Federal Court of Australia

McPartland v Commissioner of Taxation [2025] FCAFC 23

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondent’s costs of and incidental to 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

THE COURT:

1    By a notice of appeal dated 17 November 2023 the appellant taxpayers, Mr and Mrs McPartland, appeal from the orders of the primary judge in McPartland v Commissioner of Taxation [2023] FCA 1260. The primary judge had dismissed their appeal from a decision of the then Administrative Appeals Tribunal brought on two questions of law pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth).

2    For reasons we explain, we are not persuaded that any error has been shown in the conclusion of the primary judge. Rather, largely for the reasons set out in the submissions advanced on behalf of the respondent Commissioner of Taxation, the appeal should be dismissed. It is therefore unnecessary to consider the notice of contention filed by the Commissioner.

BACKGROUND

3    The appellants had not lodged income tax returns for the financial years ended 30 June 2015, 2016 and 2017, and their income tax liabilities for those years were audited by the Commissioner. The Commissioner also audited the affairs of companies controlled by the appellants, namely Mac-Attack Rentals Pty Ltd (Mac-Attack) and HD Downunder Pty Ltd (HD Downunder).

4    By compulsory notices to relevant banks, the Commissioner had obtained statements for various bank and credit card accounts held by the appellants. Not being able to establish the appellants’ correct taxable income, the Commissioner issued “default” assessments pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA).

5    The method that the Commissioner used in arriving at the default assessments was to identify, from the bank statements available, the appellants’ personal expenditure and to treat the total amount of that personal expenditure in each year as the appellants’ taxable income. The Commissioner assessed the appellants’ taxable income in amounts equalling their total personal expenditure, specifically $328,533.28 in the year ended 30 June 2015, $364,963.76 in the year ended 30 June 2016 and $242,075.28 in the year ended 30 June 2017, divided equally between them.

6    The appellants objected to the default assessments on grounds that alleged (among other things) that their personal expenditure was less than that calculated by the Commissioner in the audits and that the expenditure was funded from non-taxable sources of income, including money in the nature of repayments of a loan owed to them by Mac-Attack.

7    The Commissioner disallowed the objections, including on the basis that the personal expenditure was no less than that identified in the audits and that there was no genuine loan agreement in existence between the appellants and either company (Objection Decision).

8    The appellants applied to the Tribunal for review of the Objection Decision under s 14ZZ(1)(a)(i) of the Taxation Administration Act 1953 (Cth) (TAA). In the exercise of its powers of review the Tribunal was bound to apply s 14ZZK of the TAA. That section relevantly provides:

On an application for review of a reviewable objection decision:

(a)    the applicant is, unless the [Tribunal] orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)    the applicant has the burden of proving:

(i)    if the taxation decision concerned is an assessment—that the assessment is excessive or otherwise incorrect and what the assessment should have been;  …

9    The Tribunal concluded that the appellants had not discharged the burden referred to in s 14ZZK(b)(i) and so affirmed the Objection Decision:  McPartland v Commissioner of Taxation [2022] AATA 686.

10    The appellants’ appeal, which was heard by the primary judge, raised two questions of law: whether the Tribunal had misunderstood and, or alternatively, misapplied s 14ZZK(b)(i) of the TAA; and whether the Tribunal had otherwise erred in the discharge of its fact finding functions.

11    Although the primary judge accepted that the appellants had identified some errors in the reasoning of the Tribunal, her Honour did not regard these as errors of law. Nor did the primary judge accept that the Tribunal misunderstood or applied s 14ZZK of the TAA. Further, and critically, her Honour determined that the appellants had not shown that the material before the Tribunal was capable of supporting a finding as to what the assessments ought to have been. In particular, the primary judge regarded as unassailable the Commissioner’s submission that the appellants could not discharge their onus under s 14ZZK(b) of the TAA because they had not disclosed all facts relevant to the ascertainment of their taxable income (including information redacted from credit card statements for an Earth Black credit card which the appellants acknowledged related to personal expenditure). Thus the primary judge determined that remittal of the application for review by the Tribunal would have been futile as the only available conclusion on remittal would have been that the taxpayers had not discharged their onus, and dismissed the appeal.

The STATUTORY REGIME and applicable principles

12    As will be apparent from the language of the sub-section, s 14ZZK(b)(i) of the TAA requires the appellants to have proved in the Tribunal that the assessments were excessive or otherwise incorrect and what the assessment should have been: see Bosanac v Commissioner of Taxation (2019) 267 FCR 169 at [47] (Greenwood, Burley and Colvin JJ) (Bosanvac); Buzadzic v Commissioner of Taxation [2024] FCAFC 50 at [7]-[8] (Bromwich, Abraham and McEvoy JJ); Gashi v Federal Commission of Taxation (2013) 209 FCR 301 at [61]-[63] (Bennett, Edmonds and Gordon JJ) (Gashi); Rigoli v Federal Commissioner of Taxation (2014) 96 ATR 19 at [26] (Edmonds, Jessup and McKerracher JJ). A careful distillation of the nature of the onus of proof and the principles is set out by Derrington J in Commissioner of Taxation v Ross (2021) 174 ALD 77 at [46]-[48].

13    A taxpayer’s burden in challenging an assessment made pursuant to s 167 is to establish on the balance of probabilities their “actual taxable income” and, in so doing, show that the amount of money for which tax was levied exceeded their actual substantive liability: Gashi at [63], citing Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621, 623-625 (Dalco).

14    The taxpayer cannot discharge their burden only by showing that the Commissioner erred in the formation of his assessment for the purposes of s 167 of the ITAA: Dalco at 621; Gashi at [62]; Bosanac at [35], [47]-[48].

15    The taxpayer bears the onus on all issues, save where the Commissioner and taxpayer agree to confine the issues to a particular point of law or fact, in which case the taxpayer bears the onus in respect of those: Dalco at 624. No particular method by which the taxpayer must discharge their burden is defined or specified. The method will vary according to the circumstances of the case: Gashi at [63], citing Dalco at 624.

The appellants’ case in the Tribunal

16    It should be observed at the outset that in the Tribunal there was no agreement between the appellants and the Commissioner to confine the issues. It follows that the appellants were required before the Tribunal to establish both limbs of s 14ZZK(1)(b)(i) of the TAA, namely that for each assessment “the assessment is excessive or otherwise incorrect” and “what the assessment should have been”.

17    The case advanced by both appellants was that their taxable income for each relevant year was zero. The appellants sought to establish that they had funded their personal expenditure from four non-assessable sources, that is:

(a)    their Centrelink benefits;

(b)    advances from Mac-Attack by way of repayment of a loan account owed to them by that company;

(c)    the proceeds of sale of private assets (cars, motorcycles and a jet ski); and

(d)    an overdraft facility with the Australia and New Zealand Banking Group Limited.

18    In this context it may be accepted, as the Commissioner submits, that the appellants needed to achieve two forensic outcomes in the Tribunal. One was to establish non-assessable sources of funds sufficient to meet their personal expenditure in each relevant year. That exercise was necessary in a practical sense because the audit had highlighted a significant difference between the amount of the appellants’ personal expenditure and the amount of income they admitted receiving (that is, their Centrelink benefits). However, that exercise alone would not have discharged the burden imposed on the appellants by s 14ZZK(b)(i) of the TAA.

19    The second forensic outcome the appellants needed to achieve to discharge the burden imposed by s 14ZZK(b)(i) was to prove their actual taxable income on the balance of probabilities, that is “what the assessment should have been”. As the Commissioner submits, in simple cases this will involve the taxpayer establishing a net amount. That is, the taxpayer’s assessable income less their deductions: ss 4-15 of the ITAA. However, in circumstances where the appellants maintained that their taxable incomes were zero, this exercise required them to exclude having derived assessable income from any source.

20    It was not enough, however, for the appellants simply to deny other sources of income. The appellants openly accepted that throughout the relevant period they, or an entity they controlled, had operated a business that imported and sold motorcycles. The appellants operated without maintaining a separation of their own affairs and those of their business. As the primary judge correctly noted (at [3]), the appellants personal and business financial affairs were intermixed and dishevelled.

21    The bank records in evidence before the Tribunal showed that business and personal transactions were intermingled in various bank and credit card accounts in the appellants’ names and in their companies’ names. No contemporaneous reconciliation of business and personal expenditure was undertaken. The appellants were unable to explain certain cash deposits to their accounts, despite accepting they had received cash for sales of personal assets and accepting that certain unexplained deposits could have been payments for motorcycles.

22    Indeed, the appellants had initially contended in the Tribunal that a significant part of the business that imported and sold motorcycles had been carried on not by their companies but by a partnership in which the appellants themselves were the partners. They contended that, because the import and selling business was carried on by the partnership, they had no assessable income associated with that business. The appellants later moved away from this partnership contention, after the Tribunal observed that the income of a partnership is attributed to the partners. Ultimately the appellants claimed that it did not matter which entity had conducted the importing and selling business because “at the end of the day it still shows that [they] didn’t have an income”.

23    In these circumstances, as the Commissioner correctly submitted, the task of excluding assessable income from other sources required the appellants to address the inference that profits of their business were being paid to them or applied for their benefit, and constituted their income. As has been mentioned, the appellants contended in this regard that funds paid to them by their companies were repayments of a loan owed to them by Mac-Attack. The appellants otherwise advanced no substantive material enabling an accounting for the profits of their business, or to exclude those profits as a source of income for them.

the appellants’ grounds of appeal

24    The appellants challenge the primary judge’s dispositive conclusion that it would have been futile to remit the review application. Although it may fairly be observed that the appellants’ submissions go further than their notice of appeal as filed, the Commissioner approached the appeal on the basis of the way in which it was argued in the appellants’ written outline of submissions. That is, that the appellants’ written submissions were directed to the issue of whether remittal to the Tribunal would have been futile. In this regard it may be accepted that the appellants’ effective grounds of appeal are as follows:

(1)    The Tribunal’s rejection of the appellants’ contention that amounts advanced to them by Mac-Attack were repayments of a loan was unreasonable and an erroneous discharge of its fact finding amounting to an error of law.

(2)    The primary judge erred in concluding that the appellants’ Earth Black credit card was unassailable evidence that they had not disclosed all relevant facts and therefore could not discharge their onus under s 14ZZK(b)(i) of the TAA.

(3)    The appellants had established that their taxable income was zero because they demonstrated that, after accounting for non-taxable sources of funds, their income for the relevant years was below individual tax free thresholds.

(4)    The appellants had established that their taxable income was zero because written advice provided by RA Veitch & Co, a chartered accountant, established that they had no taxable income.

25    At the hearing of the appeal, the appellants relied on their written submissions without any substantial elaboration.

26    We consider the appellants’ grounds of appeal as identified in their written submissions as follows.

Ground One

27    The appellants submit that the Tribunal’s conclusion that they contributed no capital funds or otherwise advanced any funds in the form of a loan to Mac-Attack is unreasonable and an erroneous discharge of its fact finding amounting to an error of law. They contend that the Tribunal’s reliance on the fact that the auditors “said” that the audits had “established” that the appellants had not provided capital funds, and nor were the loan facilities in place, ignores the reality that Mac-Attack’s business operations were in fact financed by them. The appellants maintain that at all relevant times there was in fact a loan from them to Mac-Attack.

28    The primary judge dealt with a similar ground of appeal (at [48]-[67]).

29    We accept the Commissioner’s submission that this submission by the appellants is no more than a complaint about fact finding.

30    To the extent the appellants repeat their contention that the Tribunal failed to address evidence and contentions about how the loan first came into existence, or draw conclusions or inferences that were legally unreasonable, we reject this submission for the reasons given by the primary judge. Ground one must fail.

Ground Two

31    The appellants also contend that all the statements for their Earth Black credit card were disclosed or otherwise available to the auditors or the Tribunal, so the existence of that credit card was not, as the primary judge had found, unassailable evidence that they had not disclosed all relevant facts and therefore could not discharge their onus under s 14ZZK(b) of the TAA. They say also that during the relevant period they held no other credit cards, credit facilities or bank accounts of any material significance, other than those they had disclosed.

32    The appellants’ submission would seem to be a challenge to the primary judge’s finding (at [139]) that they had not put forward to the Tribunal all of the material relevant to the calculation of their taxable income

33    However, the Earth Black credit card ledger demonstrated that there was considerable personal expenditure (exceeding $92,000 in one year, so the primary judge noted (at [134])) that had not been taken into account in the audit.

34    The ledger also recorded deposits exceeding $173,000 for the 2015 year alone. Some $26,450 of these were transfers from other accounts included by the auditor as part of the appellants’ personal expenditure. Two deposits (totalling $34,000) were by bank cheque drawn on Mac-Attack’s bank account. The balance, however, totalling over $113,000, were cash, cheque and BPAY deposits from unexplained sources.

35    It is clear that the appellants did not attempt to demonstrate to the Tribunal how their various accounts reconciled. When asked about the purpose of certain cash deposits onto the Earth Black credit card, Mr McPartland said to the Tribunal:

… Where the funds came from, I don’t know. It might have come out of one of the other accounts. We haven’t cross referenced anything….

36    The evidence before the Tribunal also disclosed the existence of other bank or credit card accounts for which there were no statements, or incomplete statements.

37    The primary judge’s finding (at [139]) was not that the Earth Black credit card ledger was incomplete, but that it highlighted a wider deficiency in the appellants’ proof. It highlighted that, by failing to explain – or even disclose – all of their bank transactions, the appellants had failed to place before the Tribunal all of the material relevant to the calculation of their taxable income. Her Honour’s conclusion in this regard was unimpeachable and ground two must fail also.

Ground Three

38    Ground three is no more than an unsustainable submission that the appellants’ taxable income was zero, and that this is demonstrated by establishing three non-taxable sources of funds which were sufficient in amount to explain their personal expenditure. The submission is exemplified by the table set out in the primary judge’s reasons (at [125]), and her Honour’s explanation of that table (at [126]).

39    No question of law is identified by ground three. It cannot overcome the Tribunal’s rejection of the appellants’ submission that payments they received were repayments of a loan made to Mac-Attack. In any event, as has been explained, the appellants do not discharge their onus of proof merely by establishing the sources of their personal expenditure. Ground three must fail also.

Ground Four

40    By ground four the appellants contend that they established that their taxable income was zero because written advice provided by RA Veitch & Co established that they had no taxable income. They do not identify the written advice to which they refer.

41    No question of law is identified by this ground either. The appellants’ submissions do not identify the written advice provided by the accountant that they rely upon. Not only that, the appellants did not rely on written advice provided by the accountant before the primary judge. The appellants were represented by solicitors and counsel before the primary judge and no explanation is offered on the appeal for the failure to take this point below. There is accordingly no basis for the appellants to have leave to rely on this ground here: see DKY22 v Minister for Immigration, Citizenship and Multicultural Affairs (2024) 302 FCR 25 at [64]-[71] (SC Derrington, Goodman and Raper JJ); Sun v Minister for Immigration and Border Protection (2016) 243 FCR 220 at [89] (Flick and Rangiah JJ); VAUX v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 238 FCR 588 at [48] (Kiefel, Weinberg and Stone JJ).

42    In any event, the appellants did not refer to written advice by the accountant before the Tribunal showing that they had no taxable income (and the accountant was not called as a witness). The primary judge found (at [39]), that the appellants did not lodge any statement of facts issues and contentions; did not otherwise directly provide the Tribunal with any written statement; and did not ask the Tribunal to treat a submission (Exhibit 3) in its entirety (which had been prepared for them by lawyers at the pre-hearing stage) as encapsulating their case on review.

43    The appellants made reference orally before the Tribunal to “what Robert Veitch [the accountant] has done” and in that context, they directed the Tribunal to Annexure E of the Exhibit 3 submission. In closing before the Tribunal, the appellants placed reliance on certain emails from Mr Veitch to the objection officer. However, these emails were not in the bundle prepared by the appellants’ solicitors for the appeal before the primary judge. No proper basis is advanced for placing reliance on these emails now: see s 27 of the Federal Court of Australia Act 1976 (Cth); r 36.57 of the Federal Court Rules 2011; and Sobey v Nicol (2007) 245 ALR 389 at [68]-[74] (Branson, Lindgren and Besanko JJ). The inference we draw is that a forensic choice was made not to rely on these emails below. They were directed to explaining transactions on a loan account between Mac-Attack and the appellants. The Tribunal did not overlook these emails or their attachments. We accept that their content was of no assistance because the Tribunal rejected the appellants’ loan contention.

44    Insofar as the appellants place reliance on Annexure E to the Exhibit 3 submission to which reference has been made, we accept the Commissioner’s submission that that document is not capable of establishing that the appellants had no taxable income. Annexure E extracts tables from the objection decision for Mac-Attack and HD Downunder. The objections were not determined simply on a basis of acceptance of material provided by the appellants.

45    In the circumstances ground 4 must fail also.

CONCLUSION

46    We note, finally, that the appellants made a miscellany of other submissions, including that they were honest and had been affected by the defaults of their previous accountants, that the Commissioner as a model litigant ought not to have put them to proof, that had the application before the Tribunal been “properly prosecuted” it would have succeeded, and that the existence of other proceedings in the Tribunal concerning companies they control is itself a sufficient reason to remit this proceeding to the Tribunal. None of these submissions are reflected in any ground of appeal and they provide no basis for discerning error on the part of the primary judge.

47    Each of the grounds of appeal advanced in submissions by the appellants having failed, the appeal must be dismissed. It is therefore unnecessary to consider the Commissioner’s notice of contention.

48    The Commissioner should have his costs of and incidental to the appeal, to be agreed or assessed.

Associate:

Dated:    12 March 2025