, alleged that by virtue of the agreement between himself and Warlock all receipts, etc., belonged to that entity and not the taxpayer. Other annexures listed items of agreed receipts and expenditure (i.e. subject to the initial claim) and disputed items. As a result original assessments for the years ended 30 June 1977 and 1978 and an amended assessment for the year ended 30 June 1979 issued on 29 November 1979.

7. An objection lodged against the original 1979 assessment was allowed ``to the extent indicated'' in the amendment of 29 November 1979 and a request for reference to a Board of Review followed. Objections to the three notices of 29 November 1979 were,

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in due course, lodged and following decisions thereon it was requested that the 1977 year be treated as an appeal to the Supreme Court and the 1978 and 1979 years be referred to a Board of Review. The 1977 Supreme Court appeal was later struck out for want of prosecution (see
Clyne v. F.C. of T. 82 ATC 4028 and 82 ATC 4397 ).

8. For the 1980 year a nil return was lodged dated 22 July 1980 (the claim re Warlock was annexed but no other details were furnished) and a sec. 167 assessment based on a taxable income of $238,232 issued on 11 December 1980 - in this assessment a sec. 226 penalty was imposed. It was ultimately requested that this year also be referred to a Board of Review.

9. From the above it will be seen that there are four separate requests for reference before the Board - one each for 1978 and 1980 and two for 1979 - and attention will now be directed to the 1978 year of income.

10. The assessment for this year was based, inter alia, on the discussions held with the Department and the taxable income assessed of $117,587 was arrived at on a detailed basis and advised to the taxpayer. In his objection, the taxpayer claimed everything belonged to Warlock but, alternatively, claimed certain amounts included should be excluded whilst additional amounts should be allowed as deductions so as to result in a taxable income of only $2,408. Summarised, the basis of the assessment and the objection claims were:

     Item                     Assessment         Objection          Ground

                                  $                  $

Identified deposits           40,779               40,779             2/3

Additional amounts


"
Trumps               12,500          5,000    (after $7,500 exp)       4

Dr. McGovern          20,000          6,200    (after $13,800 exp)*     5

Wilfred Owen Services

  Pty. Ltd.            3,000            -                               6

Dr. Fichera           20,000         20,000                             7

Various deposits (4)  24,597            -                               8

Royalties Rydge's      1,124            -                               9

Royalties to Sebels    1,000          1,000                            10

English to Sebels        500            500                            11

Unbanked fees in cash  7,800  90,521  5,200        37,900              12

                      ---------------------        ------

    Gross income            $131,300              $78,679              13

                            --------              -------

Identified outgoings          10,833               10,833              14

Sebel Town House               2,880               14,638              15

Travel to Europe and

  in Europe                      -                 23,000              16

Disbursements Dr. Fichera        -                 14,000              17

Further travel                   -                 13,800*             18

                             -------              -------

     Total deductions        $13,713              $76,271              19

                             -------              -------

     Taxable income         $117,587               $2,408              21

                            --------              -------

^* It is not clear whether this represents a doubling up.

An amended assessment of 18 June 1980 reduced the taxable income to $115,087 by the allowance of $2,500 commission (included in the $7,500 expenses re ``Trumps'') but otherwise the objection was disallowed.

11. During the course of hearing certain of the alternative claims were abandoned whilst others were reduced in amount (a few figures had been taken ``right out of the air''). To say that the final situation is somewhat confusing is an understatement (the taxpayer said ``I will leave you to work out the figures''). Nevertheless, as I understand the evidence, the only contested

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claim on the income side relates to the unbanked fees in cash ($2,600). Thus the total gross income figure cannot be less than $128,700 (i.e. $131,300 - $2,600) and not $89,115 as per the taxpayer's exhibit AP. On the deductions side the items remaining at issue are - subject to an ``image'' argument in para. 23 - (as per exhibit AP):

                                                  Allowed

                                Final claim       already        At issue

                                    $                $               $

      Sebel Town House            8,565            2,880           5,685

      Fares to Europe             4,405              -             4,405

      Hotel Sacher                9,300              -             9,300

      Fares in Europe             3,000              -             3,000

      Bankruptcy payments         5,040              -             5,040

12. In relation to the final item bankruptcy payments, it can be seen from the details set out in para. 10 above that they do not form part of the specific items totalling $76,271 referred to in the separate grounds of the taxpayer's objection. Accordingly it is my view such a claim is not covered by the objection and cannot be considered by the Board. If it were I would, for the reasons set out in para. 18 of the 1979 reasons, reject it.

13. Before considering the separate issues, reference should be made to the fact that the taxpayer was cross-examined as to credit - senior counsel placing him on prior notice that he would be so cross-examined and to the taxpayer's submission in address concerning this. He referred the Board to
McCormack v. F.C. of T. 79 ATC 4111 per Murphy J. at p. 4133 and suggested that there were four questions that should be asked about each disputed question of fact, viz.:

(i) ``are the facts seriously in dispute or was a purported attack on credit made for other reasons'';
(ii) ``does the witness seem to be trying to tell the truth about that particular matter'';
(iii) ``to what extent do the surrounding circumstances, documents, other evidence and the probabilities of the situation corroborate or contradict the witness''; and
(iv) ``which way do the scales tilt on any particular issue''.

14. I agree with Mr. Justice Murphy that ``it is enough for the tribunal to state that it does, or does not, accept certain evidence, or that it is, or is not, satisfied to the requisite standard''. However this cannot be done in a vacuum and it is necessary to make the particular finding against the general background of the taxpayer's ``credit'' or ``creditability''.

15. In the present case it is clear from the evidence overall (not limiting it solely to the cross-examination as to credit) that the taxpayer is prepared to say whatever suits him and, when confronted with proof of the opposite, to blandly concede he must have been mistaken. He does this when left with no alternative whilst still maintaining the attitude that everything else he has said must be correct - even though he concedes his memory is bad (or non-existent) and was often unable to answer a question yes or no (e.g. I can't say it did happen but I also can't say it didn't happen). When, in relation to an admitted ``laundering'' transaction, he was ``forced'' to admit the ``loan'' documents were in the name of a Swiss corporation that had been struck off by the Swiss authorities years before the transaction, the taxpayer maintained that so far as he was concerned it still existed - although later he did refer to a non-existent transaction with a non-existent company. In addition he takes the attitude that, if agreements are entered into and then later found to be inconvenient, they can be regarded as never having been executed. Further, if a particular arrangement requires precise legal steps in a particular order to be taken, he regards it as irrelevant as to whether that order was followed - as he said it matters not if they are executed in an upside down order. He also didn't seem to be concerned that he, on behalf of Warlock, had appointed another its sole agent in, inter alia, Australia when he himself was its sole

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agent or that Warlock had been ``bought'' by another client to acquire that client's business - he doesn't always remember what he has done in the past. On many occasions he refused to answer, lest his answers incriminate him re various authorities, and it is clear that he is prepared to tell them only what he thinks is necessary to gain his ends. Again, after stating he had no gold bars, he admitted when confronted (Reserve Bank documents having been produced) that a doctor had paid his fees in gold (increased from 40 to 60 oz. and left unquantified precisely). Another application referring to 120 oz. elicited the response that he had bought gold bullion through a dealer. Further his filing cabinet is his wastepaper basket so that records, etc., to support statements are largely non-existent. Additionally undisclosed ``secret'' Viennese bank accounts finally emerged - the taxpayer as well having a ``stock'' of what might be called ``shelf'' accounts available for sale to clients - but little detail in respect thereof (books being ``torn up to avoid confusion'' or rather with the object that ``the less [the Commissioner] knows about my affairs the better'').

16. Even though the hearing of the references occupied nine days it is not unfair to say that, at the conclusion thereof, the taxpayer had still not made what could be considered to be a full and true disclosure for the purposes of the Act.

17. I turn now to the issue common to all three references. That is the Warlock agreement.

18. In relation to this agreement the taxpayer initially said ``my object in entering into that agreement was to get out of having to pay taxes. There is no other reason for entering into that agreement with Warlock suggested.'' Later he added another reason stating ``I entered into that agreement as an experiment, you might say, in tax avoidance to see how it would work out, how the Commissioner would greet it and how the Courts would treat it.'' The basic facts in respect of Warlock and the Warlock agreements are in (more or less) chronological order as set out hereunder.

19. Warlock, formed on 29 November 1973 under art. 534 et seq. of Das Personen und Gesellschaftsrecht (P.G.R.), was entered on the Commercial Register of the Principality of Liechtenstein, Vaduz, on the same date with a capital of SF20,000 fully paid up and not divided into shares, with Dr. Beck, lawyer, as sole representative and member of the board of directors with signature rights. The objects of Warlock (as per the register entry which does not conflict with art. 2 of its Statuten ) were:

``All kinds of commercial, financial and legal transactions for own account and for account of third parties, purchase and management of real estate as well as all business connected therewith.''

Article of 7 of the Statuten provided that the founder (whom I find to be Dr. Beck) was the supreme organ being able to, inter alia:

(i) appoint and dismiss the administrator(s) (cf. directors) and beneficiaries,
(ii) alter the Statuten,
(iii) liquidate or dissolve the anstalt,
(iv) determine the distribution of profits.

The founder was able to transfer his rights by a written Zessionserklarung (transfer of rights) but, I find, did not do so. Article 8 gave the administrator(s) the right, inter alia, to represent Warlock vis-a-vis third parties whilst art. 11 required at the end of each calendar year for a balance sheet and profit and loss account ``to be brought into existence in accordance with sound commercial principles'' - this article also provided that the ``founder may determine whether to hold moneys in reserve out of the resultant profits or whether that profit is to be distributed to the'' beneficiaries.

20. On 4 December 1973 Dr. Beck provided copies of the Statuten, certificate of formation, extract from commercial register and an acknowledgment by the Liechtenstein Tax Office that the initial tax of 3% on paid up capital had been paid. Despite the taxpayer being in Liechtenstein subequent to 29 November 1973 there was no contact between the taxpayer and Dr. Beck until 1982 when he was contacted in order to obtain documentation in connection with the 1977 appeal to the Supreme Court. Dr. Beck then, by letter of 9 March 1982, provided copies of a power of attorney dated 29 November 1973 and a Mandatsoertrag (mandate contract) of the same date. The mandate contract

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between the taxpayer (as principal) and Dr. Beck (as instructee) appointed Dr. Beck the ``legal representative and member of the [administration] with sole right of signature of'' Warlock (at an annual fee of SF1,500) and required, inter alia, the taxpayer to ``retain all business papers for ten years'', to ``keep proper books or cause proper books to be kept'' and to ``prepare balance sheets and profit and loss accounts annually'' - the taxpayer did not do so. The power of attorney given by Dr. Beck to the taxpayer empowered the taxpayer to carry out the firm's business and to act for Warlock ``in its relations with third parties''. It has been assumed that this power of attorney was never revoked by Dr. Beck but, as Dr. Beck subsequently put Warlock into liquidation, it is uncertain whether this assumption is correct.

21. It is not known what activities (if any) were carried on by Warlock from November 1973 to 30 June 1976. However by agreement of 1 July 1976 between the taxpayer personally and Warlock (the taxpayer signing on behalf of Warlock) it was, inter alia, recited that Warlock ``does in fact carry on the business and profession inter alia of an international consultant in matters of law, finance and taxation'', that the taxpayer did the same, that Warlock had requested the taxpayer to practise his profession as agent for Warlock and that, ``in consideration of the'' taxpayer so agreeing, Warlock conferred upon him ``a sole agency'' for particular areas (including Australia). Clause 3 related to the carrying out of the agency's duties providing that:

(i) the taxpayer need not disclose he was acting for a principal (he did not do so);
(ii) all moneys, etc., are deemed on behalf of Warlock and moneys disbursed (other than for relevant expenses) shall be deemed to be interest free advances by Warlock repayable on demand.

As no records were kept the amount of any interest free advances cannot be determined. Clause 4 provided that Warlock would not during the term of the taxpayer's ``sole and exclusive'' agency ``engage or employ any other person to perform similar duties''. Despite this Warlock by agreement of 1 July 1978 (signed by the taxpayer as administrator) entered into an agreement with one H.F.H. Walsh, inter alia, engaging him ``as its sole representative for'' various countries including Australia. The address given for Warlock in the agreement was not its correct registered address and the taxpayer conceded no one there would have known of Warlock. Under this agreement there was to be an accounting each year of the moneys received by and paid out by Walsh on behalf of Warlock but such did not occur. Nor was it ever intended to occur, for item A (in the formula in the agreement A + B = C - D) was able to be varied at will to ensure a nil result - thereby rendering the apparently precise calculations a mere facade never effected as such.

22. In addition to the agreement with Walsh of 1 July 1978 a further agreement of 20 May 1979 (``deemed to have been executed and to take effect within the Principality of Liechtenstein on and as from the 1st day of July 1978'') records that the taxpayer set the seal of Josef Reissi (Consulting Engineers) Anstalt Vaduz (``formerly known as Warlock Investments Etablissement (Vaduz)'') ``to this agreement at Vaduz in the Principality of Liechtenstein on the day hereinbefore set forth''. The taxpayer was in Europe at the relevant time - left Australia April 1979 and returned 24 July 1979 - and initially he pleaded the Fifth Amendment in relation to this transaction. Later he attempted to resile from an earlier statement that a client Gray had acquired Warlock (consistent with the change of name and new seal) but this was unconvincing. He did concede that it would be sensible for Gray ``not only to sell his business to [Warlock] but also to acquire [Warlock] itself'' and I find this was part of the package despite the fact the change of name was never registered.

23. The taxpayer was not, in my view, completely frank in relation to the Gray matter - even accepting that he admitted a failure to comply with sec. 264 was to enable documents to be kept ``as far as possible out of the hands of'' taxation investigators (such now being out of the country). If he was in fact in Liechtenstein on 20 May 1979 and had done a search of records, he would have found that Dr. Beck placed Warlock in liquidation on 23 April 1979 - resolution of same date. Whatever the reason, despite

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being executed, this agreement of 20 May 1979 was later regarded as void ab initio - presumably this means as far as the taxpayer is concerned that the acquisition of Warlock by Gray and the sale to it by Gray of his business did not eventuate even though no contrary documentation was referred to (let alone produced).

24. What other ``transactions'' Warlock was ``involved with'' is unknown but it is relevant that in cross-examination the taxpayer said:

``Warlock has had no commercial transactions, it has had no what you might call normal transactions. It has been used as a pawn in the game of taxopoly that I play with the Commissioner in different kinds of transactions, this being one of them, and the Walsh transaction being one of them and perhaps one or two others similar to the Walsh transaction. But it has had no normal transactions.''

25. Consonant with the lack of communication with Dr. Beck until 1982, Dr. Beck was never informed of anything in relation to the agreements of 1 July 1976, 1 July 1978 and 20 May 1979 (or any other ``transactions''). Nor was he paid any amounts in respect of his fees or annual Liechtenstein taxes - unless he used the paid up capital for this purpose. If the taxpayer was correct in his initial claim that a loan for this purpose could be obtained and the capital withdrawn immediately after registration, such avenue would not have been available to Dr. Beck. Warlock was finally struck off on 21 November 1980 - ``cancellation of the firm after liquidation carried out''.

26. The taxpayer did not register Warlock as a foreign company operating in Australia nor did he obtain Reserve Bank approval for transactions (including the agreement of 1 July 1976) entered into and to be carried out on behalf of an overseas entity. Nor did he obtain either for himself or Warlock registration as a tax agent in terms of Pt. VIIA of the Income Tax Assessment Act 1936.

27. In relation to these basic facts the Board was treated to argument on a number of interesting issues such as:

(i) whether the taxpayer qualified as an expert in the laws of Liechtenstein - although this became of little relevance as the Commissioner called a Dr. Jehle as witness who the taxpayer conceded was such an expert and whose evidence I accept;
(ii) the proper law of the agreement of 1 July 1976 - whether Australia or Liechtenstein;
(iii) the law relating to ``undisclosed principals'';
(iv) whether the agreement operated as a declaration of trust under Australian law (there being no witnesses the agreement could not take effect as a deed);
(v) what was the proper law in relation to the power of attorney;
(vi) whether the agreement was invalid as representing a conflict of interest (I would accept Dr. Jehle's opinion that it was invalid) or valid on the basis of a ``donation'';
(vii) assuming that in Liechtenstein the agreement was so much waste paper, whether it would be valid under N.S.W. law - raising problems as to whether it was a capacity or authority issue:
(viii) whether the activities carried on by the taxpayer were in breach of sec. 251L; and
(ix) whether the provisions of sec. 260 apply.

On these and like issues the Board was referred to many authorities and I hope the parties will not feel that I am being discourteous in not referring thereto.

28. The reason I do not do so is that I feel it is unnecessary so to do for I am of the view that, on what was put as a question of fact, it is not only clearly open for me to find that this case falls within the doctrine of sham but also that the evidence does not admit of any other conclusion. Such evidence (which it does not seem necessary to reiterate), taken overall, demonstrates a complete lack of concern as to whether Warlock even existed at the relevant times and does not indicate the indicia of a real transaction between separate legal entities. Rather like the ``laundering'' transaction with the struck off

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Swiss company (para. 15) designed to enable the client to produce a fictitious loan agreement to ``explain'' an increase in assets, the agreement was merely a piece of paper to wave in front of the Commissioner (and the Board) but otherwise to be ignored.

29. Turning now to the claim in relation to unbanked fees in cash (applicable to this and the 1979 year) this can be dismissed quite shortly. On the evidence I am not satisfied that the figure put forward by the taxpayer is more probably correct than that adopted by the Commissioner. Even accepting he was more conscious after July 1979 (see para. 5) of ensuring the receipt of fees by way of cash, he did so receive fees prior to then and, without any records at all, I am unable to adopt the figures now put forward.

30. In relation to the deductions claimed it was submitted, on behalf of the Commissioner, that they did not arise for consideration because, on the evidence, the Board could not be satisfied that a full and true disclosure had been made of all the taxpayer's sources of income. Thus, as the taxpayer had not shown what was in fact his total assessable income, he could not discharge the onus placed on him by sec. 190(b) of demonstrating that his taxable income was excessive (even if he could demonstrate some allowable items). The taxpayer, on the other hand, contended that as the assessment had been issued on a specific basis (specified incomings and outgoings - see para. 10) there could not be a trial by ambush and that, if the Commissioner were of the view that there were other assessable receipts, he should issue an amended assessment to include such receipts.

31. Whilst I am certainly not satisfied that a full and true disclosure has been made (para. 16) I would agree with the taxpayer that, if an assessment is issued and the taxpayer is informed (as he was here) of the detailed basis of such assessment, it is sufficient for the taxpayer to show that one (or more) element in that assessment is incorrect. For example I do not think it sufficient, where the Commissioner has assessed a person on $1,000 dividends from company A and that person has shown he was not entitled to such dividend, for the Commissioner to then say the assessment should nevertheless be upheld because the person had also received $1,000 dividend from company B that had not been included. Admittedly that is a much clearer case than here. However, in the absence of authority to the contrary (neither party referred the Board to any authorities), it is my view that where a taxpayer is assessed on a particular basis, is advised of that basis at the time of issue of the notice of assessment and founds his grounds of objection on that basis, then the taxpayer discharges the onus of proof of showing that assessment to be excessive if he can demonstrate one element therein is incorrect (wrongly included or wrongly disallowed).

32. Thus it is necessary to consider the deduction claims for the 1978 year of income. However as neither the original 1979 or 1980 assessments satisfy the above criteria - no details of the Commissioner's 1980 basis were ever furnished and those for 1979 only at the Board hearing - the same view is not applicable thereto.

33. It was the taxpayer's initial argument in relation to the deductions claimed that they should be allowed on the basis that all his expenses (even mink coats for attractive blondes) relate to obtaining ``publicity by building up a flamboyant, controversial sort of image'' - a ``Scarlet Pimpernel'' image with a Viennese flavour. It is sufficient to say that I do not accept this argument. Whatever might be the situation if he hired a publicity agent, the fact is the taxpayer did not and, in the circumstances, regard must be had, in my view, to the essential character of each individual item of expense at issue - mink coats for attractive blondes can have many connotations.

34. The claim in respect of Sebel Town House $8,565 (para. 11) consists of a number of components, e.g. room rental, telephone, etc., but as the amounts allowed for telephone and courier/postage/photocopy (para. 11) exceed the amounts set out in exhibit AP the disputed items are:

                                          $

      Room rental                       4,590

      Hire cars and taxis                 189

      Restaurant (1/2 $1,721)             860

      Miscellaneous                       201

35. With respect to the room rental (which has increased from $120 per week in July

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1977 to $284 per week in April 1980) it is the taxpayer's submission that 85% should be allowed. The room in question is basically a normal motel type room. On entering, the bathroom is on the left with wardrobes on the right hand wall with drawers and a desk top continuing on. A bed, which can be curtained off, is situated in the main room with space for a desk and chairs (earlier coffee table and chairs). The total area is approximately 28 ' x 17 ' . The taxpayer has no other accommodation and both works (including interviewing clients) and lives; i.e. watches television, reads, showers, sleeps, etc.; in that room. He states he does ``not work union hours'' and that the bathroom is both his office and domestic bathroom.

36. The taxpayer in opening said his basic argument was that, applying the principle of
Forsyth and Handley ( 81 ATC 4157 and 4165 ) and inverting it, an office is an office is an office and is wholly deductible even if the taxpayer sleeps in it (and presumably has nowhere else to reside). In address he said the issue was ``really a question of fact'' and that it was a question of saying ``to what degree is he using that room for purposes associated with his business''. I do not accept that this is the proper way of looking at the issue in respect of a person who has nowhere else to reside. Where it is (as here) his only place of residence that is determinative of the character of the cost thereof - the proposition that a ``usage'' basis may be adopted having been rejected in Forsyth and Handley.

37. Even if I were of a different view I do not think I could accept the evidence as establishing a 85% usage for office purposes. Apart from actual usage (in respect of which the details available are rather less than precise) the fact is that the room is available 100% of the time for private purposes and is used indiscriminately for such purposes.

38. With respect to the other Sebel items (para. 30) the evidence is, to say the least, sketchy. Whilst one could accept the outgoings little detail was provided in respect of the circumstances in which they were incurred. To say that there are occasions when there are ``working'' breakfasts and the like does not, in my view, establish that 50% of the restaurant bill is allowable. It may be that, by his failure to keep records, the taxpayer has been his own worst enemy but that is something which the Board cannot remedy and, on the evidence, I can see no justifiable basis for determining an allowable proportion thereof.

39. With respect to the Hotel Sacher and the fares to Europe the taxpayer submitted that the real question was ``how much of those overseas trips, in the opinion of the Board, was really spent in relation to the production of assessable income''. During the 1978 year the taxpayer visited Vienna twice for a total of 15 weeks, viz. 17 December 1977 to 19 February 1978 and 16 May 1978 to 7 August 1978. He was away again from 28 April 1979 to 24 July 1979 and 10 April 1980 to beyond 30 June 1980 - a further 15 weeks during the 1979 income year and 13 weeks for the 1980 year. In his evidence the taxpayer said that basically he worked in Australia and lived in Austria and in address submitted:

``So you get a pretty clear picture of somebody who goes overseas because it is his home, because he likes it, he goes there because all his friends are there and his cultural interests are there. He certainly chooses if he can the best season for going, but he also devotes himself and uses his hotel office or room in part to work. It is not a matter of merely isolating the actual clients who came overseas; who might have occupied one week out of 15; as it is the undisputed evidence that I carry on my practice as best I can when I am in Vienna; and that is for the Board to decide.''

40. Although he undoubtedly does some work overseas (query whether all income therefrom returned) the predominant reason for going is otherwise and, unless some amount could be shown to be specifically related to income producing purposes, these claims would not be allowable. On the evidence I can see no such amount - the closest would be the telex portion of the Sacher green account and the postage portion of the Sacher yellow account. These portions have been estimated at $150 per week approximately and $100 per week (or included in 1/5 of an estimated weekly yellow account of $500) and I would have to agree with counsel's submission that the evidence was ``too vague, really, for the

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Board to be able to satisfy itself that any apportionment... was on an acceptable basis''.

41. I would make the same finding in relation to fares in Europe, $3,000. In chief the taxpayer said ``I claim travel to and from Switzerland or Liechtenstein and accommodation in Switzerland or Liechtenstein, which of course I would not be doing the whole of those visits but I have sort of averaged it out and I claim over the total stay $200 per week for those expenses.'' No details of any particular individual trip were given and once again perhaps the taxpayer was handicapped by the lack of records. However I cannot rectify this for him and must find that it has not been established what figure (if any) should be allowed under this heading.

42. The final matter relates to a sec. 226(2) penalty of $1,099 imposed in the 1978 assessment - it apparently being imposed only in respect of an amount of $2,624 which seems not to have appeared in the annexures to the nil return. Two-thirds of the penalty was remitted in terms of sec. 226(3). There was no evidence or argument in relation to this matter at the hearing and, in the circumstances, I am unable to find that any further remission is warranted.

43. It follows, for the various reasons given in relation to the different claims, that I am unable to conclude that the taxpayer's assessment is excessive.

44. Accordingly I would uphold the Commissioner's decision on the taxpayer's objection and confirm his assessment for the year ended 30 June 1978.

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