Decision impact statement

Hua-Aus Pty Ltd v Commissioner of Taxation

Venue: Federal Court of Australia
Venue Reference No: NSD 195 of 2009
Judge Name: Edmonds J
Judgment date: 14 April 2010
Appeals on foot: No
Decision Outcome: Adverse

Impacted Advice

Relevant Rulings/Determinations:

• N/A

Subject References:
Goods & Services Tax
Assessment of GST net amount
Burden of proof
Construction and application of s 14ZZK of Taxation Administration Act 1953 (TAA)
Whether onus is discharged where taxpayer's evidence is not impugned and there is no adverse finding as to credit
Whether taxpayer denied procedural fairness

Précis

Outlines the ATO's response to this decision to set aside the AAT's decision, confirming the decision under review, which was based on a rejection by the AAT of the evidence of the taxpayer's director, despite the fact that his evidence had not been explicitly impugned.

Brief summary of facts

Facts

The Tribunal had made the following findings of fact that were not in dispute and were accepted by Edmonds J in the Federal Court:

a)

The taxpayer carried on a business as a provider of escort services.

b)

Mr Mike Hua was the sole director of the taxpayer.

c)

The taxpayer supplied delivery and advertising services to escorts used in its enterprise.

d)

The escorts were in the position of contractors to the taxpayer.

At issue was whether two amounts were sourced from consideration for taxable supplies made by the taxpayer.

Issues before the Federal Court

Whether the Tribunal had erred in law in deciding against the taxpayer by:

a)

adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies;

b)

not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer;

c)

rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him;

d)

denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review.

Issues decided by the Federal Court

Outcome

a)

Rejected - on the basis that the Tribunal was absolutely correct in concluding that s 14ZZK imposed on the taxpayer the burden of proving that the amended assessment under review was excessive.

b)

Rejected - on the basis that the statutory criteria were never engaged because of the Tribunal's finding that the taxpayer failed to discharge the burden imposed on it to establish that the assessment was excessive.

c)

Accepted - on the basis that, in the absence of any impugnment of Mr Hua's credit, the Tribunal erred in its conclusion that Mr Hua's explanation was inadequate to discharge the onus because Mr Hua had not called a witness to support his explanation.

d)

Rejected - on the basis that there was nothing to suggest that the Tribunal failed to afford the taxpayer a reasonable opportunity to do any of the things it wanted to do; rather, because the taxpayer did not have legal representation during the hearing, or the benefit of legal counsel subsequent to the hearing, it did not avail itself of those opportunities. The fact that, out of ignorance, Mr Hua did not avail himself of the same opportunities as a competent legal representative might have does not constitute a denial of procedural fairness on the part of the Tribunal.

Tax Office view of Decision

The outcomes for issues (a), (b) and (d) are consistent with the Commissioner's submissions to the Court.

The ATO respectfully accepts that, on the facts of the case, the outcome for issue (c) was open to the Court. The ATO also acknowledges that, where it is sought to impugn the credit of a witness, it is necessary to make it absolutely clear through cross-examination that their credit is in issue.

Administrative Treatment

Implications on current Public Rulings & Determinations

None

Implications on Law Administration Practice Statements

None

Court citation:
[2010] FCA 341
2010 ATC 20-175
76 ATR 1

Legislative References:

Taxation Administration Act 1953 (Cth)


A New Tax System (Goods and Services Tax) Act 1999 (Cth)


Income Tax Assessment Act 1936 (Cth)

Case References:
Danmark Pty Ltd v Federal Commissioner of Taxation;
Forestwood Pty Ltd v Federal Commissioner of Taxation
(1944) 7 ATD 333

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd
(2008) 237 CLR 473
[2008] HCA 41
69 ATR 357
2008 ATC 20-045

Federal Commissioner of Taxation v Dalco
(1990) 168 CLR 614
[1990] HCA 3
20 ATR 1370
90 ATC 4088

Federal Commissioner of Taxation v Munro
(1997) 97 ATC 5041
37 ATR 249

Gauci v Federal Commissioner of Taxation
(1975) 135 CLR 81
[1975] HCA 54
5 ATR 672
75 ATC 4257

Ma v Commissioner of Taxation
(1992) 37 FCR 225
23 ATR 485
92 ATC 4373

Macmine Pty Ltd v Federal Commissioner of Taxation
(1979) 24 ALR 217
9 ATR 638
79 ATC 4133

McCormack v Federal Commissioner of Taxation
(1978) 143 CLR 284
[1979] HCA 18
9 ATR 610
79 ATC 4111

Trautwein v Federal Commissioner of Taxation
(1936) 56 CLR 63
[1936] HCA 77

Vu v Federal Commissioner of Taxation
2006 ATC 4387
[2006] FCA 889
2006 ATC 4387
63 ATR 341