FEDERAL COURT OF AUSTRALIA

Mingos v Commissioner of Taxation [2019] FCAFC 211

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the costs of the appeal as agreed or assessed.

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

REASONS FOR JUDGMENT

KERR AND STEWARD JJ:

1    Mr Mingos (the “taxpayer”) lodged no tax return for the year ended 30 June 2014. On 13 June 2016, the Commissioner of Taxation (the “Commissioner”) issued him with a default assessment and an assessment of penalty in respect of that year. The default assessment included in the assessable income of the taxpayer a distribution made to him by Lemnian Investments Pty Ltd (“Lemnian”) as trustee of the Lemnian Investment Trust (the “Trust”). The taxpayer was a discretionary beneficiary of that Trust as was his brother. The distribution comprised a capital gain made from the sale of 35-37 Regent Street, Mount Waverley (the “property”).

2    The taxpayer objected against each assessment. In essence, he contended that he had an “ownership interest” in the property; that the property was his “main residence”; and that the gain made from its sale should be disregarded: s 118-110 of the Income Tax Assessment Act 1997 (Cth) (the “1997 Act”).

3    The learned primary judge rejected the taxpayer’s contention. It had not been proven. Her Honour varied the objection decision made by the Commissioner, but otherwise dismissed the taxpayer’s case with costs. The taxpayer now appeals the primary judge’s decision to this Court.

4    This Court dismissed the taxpayer’s appeal with costs at the hearing of the appeal. What follows are our reasons for why in our opinion the learned primary judge was plainly right.

Legislative Provisions

5    The relevant legislative provisions dealing with the “main residence” exemption for capital gains were set out at [3]-[5] of the learned primary judge’s reasons. For convenience, we have reproduced them below.

6    Section 118-110 is the operative provision. It relevantly provides:

Basic case

(1)    A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *CGT asset that is a *dwelling or your *ownership interest in it is disregarded if:

   (a)    you are an individual; and

(b)    the dwelling was your main residence throughout your *ownership period; and

(c)    the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.

…

7    Section 118-125 of the 1997 Act defines the term “ownership period”. It provides:

Meaning of ownership period

Your ownership period of a *dwelling is the period on or after 20 September 1985 when you had an *ownership interest in:

   (a)    the dwelling; or

(b)    land (*acquired on or after 20 September 1985) on which the dwelling is later built.

8    Section 118-130 deals with the meaning of “ownership interest” in land or a dwelling. It relevantly provides:

Meaning of ownership interest in land or a dwelling

(1)    You have an ownership interest in land or a *dwelling if:

(a)    for land—you have a legal or equitable interest in it or a right to occupy it; or

(b)    for a dwelling that is not a flat or home unit—you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it; or

   (c)    for a flat or home unit—you have:

    (i)    a legal or equitable interest in a *stratum unit in it; or

    (ii)    a licence or right to occupy it; or

(iii)    a *share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives you to a right to occupy it.

…

(3)    For land or a *dwelling where you have a contract for the happening of the *CGT event, you have an ownership interest in it until your legal ownership of it ends.

9    Section 106-50 of the 1997 Act is also relevant to this appeal. If engaged, it has the effect of treating an act done in relation to an asset to which a taxpayer is absolutely entitled as against the trustee of a trust to be done by the taxpayer. It provides as follows:

Absolutely entitled beneficiaries

(1)    For the purposes of this Part and Part 3-3 (about capital gains and losses) and Subdivision 328-C (What is a small business entity), from just after the time you become absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), the asset is treated as being your asset (instead of being an asset of the trust).

(2)    This Part, Part 3-3 and Subdivision 328-C apply, from just after the time you become absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), to an act done in relation to the asset by the trustee as if the act had been done by you (instead of by the trustee).

10    Section 284-75(3) of Sch 1 to the Taxation Administration Act 1953 (Cth) (the “TAA”) imposes an administrative penalty where a taxpayer has failed to give a return. It relevantly provides:

  (3)    You are liable to an administrative penalty if:

(a)    you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

(b)    that document is necessary for the Commissioner to determine a *tax‑related liability (other than one arising under the *Excise Acts) of yours accurately; and

(c)    the Commissioner determines the tax‑related liability without the assistance of that document.

11    Section 298-20 of Sch 1 to the TAA gives the Commissioner a broad power to remit penalty. It provides in subs (1) that the Commissioner may remit all or a part of the penalty.

The Factual Findings Below

12    The facts found below by the learned primary judge were not in dispute, save for the issue of ownership of the property, which involved questions of both fact and law.

13    The property had originally been acquired in 1992 by a trustee on trust for the taxpayer and his then wife. It was used as the family home. In 2006, the taxpayer’s wife became the new owner of the property. The marriage then began to deteriorate. The taxpayer and his wife divorced in 2010. In December 2010, the Federal Magistrates Court made the following orders by consent:

…

2.    That within 120 days from the date of this Order (“the date”) the husband pay by way of bank cheque to the wife the sum of $1,300,000 (“the payment”).

 3.    Contemporaneously with the payment pursuant to paragraph 3 of this Order:

3.1    The wife do all such acts and things and sign such documents, at the expense of the husband, to transfer to the husband or his nominated entity all her right, title and interest in the former matrimonial home situate and known as 35 Regent Street, Mount Waverley (“the Regent Street property”); and

3.2    The husband discharge the mortgages secured over the property with the Bank of Adelaide in the sum of $750,000 or thereabouts.

...

4.    That in the event the husband does not make the full payment pursuant to paragraph 3 together with interest (if any) and/or discharge the Adelaide Bank mortgage pursuant to paragraph 3 herein within seven days of the date, the Regent Street property be immediately placed on the market for sale on the following terms:

...

5.    The proceeds of sale of the home, if sold pursuant to paragraph 4, be disbursed as follows:

…

5.4    To pay the wife the payment together with interest at the rate of 11%pa calculated monthly from the date …

…

6.    That pending the payment, discharge of the mortgage, and/or sale of the Regent Street property:

6.1    The husband be responsible for and indemnify the wife wholly in respect of all past, present and future rates, taxes, mortgage repayments and any other outgoings relating to the Regent Street property;

6.2    Both parties hold their interest in the Regent Street property upon trust pursuant to this Order;

…

  6.4    The wife have the sole right to occupy the Regent Street property.

14    The terms of these orders are important to the taxpayer’s appeal. In essence they provided for the making of payments by the taxpayer ($1.3 million and $750,000) in return for the transfer of the property to the taxpayer “or his nominated entity”.

15    The taxpayer did not have the means of making the required payments. Nor could he borrow the necessary money personally. However, the Trust had assets: two properties, both of which were unencumbered; and units in a unit trust which owned another property, which was mortgaged to BankWest. The Trust therefore had the ability to borrow the required amounts.

16    In May 2011, Lemnian, as trustee of the Trust, borrowed $4 million from the Bank of Queensland. That bank took security over the properties held by the Trust, as well as over the property to be transferred by the wife. The funds borrowed were used:

(a)    to discharge the mortgage of $750,000 secured over the property in accordance with Order 3.2 of the Orders made by the Federal Magistrates Court;

(b)    to pay Mrs Mingos the sum of $1.3 million in accordance with Order 2;

(c)    to prepay interest in the sum of $242,000; and

(d)    to refinance the BankWest loan over another property.

17    On 27 May 2011, at the taxpayer’s direction, the wife transferred the property to Lemnian as the “nominated entity”. Both the taxpayer and his brother (Mr Con Mingos), as the directors of Lemnian, signed the memorandum of transfer. In 2014, the property was sold for $5.1 million.

18    There was clear contemporaneous evidence before the learned primary judge that Lemnian, as trustee of the Trust, was the owner of the property, which it held subject to the terms of that Trust. Thus, in the 2011-2013 income years, the Trust’s balance sheet recorded:

(a)    the property as an asset of the Trust at a value of $4 million;

(b)    the loan from the Bank of Queensland as a non-current liability of the Trust; and

(c)    a non-current liability to the taxpayer of $1,933,404.

19    The taxpayer, being an experienced solicitor, and his brother had both signed the “Directors’ Declaration” for the Trust’s 2011 accounts which stated that the “financial statements and notes [presented] fairly the [T]rust’s financial position”. The brother signed the “Directors’ Declaration” for the 2012 accounts with a space for the taxpayer’s signature left blank. Neither brother signed the “Directors’ Declaration” for the 2013 accounts, but spaces for each of them to inscribe their respective signatures appeared.

20    For the 2014 income year, the Trust’s balance sheet recorded:

(a)    the sale proceeds of $5.1 million as a receivable of the Trust in respect of the sale of the property; and

(b)    a distribution to the taxpayer of $1.1 million representing “100% profit on sale of [the property]”.

21    The brother signed the “Directors’ Declaration” for the 2014 accounts with a space for the taxpayer’s signature left blank.

22    In 2014:

(a)    the taxpayer and his brother, as directors of Lemnian, resolved that the net income of the Trust “be appropriated, set aside and applied” as to 100% of the capital gain on the sale of the property to the taxpayer (the resolution was signed by the taxpayer’s brother). The “Minutes of Directors Meeting” recorded that the taxpayer and his brother were present at the meeting in which this resolution was passed; and

(b)    the Trust’s tax return for the year ended 30 June 2014 disclosed the distribution of the capital gain to the taxpayer.

23    Each of the taxpayer, his brother and Mr Munro (who was the Trust’s accountant and tax agent in the 2011-2013 income years) gave evidence below which sought to contradict the foregoing evidence.

24    Two more contemporaneous documents should be noted. In 2011, the following emails were sent:

(a)    An email from the Bank of Queensland sent on 27 May 2011 to Mr Munro (copied to the taxpayer and his brother) which was in the following terms:

Darren,

Quick note to confirm that the first phase of the Mingos settlements occurred today.

There was a change in the transfer of land at settlement to reflect the transfer being consistent with the mortgage being [in the name of the taxpayer].

You may recall we discussed the mortgage shortly before documents were executed. [The taxpayer] just wants to check that this ownership structure is okay rather than Lemnian Investments. We will hold off on registration for a short period pending this advice.

...

(b)    An email from Mr Munro sent in response on 1 June 2011 to the Bank (copied to the taxpayer and his brother) which was in the following terms:

It would be preferable if ... both the property title and mortgage documents were in the name of Leminan [sic] Investment Trust.

The Primary Judge’s Decision

25    Each of the taxpayer’s witnesses was cross-examined. The learned primary judge, having had the advantage of having seen and heard each of them, rejected their evidence. Her Honour found:

(a)    the taxpayer’s answers on critical questions were “contradictory” and “self-serving”;

(b)    the brother’s evidence was “vague, lacking in specifics and highly generalised” and “contradicted by the objective circumstances”; and

(c)    aspects of Mr Munro’s evidence contained “contradiction”, were “self-serving”, “unreliable”, “untruthful” and “demonstrably wrong”.

26    Her Honour concluded at [42]:

For the reasons given above, I have not accepted the evidence of these witnesses where their testimony was contradicted by contemporaneous documents which I consider to be more reliable. Given the contradictory documentary evidence, I was left with the clear impression that there was a great deal of reconstruction in their evidence, rather than evidence based upon clear recollection.

27    In amplification:

(a)    her Honour found that Lemnian, as trustee, was the owner of the property, consistently with the contemporaneous documents. Her Honour also inferred from the failure to call evidence from the Trust’s then accountant, a Ms White, that her evidence would not have assisted the taxpayer’s case: Jones v Dunkel (1959) 101 CLR 298;

(b)    her Honour rejected the contention that the terms of the consent orders made by the Federal Magistrates Court vested in the taxpayer an equitable interest in the property;

(c)    her Honour rejected the contention that the taxpayer had an unregistered equitable interest in the property as purported mortgagor;

(d)    her Honour rejected the submission that Lemnian held the property on a constructive trust or on a resulting trust in favour of the taxpayer;

(e)    her Honour rejected the contention that the taxpayer held a “licence or right to occupy” the property, to use the language of s 118-130(1)(c)(ii), which had been sold. Rather, the learned primary judge decided that it was the property which had been sold; and

(f)    finally, her Honour rejected the contention that the taxpayer was absolutely entitled to the property as against Lemnian for the purposes of s 106-50 of the 1997 Act.

28    It followed that the taxpayer had not shown that Lemnian, as trustee, had not made the capital gain as the owner of the property it had sold.

29    The capital gain made had been calculated as being the difference between the market value of the property in 2011 (accepted as being $3.4 million) and the capital proceeds of $5.1 million. The taxpayer also wanted the calculation to include holding and selling costs comprising interest, land tax, rates, agent’s fees and advertising costs. Those adjustments were rejected because no evidence had been led to support their existence.

30    Finally, the learned primary judge upheld the penalty assessment. A base penalty of 75% for the failure to lodge a tax return had been correctly assessed. No evidence had been led explaining the taxpayer’s non-compliance with his tax obligations and no error of law had been identified in the Commissioner’s refusal to remit the penalty.

Appeal Grounds

31    The appeal grounds were essentially as follows:

(a)    the learned primary judge should have believed and accepted the evidence led by the taxpayer. Her Honour was wrong to draw a Jones v Dunkel inference;

(b)    her Honour erred in not deciding that the effect of the Federal Magistrates Court’s order was to confer upon the taxpayer a full equitable interest in the property;

(c)    her Honour erred in not deciding that the transfer of the property to Lemnian was in the nature of a security or gave rise to a resulting or constructive trust in favour of the taxpayer;

(d)    her Honour erred in not determining that the taxpayer had an absolute entitlement to the property as against Lemnian; and

(e)    finally, her Honour erred in deciding that the penalty had been correctly assessed and in not deciding that the Commissioner’s failure to remit was manifestly unreasonable.

Appeal

Appellate review of the primary judge’s findings

32    Central to the learned primary judge’s reasons was her rejection of the evidence led by the taxpayer. Once her Honour had reached the conclusion that Lemnian, as trustee, had been the owner of the property when it was sold, it followed that the other contentions of the taxpayer necessarily failed. In our view, the evidence of each witness was dismissed, in whole or in part, on credit grounds. In that respect, her Honour was correct to test the oral evidence of each witness carefully. As for the taxpayer’s evidence, in Pascoe v Commissioner of Taxation (1956) 30 ALJ 402, Fullagar J said at 403:

Where a person’s purpose or object or other state of mind in relation to a given transaction is in issue, the statements of that person in the witness box provide, in a sense, the “best” evidence, but, for obvious reasons, they must, as Cussen, J., observed in Cox v. Smail ((1912) V.L.R. 274, at p. 283), “be tested most closely, and received with the greatest caution”.

33    As for the evidence of the brother and Mr Munro, their “interest” in the outcome of this appeal is perhaps not financial but is, in our view, “professional”, at least with respect to Mr Munro: Spassked Pty Ltd v Commissioner of Taxation (No 5) [2003] FCA 84; (2003) 197 ALR 553 at [198] per Lindgren J. As for the brother, his “interest” is fraternal.

34    In Robinson Helicopter Company Inc v McDermott [2016] HCA 22; (2016) 331 ALR 550, French CJ, Bell, Keane, Nettle and Gordon JJ said at [43]:

The fact that the judge and the majority of the Court of Appeal came to different conclusions is in itself unremarkable. A court of appeal conducting an appeal by way of rehearing is bound to conduct a “real review” [Fox (2003) 214 CLR 118 at 126 [25] per Gleeson CJ, Gummow and Kirby JJ] of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the judge has erred in fact or law. If the court of appeal concludes that the judge has erred in fact, it is required to make its own findings of fact and to formulate its own reasoning based on those findings [Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479-481 per Deane and Dawson JJ; [1993] HCA 78; Fox (2003) 214 CLR 118 at 128 [29] per Gleeson CJ, Gummow and Kirby JJ; Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 381 [76] per Heydon, Crennan and Bell JJ; [2010] HCA 31]. But a court of appeal should not interfere with a judge’s findings of fact unless they are demonstrated to be wrong by “incontrovertible facts or uncontested testimony” [Fox (2003) 214 CLR 118 at 128 [28] per Gleeson CJ, Gummow and Kirby JJ], or they are “glaringly improbable” or “contrary to compelling inferences” [Fox (2003) 214 CLR 118 at 128 [29]. See also Miller & Associates (2010) 241 CLR 357 at 381 [76]]. In this case, they were not. The judge’s findings of fact accorded to the weight of lay and expert evidence and to the range of permissible inferences. The majority of the Court of Appeal should not have overturned them.

35    In Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301, Allsop CJ explained that the reference to findings of fact in the passage set out above was to facts “reached after assessing competing witnesses for their reliability and credibility”. At 306-307 [3], his Honour said:

The footnotes to the paragraph and the balance of the judgment (see especially at [56]) make it plain that no departure from long-standing principle discussed in Warren v Coombes (1979) 142 CLR 531, Fox v Percy (2003) 214 CLR 118 and State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306; 160 ALR 588 was intended. The references by the Court that “a court of appeal should not interfere with a judge’s finding of fact unless they are demonstrated to be wrong by ‘incontrovertible facts or uncontested testimony’ or they are ‘glaringly improbable’ or ‘contrary to compelling inferences’” should be understood by reference to the footnotes. The references to Fox v Percy at [28] and [29] are plainly to findings of fact reached after assessing competing witnesses for their reliability and credibility. The reference to Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at [76] is an indirect reference, in the context of fact-finding involving witnesses, to Fox v Percy at [23]-[29]. These latter references to Fox v Percy are important because they recognise the importance of the advantages of the trial process discussed by Kirby J in SRA v Earthline at [89]-[91] and adopted by Gleeson CJ, Gummow J and Kirby J in Fox v Percy at [23]. The whole of [20]-[31] of Fox v Percy is important and I do not read the Court in Robinson Helicopter as saying at [43] that any finding of fact made by a trial judge can only be interfered with if the expressions referred to above and derived from Fox v Percy are satisfied. The findings of fact of the trial judge in Robinson Helicopter were made after a trial of five weeks in which close to 20 witnesses gave oral evidence, whose evidence had to be assessed, balanced and evaluated as the case unfolded. The trial judge had the advantages of seeing lay and expert witnesses in assessing their credit and reliability, and he also had the advantages of the kind discussed in SRA v Earthline including “the unique benefit of viewing two helicopters of the kind which crashed ... [and] ... the opportunity to consider all of the evidence in its totality and to reflect upon its interaction”: 90 ALJR 679; 331 ALR 550 at [57].

36    The foregoing analysis applies here, even though there were no “competing” witnesses before the learned primary judge; that is often the case in a tax appeal. However, the limitation on the function of a court of appeal described by Allsop CJ applies equally to a case where findings have been made based upon the reliability and credibility of the witnesses put forward by the taxpayer. That is what happened below. Accordingly, it was for the taxpayer to show here that those findings were wrong by reason of “incontrovertible facts or uncontested testimony” or were “glaringly improbable” or “contrary to compelling inferences”.

37    We now turn to consider the central planks of the taxpayer’s case on appeal.

The effect of the Orders made by the Federal Magistrates Court

38    The taxpayer relied upon two decisions of this Court concerning the legal effect of orders made in family court proceedings relating to the disposition of property. He submitted they supported the conclusion that the effect of the orders made here by consent was to transfer to him the absolute beneficial title to the property as against Lemnian. In other words, it was submitted that Lemnian only ever enjoyed bare legal title to the property. The two decisions are Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 and Jones v Daniel (2004) 141 FCR 148. The taxpayer here submitted that these decisions supported the following propositions:

a.    A court order settling property between husband and wife, including a requirement that there be a transfer of one party’s interest to the other, has generally been regarded as vesting in the transferee an equitable estate or interest in the property pending the transfer of the legal estate or interest.

b.    The effect of the orders is to work an alteration of the legal or equitable interests in the property of the parties or either of them. An interest in property is a right of a proprietary nature, not a mere personal right.

c.    The fact that a consent order might be made under section 79 does not have the consequence that the transfer of the equitable estate or interest is pursuant to the agreement between the parties giving rise to the consent, rather than pursuant to the court order.

d.    The subsequent execution of a transfer in accordance with the court order of the bare legal estate held is a transfer, made pursuant to the consent orders, of the legal estate and interest in the property to another person.

e.    The subsequent transfer has little, if any, relevance for a number of reasons. First, as the consent orders result in the legal estate and interest being held by the transferor and the equitable estate and interest being held by transferee, that was all that was necessary to establish the relation of trustee and cestui que trust between them.

39    Both Mateo and Jones concerned the legal effect of orders made by the Family Court, a matter determined in accordance with s 79 of the Family Law Act 1975 (Cth) (the “Family Law Act”) and the particular words used in each order. Section 79(1), as it then stood, provided:

In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines.

40    In Mateo, the orders, to the extent disclosed in the reasons for judgment, were relevantly in the following terms:

BY CONSENT THE COURT ORDERS THE FOLLOWING:

1.    ORDER that within twenty-eight (28) days from the date of these orders the husband shall transfer to the wife all his rights, titles and interests in the matrimonial home known and situate at 3 Coolibah Street, Merrylands West, in the State of New South Wales, being the whole of the land comprised in Folio Identifier 14/806113.

2.    ORDER that the husband shall not do any act matter or deed whereby a caveat charge or other encumbrance is or maybe registered on the said matrimonial home from the date hereof.

3.    ORDER that upon the transfer to the wife of the husband’s rights title and interests in the above named matrimonial home the wife shall be responsible for all outgoings on the matrimonial home including mortgage repayments, council and water rates, insurance, and the wife shall indemnify and keep indemnified the husband in respect of any claims for loss damages or any other claims otherwise arising in respect of the said matrimonial home.

4.    ORDER that upon the signing of this document, the wife shall pay the husband the sum of THREE THOUSAND ($3,000.00) DOLLARS.

5.    ORDER that upon the husband signing of [sic] the Transfer document as indicated in paragraph “1” hereof, the wife shall pay the husband the sum of SEVEN THOUSAND ($7,000.00) DOLLARS.

6.    ORDER that upon the sale of the matrimonial home at the end of this calendar year (i.e. 31 December 2000), the wife shall pay the husband an additional amount of $90,000.00 to be paid as follows:

$10,000.00 to the husband; and

$80,000.00 to be paid to the three children of the marriage at the direction of the husband.

7.    ORDER that SHOULD the matrimonial home not be sold by the end of this financial year [sic], i.e. 31 December 2000, the … wife shall pay the husband the sum of TEN THOUSAND ($10,000.00) DOLLARS as referred to in paragraph “6” hereof, not later than 31 December 2000.

…

41    The Court in Mateo decided that the effect of these orders, taken with s 79(1) of the Family Law Act, was to vest in the wife an equitable interest in certain property at Merrylands West. The vesting of that interest took place when the orders were made.

42    In Jones, the relevant order, to the extent disclosed in the reasons for judgment, was in the following form:

That the husband transfer to the wife, on or before 1 February 2004, the whole of his right, title and interest in the property know (sic) as and situate at 24 Tennyson Street, Wetherhill (sic) Park, the property known as and situate at 3 Hunterford Crescent, Oatlands, and in the Daniel Family Trust, and any credit loan account balance or other entitlement he may have in the said Trust.

43    Again, the effect of that order was to transfer beneficial ownership of certain land at Wetherill to the wife. Allsop J (as his Honour then was) said at 156 [20]:

Section 79 of the Family Law Act 1975 (Cth) deals, as the High Court said in Mullane v Mullane (1983) 158 CLR 436 at 445, with orders which work an alteration of the legal or equitable interests in parties or either of them. Thus, an express and immediate vesting order could be made. There was nothing to suggest in the reasons for judgment of Coleman J in the Family Court (or of the Family Court in Mateo, as far as can be gleaned from the judgment of the Full Court in Mateo) that any suspension of effect of the orders made was intended. It would perhaps have been clearer if the immediately dispositive effect of the orders here had been identified expressly. Nevertheless, the orders here, though not expressly dispositive, made as they were against the background of s 79 and in light of the reasoning in Mateo, should be taken to have the effect found by the primary judge.

44    However, much turns upon the form of the order and the nature of the property in question. In Ellison v Sandini Pty Ltd (2018) 263 FCR 460, the Family Court orders were not effective to cause a disposition of beneficial ownership of certain shares.

45    Below, the learned primary judge distinguished Mateo and Jones. The orders considered in each case had no equivalent to cl 6.2 of the orders here which provided that both the taxpayer and his wife were to hold their interest in the property upon trust pending “the payment, discharge of the mortgage, and/or sale of the Regent Street property”. Nor would there appear to be any equivalent to cl 6.4 conferring upon the wife “sole right” of occupancy pending “the payment, discharge of the mortgage, and/or sale of the Regent Street property”. The learned primary judge said at [58]:

Both cases [Mateo and Jones] are distinguishable and neither case assists the taxpayer. First, the submission ignores cl 6.2 of the Orders that pending “the payment, discharge of the mortgage, and/or sale of [the property]” that “both parties hold their interest in [the property] upon trust pursuant to this Order”. In other words, the Orders did not have an immediate dispositive effect of vesting an absolute equitable interest in the property to the taxpayer. Secondly, the submission ignores the conditional nature of the taxpayer’s entitlement to conveyance of the property under the Orders, as the taxpayer’s entitlement was conditional upon the discharge of the mortgage and the payment of $1.3 million to Mrs Mingos, failing which the property was to be sold. Thirdly, the submission ignores the fact that the taxpayer exercised his right to direct that the wife transfer all her right, title and interest in the property to his nominated entity which, in this case, was Lemnian.

46    Counsel for the taxpayer submitted that cl 6.2 did not justify the distinguishing of Mateo and Jones. He said that it supported the conclusion that the wife held the property on trust for the taxpayer before the transfer to Lemnian. With respect, that ignores the express words in that order which refers to “both parties” holding their interest in the property “upon trust” pending completion of the obligations created by cll 2 and 3 (or failing that, sale of the property) and thus the wife’s undoubted continuing beneficial interest in the property pending compliance with the orders of the Federal Magistrates Court. In our view, whilst the clause might have been drafted more clearly, its intent and effect was to give each of the taxpayer and his wife, or in her case perhaps preserve, an equitable interest in the property to be held for the benefit of the other. At the very least, it denied the taxpayer the absolute and exclusive equitable interest in the property he contended for. It also meant that the wife did not hold only the bare legal estate when in 2011 she transferred the property to Lemnian. Her sole right of occupancy pending “the payment, discharge of the mortgage, and/or sale of the Regent Street property” is consistent with that conclusion. So too is cl 3.1, which required the wife to transfer all of her “right, title and interest” in the property; so too also is cl 5.4 which provided for the wife to receive her payment of $1.3 million out of the proceeds of sale of the property, if that property were to be sold in accordance with cl 4 because of the failure of the taxpayer to comply with cll 2 and 3. These clauses are not consistent with the taxpayer enjoying a full and absolute beneficial interest in the property prior to the transfer to Lemnian.

47    Counsel for the taxpayer also submitted that the evidence given by the taxpayer and his witnesses “was that the property was not intended to be transferred to Lemnian beneficially”. That conclusion was also said to be supported by “contemporary [sic] evidence”.

48    In relation to the learned primary judge’s rejection of the evidence given by the taxpayer, his brother and Mr Munro, the taxpayer’s task in accordance with Robinson Helicopter and Aldi was to demonstrate that her Honour’s findings about that evidence, as set out above, were wrong by “incontrovertible facts or uncontested testimony” or were “glaringly improbable” or “contrary to compelling inferences”. The contentions of the taxpayer fell very far short of demonstrating this.

49    A key feature of the testimony of the taxpayer was his statement that the property was only transferred to Lemnian because the Bank of Queensland required this to occur. That statement was found by the learned primary judge to be directly inconsistent with the very contemporaneous evidence, comprising the emails sent in 2011 (set out above), and now relied upon by the taxpayer. Those emails show that it was Mr Munro, on behalf of the taxpayer, who wanted the property transferred to Lemnian. The learned primary judge reasoned at [22]-[24]:

Far from confirming his evidence that it was the Bank of Queensland which required the property to be transferred to Lemnian, that email correspondence is contrary to the taxpayer’s evidence and evidences that the Bank was prepared to advance the funds on the basis of the property remaining in the name of the taxpayer with the taxpayer giving a mortgage over the property, and that it was Mr Munro who instructed that the property title and mortgage documents should be in the name of the Trust, not the Bank. It may reasonably be inferred from the fact that the property and mortgage were put in the name of Lemnian that the taxpayer acquiesced to that course of action. Certainly, there was no suggestion in the evidence that the taxpayer objected to the property being placed other than in his name.

The taxpayer also gave contradictory answers in cross examination as to why the property was transferred to Lemnian. Initially in response to questioning, he gave evidence that it was the Bank of Queensland that required the transfer of the property to Lemnian. Later when Mr Munro’s email of 1 June 2011 was put to him, the taxpayer said he was not involved in the negotiations in respect of the finance but he was told by Mr Munro that it was better if the property was in the name of the Trust. When pressed further, his evidence was that in order for the settlement to go through, the property had to be in the name of Lemnian.

In view of the emails, I reject the taxpayer’s evidence that the property was transferred to Lemnian as a requirement of the Bank. His evidence is not supported by the contemporaneous email correspondence and no other documentary evidence was adduced which demonstrates that it was a requirement of the Bank that the property be transferred to Lemnian.

50    The learned primary judge noted that the taxpayer had signed the 2011 accounts of the Trust, which had recorded the property as an asset of the Trust, and had declared those accounts to be a fair statement of that Trust’s financial position. Her Honour characterised the taxpayer’s evidence that he could not “accept that” as self-serving. There is no reason to doubt the accuracy of that conclusion. In that respect, the learned primary judge noted that there was no evidence that the taxpayer had ever queried the accuracy of the 2012 and 2013 financial statements of the Trust which also recorded the property as an asset owned by the Trust.

51    The foregoing findings were the product of compelling logic on the part of the learned primary judge. There is no basis for disturbing them.

52    The taxpayer’s brother had signed the transfer of land form which identified Lemnian as the transferee. He had also signed the financial statements of the Trust for the 2011 and 2012 years. There was no evidence that he had ever queried the accuracy of those accounts for those years or for the 2013 year. The brother could not recall any details other than that he and the taxpayer guaranteed the loan from the Bank of Queensland and that the property and another property were used as security. In those circumstances it was open to the learned primary judge to reject his evidence as being “far from satisfactory”; as being “vague, lacking in specifics and highly generalised”; and as being “contradicted by the objective circumstances”.

53    Mr Munro, the accountant, had prepared the 2011 and 2012 financial statements and tax returns for the Trust. Another accountant within his firm (Ms White) had prepared the Trust’s 2013 and 2014 financial statements (and had prepared the 2014 tax return). The 2014 accounts recorded the proceeds of sale as being an asset of the Trust. Mr Munro’s evidence was that the property had been recorded as an asset of the Trust “for convenience”. He was extensively cross-examined. Those questions and answers were carefully evaluated by the learned primary judge. Her Honour did not accept Mr Munro’s statement that Ms White had been aware that the property was held by Lemnian as trustee of a separate trust for the benefit of the taxpayer. That statement was contradicted by contemporaneous emails. Her Honour then found as follows at [39]-[41]:

Mr Munro’s evidence concerning why the property was transferred into the name of Lemnian was equally unreliable. Initially his evidence was “that’s what the Bank’s preference was, that we held it all together”. That evidence was not supported by the only contemporaneous documentary evidence, namely the email which he sent to Mr Huntington at the Bank of Queensland on 1 June 2011, copied to the taxpayer and Con Mingos, advising that:

It would be preferable if both the property title and mortgage documents were in the name of Leminan [sic] Investment Trust.

Faced with that email, Mr Munro then gave the self-serving evidence that:

MR MUNRO: On reflection, I meant Lemnian Investment Proprietary Limited.

COUNSEL: No, you didn’t. You just made the distinction between the trust and the company?

MR MUNRO: I’m saying to you that in my email there it’s an error. It’s not what I intended to say and it’s not consistent with the manner in which we’ve – we’ve – we’ve treated it in the books.

I reject as untruthful his evidence that what he said in the email to the Bank was in error. Against that evidence is the clear email instructing the Bank that the property title was to be in the name of the Trust, which I accept on its face was accurate and shows Mr Munro’s evidence to be demonstrably wrong in this respect. Later in his cross examination Mr Munro gave evidence that he “never recorded anything as showing that [the] property belonged to the [Trust]” as an asset of the Trust in the financial statements. I reject that evidence also as untruthful as the property plainly was accounted for in the financial statements as an asset of the Trust.

54    Once again, in our view, the foregoing findings proceeded logically from the evidence before the learned primary judge. Those findings should not be set aside by this Court. They have not been shown to be wrong by “incontrovertible facts or uncontested testimony”; they are not “glaringly improbable” or “contrary to compelling inferences”.

55    At the hearing of the appeal, Counsel for the taxpayer disclaimed awareness of the decision of the High Court in Robinson Helicopter and of this Court in Aldi. Citing Fox v Percy (2003) 214 CLR 118 at 128 [28]-[29], Counsel submitted that one could demonstrate appealable error by taking the Court to various statements in the affidavits of the three witnesses filed below and then to various statements made by those witnesses in cross-examination. Because, it was said, here those statements matched, or substantially matched, it followed that the primary judge must have erred in rejecting the evidence of each witness. With respect to Counsel for the taxpayer, that is not how one demonstrates that findings of fact are open to be set aside in conformity with Robinson Helicopter and Aldi. This matter was made all the more difficult when it was pointed out to Counsel for the taxpayer that, for example, the brother appeared to contradict himself during his cross-examination. At one point, the brother said he could not block the sale of the property. At another point, his evidence was that he would not have “permitted” a transfer of the property to the taxpayer. Counsel for the taxpayer submitted that on some occasions in cross-examination the brother did not understand what he was talking about. Assuming that to be so, the learned primary judge had, and this Court has, simply no means of knowing when a witness such as the brother was competent to give answers and when he was not.

56    The taxpayer submitted that the “Commissioner’s case theory” was flawed because it ignored rather than sought to explain the following:

Why did Lemnian treat in its accounts the monies advanced to the [taxpayer] as a loan?

Why did the accounts separate that loan and attribute all interest incurred in respect of that loan to the loan balance?

Why did the [taxpayer] pay all expenses associated with the property over the whole period it was held by Lemnian?

Why did the [taxpayer] allow his trust entitlements (distributions) to be used to offset or repay the loan balance?

Why did not Lemnian charge rent on the occupancy of the property by the [taxpayer]?

Why did Lemnian pay 100% of the profit on the sale of the property to the [taxpayer]?

57    We shall return to some of these issues. For the moment it may be observed that there was no onus or obligation on the Commissioner “to explain” anything. Rather, the onus was on the taxpayer to prove beneficial ownership of the property in the face of contemporaneous records that made it plain that the owner was Lemnian as trustee of the Trust. The taxpayer sought to contradict that evidence with the oral testimony of three witnesses. The trial judge, with good reason, simply preferred the contemporaneous evidence over the self-serving recollection of these witnesses. Moreover, the potential answers to the questions posed by the taxpayer above do not gainsay that the property was owned by Lemnian on the terms of the Trust nor do they demonstrate that beneficial ownership of the property was held by the taxpayer. For example, Lemnian paid 100% of the capital proceeds to the taxpayer because that is what, as trustee, it resolved to do. As for the loan account between the taxpayer and the Trust, the learned primary judge said at [56]:

… the entries in the loan schedule neither prove the asserted ‘sub-trust’ nor gainsay that the property was an asset of the Trust. Rather, such entries are equally consistent with what, in fact, actually happened – that is, the benefit flowed through to the taxpayer through the trust structure and distributions.

58    We respectfully agree with the foregoing finding.

59    The “contemporaneous evidence” relied upon by the taxpayer was an exhibit to the affidavit of the taxpayer setting out print-outs of a series of emails between Mr Munro and a Mr Huntington of the Hawthorn branch of the Bank of Queensland. These seem to be addressing how an outstanding tax debt of the taxpayer might have affected the loan from that Bank. In one email from Mr Huntington, he sought confirmation that settlement agents would be receiving a “Transfer of land from [the wife] to Lemnian Investments”. In another, reproduced above at [24], he noted that there was a change “in the transfer of land at settlement to reflect the transfer being consistent with the mortgage being [in the name of the taxpayer]”. Mr Munro responded, however, as follows:

It would be preferable if … both the property title and mortgage documents were in the name of Leminan [sic] Investment Trust.

In our view, this evidence does not support the taxpayer’s contention about ownership.

Did the taxpayer hold an equitable interest in the nature of an equity of redemption?

60    It was submitted that the property was given by the taxpayer by way of security on an assurance by Lemnian of redemption upon repayment of monies lent by Lemnian to the taxpayer. It was said that a mortgage of Torrens title land by absolute transfer operated to vest the legal title in the mortgagee (Lemnian) leaving the mortgagor (the taxpayer) with an outstanding unregistered equitable interest in the land. This “equitable interest” was said to be perhaps less than an absolute beneficial interest in the property, but nonetheless sufficient to constitute the type of “equitable interest” referred to in s 118-130 of the 1997 Act.

61    The evidence did not support the foregoing characterisation of what occurred. For one thing, as the Commissioner submitted, the accounts of Lemnian showed that it did not lend money to the taxpayer; rather the accounts disclosed a non-current liability owing to the taxpayer in the sum of $1,933,404. Moreover, the undisputed evidence is that Lemnian did not account to the taxpayer for the balance of the proceeds of sale (as it would have if it had been the mortgagee as alleged); rather it treated the proceeds as an asset of the trust and then distributed them to the taxpayer as a trust distribution.

62    It was also submitted that the transfer of the property secured the borrowings from the Bank of Queensland. It may be accepted that this was why Lemnian became the owner of the property. The taxpayer’s evidence was that the property was transferred to Lemnian so that the Trust could, in turn, use the property as security to borrow from the Bank of Queensland. There was no evidence, however, that the Bank had been told that the taxpayer was, as alleged, the true beneficial owner of the property. Counsel for the taxpayer was pressed about this issue. He was asked why the Bank of Queensland would be interested in taking a mortgage over a bare legal title in the property as security for the borrowing of $4 million. Counsel for the taxpayer said that the Bank was fully aware that Lemnian only ever held such bare legal title. He said that if Lemnian had ever defaulted in relation to its loan obligations, the Bank would enforce a personal guarantee from the taxpayer which was said to have been given. There were a number of problems with the submissions:

(a)    first, the Court was never taken to any evidence of the Bank’s alleged knowledge of who was said to be the true owner of the property. No witness from the Bank had ever been called to give evidence;

(b)    secondly, the suggested guarantee was simply not in evidence. At the hearing over the luncheon adjournment, Counsel for the taxpayer found a letter from a law firm to the taxpayer dated 8 May 2014 which noted that the taxpayer and his brother had provided the Bank of Queensland with “guarantees in relation to Lemnian’s obligations under the Facilities”, one of which was the loan of $4 million. The letter was tendered in evidence with no objection from the Commissioner. However, which “obligations” had been guaranteed were not identified by this letter and were not otherwise the subject of any evidence;

(c)    thirdly, the reason why Lemnian had been the borrower of money rather than the taxpayer was because of the properties it owned. There was no evidence before the Court that the Bank was content to secure a borrowing with a mortgage over a bare legal title because the taxpayer had sufficient assets to discharge any obligation that might arise as a guarantor of Lemnian’s obligations to the Bank; and

(d)    finally, it simply beggars belief that a bank would take a mortgage over bare legal title.

63    For these reasons the taxpayer’s contention is rejected. It is not otherwise appropriate to consider whether, as a matter of law, the suggested “equitable interest” was one which, if it had existed, would have satisfied s 118-130 of the 1997 Act.

Did Lemnian hold the property pursuant to a resulting or constructive trust?

64    The taxpayer submitted that a resulting trust arose because Lemnian did not pay anything for the property. In that respect, reliance was placed upon an item in the accounts of the Trust which recorded that it owed the taxpayer $1,933,404. The circumstances giving rise to that liability were explained by Mr Munro in his affidavit as follows:

At the time I recorded the residential home at 35 Regent Street, Mt Waverley in the books of the [Trust] at a value of $4,000,000. This was recorded as an amount of $2,050,000 representing the refinance sum of $750,000 and the $1,300,000 paid to his ex-wife.

The other side of that book entry was to recognise the mortgage debt owing to the [Bank of Queensland]. I recorded the balance of $1,950,000 as the market value determined at that time of $4,000,000 ($4,000,000 less $2,050,000). The other side of that book entry was to recognise a beneficiary entitlement owing to [the taxpayer] as the property was being held in trust for his sole benefit.

In the financial accounts the initial amounts paid (the $750,000 to discharge the mortgage, $1.3 million as part of the settlement and prepayment of interest) was treated as [the taxpayer’s] private portion of loans ... all costs associated with the property paid by the trust included property rates, land tax and that portion of the interest on the loans that was of a private nature) were then added to [the taxpayer’s] private portion of loans and [the taxpayer’s] beneficiary distribution entitlements from [the Trust] were used to offset and reduce that loan. Any other property costs paid by [the taxpayer] personally were never reimbursed by the [Trust].

65    The taxpayer contended as follows in his written submissions:

The evidence lead at the trial of this proceeding shows: (i) at the time when property was transferred to Lemnian, it had a market value far greater than the loans it made to the [taxpayer] to comply with the Orders, (ii) the borrowings made by Lemnian and made available to the [taxpayer] to enable him to comply with the Orders were treated as loans to the [taxpayer], (iii) all expense associated with the holding of the Property (interest, counsel rates, land tax … etc) were added to the loan balance and offset against trust entitlement. Upon sale of the property the proceeds were used to payout the loan.

It follows that on the evidence Lemnian did not provide consideration for the acquisition of the Property and, at all time[s] from the transfer of the property to Lemnian, the full equitable interest resided in the [taxpayer].

(Errors in original and footnotes omitted.)

66    The taxpayer also submitted in the alternative that a constructive trust arose on the facts here because it would be unconscionable for Lemnian to assert any beneficial title against the taxpayer.

67    The last submission can be easily dismissed. Lemnian has never asserted beneficial title in the property against the taxpayer. It has always held the property on trust in accordance with the terms of the Trust. Because Lemnian has never acted against its conscience there is no need for equity to supply any remedy such as a constructive trust: cf Ashton Mining Ltd v Federal Commissioner of Taxation [2000] FCA 590; (2000) 44 ATR 249.

68    As for the first contention, the accounts do not show any lending of funds to the taxpayer by Lemnian. Rather, they show the Trust owing amounts to the taxpayer (in the sum of $1,933,404). This is described in the accounts as a “Beneficiary Entitlement”. However, it was not contended that the Trust had ever made a resolution to distribute the Trust’s income or capital in the amount of $1,933,404 which had yet to be discharged. Rather, the entry made in the notes to the accounts called “Beneficiary Entitlements” in respect of the taxpayer would appear to have arisen from the need to balance the balance sheet in circumstances in which the Trust obtained property worth $4 million, and booked as such as an asset of the Trust, but had only expended $1.3 million and $750,000. It would appear that Mr Munro accounted for the difference by treating it as effectively a contribution made by the taxpayer to the Trust. That accounting treatment does not justify the separate resulting trust contended for by the taxpayer. Moreover, and in any event, because the learned primary judge correctly found that the parties intended that the property would be held by Lemnian on the terms of the Trust, there is simply no room for any resulting trust. It may be accepted that when a disposition has been made without consideration, a resulting trust may be found. If found, a court can look through whatever ostensibly is the legal nature or form of the transaction so as to enforce that resulting trust. However, that is a proposition in the abstract. In this appeal, the facts found by the learned primary judge were that the transaction that was entered into between the taxpayer and Lemnian was intended to be given effect consistently with what Lemnian’s accounts recorded. There was nothing “glaringly improbable” in her Honour’s conclusion: Counsel for the taxpayer did not submit that the property being held by Lemnian on the terms of the Trust was an inherently uncommercial mechanism. Those arrangements had facilitated the taxpayer obtaining funds from the Trust in circumstances referable to borrowings by the Trust from the Bank of Queensland which had been secured by the property.

69    At the hearing of the appeal, the taxpayer contended that his beneficial ownership of the property was evidenced by certain “side-accounts” which comprised three pages. These accounts were also said to evidence the making of loans to the taxpayer. As we understood it, these “side-accounts” were said to summarise the amounts owing to the taxpayer by Lemnian and the amounts owing by the taxpayer to that Trust from time to time. The first page was headed “Summary of Private Portion of Loans”. It appeared to allocate as “[The taxpayer’s] Private Portion %” parts of the loan from the Bank of Queensland. Another part of this page was headed “Summary of Interest Recovery from [the taxpayer]”. It appeared to record “Total Interest Recovery from [the taxpayer]” for the 2013 and 2014 years. The second page was headed “Schedule of Loan Account Transactions for [taxpayer]” for the period 1 July 2012 to 30 June 2014. A series of transactions were itemised under this heading. Some of these, by way of example, were called “Cash Cheque”; others referred to transfers to the taxpayer’s lawyers; some referred to distributions of profit. The third page was headed “Schedule of Loan Account Transactions for [the brother]”. Under that heading were listed a similar series of transactions.

70    Those documents do not establish the taxpayer’s case. There are three difficulties with the attempt to rely upon them. First, no witnesses were called to explain the content of the documents. Secondly, to the extent that they purported to record a loan between the taxpayer and the Trust, they were inconsistent with the annual financial statements of that Trust for the 2012 to 2014 years. As already mentioned, those financial statements record no loan between the taxpayer and the Trust. This discrepancy was never really explained by Counsel for the taxpayer. Thirdly, it would appear that Mr Munro did not prepare these documents; their author, who perhaps was Ms White, was never called to give evidence. For these reasons, we reject the taxpayer’s reliance upon these documents. They fall well short of the sort of accounts which were considered by Nettle J to prove the existence of a loan in VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221. At best, the entries these documents record may reflect familial understandings between the taxpayer and his brother as to how the assets of the Trust were to be divided up. As the taxpayer observed in cross-examination: “Well, it was a family thing”. Such fraternal understandings did not, on the facts of this case, give rise to any legal consequences.

Did Division 106 of the 1997 Act apply to treat Lemnian’s disposal of the property as an act done by the taxpayer?

71    The taxpayer submitted that s 106-50 was “not relevant” to the disposition of this appeal because s 118-130 was not limited to “equitable interests” that conferred an absolute entitlement to trust property as against the trustee of a trust. Alternatively, if the notion of absolute entitlement was relevant to the outcome here, the taxpayer asserted that he did enjoy an absolute entitlement to the property as against Lemnian.

72    The Commissioner submitted that because Lemnian held the property subject to the terms of the Trust, and because the taxpayer was only a discretionary object of that trust, the taxpayer did not hold an absolute entitlement to the property as against Lemnian so as to engage s 106-50. That submission should be accepted.

Rejection of the evidence led by the taxpayer

73    The taxpayer submitted that the learned primary judge wrongly rejected his evidence. His demeanour in the witness box was said to be explicable by the stroke he had suffered shortly before the trial. It was said that his evidence had been corroborated by the evidence of the taxpayer’s brother and by Mr Munro.

74    We do not agree with the foregoing submission. It is no more than an assertion that we should disagree with her Honour. Once again it falls far short of showing that her Honour’s findings about the quality of the taxpayer’s evidence were wrong by “incontrovertible facts or uncontested testimony” or “glaringly improbable” or “contrary to compelling inferences”. Moreover, it does not deal with evidence given by the taxpayer’s doctor that he had the mental capacity to give instructions to his lawyers and that he was also able to answer questions put to him in cross-examination provided he was given time to think about them and the questions were delivered slowly and softly. It was not suggested that this had not taken place. The learned primary judge was otherwise clearly aware of the taxpayer’s stroke and understood how this might have affected his demeanour in the witness box. His evidence was not rejected because of that demeanour but because it was internally contradictory and inconsistent with contemporaneous records. It was not corroborated by acceptable evidence given by the taxpayer’s brother and Mr Munro. For reasons already given, the evidence given by these two witnesses was justifiably rejected by the learned primary judge. It follows that the taxpayer failed to demonstrate that her Honour had erred in treating their evidence in this way.

Jones v Dunkel inference

75    The taxpayer also submitted that the learned primary judge erred in drawing an adverse inference from the failure to call Ms White. It was said that the Commissioner had never relied upon Jones v Dunkel, and that the taxpayer had been given no notice that such an inference might be drawn from the failure to call Ms White. It was also said that her evidence was not critical because she was not involved in the events which had taken place in 2011.

76    We do not agree with this submission. Ms White prepared the Trust’s 2013 and 2014 financial statements and the 2014 tax return. These documents demonstrated that Lemnian was the owner of the property, that it received the proceeds of sale of that property and that it distributed the resulting capital gain to the taxpayer in accordance with the terms of the Trust. These documents supported the drawing of an inference that the taxpayer was not the beneficial owner of the property. The failure to call Ms White increased the probability that this inference was accurate: Commissioner of Taxation v Cassaniti [2018] FCAFC 212 at [93].

77    In our view the Court was not precluded from deciding that an obvious inference about ownership of the property became all the more probable because of the failure to call Ms White. The taxpayer was represented by a legal practitioner who no doubt made a forensic decision not to call Ms White in the face of the contents of the 2013 and 2014 financial statements and the 2014 tax return which she had prepared. With knowledge of the rule in Jones v Dunkel, which we attribute to that practitioner, that decision was made. The risk was taken. In those circumstances, it was open to the learned primary judge to rely upon the absence of Ms White in deciding that the taxpayer had not discharged his onus of proof.

Administrative Penalty

78    It will be recalled that the Commissioner had assessed the taxpayer to a penalty, which was equal to 75% of the primary tax assessed. That is because the taxpayer had not lodged a return. The taxpayer asserted that s 284-75(3) of Sch 1 to the TAA, as set out above, was not satisfied because there was no “tax-related liability” that the Commissioner needed to determine. That assertion is misconceived. The tax-related liability the Commissioner was required to determine was the taxpayer’s liability as a beneficiary of the Trust. In addition, the Commissioner pointed out that the taxpayer had annexed to his affidavit below a draft income tax return disclosing other income, which the taxpayer conceded he had derived. The relevance of this “other income” was, with respect, not apparent to us. That is because for a penalty under s 284-75(3) to arise a condition that must be satisfied is that the Commissioner has determined the tax-related liability “without the assistance” of, in this case, an income tax return. There was no evidence before the trial judge which demonstrated that this condition was not satisfied.

79    It was finally submitted that the Commissioner should have remitted this penalty in whole or in part “because at all relevant times the [taxpayer] acted reasonably and took all steps necessary and expected of any taxpayer in his circumstances to ensure full and proper compliance with the taxation legislation”. That submission is misconceived. Given that this a Pt IVC appeal, the role of this Court in considering an exercise of a power to remit by the Commissioner is in the nature of judicial review. The Court can only set aside such a decision by the identification of an error or errors of law in the process of the exercise of that power. That is because the power to remit is reposed in the Commissioner; the Court itself has no such power. The submissions of Counsel for the taxpayer did not engage with that simple proposition. The record of the decision made by the Commissioner which he sought to impugn was never identified. No error of law was thus ever established.

80    At the hearing of the appeal, Counsel for the taxpayer also submitted that the Commissioner had erred in not taking into account certain “medical” information about the taxpayer which comprised certain reports dated 7 March 2016 and 13 January 2018. There was, however, no evidence that the Commissioner knew about this information when he made his objection decision on 29 January 2018. That deficiency was not cured by Counsel for the taxpayer at the bar table asking the Commissioner’s Senior Counsel to confirm whether or not the Commissioner had knowledge of the taxpayer’s medical condition at that time. The taxpayer relevantly bore the onus to make good his contention.

81    Two more matters should be mentioned:

(a)    first, the taxpayer faintly pressed a right of occupancy for the purposes of s 118-130 of the 1997 Act. It was said that this should be inferred from the fact that until its sale the taxpayer had lived at the property and paid for its upkeep. In our view, this de facto occupation of land does not support, without more, a legal right to occupy the property for the purposes of s 118-130. In any event, as the Commissioner had observed, even if the taxpayer held such a right, that was not the CGT asset sold here; and

(b)    secondly, Senior Counsel for the Commissioner, Mr E.F. Wheelahan, Q.C., drew to the Court’s attention the decision of the House of Lords in Vandervell v Inland Revenue Commissioners [1967] 2 AC 291. Because the Court has dismissed the taxpayer’s appeal, it is unnecessary for us to say anything about that decision.

82    This appeal should be dismissed with costs.

Associate:

Dated:    29 November 2019

REASONS FOR JUDGMENT

DERRINGTON J:

83    I agree with the orders and reasons of Kerr and Steward JJ.

Associate:    

Dated:    29 November 2019