FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Cheung [2026] FCAFC 75

ORDERS

THE COURT ORDERS THAT:

1.    The appeal is allowed.

2.    Paragraphs 1 to 3 of the orders made on 29 November 2024 and paragraph 1 of the orders made on 11 December 2024 in proceeding QUD 367 of 2021 are set aside and, in substitution thereof, there be orders as follows:

1.    The appeal be allowed to the extent that the Commissioner has conceded that an excess of $1.16 million was included in the assessment of Mr Cheung’s income in the relevant income years.

2.    The appeal is otherwise dismissed.

3.    The assessments be remitted to the Commissioner for reassessment in accordance with the concession described in order 1.

4.    The applicant is to pay the Commissioner’s costs of and incidental to the originating application.

3.    The respondent is to pay the appellant’s costs of and incidental to this appeal.

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

REASONS FOR JUDGMENT

THE COURT:

1 This appeal relates to the income tax liabilities of the respondent, Mr Lin Jum Cheung.

2 In accordance with s 6-5(1) and s 6-5(2) of the Income Tax Assessment Act 1997 (Cth).  Mr Cheung’s assessable income included income according to ordinary concepts, derived “directly or indirectly from all sources, whether in or out of Australia”.

3 For the purposes of default assessments, the appellant, Commissioner of Taxation, concluded that in the 11 income years from 2005 to 2015 inclusive (relevant period) Mr Cheung had two sources of ordinary income totalling more than $30 million.  In these reasons they will be referred to as:

(1)    Deposits comprised of:

(a)    Bank Deposits made into bank accounts held by Mr Cheung or his wife;

(b)    Third Party Deposits, being two deposits found by the Commissioner to have been made to third parties at Mr Cheung’s direction in the 2015 income year; and

(2)    Interest.

4 There is no dispute that the Interest is ordinary income. It is also common ground that Mr Cheung is a resident of Australia for tax purposes, that he lodged no tax returns in the relevant period and that he had no allowable deductions.

5 The Deposits had their source in a business trading in Vanuatu under the name Au Bon Marche (ABM Business).  The Commissioner determined that the Deposits were income derived from Mr Cheung’s association with the ABM Business, whether by virtue of him having an ownership interest in it, or by virtue of services he had rendered to it.

6 Mr Cheung’s objection to the default assessments was partially successful.  The revised assessments on the Commissioner’s Objection Decision were that Mr Cheung’s taxable income in each income year was as follows:

7 There is a $2.00 discrepancy between the total of the Deposits in that table and the amount in dispute ($32,799,582).  Nothing turns on that for the purposes of this appeal.

8 Mr Cheung appealed from the Objection Decision under s 14ZZ(1)(a)(ii) of the Taxation Administration Act 1953 (Cth) (TAA).

9 Allowing the appeal, the primary judge concluded that none of the Deposits constituted income under ordinary concepts.  His Honour set aside the Objection Decision and ordered that Mr Cheung’s income tax liability be assessed on the footing that his only income in the relevant period was the Interest: Cheung v Commissioner of Taxation [2024] FCA 1370 (J).

10 The primary judge reasoned as follows:

(1)    Mr Cheung’s elder sister (Mrs Graziella Leong) was the sole owner of the ABM Business having originally taken sole ownership following her separation from her husband in 1978 (J, [28], [40], [43], [58], [66]);

(2)    Mr Cheung commenced working for the ABM Business from 1978 to assist his sister in a time of need (J, [50]);

(3)    Mr Cheung remained involved in the conduct of the ABM Business as it evolved, working in the capacity of “general manager”, answerable to Mrs Leong (J, [54]);

(4)    Mr Cheung resigned from the position of general manager in 2000 including because he was suffering from health issues (J, [56]);

(5)    thereafter, his ongoing connection with the business was limited to family/domestic arrangements, lending his experience and wisdom to family members (J, [59], [60]);

(6)    as the owner of the business, the profits of the business were enjoyed by Mrs Leong, to be disposed of in her absolute discretion (J, [70]); and

(7)    the payments were in the form of a sui generis gift from Mrs Leong to Mr Cheung, subject to non-legal obligations to be used for the benefit of the wider Cheung (including Leong) family, but otherwise available to Mr Cheung for his absolute use (J, [59], [63], [66], [69], [71]).

11 That state of affairs was found by the primary judge to have been explained by deeply rooted Chinese traditions concerning familial responsibility, loyalty, affection and assistance.  The findings culminated in the following passage (J, [85]):

The Commissioner’s case that the payments were returns in respect of an ownership interest by [Mr Cheung] in the ABM business fails on the facts.  So, too, does an alternative submission that they were payments in the nature of a return for services rendered.  It was, I apprehended, also submitted that some of the payments were in the nature of rent in respect of sites in which, directly or indirectly, [Mr Cheung] had an interest.  On the facts, none were.  Neither were the payments in the nature of a pension in respect of past services to the ABM business.  They were not income in [Mr Cheung’s] hands in any sense.  They were just gifts of capital voluntarily made by a loving sister who has an acute sense of family loyalty and responsibility and who has enjoyed good fortune in business for [Mr Cheung], a loved brother respected for his business judgement and like sense of family loyalty and responsibility, to invest as he saw fit and to draw upon personally if he saw fit.

12 The Commissioner appeals from the judgment on three grounds.

13 Ground 1 alleges that the primary judge erred in finding that Mr Cheung’s sister, Mrs Leong, was the sole owner of the ABM Business from all times since 1978 and that she had available to her, for her personal use, the funds the ABM Business generated, “because his Honour ought to have found” that Mr Cheung:

(1)    was involved in the ABM Business from 1974;

(2)    had been the managing director of the ABM Business, including after his retirement from the role of general manager in the year 2000;

(3)    did not provide gratuitous services to the ABM Business; and

(4)    had an ownership interest in the ABM Business.

14 Ground 2 alleges that the primary judge erred in finding that:

(1)    the Deposits were paid by Mrs Leong to Mr Cheung pursuant to an arrangement by which he was beneficially entitled to interest and legally entitled to the Deposits, subject always to a familial obligation or duty to invest the money for the benefit of the wider family or to pay suppliers of the ABM Business at Mrs Leong’s convenience;

(2)    the Deposits were gifts of capital from Mrs Leong to Mr Cheung, made voluntarily and drawn from her income coming into her own hands in the conduct of the ABM Business;

(3)    since 1979, Mr Cheung invested and managed funds in Australia for the benefit of and on behalf of the wider family (primarily through a corporate investment vehicle Ah Pow Pty Ltd);

(4)    Mr Cheung had never had any expectation of reward for his role as a director or shareholder of Ah Pow Pty Ltd because this would be antithetical to deeply entrenched family values; and

(5)    the Deposits (other than those used to pay the expenses of the ABM Business) were in fact used or invested by Mr Cheung for the benefit of the wider family.

15 In support of Ground 1 and Ground 2, the Commissioner contends that the impugned findings were contrary to the evidence and otherwise resulted from a miscarriage of the fact finding process.

16 Ground 3 alleges that the primary judge ought to have concluded that Mr Cheung had failed to discharge his burden to prove that the Deposits were paid to him in circumstances where he had an ownership in interest in the ABM Business or, alternatively, that they were not made from the ABM Business to him as payments for services he had rendered.

17 Further in support of Ground 3, the Commissioner contends that the case advanced at first instance by Mr Cheung was colourable and that the notion that sums totalling $31 million were gifted to him on a regular and sustained basis over the relevant period was fanciful.  The Commissioner contends that the objective evidence about Mr Cheung’s involvement in the conduct of the ABM Business and with his family more generally was inconsistent with the cultural and family practices he had asserted and that his related assertion that the Deposits were advanced gratuitously should not have been accepted.

THE TAX PAYER’S ONUS

18 At first instance, the onus was on Mr Cheung to prove (on the balance of probabilities) not only that the assessments were excessive (or otherwise incorrect), but also to prove what the assessments ought to have been: TAA, s 14ZZO(b).

19 Mr Cheung’s onus was reinforced in the Commissioner’s appeal statement before the primary judge, in which it was made plain that the Commissioner relied on s 14ZZO of the TAA and confirmed that, “save for any facts expressly agreed or admitted in writing” the Commissioner put Mr Cheung to proof of all facts he asserted to establish that the assessments were excessive.

20 In Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, Brennan J (as his Honour then was) described the practical effect of the burden of proof under a predecessor to s 14ZZO(b) of the TAA as follows (at 623-624):

The manner in which a taxpayer can discharge that burden varies with the circumstances.  If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point.  Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection.  In Gaud v. Federal Commissioner of Taxation, Mason J. said:

‘The Act does not place any onus on the Commissioner to show that the assessments were correctly made.  Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.  The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.’

That view, expressed in a dissenting judgment, now prevails: Macmine Pty. Ltd. v. Commissioner of Taxation; McCormack’s Case.

…

The majority of the Full Federal Court in the present case treated the error which they held to infect the Commissioner’s assessment of the amount of the taxpayer’s taxable income as concluding the question whether that amount was excessive.  It did not.  If this were a case where all the material facts were known and the amount of taxable income depended on the legal complexion of those facts, the taxpayer would succeed upon establishing that the Commissioner erroneously included in the assessed taxable income an amount which, on those facts, ought not to have been included.  But where, as here, the taxpayer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong.  A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed.  If it were not for s. 190(b), the process of assessment might have to be repeated whenever on appeal an error affecting the amount assessed were found.  But s. 190(b), coupled with s. 200, brings to finality the ascertainment of the taxpayer’s liability in respect of the income period to which the assessment relates.  Unless the amount of the assessment is found to be excessive in the sense of being greater than the taxable income on which tax ought to have been levied, the taxpayer fails on his appeal.

(footnotes omitted)

21 There was at first instance an express concession by the Commissioner that there should be a reduction in the assessments in the amount of $1,162,023.00 (referable to amounts drawn by Mr Cheung for the purpose of paying suppliers of the ABM Business).  In the outcome of this appeal, there will be an order reducing the assessments by that amount.  An error of the primary judge in misdescribing the nature and amount of that concession is immaterial.

22 Mr Cheung’s explanation for his receipt and disposition of the Deposits was that alleged in his appeal statement.  It includes a detailed factual narrative of the history of the ABM Business.  The three broad facets of the narrative were that: (1) Mr Cheung had significant involvement in the ABM Business, “helping out” his sister and assuming the position of “general manager” from shortly after he commenced work there; (2) his sister, as the owner of the ABM Business, was able to deploy its profits as she saw fit; and (3) the Deposits were made by his sister as a gift made at her absolute discretion.  Mr Cheung described a course of business dealings and arrangements said to be “consonant with … Chinese traditions” or that arose in a “Chinese family context” and that revealed a “deeply rooted Chinese way of looking after the family”.  His appeal statement summarised the cultural context as follows:

31    To say that [Mrs Leong] was ‘gifting’ money to Mr Cheung does not reveal the deeply rooted Chinese way of looking after the family.  Mr Cheung was not a prodigal.  It was as if [Mrs Leong] was investing the money herself, knowing that her brother was doing what was best for the broader family and that they would all continue to prosper.  The historical Anglo-Saxon analogue would be retired parents purchasing investments for their children out of their accumulated after-tax wealth, in the expectation that they would prosper and have the ‘good manners’ to look after them through retirement: see Commissioner of Stamp Duties v Byrnes.

(footnote omitted)

23 This appeal proceeded on the basis that the narrative put forward in the appeal statement reflected Mr Cheung’s grounds for objection to the default assessments.  He advanced no alternate explanation to characterise the funds forming the subject matter of the assessments, nor did he seek leave to amend or depart from his objection grounds.  With the exception of the concession concerning two payments mentioned earlier, he was put to proof on the whole of it.

THE NATURE OF THIS APPEAL

24 On this appeal, the Full Court is bound to conduct a real review of the evidence and of the reasons given at first instance, in order to determine whether the primary judge committed the errors of fact or law asserted by the Commissioner: Robinson Helicopter Company Inc v McDermott [2016] HCA 22; 331 ALR 550 at [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ).  The duty of the Court is to weigh the evidence and draw its own inferences and conclusions: Lee at [56].

25 The Court’s review function is to be performed with the onus and standard of proof borne firmly in mind.  At first instance there was no obligation on the Commissioner to erect and prove an alternative factual scenario in competition to that posited by Mr Cheung to any forensic standard at all.  Nor did such a requirement arise on this appeal.  The Commissioner’s task was not to defend the correctness of the Objection Decision or to prove any fact underpinning it.

26 As to the standard of proof, as Campbell JA explained in Brown v New South Wales Trustee and Guardian [2012] NSWCA 431 at [52]:

… To satisfy an onus of proof on the balance of probabilities is not simply a matter of asking whether the evidence supporting that conclusion has greater weight than any opposing evidence.  As well, both under the common law and also under s 140 Evidence Act 1995, the evidence must be enough to enable the court to feel actual persuasion that a particular fact is so: Helton v Allen (1940) 63 CLR 691 at 712; Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262 at [136]; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v ACCC [2007] FCAFC 132; (2007) 162 FCR 466 at [31]; R v Galli [2001] NSWCCA 504; (2001) 127 A Crim R 493 at [55]; Nguyen v Cosmopolitan Homes [2008] NSWCA 246, McDougall J at [55], McColl and Bell JJA agreeing. …

27 Grounds 1 and 2 identify particular respects in which the primary judge is said to have erred, principally in fact.  In some respects, each ground of appeal goes further than is necessary to establish error at first instance.  To the extent that it is contended that the primary judge “ought to have found” (for example) that Mr Cheung had an ownership interest in the ABM Business or “ought to have found” subsidiary facts supporting such a conclusion, the argument proceeds from a false assumption that the Commissioner had an onus to prove the hypothesis of ownership or to establish any fact underpinning the default assessments.

28 The central question on this appeal is whether the evidence so undermined the specific hypothesis in Mr Cheung’s appeal statement the primary judge ought to have concluded that his onus had not been discharged.

29 Importantly, the evidence before the primary judge included the oral testimony of four witnesses.  It is convenient to now identify the extent to which the impugned findings were based on the impressions the primary judge formed of them.

Witness impressions

30 The evidence referred to and relied upon by the Commissioner for the purpose of demonstrating error must of course be considered in light of the evidence as a whole, including the affidavits and oral testimony of Mr Cheung, Mrs Leong and her two sons Andrew and Michael Leong.  The primary judge observed each of them give evidence.  Of Mrs Leong, his Honour said (J, [4]):

Mrs Leong was a most impressive witness.  I accept her evidence without reservation. She is now elderly (born in Port Vila in 1942).  However, an evident degree of physical frailty on her part was in no way indicative of any mental decline.  She was, to my observation, polite, courteous, engaged, modest in relation to her considerable business achievements, possessed of a good sense of humour and, above all, possessed of a masterly knowledge of ABM and her family.  I am well-satisfied her evidence was honest.  I am likewise well-satisfied on the whole of the evidence that Mrs Leong has long been, and remains, a respected, matriarchal figure in relation both to her descendants and the wider Cheung (including Leong) family.  From each of these familial perspectives, hers is and has long been the decisive presence in ABM, irrespective of any outward form.  She was firm and resolute in her evidence that, until a recent corporatisation of the business in about July 2017, she, and only she, was the owner of ABM.  Even after corporatisation, Mrs Leong retained ownership of all of the shares in the corporate owner until 31 December 2021.  At that time, and because of her advanced age, Mrs Leong transferred her shares into two trusts.  This was undertaken for estate planning purposes for the future generation of the wider Cheung/Leong family.  The trusts are controlled by Mrs Leong’s eldest son, Mr Andrew Leong (‘Andrew’).  For family reasons detailed below, it is inherently likely that, as the eldest son, Andrew’s succession to this role of formal control is not coincidental.  Further, Andrew offers, on the evidence, a paradigm example of a dutiful son.

31 The primary judge’s impression of Mr Cheung as a witness is found in the following passage relating to earlier successive ownership of a family bakery businesses inherited by Mr Cheung’s brother, John (J, [38]):

[Mr Cheung] put John’s inheritance of the Ah Pow Bakery business on the death of their parents down to Chinese culture.  He also attributed the succession in turn in the ownership of this still operating business by John’s oldest son, Mr Charlie Cheung, to this same cultural tradition.  [Mr Cheung], too, was, I thought, an honest witness.  I accept his explanation.

32 The primary judge did not there explain why he thought Mr Cheung to be honest.  However, from this passage (relating to Mr Cheung’s entitlement to the Deposits and the interest earned on them) it may be assumed that the conclusion of honesty was founded on observations of Mr Cheung’s outward demeanour (J, [63]):

…  Once again, the tenor of [Mr Cheung’s] evidence makes me sure that, albeit in a way not legally enforceable, he regarded himself as under a familial duty to deploy such interest earnings and the principal of funds given to him as, if and when required for the benefit of the wider Cheung/Leong family. …

33 The reasons of the primary judge otherwise contain no other basis upon which the positive impression of Mr Cheung as a witness was made.

34 As to Andrew and Michael Leong, the primary judge said they had both given affidavit and oral evidence, adding “I thought they gave honest evidence”.  Nothing more is said about the reasons for forming that impression of Michael Leong.  However, later in the reasons, the primary judge went on to extract a passage of the transcript of cross-examination of Andrew Leong during which he had emphatically denied that Mr Cheung had an ownership interest in the ABM Business.  His Honour described the exchange as a “dramatic moment in the trial”, adding that Andrew Leong’s answers were “with considerable and obvious emotion and, to my observation, absolute and transparent honesty” (J, [43]).

35 The reasons otherwise contain findings explained as “flowing from” the acceptance of Mrs Leong’s evidence or premised with the phrase “[a]ccepting as I do the evidence of Mrs Leong, [Mr Cheung], Andrew and Michael, I find”, or “[Mr Cheung] related, and I accept” (J, [48], [67], [69]).

36 In another passage the primary judge explained that his acceptance of the evidence of the four witnesses rendered it unnecessary to detail the various entities that over time had owned or controlled the various parcels of land from which the ABM Business was operated (J, [58]).

37 Other findings were premised wholly on the earlier findings concerning cultural and familial norms which in turn had been founded on the earlier-stated witness impressions.  For example (J, [62]):

Neither before nor after the relevant period has Ah Pow ever paid either a dividend or director’s fees.  On the evidence, I find [Mr Cheung] never had any expectation of any such reward, as this would be antithetical to deeply entrenched family values.

38 The reasons for judgment otherwise contain a narrative of facts, largely without reference to any evidentiary source.  Those passages must also be understood as proceeding from the earlier acceptance of the reliability and veracity of the affidavit and oral testimony of the witnesses.

Appellate review

39 This appeal is in the nature of a rehearing: Federal Court of Australia Act 1976 (Cth) (FCA Act), s 24.  As the Commissioner acknowledged, to succeed on the appeal, it is necessary to squarely confront the principles concerning the appropriate level of appellate restraint in resolving allegations of errors of fact.  As explained by Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479:

More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact.  If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge ‘has failed to use or has palpably misused his advantage’; or has acted on evidence which was ‘inconsistent with facts incontrovertibly established by the evidence’ or which was ‘glaringly improbable’.

(footnotes omitted, emphasis added)

40 Their Honours referred to Jones v Hyde [1989] HCA 20; (1989) 85 ALR 23 and Abalos v Australian Postal Commission (1990) 171 CLR 167.

41 The judgments in Devries, Jones and Abalos formed a part of a trilogy of cases later considered by the High Court in Fox v Percy (2003) 214 CLR 118.  There, Gleeson CJ, Gummow and Kirby JJ (at [26]) observed that the cases were “a reminder of the limits under which appellate judges typically operate when compared with trial judges”. Their Honours added that the instruction found in the cases did not and could not derogate from the obligation of an appeal court to perform the function conferred on it by Parliament.  They continued:

28    …  In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.

29    That this is so is demonstrated in several recent decisions of this Court. In some, quite rare, cases, although the facts fall short of being ‘incontrovertible’, an appellate conclusion may be reached that the decision at trial is ‘glaringly improbable’ or ‘contrary to compelling inferences’ in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must ‘not shrink from giving effect to’ its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.

(footnotes omitted)

42 Their Honours went on to emphasise that the assessment of the demeanour of a witness is but one aspect of the fact-finding function, and is not to be undertaken in a manner isolated from the evidence as a whole:

30    It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court.  However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses.  Thus, in 1924 Atkin LJ observed in Société d’Avances Commerciales (Société Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The ‘Palitana’):

‘… I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour.’

31    Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances.  Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events.  This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.

(footnotes omitted)

43 To similar effect, in ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24; 388 ALR 128, Bell P (Bathurst CJ and Leeming JA agreeing) emphasised (at [25]) that a proper understanding of the chronology of events in a complex commercial matter was critical and  that contemporaneous documents generally furnished the most reliable source of evidence or, “at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony”.  Later, his Honour added:

28    Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence.  Documents, moreover, will not always present a complete picture of events.  Indeed it would be rare that they do.  Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place.  That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.

29    Context is critical for at least two reasons.  Documents and events take their meaning from their context.  The context in which events occurred may not necessarily be apparent to a court many years later when hearing a case.  A clear understanding of context, both commercial and cultural, is also important where, as in the present case, some or all of the events under consideration occurred overseas and in settings that may differ from those usually dealt with in domestic litigation.

44 To that we would add that in a context where a taxpayer bears an onus of proof in respect of an asserted factual hypothesis, inconsistencies, incongruities or gaps in the evidence ought to be identified and scrutinised before a conclusion as to the “honesty” of witnesses may properly be made.  That is especially so in the context where all information relevant to the tax affairs of a taxpayer are within the taxpayer’s knowledge, and where it is not agreed that the taxpayer has put all relevant information before the Court.

THE OUTCOME OF THIS APPEAL

45 On the proper application of the principles just stated, the primary judge ought to have concluded that Mr Cheung had failed to discharge his onus of proof and, accordingly, the appeal from the Objection Decision ought to have been dismissed.

46 The fact-finding function miscarried because the primary judge did not make an assessment of the honesty of the witnesses based on the evidence as a whole.  In multiple instances discussed below, the primary judge did not examine or explain how (if at all) the witnesses explained evidence that contradicted or undermined their asserted facts or the narrative put forward in Mr Cheung’s appeal statement.  His Honour formed impressions of the witnesses based on his observations of tenor or demeanour with little or no examination of the extent to which their testimony was undermined or contradicted by their own accounts or by documentary records.  Further in respect of Mr Cheung, the conclusion of “honesty” formed by the primary judge is not explained by reference to any particular observation of the outward manner in which he testified or the content of the testimony.

47 The reasons do not otherwise disclose an analysis of much of the evidence upon which the Commissioner relied, as detailed in the pages that follow. In those respects, the fact-finding process involved a misuse of the advantage of a trial judge of the kind referred to in Devries.  That gives rise to a discrete basis for appellate intervention, quite apart from the more often quoted passages in Fox v Percy.

48 The Full Court’s obligation is to identify for itself whether Mr Cheung discharged the onus of proof, taking into account any recorded observations of the manner in which the witnesses testified.  The recorded observations are that Mrs Leong and Mr Andrew Leong gave evidence in a compelling outward manner as described in the passages extracted earlier in these reasons.  It may be assumed that there was nothing in the outward presentation of Mr Cheung and Mr Michael Leong that would reflect adversely on their credit and that the tenor of Mr Cheung’s evidence was convincing.

49 If we are wrong in concluding that Devries supplies a discrete and alternate basis to interfere with the impugned findings of fact to that discussed at more length in Fox v Percy, we would in any event find that the conclusions of the primary judge on the subject matter of Mr Cheung’s involvement in the business and the nature of the funds received by him were glaringly improbable having regard to the whole of the evidentiary record.  For the purposes of s 14ZZO of the TAA, his Honour ought to have found that Mr Cheung had not established that the Deposits were not ordinary income because the evidence was not sufficient to prove the only narrative asserted in his appeal statement.

50 It follows that the Commissioner’s appeal should be allowed.  There will be orders setting aside the judgment and orders of the primary judge so as to restore the Objection Decision as the basis of the assessment of Mr Cheung’s tax liabilities in the relevant period.

51 The factual findings impugned in Grounds 1 and 2 may be considered together.  They are addressed below against two related themes: the nature and extent of Mr Cheung’s association with the ABM Business and the characterisation and use of the Deposits.

MR CHEUNG’S ASSOCIATION WITH THE ABM BUSINESS

52 In his appeal statement and affidavits, Mr Cheung acknowledged that he had played a significant role in the ABM Business over many years.  He described the evolution of the business from that of a small grocery store initially owned by Mrs Leong and her husband Mr George Leong, and then owned by Mrs Leong exclusively following their separation in 1978.  He asserted that Mrs Leong’s original status as owner did not change in that there was no transfer of any rights of ownership to him personally.

53 Mr Cheung alleged that in the relevant period he worked as a general manager in the ABM Business until his retirement in 2000.  In his affidavits and appeal statement, he did not in terms state whether and how he was remunerated in that role, nor do the reasons of the primary judge expressly address that issue.

54 The Commissioner did not take issue with the starting proposition that from at least the early 70s, Mrs Leong and her husband originally operated a small grocery store (a business that Mrs Leong’s husband had inherited from his own parents in 1962) nor with the assertion that Mrs Leong assumed ownership of that grocery store following their separation in 1978.  That store operated out of premises situated in a region in Port Vila known as Number 2.  It will be referred to as the “Number 2 Premises”.

55 However, the Commissioner submitted that it did not follow that Mrs Leong remained the exclusive owner of the same continuing business in the several decades that followed and that the proper inference to be drawn from the evidence is that she did not.

56 It is common ground that over those decades the business now known as the ABM Business evolved into one carrying on both wholesale and retail activities over several locations.  At the same time, the original Number 2 Premises was significantly expanded and transformed.  The evolution was such that from the place where a small original grocery store once operated, there emerged a very sizeable enterprise operating from several premises and generating a total profit of $96,681,528.00 in the relevant period.  As discussed below, the Deposits were made in a regular fashion and total one third of that amount.  Thus, the Commissioner contends, the circumstance that Mrs Leong owned a grocery store run from the Number 2 Premises in 1978 was not sufficient to support a finding that Mr Cheung had no ownership interest in the very different ABM Business decades later between 2005 and 2015.

Mr Cheung’s earliest involvement in the ABM Business

57 Mr Cheung is one of five children.  His own mother and father operated a family bakery business known as Ah Pow Bakery.  His oldest brother Mr John Cheung inherited the Ah Pow Bakery in 1954 following the death of their father.

58 Mr Cheung moved to Australia in 1956 where he boarded at Knox Grammar School.  He returned to Vanuatu in 1959, aged 15.  In 1964, he commenced employment as a costings clerk with Burns Philp in Port Vila.

59 None of that is contentious.

60 The primary judge made a series of findings concerning the period and circumstances in which Mr Cheung first came to work in or for the ABM Business.  They include the following:

50    In or about 1964, [Mr Cheung] secured employment with the historic, great South Pacific trading house, Burns Philp.  Burns Philp then operated a wholesale, retail and hardware business in Vanuatu.  Initially, and for about a decade thereafter, [Mr Cheung] was employed as a clerk in Burns Philp’s costing department.  Later, he transferred into Burns Philp’s hardware department and later yet into its wholesale department.  The latter gave him experience in import operations.  During his early years with Burns Philp, [Mr Cheung] continued to work at the family bakery.  He also worked in the evenings as a taxi driver to gain extra income to support his own immediate family (he married his wife, Sit Lee Cheung (nee Wu), an Australian citizen, in February 1975).  [Mr Cheung] came to work in ABM in 1978 as a sequel to the separation of George and Mrs Leong and in response to a related need for assistance.

51    I do not consider that [Mr Cheung’s] departure from secondary school in Australia in about 1959 at the request of John to work in the bakery, his later assumption of work at ABM at the request of Mrs Leong in 1978 or Michael being recalled in 1991 at age 23 to work in ABM were coincidental events.  Viewed as a whole, they indicate a depth and strength of intra-familial loyalty, duty and support keenly felt within the extended Cheung/Leong family that is inter-generational.  When a need arises, that sense of loyalty, duty and support is manifested by service within a family business.

…

53    The ABM business which [Mr Cheung] joined in 1978 was very different to that business today.  In addition to Mrs Leong, him and another sister, its staff included only one or two others, indigenous New Hebrideans.  No-one then had any job titles.  The ABM business’ then sole shop was on the ground floor of a small two-storey building in the compound at Nambatu. Mrs Leong lived with her family above the shop, as did some extended family (nieces and nephews of Mrs Leong and [Mr Cheung]).  Later, a third floor, used for shop storage, was added to this building.  Later yet, these premises had to be rebuilt after the 2002 earthquake in Vanuatu damaged them.

(emphasis added)

61 The evidentiary source of those findings is not stated.

62 The finding that Mr Cheung commenced work in the ABM Business in 1978 at Mrs Leong’s request (and after she had taken it over herself) and “in response to a related need for assistance” does not accord with Mr Cheung’s own testimony.  In cross-examination, he accepted that he had worked for Burns Philp until 1972, and that he came to work at the ABM Business in 1974, not 1978.  He said that when he first commenced work there, he was not working with Mrs Leong because at that time she had not separated from her husband.  That evidence was consistent with his evidence that his work at the ABM Business commenced before a third storey was added to the building on the Number 2 Premises.  Other evidence incontrovertibly shows the third storey was added in 1975, and that at that time Mrs Leong worked for the French Government.  The primary judge did not refer to that evidence when concluding that Mr Cheung’s earliest involvement in the ABM Business was explained by a sense of familial responsibility to assist his sister following her separation in 1978.

63 The timing and nature of Mr Cheung’s involvement in the ABM Business must be assessed against other evidence, including a prior representation concerning the timing of his original involvement and other representations concerning the nature of his ongoing contribution.

64 On this appeal Mr Cheung placed great emphasis on the uncontentious fact that the grocery store conducted from the Number 2 Premises was a business inherited by Mrs Leong’s husband, Mr George Leong, which then passed to her upon their separation.  It was submitted that the chain of ownership began there and that the Commissioner must prove when and how Mrs Leong’s original ownership was altered or severed.  We do not accept that the finding of original ownership of the original grocery store was determinative of the issues that arose at first instance.  It was for Mr Cheung to prove (among other things) his own allegation that in the relevant period he did not have an association with the ABM Business in the nature of ownership.  It was for him to establish that negative proposition on the balance of probabilities.  It was not for the Commissioner to establish that Mrs Leong’s original ownership rights (dating back to the 1970s) were altered or severed, and if so how.  As will now be explained, Mr Cheung’s pleaded assertions were significantly undermined by prior inconsistent statements and contemporaneous records.

65 In October 2015, Mr Cheung participated in an interview with a representative of the Australian Taxation Office (ATO) with his accountant present.  The record of that interview includes the following:

In 1974 started a small retail shop as family business.  Now it is a big supermarket called ABM Supermarket.  It employs 300-400 workers and they are paid about $320/month.  Majority of the customers are the locals and they trade in Vanuatu Vatu currency.  Now the business is looked after by Mr Cheung’s sister and family who live there.  His sister’s name is Grozille Leong.  Mr Cheung is the manager.  Mr Cheung doesn’t receive wages.  Gets share of profit.

66 In his affidavit relied upon at first instance, Mr Cheung said this of the ATO record:

23.    I recall having a meeting with the Respondent’s representatives at my accountant's office in late 2015.

24.    There was no interpreter in attendance at this meeting.

25.    I do not recall if these minutes were provided for review by me or my accountants after the meeting.

26.    At paragraph 8 of the minutes it says ‘Mr Cheung doesn’t receive wages.  Gets share of profit’.

27.    This is correct.  To the extent that I have received a share of the profit, this is entirely at my sister Graziella’s discretion, on the basis that she was the sole trader of the business and used the profits from the business to support all members of her family, as deposed to in my first affidavit.

67 Mr Cheung confirmed in cross-examination that his earlier statement that he commenced work at the ABM Business in 1974 was correct.  The evidence simply does not support a finding that Mr Cheung commenced work in the business in 1978 in response to a family need to assist Mrs Leong as the business owner following her asserted assumption of sole ownership after her divorce.

68 In addition, the finding that Mr Cheung commenced work at the ABM Business out of a sense of familial duty with no expectation of reward must be considered against his prior unqualified statement that he was in fact paid a share of profits.  His statement to the ATO that he “gets share of profit” was not qualified until his later affidavit, where he deposed that the profit-share payments were made at Mrs Leong’s “discretion”.  Of itself, that is not determinative of the question of whether the payments in the relevant income years were income, but his earlier unqualified statement that he in fact shared in the profits is difficult to reconcile with a finding that he provided labour to the ABM Business gratuitously and out of a sense of familial care or duty.  It is also inconsistent with Mrs Leong’s evidence that Mr Cheung was paid a “modest salary” for working as the general manager of the ABM Business.

69 The reasons of the primary judge do not address other prior statements made by Mr Cheung relating to the nature of his interest in the ABM Business.

70 In the context of a taxation audit in September 2016, Mr Cheung was asked to explain his association with the ABM Business, specifying his role, duties and remuneration over time.  He responded, in part:

The Taxpayer is retired and has not worked in the ABM business since he sold that to his sister.  The Taxpayer’s recollection of his conversation with you concerning his involvement in that business refers only to the period before the taxpayer sold his interest in the ABM business to his sister. The Taxpayer has no role or duties in ABM since that time.

(emphasis added)

71 That evidence is inconsistent with Mr Cheung’s case that Mrs Leong was at all times the owner of the ABM Business.  It constitutes an admission that he was at one time an owner and is inconsistent with his assertion that sole rights of ownership resided at all times in Mrs Leong.  The reasons of the primary judge do not address the prior statement, whether for the purpose of assessing the “honesty” of any witness or for the purpose of characterising the Deposits.

72 For Mr Cheung it was submitted that the Full Court should have no regard to the letter because he had not been cross-examined upon it and hence given no opportunity to explain it.  We do not accept that submission.  The letter was expressly addressed in Mr Cheung’s own affidavits.  At the time of preparing his evidence-in-chief, he had the opportunity to consider and comment upon it and he did so.  In addition, Mr Cheung was aware that he was to be put to proof on all allegations of fact contained in his appeal statement and it was for him to provide an explanation for inconsistent prior statements contained in documents upon which the Commissioner would rely.  The Commissioner was under no obligation to put to him every submission that might be made at the end of the day about his prior inconsistent statements.   The primary judge did not invite written closing submissions, however his Honour did have before him a written chronology in which the letter of 23 September 2016 is referenced and the statement against interests is extracted verbatim.  No unfairness arises on this appeal by reason of the Commissioner’s reliance on the letter.  Even if it did, we would arrive at the same conclusion on this appeal if the letter were not included among the evidence.

73 Counsel for Mr Cheung sought to diminish the significance of that evidence on the basis that it was not adopted by Mrs Leong, who was found by the primary judge to be an honest witness.  The difficulty with that submission is that both Mr Cheung and Mrs Leong were witnesses in Mr Cheung’s own case, and a prior statement of Mr Cheung was inconsistent with the very case he had erected.  The inconsistencies in the evidence could not be resolved by simply preferring the evidence of Mrs Leong over Mr Cheung.  As we have said, Mrs Leong’s credibility as a witness was to be assessed in light of the evidence as a whole, including prior contrary statements of Mr Cheung with respect to the same subject matter.  That was not done.

74 The representation made in September 2016 plainly contradicts the unbroken chain of ownership asserted in Mr Cheung’s written and oral submissions.  There was no persuasive reason put forward to discount or ignore it.  The statement is also relevant when interpreting other prior statements made by Mr Cheung.

75 Mr Cheung applied for a residential return visa in 1999 (six years before the commencement of the relevant period).  A note of the Department for Immigration contains a record of information provided in support of the application.  It describes Mr Cheung as “owner of ABM and various other businesses in Vanuatu”.  It may reasonably be inferred that the source of that information was Mr Cheung.

76 In cross-examination it was put to Mr Cheung that the information he had provided in support of the visa application was correct.  He first responded that he could not remember, adding “it’s too long”.  He then said that the statement was a mistake, adding that the business licence was under his sister’s name.

77 Mr Cheung again applied for a residential return visa in 2004 (in or just prior to the first income year of the relevant period).  At that time, a Departmental case note referred to the earlier case note of 1999 together with the phrases “[c]ircumstances unchanged” and “owns substantial business investments both in [Australia] and Vanuatu”.  Read together with the evidence of the earlier visa application, the latter visa application weighs against a conclusion that Mr Cheung worked for his sister in the ABM Business and in favour of a conclusion that he remained, in 2004, the owner of an interest in that business.  When asked about the information he had provided in support of the 2004 visa application, Mr Cheung said “I can’t remember – too long”, so leaving the earlier statement unexplained.

78 The reasons of the primary judge disclose no consideration of that evidence and there is hence no consideration as to how (if at all) the inconsistency was resolved.  Notwithstanding Mr Cheung’s assertion that the description of him as the owner of the ABM Business was a mistake, we consider the notes of the Department of Immigration file taken in 1999 to be reliable evidence of a representation made by Mr Cheung as to his status at that time, and that he also represented that his status had not changed when he next applied for a visa five years later.  That conclusion is reinforced by the accountant’s letter of September 2016 as well as the appearance of the ABM Business website in the same year, describing him as the “founder” (discussed below).

79 In an application for Australian citizenship in October 2005, Mr Cheung described himself as a “BUSINESS OWNER” and disclosed his intention to depart Australia for six weeks for “BUSINESS” purposes.  That statement is proximate to the statement made the year prior regarding the unchanged circumstance that he was the “owner of ABM”.

80 In support of an application for a credit card in 2007 (following his asserted retirement date), Mr Cheung stated that he earned a gross annual salary of $500,000.00.  In his affidavit, he sought to explain away that statement as describing the sum he estimated he had available to him, should he require it as the “owner and controller of several corporate and trust entities in Australia”.  That statement must be considered in light of those entities and their activities discussed elsewhere in these reasons.  It is also to be considered in light of a body of evidence concerning the nature and extent of Mr Cheung’s contribution to the ABM Business, both in the nature of personal exertion and in his dealings with the land on which the business operated.

Mr Cheung’s asserted role as “general manager”

81 The primary judge found that after a period of rapid expansion, by 1990 the ABM Business operated the largest supermarket in Vanuatu with more than 200 employees.  His Honour found that at that time Mr Cheung’s role had evolved to that of “general manager”, and that he had “operational involvement” in the conduct of the business, consulting daily with Mrs Leong.  The primary judge held that “Mrs Leong’s role was financial management of the ABM business, which included paying all the suppliers and administration staff and managing the daily administration of the business” (J, [54]).

82 The primary judge went on to find that Mr Cheung retired for health reasons in 2000 after which he had his principal place of residence in Sydney where he lives a “modest lifestyle”.  His Honour continued (J, [58]):

Upon [Mr Cheung’s] retirement, Andrew succeeded to the role of general manager of ABM with Michael undertaking an operational role in the business.  Muriel came to undertake financial and administration duties in the business.  Each of these roles was undertaken under the overall direction of Mrs Leong, the sole owner of the ABM business throughout the relevant period.  Since 2000, ABM has continued to expand its operations in Vanuatu.  ABM now has about 600 employees.  It now comprises a chain of six retail supermarkets in Port Vila, a food wholesale facility and four fuel stations.  Ownership of the interests in land on which these various arms of the business is conducted is something of a smorgasbord of individuals or entities associated with the wider Cheung/Leong family.  It is not necessary, in my view, to detail the various holdings.  That is because, on the basis of the evidence of Mrs Leong, [Mr Cheung], Andrew and Michael as a whole, I am satisfied that nothing in the various payments to [Mr Cheung] over the relevant period was, directly or indirectly, in the nature of rent by Mrs Leong, as the owner of ABM, for the use of any land.

83 The Commissioner contends that the primary judge ought to have found that Mr Cheung’s role was that of managing director, exercising much more control than that of a general manager answerable to Mrs Leong and otherwise having a vested financial interest in the enterprise, as evidenced by the materials discussed below.  The submission that Mr Cheung was effectively a “managing director” was made in a context in which the ABM Business was not carried on by a corporation in the relevant period.  As we understood the submission, it was that Mr Cheung had downplayed the nature and extent of his involvement and that the primary judge had failed to consider and grapple with relevant evidence bearing on that issue.

84 That evidence includes Mr Andrew Leong’s evidence to the effect that prior to 2000 Mr Cheung was responsible for overseeing business logistics, costings and wholesale activities.  He added that Mr Cheung was “responsible for business expansion, the growth strategy and setting the operational guidelines”.  To similar effect, Mr Michael Leong said that Mr Cheung oversaw the whole of the operations of the ABM Business.

85 In addition, in cross-examination, Mrs Leong denied, more than once, that Mr Cheung was a signatory to the ABM Business bank accounts.  However, the evidence shows that Mr Cheung was indeed a signatory.  He acknowledged that status during interviews conducted by representatives of the ATO.  He remained a signatory following the asserted date of his retirement (although he added that following his asserted retirement date, he had only used his status as signatory on three occasions when other signatories were not available).  That is a significant discrepancy given that Mrs Leong was said to be responsible for the banking operations of the ABM Business.  The primary judge made no reference to Mr Cheung’s status as signatory or the inconsistency in the evidence on that topic, whether in the course of assessing the credibility of any witness or when analysing Mr Cheung’s association with the ABM Business more generally.

86 Further, in 2016 (some 15 years following Mr Cheung’s asserted retirement as “general manager”) the website for the ABM Business contained the following statement:

Au Bon Marche (French for the [sic] “the good market”) started with humble beginnings and was first established as a small grocery store in the 70’s, by its founder and today’s current Managing Director, Mr Rene Ah Pow, whose grandparents where [sic] one of the first Chinese traders to settle into Port Vila town many decades ago when Vanuatu was still known as the New Hebrides, a condominium ruled by joint British and French government during the pre-colonial era until the country eventually gained its independence on July 30, 1980.

(emphasis added)

87 Mr Rene Ah Pow is Mr Cheung’s alternative name.  The description of him as the “founder” is consistent with the immigration record to the effect that he “started” a retail shop in 1974.

88 A further page titled “Management” named Mr Cheung as the “Managing Director”, Andrew and Michael Leong as “General Manager” and “Retail Manager” respectively, and Mrs Leong as “Banking Manager”.  Mr Cheung said in cross-examination that the statements on the website were not true, but no explanation for it was offered personally by him.  In closing submissions at first instance, Counsel for Mr Cheung said that the website should be balanced against the witness testimony, adding “we’re not here to try and destroy every single strand of evidence on another side”.  That is an unusual submission given the onus of proof and the need to present a cohesive narrative having a proper foundation in the evidentiary materials.

89 On appeal, Counsel for Mr Cheung submitted that the website evidence was “simply overwhelmed by probative evidence to the contrary”.  The evidence said to be overwhelming is the evidence given by Mr Cheung himself and a statutory declaration of the author of the website.  However, the statutory declaration was not admitted in evidence at first instance for the truth of its contents.

90 In any event, the reasons of the primary judge make no reference to the website and the reasons do not otherwise disclose a finding that its significance was “overwhelmed” by other evidence.  The topic is simply not grappled with.  The website undermines the assertion that Mr Cheung worked in the ABM Business in a capacity that made him answerable in any way to Mrs Leong.  It also undermines Mrs Leong’s assertion that she was the owner of the business (as opposed to its Banking Manager).  Both assertions are further undermined by other evidence of Mr Cheung’s actual activities specifically relating to the land from which the ABM Business operated.

Evidence concerning payment for services

91 After finding that Mr Cheung started working in the ABM Business in 1978 out of a sense of responsibility to assist his sister in a time of need, the primary judge made no further reference to any payment Mr Cheung received in exchange for then devoting his working life to the expansion of the ABM Business.  His Honour did not refer to the evidence bearing on the topic.  The topic assumes importance because Mr Cheung had asserted in his affidavit that upon his retirement in 2000 he was not owed any money “for wages or otherwise” and that he otherwise had no expectation that he would receive any money as a consequence of his “prior employment or involvement” with the ABM Business.  The task of the primary judge was to consider that assertion in the context of the evidence as a whole.

92 We consider the evidence on that topic to be variable and obscure.  It includes prior statements made by Mr Cheung referred to earlier in these reasons relating to his ownership interest and his receipt of a “share of profits”.  In addition, in her oral evidence, Mrs Leong said that Mr Cheung was paid a “modest salary”.  Later, there was this exchange:

COUNSEL:     You will recall yesterday that you gave evidence that Mr Cheung received a modest salary. Do you recall that?

THE INTERPRETER:     Yes, when he started.

93 Mrs Leong otherwise denied that the Deposits were paid because Mr Cheung had not been adequately remunerated for his work as general manager.

94 The evidence of Andrew Leong was that when he commenced work as general manager following Mr Cheung’s retirement in 2000, he was paid a salary of about $1,500.00 per month, increasing over time to a salary of $120,000.00 per annum by 2023.  That presents a situation in which Mrs Leong’s son was paid the modest salary of $1,500.00 per month attaching to the general manager position in 2000, and yet between 2005 and 2015 Mr Cheung received payments exceeding $30 million which were said by the primary judge to have been explained solely by Mrs Leong’s care for and loyalty toward her family members.  In our view, the quality of the evidence was insufficient to disprove any connection between the Deposits and the prior contribution made by Mr Cheung to the ABM Business.

Land ownership and dealings

95 In Vanuatu land “ownership” is a form of tenure resembling a long-term leasehold.  In these reasons, the word “ownership” in relation to land will assume the same meaning.

96 The primary judge was correct to observe that the evidence concerning land ownership involved some complexity.  But that is not a basis to ignore the evidence or submissions the Commissioner advanced concerning its forensic significance.  We again emphasise that the Commissioner bore no onus to prove what the character of the Deposits were.  That onus fell on Mr Cheung.  The task of the primary judge was to assess whether that onus had been discharged and, as part of that exercise, whether the explanation advanced in Mr Cheung’s affidavits found support in the objective documentary record.  The land dealings were also relevant because it was necessary to scrutinise Mrs Leong’s oral evidence to the effect that she was the owner of most of the land from which the ABM Business was conducted.  When it was put to Mrs Leong that Mr Cheung owned that land she responded “No, sir.  I am the sole and unique owner”.

97 The task of scrutinising the land dealings could not be avoided by falling back on an earlier conclusion that the witnesses were honest in their description of Chinese tradition and culture.  The dealings were relevant to an assessment of their honesty on that very topic.

98 The evidence demonstrates that the ABM Business was conducted from several premises in the relevant period.  As previously mentioned, a third storey was added to the building situated at the Number 2 Premises in 1975.  The evidence of subsequent land dealings is cross referenced in the Commissioner’s written submissions on this appeal.  It supports the following findings.

(1)    A fuel station forming a part of the ABM Business was constructed on land owned by Port Vila Hardware Ltd.  Mr Cheung was a director of that company and a controller of its shareholders.

(2)    A warehouse from which the ABM Business carried on wholesaling activities was situated on land owned by Mr Cheung.  It was transferred to the Triple 8 Trust in 2016.

(3)    A further aspect of the ABM Business was conducted from a three-hectare site (situated in Manples) in respect of which Mr Cheung held the commercial leasehold.

(4)    In 2011 an ABM Business premises was constructed in Freshwota on land selected by Mr Cheung and in respect of which he had a financial interest via Vanua Trustees Ltd.

(5)    Mr Cheung personally owned land situated at Tassiriki from which the ABM Business operated, relevantly from 2011.

(6)    The ABM Business also operated from the Downtown store on land owned by Mr Cheung’s nephew Charles Cheung.

(7)    When land was held or owned by Mr Cheung or his family members (or by entities owned or controlled by them) the ABM Business did not pay rent.

(8)    When land was held or owned by entities other than Mr Cheung or family members, rent was paid.

99 In 2013 Mr Cheung transferred three properties from his personal name to the Triple 8 Trust.  According to Mr Cheung, the Triple 8 Trust was established in 2011 as part of a wealth transfer strategy and broader succession plan.  Mrs Leong was appointed as the trustee of the Triple 8 Trust in 2011.

100 The evidence of who owned the land comprising the Number 2 Premises was also variable and obscure.  Having asserted that she was the sole and unique owner of land on which the ABM Business operated, Mrs Leong said the Number 2 Premises land was owned by various family members and a family friend.  It was open to Mr Cheung to present a complete and coherent picture concerning the ownership of land from which the ABM Business operated but that was not done.  Again, it was not for the Commissioner to prove the legal relations explaining land ownership and development.  To the extent that such matters went unexplained in the evidence, they undermined Mr Cheung’s ability to discharge his onus of proof.

101 Mrs Leong’s oral evidence otherwise betrayed a surprising degree of ignorance concerning the ownership of land upon which the ABM Business operated.  She first denied knowledge of her status as trustee of the Triple 8 Trust to which the Manples land had been transferred (by Mr Cheung) in 2013.  When a question on the topic was put again, she said “Pardon?  It was my lawyer who took care of all of that”.  When the question was put again, she again denied it had been so transferred.  When asked again, she said she did not “remember the date anymore”.  She then accepted that as trustee of the Triple 8 Trust she is the present owner of the land, but then added “Only the land – and then there is something else.  It belongs to me.  Yes.  The shop belongs to me.  Only the land”.

102 Mrs Leong also asserted that she was a director of Vanua Trustees Limited (the owner of the Freshtowa site) and she denied that Mr Cheung owned shares in that company.  The objective record shows that Mr Cheung is in fact the owner of that company and his evidence was that he controlled the company and that he makes “all its decisions”.

103 The picture that emerges is that as the ABM Business grew it was not operated merely from the Number 2 Premises in its original size and form, but from an expanding parcel in that place and from significant parcels of land situated elsewhere.

104 It is significant that no rent was paid where the land was owned by entities in which Mr Cheung had a financial interest and yet rent was paid where the business was operated from land owned by non-family members.  That indicates that Mr Cheung has caused entities controlled by him (and in which he has a financial stake) to provide land for the conduct of the ABM Business rent-free.  That in turn invites the question as to whether and why he should have done so if he was a salaried general manager answerable to his sister but otherwise having no financial stake in the generation of profit.

105 The land dealings contribute to a picture of shared resources (in the form of interests in land and personal exertion) followed, in fact, by the sharing of wealth generated from those resources.  Mrs Leong’s ignorance or obfuscation concerning the ownership of land is difficult to reconcile with her assertion that she was the sole owner of the ABM Business.  There was a compelling body of material showing that Mrs Leong did not personally own what must be regarded as a significant asset of the ABM Business – the interests in land upon which it operated.  The primary judgment records no attempt by the primary judge to reconcile her evidence against that material.  Nor consideration of the significance of her ignorance for the purpose of assessing her credit.  In our view, the evidence is insufficient to prove that Mrs Leong was the sole owner of the ABM Business and otherwise insufficient to prove that there was no connection between the Deposits and Mr Cheung’s contribution to the generation of profits via the provision of land.

106 Further on the topic of Mr Cheung’s involvement in the ABM Business there was evidence concerning the impact upon the ABM Business of an earthquake in Vanuatu in 2002, two years after the asserted date of Mr Cheung’s retirement.

107 In cross-examination, Mrs Leong denied that Mr Cheung had come to Vanuatu to help rebuild the ABM Business after the earthquake.

108 Mr Cheung’s evidence on the same topic was ambiguous.  At the very least, he acknowledged that he had engaged an Australian architect and an Australian engineer to design the new building to earthquake standards.  We do not accept the Commissioner’s submission that the evidence supported a finding that Mr Cheung travelled to Vanuatu specifically to be on site to personally oversee the building works.  He did, however, accept that he was flying between Vanuatu and Australia in that period of time and that he did so for business purposes.

109 Counsel for Mr Cheung referred to the evidence concerning Mr Cheung’s involvement in the ABM Business following the earthquake in 2002 (after the date of his asserted retirement).  Counsel submitted: “no judge who saw and felt their palpable love and trust for each other could possibly find that he was paid money, let alone millions of dollars over eleven years, for having helped his sister in that desperate situation”.  One of the several difficulties with that submission is that the reasons of the primary judge contain no record that his Honour “saw” or “felt” any “palpable love and trust” between the two witnesses.  The reasons for judgment contain no record of any observation of Mr Cheung in the course of his giving evidence.  Another difficulty is that Mrs Leong did not suggest that Mr Cheung helped with the rebuild of the ABM Business following the earthquake at all.  Her evidence is that the rebuild was done by her own family members.  A further difficulty is that the submission misstates the questions before the primary judge, including the question of whether Mr Cheung had indeed retired and the question of whether, prior to the retirement, his role was that of general manager answerable to Mrs Leong who had daily responsibility for the administration of the business.

110 The evidence also shows that Mr Cheung, following his asserted retirement date, engaged in protracted and contentious negotiations for the terms of a new lease with a butcher (Mr Furet) who operated on the affected site from which the ABM Business operated in Nambatu.  It was Mr Cheung who had first executed a lease with Mr Furet on behalf of the ABM Business in 1978.  The newly negotiated lease was executed in 2005 and had a commencement date of June 2003.  A dispute over the terms of the latter lease culminated in litigation and judgment, in which Mr Cheung was named as a defendant by virtue of being the “representative of ABM”.

111 Mrs Leong denied any knowledge of Mr Cheung’s negotiation for the lease with Mr Furet.  She then said that she was not involved and knew nothing about it.  That is notwithstanding that she was purportedly the owner of the ABM Business having (as held by the primary judge) responsibility for its daily administration.  That is another instance of ignorance that tends against a finding that Mrs Leong had the status of business owner and administrator.

Business licences

112 The primary judge had before him a bundle of business licenses issued over a number of decades in relation to several ABM Business outlets.  His Honour made the following observation of that evidence (J, [44]):

That is not to say that business licenses issued by the government of Vanuatu or value added tax (VAT) returns in relation to ABM before or during the relevant period consistently recorded only Mrs Leong as the owner of ABM.  Accepting as I do the evidence of Mrs Leong, [Mr Cheung], Andrew and Michael, I find that a degree of expediency attended applications for business licences or the submission of VAT returns in relation to outward manifestations of who conducted and ABM business at a particular site.

113 The primary judge went on to identify in more detail those licences that were not in Mrs Leong’s name, as illustrations of the expediency to which he referred.

114 On our review of the business licences, it is correct to say that they do not consistently record Mrs Leong as the owner.  Moreover, there is no evidence as to the extent to which they are reliable evidence of title in the ABM Business itself.  Considered in the context of the evidence as a whole, we consider that they carry little weight and that, in any event, they are not wholly supportive of the case Mr Cheung presented at first instance.  It is notable that on more than one occasion when questioned about his status as the owner of the ABM Business Mr Cheung pointed to the business licenses to support his claim that he was not the owner.  The business licenses are an unstable foundation for his assertion.

Ownership of the ABM Business following 2017

115 In 2017 (after the relevant period) a new entity, Au Bon Marche Limited, was established.  Mrs Leong acknowledged that she caused the company to be established and that the ABM Business was held by it.  An historical extract shows that for some months from April 2022, half of the shares in that entity were owned by Mrs Leong.  The other half of the shares in Au Bon Marche Limited were at that time owned by the trustee of the Triple 8 Trust.  The Triple 8 Trust was established for the benefit of Mr Cheung and his immediate family members.  Members of the Leong family or the “wider” family were not named as beneficiaries.

116 In cross-examination, Mrs Leong denied that the structure at that time evidenced a 50% interest in the ABM Business held by Mr Cheung and further denied that the structure reflected an arrangement in place since the 1990s.  However, she could not otherwise explain the structure.  In re-examination, she denied having any understanding of the structure and said that “[y]ou would have to ask our lawyer who takes care of that”.

117 The evidence of Mr Andrew Leong was no more illuminating.  He accepted that the shares held by the Triple 8 Trust represented the interests of Mr Cheung’s immediate family.  However, when it was put to him that the structure indicated that the Cheung family had 50% interest in the ABM Business, he first said that he did not understand the meaning of the question and then denied that Mr Cheung had any ownership interest.

118 The structure in place in 2022 undermines Mrs Leong’s assertion that she at all times has been the owner of the ABM Business.  The half ownership of the business by an entity representing the interests of Mr Cheung is left unexplained.

119 Later in 2022, the shareholders of Au Bon Marche Limited again changed, but it remains that the evidence of the shares held by the Triple 8 Trust is a peculiar aspect of the case that further undermines the narrative advanced in Mr Cheung’s appeal statement and affidavits.  In her affidavit evidence, Mrs Leong asserted that she had transferred ownership of the ABM Business to Au Bon Marche Limited but she made no mention of the shares acquired by the Triple 8 Trust in 2022.

120 That is a further instance in which Mrs Leong expressed ignorance in respect of matters of some significance when cross-examined.

121 Whilst it is not determinative, the evidence of ownership following 2017 is relevant in that it only adds to the list of incongruities and inconsistencies affecting the case Mr Cheung sought to advance.

RECEIPT AND USE OF THE DEPOSITS

122 The primary judge held that “by the time [Mr Cheung] retired” in 2000, Mrs Leong was frequently sending money generated by the ABM Business to him for investment in Australia.   His Honour said (J, [69]):

…  In keeping with a by then long settled practice, [Mr Cheung] then lent these funds to various family entities in Australia for the purpose of making investments in Australia for the benefit of the family.  He did so based on the advice he received about how appropriately to structure these investments.  …

(emphasis added)

123 The primary judge held that all of the payments received by Mr Cheung were made voluntarily by Mrs Leong, describing them as (J, [70]):

… just her funds disposed of at her will to a brother trusted to invest them wisely and well for the wider Cheung/Leong family as, if and when occasion required, according to his value judgment but without any formal legal obligation.  They were gifts of capital.

124 His Honour later observed (at J, [84]) that the money generated from the ABM Business was income in Mrs Leong’s hands, although not subject to income tax in Vanuatu as there is no income tax regime there.  The primary judge said that the fact that the Deposits came from income in Mrs Leong’s hands did not mean that they had that character in the hands of Mr Cheung. Later, the primary judge described the payments as (J, [85]):

… gifts of capital voluntarily made by a loving sister who has an acute sense of family loyalty and responsibility and who has enjoyed good fortune in business for [Mr Cheung], a loved brother respected for his business judgement and like sense of family loyalty and responsibility, to invest as he saw fit and to draw upon personally if he saw fit.

125 The primary judge undertook a high-level analysis of Mr Cheung’s investment activities, to the effect that:

(1)    Mr Cheung established Ah Pow Pty Ltd in 1979 as a vehicle to invest “funds provided by the wider Cheung/Leong family for the benefit of that wider family” (J, [61]).

(2)    Mr Cheung had been a director of Ah Pow Pty Ltd since its incorporation.  Upon incorporation, Mr Cheung and his wife were each issued one ordinary share.  Mr Cheung acquired a further two shares in 2000 (J, [61]).

(3)    Mr Cheung had not been paid a dividend or director’s fees by Ah Pow Pty Ltd and it would have been “antithetical to deeply entrenched family values” for him to have held an expectation of any such reward (J, [62]).

(4)    Since 1980, Ah Pow Pty Ltd has been the primary vehicle for the investment of money “sourced in Cheung/Leong family money from Vanuatu” (J, [64]).

(5)    A unit trust known as Simmattown Unit Trust was established in around 1980.  It has as its trustee Simmattown Pty Ltd.  Ah Pow Pty Ltd eventually came to own 17.5% of the units in the Simmattown Unit Trust (J, [65]).

(6)    Simmattown Unit Trust purchased:

(a)    a shopping centre at Condell Park in 1980; and

(b)    the Coogee Bay Hotel in 1991 (J, [67], [68]).

(7)    From the funds provided by Mrs Leong, Mr Cheung made interest-free loans to “various entities associated with him”, which entities have acquired:

(a)    properties in New South Wales acquired by the Double Bay Properties Unit Trust;

(b)    a property in New South Wales acquired by the Narrabeen Unit Trust; and

(c)    a property in Queensland acquired by the Oakstand Fund No 12 Kangaroo Point Trust (J, [73]).

126 The primary judge referred to some of the Deposits having been made to Mr Cheung for the purpose of paying ABM Business suppliers.  Apart from those funds (forming the subject of the Commissioner’s concession), he said that the Deposits “were used or invested to the end of benefiting the broader Cheung/Leong families, including [Mr Cheung’s] children, grandchildren, nieces and nephews, as needs arose, and also for living expenses for [Mr Cheung] and his wife” (J, [72]).  His Honour continued:

[Mr Cheung’s] living needs in his retirement were and are modest and remained so notwithstanding the extent of funds at his disposal.  I find it would be completely antithetical to his deeply held values for this to be otherwise.  Moreover, while the evidence as to [Mr Cheung’s] living needs is at a general level of abstraction, the sums sent by Mrs Leong are, objectively, far in excess of what might be needed to support a modest lifestyle.

127 The primary judge said that the “taxable facts” of a particular case may reveal the character of a payment in the hands of a person to be a gift, “because the occasion for its payment is wholly explained by a cultural or family norm, not an income producing activity”.  Before concluding, his Honour said (J, [88]):

There is nothing unique to this case about such a phenomenon.  For example, if by good fortune they can, many parents give money to children for a home deposit, grandparents give money for treats or extra clothes for grandchildren, sometimes for school fees.  All this occurs as a matter of routine according to available financial resources and by reason of natural love and affection.  Sometimes such payments may be a one-off, sometimes they may be made in varying amounts for years.  Periodicity of receipt is an imperfect touchstone for whether a payment is income in the hands of a recipient.  The [Income Tax Assessment Act 1997 (Cth)] does not bring to tax every receipt of money from a third party.

128 The primary judge did not make any finding of any particular exercise of a discretion by Mrs Leong to make any particular advance for any particular purpose, aside from discrete payments referable to property investments discussed below.  Nor was there a finding that any particular member of the “wider Cheung/Leong” family in fact received assistance in the form of money derived from the investments, whether to meet a particular need or not.  His Honour did not explain what was meant by the phrase “funds provided by the wider Cheung/Leong family”, nor did his Honour identify any particular transfer of funds derived from any source other than the profits of the ABM Business.

Investment of the Deposits

129 In his affidavit evidence, Mr Cheung said that, subject to an exception, “all of the moneys” sent to him by Mrs Leong “were used or invested for the benefit of the broader Cheung and Leong families, including my children, grandchildren, nieces and nephews, as needs arise, and also myself, as to my lifestyle needs”.  The exception relates to the conceded amount and need not be mentioned further.

130 The actual use of the Deposits was put in issue by Mr Cheung himself in an apparent attempt to show that funds were not paid as a personal reward connected in any way to the contributions he had made to the ABM Business.

131 We have mentioned that the primary judge described Mr Cheung’s investment activities at a level of broad summary.  That was the nature of Mr Cheung’s affidavit evidence on the topic.  The primary judge’s reasons do not reveal any interrogation of the objective records with respect to those investments, nor that those records were considered against the evidence as a whole.  Moreover, the finding that there was a long-standing practice of investing for the benefit of the wider family so as to meet their needs as they arose reflected an uncritical acceptance of Mr Cheung’s broad assertion to that effect.  The Commissioner submitted that the vague terms in which the evidence was expressed rendered it insufficient in and of itself to establish the asserted facts.  We accept that submission.

132 The following facts are uncontentious:

(1)    Ah Pow Pty Ltd was registered in New South Wales on 16 August 1979.  Mr Cheung has been Ah Pow Pty Ltd’s sole director since that time.  Upon its incorporation, Mr Cheung and his wife were each issued one ordinary share.  Mr Cheung acquired two additional ordinary shares in the company in 2000.

(2)    In 1980, Ah Pow Pty Ltd became a unitholder in the Simmattown Unit Trust.  In the same year, the Simmattown Unit Trust purchased a shopping complex in Condell Park, New South Wales.  In 1991, the Simmattown Unit Trust purchased a hotel in Coogee Bay.

(3)    Over time, Ah Pow Pty Ltd came to own 17.5% of the units in the Simmattown Unit Trust.

(4)    Between 7 January 1998 and 22 December 2011, Mr Cheung owned 50% of the shares in Sun Productions (Publishing) Limited, a company incorporated in Vanuatu.  In December 2011, he sold those shares to the Triple 8 Trust, registered in Vanuatu.  The Triple 8 Trust is a trust providing for the interests of Mr Cheung’s immediate family.

133 The Commissioner pointed to the following evidence that undermined or contradicted Mr Cheung’s assertions concerning the use of the Deposits.

134 Mrs Leong’s evidence was that she first started sending money generated by the ABM Business to her relatives in Australia in 2000.  She said that all of the money sent to Mr Cheung was generated from the business.  According to that evidence, there was not, in 2000, an already “long settled practice” of Mr Cheung investing money sent to him by Mrs Leong for investment.

135 Mr Cheung adduced no evidence to support his assertion that the funds transferred to Ah Pow Pty Ltd were in fact distributed for the benefit of any members of the Leong family, whether nominally or in actual funds.

136 The evidence shows multiple instances of legal delineation between the investment activities made by Mr Cheung on behalf of his own immediate family members and those made by others on behalf of the immediate members of the Leong family.  The Simmattown Unit Trust is illustrative.  The primary judge correctly identified that Ah Pow Pty Ltd holds 17.5% of the units in that trust.  That interest is separate and distinct from units held by Lin Fan Pty Ltd (a company representing the interests of Mr Cheung’s brother John).  The records of the Simmattown Unit Trust show that there were precisely drawn “profit alignments” as between the interests of the two brothers, calculated to the dollar.  Mr Cheung confirmed in cross-examination that the profits from the trust were distributed equally between him and his brother, reflecting an agreement between them.

137 The evidence shows significant distributions paid from the Simmattown Unit Trust to Ah Pow Pty Ltd over several years in the relevant period, however it does not show that those benefits were in turn shared with family members other than the immediate family members of Mr Cheung.  Mrs Leong’s evidence (also expressed at a broad level of generality) provided no examples of members of the Leong family (including herself) receiving any money derived from investments in Australia supposedly made for the “broader” family group.  The affidavits contain bare assertions without regard to the actual flow of money from the investments to those who allegedly required it “as needs arose”.  A review of the evidence reveals no mention or record of any example of a need in the “Cheung/Leong” family in fact being met from money originating in the Deposits, other than the living expenses of Mr Cheung.

138 As for the interest-free loans advanced to “various entities associated with” Mr Cheung (referred to at J, [73]), Mr Cheung’s oral evidence in cross-examination did not reveal a subjective intention that the benefits of those investments would flow to members of the wider Cheung/Leong family.

139 In cross-examination, Mr Cheung confirmed that the Double Bay Properties Unit Trust was an entity associated with him, and that his understanding was that the investment was structured so as to ensure that the income or capital proceeds of the units (once sold) would flow to Ah Pow Pty Ltd.  He did not say that it was then his intention to gift or otherwise distribute those earnings to any other person or that he ever made any such disposition in fact.

140 In respect of the property situated in Kangaroo Point in Queensland, Mr Cheung again confirmed that he instructed his lawyers and accountants to ensure that the profits returned to Ah Pow Pty Ltd.  He said that none of the trusts involved in that investment provided for the flow of income or capital to any other member of the Cheung or Leong family.

141 As to the property in Narrabeen acquired by the Narrabeen Unit Trust, Mr Cheung acknowledged that the land had been developed and sold.  As to the proceeds, the cross-examination went as follows:

COUNSEL:    And the proceeds from that sale, who was entitled to those proceeds?

MR CHEUNG:    It’s the trustees.  I can’t remember all these thing, ma’am, honestly, you know.  All I know we never, you know, do anything to go about Australian law.  All the advice is done by my lawyer and my accountant and that’s it.

COUNSEL:    The trustee of the trust that sold Ocean Street, did it distribute the funds to Ah-Pow Pty Limited?

MR CHEUNG:    It could be.  I mean, that’s - - -

COUNSEL:    Do you know who the beneficiaries of the trust were?

MR CHEUNG:    ..... okay.  If this go to Ah-Pow, this is my beneficiary of what the dividends coming through to Ah-Pow.  Yes.

COUNSEL:    So your understanding is - - -?

MR CHEUNG:    Yes.

COUNSEL:    Whatever the lawyers or accountants organise, it was a trust that, when the profits came in, would be distributed to Ah-Pow Pty Limited?

MR CHEUNG:    I presume so, ma’am.

142 Mr Cheung also said that the Narrabeen investment was conducted jointly by Ah Pow Pty Ltd and the trustees of another trust representing the interests of another family member (Jacko Cheung Family Trust) and in which he had no interest.  That is a further example of family members engaging together in investments, each advancing and delineating their own interests.  To the extent that Mr Cheung advanced an interest-free loan to facilitate that acquisition, the evidence did not demonstrate that he did so for the benefit of any person other than himself and his immediate family members.

143 When asked whether he accepted that his investments were managed predominantly through the company Ah Pow Pty Ltd he said “Well, I presume.  I can’t remember everything”.  He did not identify any other entity that operated as an investment vehicle.

144 When questioned about the structure of the investments, Mr Cheung said repeatedly that he had relied upon the advice of accountants.  In relation to the Simmattown Unit Trust he confirmed that in each tax year he relied on his accountant to make sure of what was owed as between his entities and the entities controlled by his brother John.  On the topic of the land developments referred to in his affidavits, he did not state that he instructed his accountants to structure them in a way that would divert returns on the investment to any person other than himself and his own family members.  Rather, he gave vague responses, typified by the following:

COUNSEL:    You asked them to set up the best structure so that the funds from those property developments would generally flow to Ah-Pow Pty Limited or other entities associated with your family?

MR CHEUNG:    I don’t know. My share is always, you know, in my trust, you know, account.  And I can’t specify, you know, any ..... according to the Australian law.

145 The concept of Mr Cheung having a “share” in investments supports a conclusion that in all instances the investments made by Mr Cheung through Ah Pow Pty Ltd were for the benefit of Mr Cheung.  That, in turn, is consistent with information provided to the Department of Immigration in 1999 which records him as having personal wealth in the form of investments then totalling $50,000,000.00.  It states that Mr Cheung met the visa requirements on the grounds of having “substantial personal … and business interests” in Australia.  The record goes on:

Letter supplied by Croft Gooden Partners, Peter A Gooden, states the following[:]

“Over the last 25 years Mr Cheung has invested heavily in Australia in hospitality industry, shopping centres and residential properties.[”]

“He has substantial investments in Australia in excess of $A50,000,000.00 (50 million dollars) and has considerable interest in being allowed to travel to [Australia] and oversee and manage his investments.”

146 That is a representation of Mr Cheung’s personal wealth.  It is not consistent with a person drawing from interest on the Deposits to support a modest lifestyle whilst generously giving his time and wisdom to invest money provided to him by a loving sister for the benefit of family members other than himself.

147 The primary judge’s reasons addressed none of that evidence.

Lurline Discretionary Trust

148 On this appeal, Counsel for Mr Cheung relied upon the existence of a trust known as the Lurline Discretionary Trust.  Counsel submitted that the primary judge “carefully reviewed the Lurline Trust deed and satisfied himself that the members of the wider Cheung and Leong families qualified as beneficiaries”.

149 A deed constituting the Lurline Discretionary Trust dated 8 July 1998 names Ah Pow Pty Ltd as trustee.  It names Mr Cheung as the principal beneficiary.  Other beneficiaries are defined in a way so as to capture members of his immediate family (including his wife and child) as well as his extended family.

150 In written submissions it was asserted that the primary judge had permitted Mr Cheung to rely on the deed constituting the Lurline Discretionary Trust so as to “correct” an error of fact.  It was submitted that the primary judge should be understood to have concluded that the Lurline Discretionary Trust meant that the investments made by Ah Pow Pty Ltd were in fact made for the benefit of the wider Cheung/Leong family.

151 The primary judge made no findings with respect to the Lurline Discretionary Trust and his Honour’s reasons cannot be interpreted to mean that he had any regard to it or made any finding based upon it.  There is no notice of contention before us on this appeal to the effect that the orders of the primary judge should be maintained by reason of an alternative path of reasoning based upon it.  Even if there were such a contention, it should be rejected on its substantive merit.  That is because the affidavits of Mr Cheung made no reference at all to Ah Pow Pty Ltd undertaking the investments referred to in the materials in its capacity as a trustee of that trust as the means by which returns from the invested Deposits were in fact shared with the wider family.  Mr Cheung did not claim to have ever caused Ah Pow Pty Ltd to have made any distribution (whether nominal or otherwise) to any beneficiary.  Nor did any member of the wider family give evidence to the effect that they had in fact received any financial assistance from Mr Cheung via the Lurline Discretionary Trust, whether “as needs arose” or at all.

152 Furthermore, in responses given to the ATO in September 2016, Mr Cheung’s accountant gave a detailed description of the myriad of entities associated with Mr Cheung, identifying those entities that acted as trustees and naming the applicable trusts.  The Lurline Discretionary Trust is not mentioned.  Ah Pow Pty Ltd is referred to in the response as an “Investment Company”.  Unlike other companies it is not identified as the trustee of any trust.  The evidence of the Lurline Discretionary Trust was incomplete.  In the absence of full disclosure as to which persons in fact benefited from distributions from the Lurline Discretionary Trust there cannot be a finding on this appeal that the return on investments made by Ah Pow Pty Ltd were in fact dedicated in the fashion found by the primary judge.

Regularity of payments

153 There are 101 Deposits in issue.  Of those, 99 were referable to transfers made by Mrs Leong into accounts held by Mr Cheung alone or with his wife.  They were particularised in an annexure to the originating application.

154 Some of the Deposits were the subject of the Commissioner’ concession, to the effect that they were made for the purpose of paying invoices of suppliers to the ABM Business.  The conceded amount is $1,162,023.00.

155 The Commissioner submitted that the schedule of Deposits generally describes a pattern of regularity in timing and amounts, with the exception of “exceptional Deposits” not fitting that pattern.  The “exceptional Deposits” were the subject of evidence explaining their purpose.  For example, Mrs Leong testified that money was sent in 2010 and 2011 for investment in real estate.  Those purchases are discussed below.  There are two further exceptional Deposits in May 2007, also explained in the evidence as referable to a specific purpose.

156 Subject to those identified exceptions, the evidence discloses payments made from ABM Business accounts generally on a monthly basis and in generally uniform amounts, with amounts in each year generally increasing over time.  When a payment was missed in a month it was made up for in the following month.  The monthly payment approximates $50,000.00 in 2005, increasing by 2007 to $246,000.00 per month.

157 It was put to Mrs Leong that the payments to Mr Cheung were made on a regular basis.  Her response was, “[i]n 2004, we sent money for investing in real estate, and also in 2010, 25 October 2011, and also 12 January 2011”.  That response explains some of the exceptional Deposits, but does not address the regularity of the remaining advances, over a sustained period of 11 years.

158 There is otherwise an absence in the evidence of any contemporaneous record evidencing the exercise of a discretion by Mrs Leong to gift Mr Cheung the regularly advanced sums.

159 As Mason ACJ, Wilson, Brennan, Deane and Dawson JJ said in Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 215:

The periodicity, regularity and recurrence of a receipt has been considered to be a hallmark of its character as income in accordance with the ordinary concepts and usages of mankind.

160 The primary judge gave little or no weight to the periodic and regular nature of the Deposits, describing them as an imperfect touchstone in the inquiry.  Again, we consider the periodic nature of the payments over such a long period to be a matter that ought to have been taken into account in the assessment of the credibility of the witnesses and the evidence as a whole.

161 It is to be recalled that Mr Cheung had made a prior statement to the effect that he received a share of the profits of the ABM Business.  The periodic payments over the sustained period tell strongly of an expectation of continuance and are a highly telling indicator of income having regard to all of the facts and circumstances, including the circumstance that the money constitutes a one-third share of the significant profits of the ABM Business generated over the same period.

162 The periodic nature of the payments also fell to be assessed against the incontrovertible circumstance that Mr Cheung had devoted most of his working life (on his own case between 1974 and at least 2000) to the growth and development of the ABM Business.  Whilst he had other business interests in Vanuatu he did not give evidence to say that he invested substantial personal exertion in them.

163 The Commissioner submitted that the finding that the Deposits were a sui generis gift was itself ambiguous when considered against the rights and obligations said by the primary judge to have attached to them.  By describing the “gift” as sui generis the primary judge may be understood to say that the payments should not be categorised into any previously recognised class upon which the statutory definition of ordinary income had previously operated.  But the deployment of the Latin phrase sui generis does little to assist in understanding precisely what the arrangement or understanding meant in real and practical terms.

164 As the Commissioner correctly submitted, the relationship described by the primary judge was lacking in coherency.  Mr Cheung was said to have had no “present entitlement as a trust beneficiary to the proceeds of funds placed with him”, but was “regarded by Mrs Leong as fully entitled to the interest income which such funds have from time to time generated” (J, [63]).  That does not constitute a finding that Mrs Leong regarded Mr Cheung as fully entitled to draw on the principal sum as he saw fit.  It was accepted that the interest earnings were ordinary income in the hands of Mr Cheung, notwithstanding that he similarly regarded himself as under a “familial duty” to deploy such earnings for the benefit of the wider family (J, [63]).  There is then a finding that Mrs Leong frequently sent money to Mr Cheung “for investment in Australia” (J, [69]) and a finding that Mrs Leong disposed of the money “at her will to a brother trusted to invest them wisely and well for the wider Cheung/Leong family” (J, [70]).  The primary judge found that Mr Cheung was under no legal obligation to deploy the funds for that purpose (J, [70]).  All of that is said to have been explained by “familial bonds and understandings” (J, [63]), suggesting relationships of reciprocity of duty and reward.  However, there is no examination of the extent to which those same bonds and understandings explained Mr Cheung’s decades of contribution to the ABM Business.

165 The primary judge ought to have found that the proposition that the payments were a gift entirely unconnected with the contribution Mr Cheung had made to the generation of those profits over the whole of his working life was inherently improbable.  Contrary to the reasoning of the primary judge, the facts and circumstances were not at all analogous to a Western tradition of parents or grandparents making provision for their children and grandchildren from after-tax income and a lifetime of accumulated wealth.  We are not aware of a case in which children and grandchildren in such a scenario have benefitted from the receipt of “gifts” after first having worked for decades contributing to the very same pool of wealth.

166 As to the evidence of asserted Chinese cultural traditions, we are not satisfied that that evidence was sufficient to overcome the problematic features of the case to which we have referred.  In addition, the asserted traditions involved some degree of mutuality of obligation sourced in the connecting factor of family relationships.  It was not suggested that the generosity of spirit extended to non-family members.  On one view of the evidence, even if Mrs Leong was the sole owner of the ABM Business, when scrutinising the alleged tradition it was necessary to ask whether Mr Cheung felt obliged to assist Mrs Leong to generate profits and Mrs Leong felt obliged to assist Mr Cheung by sharing in those profits.  Money received in the context of such a relationship is at least capable of being characterised as ordinary income, to the extent that there is a connection between the money received by the taxpayer and a profit generating activity.  That can occur even if the mutual obligations are not legally enforceable under Western legal tradition.  As Windeyer J put it in Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 at 527:

It was said for the Commissioner that if a service was such as the recipient was ordinarily employed to give in the way of his calling, and the gift was a consequence, however indirect, of the donor’s gratitude and appreciation of that service, then it must necessarily be part of the donee’s income derived from the practice of his calling, and caught by s 26 (e).  But as thus expressed, this proposition is, I think, a mistaken simplification.  It was based upon the fact that in Hayes v Federal Commissioner of Taxation [(1956) 96 CLR 47 at 56] Fullagar J regarded as decisive that it was impossible to relate the receipt of the shares there given to any income-producing activity on the part of the recipient.  In the present case the taxpayer was engaged in an income-producing activity, his practice as a solicitor, to which it was said the gift could be related.  But because the absence of a particular element was decisive in favour of the taxpayer in one case it does not follow that the presence of that element is decisive in favour of the Commissioner in another case.  The relation between the gift and the taxpayer’s activities must be such that the receipt is in a relevant sense a product of them.

(emphasis added)

167 The asserted cultural practices may also involve concepts of substitution of a similar kind to those discussed by Fullagar J in Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 567-568, but it is unnecessary to express a concluded view on that question.

168 It is sufficient to find that Mr Cheung did not discharge his onus of proof with respect to the case he advanced in his appeal statement, whether or not the four witnesses gave their oral testimony in a compelling manner.

169 The proposition to be proven was that regular payments totalling more than $30 million drawn from the profits of a business in which Mr Cheung worked were “gifts” that he then deployed for the betterment of the wider family.  A taxpayer seeking to prove such a proposition should adduce evidence that is coherent, consistent, corroborated and complete.  Having undertaken a real review of the evidence, we conclude that the primary judge erred in making the factual findings challenged by the Commissioner and so uphold Grounds 1 and 2.

170 The appeal will be allowed on that basis.

ONUS OF PROOF

171 The contention underlying the third ground of appeal is that the primary judge wrongly proceeded on the basis that the Commissioner bore the onus of proof in respect of a factual state of affairs underpinning the Objection Decision.

172 The passage at J, [85] (extracted at [11] above) incorrectly assumes that it was for the Commissioner to establish a “case”.  However, there are passages elsewhere in the reasons of the primary judge that correctly identify the effect of the reverse onus in s 14ZZO of the TAA.  The remainder of the reasons may be fairly understood as addressing the case that Mr Cheung put forward and wholly accepting it.  The error of the primary judge was to accept that case without addressing the material revealing inconsistency, ambiguity and incoherence in the evidence put forward to support it.  Whilst the fact-finding process was flawed, that does not equate to a failure to observe the onus of proof.

173 In the course of argument on this appeal, Counsel for Mr Cheung submitted that it was sufficient for Mr Cheung at first instance to point to some evidence that the Objection Decision was wrongly made, at which point the “evidentiary burden shifted” to the Commissioner to persuade the primary judge not to accept the evidence on which he relied, or to adduce contrary evidence of at least equal weight.  The submission is so far removed from settled authority it deserves little attention.  The principles concerning a taxpayer’s onus are set out earlier in these reasons.  In their application to the present case, it is enough to say that the assertions in the affidavit were so undermined by the remaining evidence that the onus could not on any reasonable view be discharged.  The error was one related to the standard of proof, not the onus.

CONCLUSION

174 There will be orders setting aside the judgment and orders of the primary judge.  There will be a further order quantifying Mr Cheung’s tax liabilities for the relevant period adjusted to reflect the conceded amount of $1,162,023.00.  Subject to that variation of the Objection Decision, there will be an order dismissing Mr Cheung’s appeal at first instance, together with ancillary orders to the effect that Mr Cheung pay the Commissioner’s costs of that proceeding and of this appeal.  The parties will be heard on the appropriate measure of costs.

Associate:

Dated:    28 May 2026