Federal Court of Australia
Commissioner of Taxation v Ross  FCA 766
DATE OF ORDER:
THE COURT ORDERS THAT:
1. The applicant’s appeal be allowed.
2. The respondents’ cross-appeal be allowed.
3. The decisions of the Administrative Appeals Tribunal dated 6 May 2020 be set aside.
4. Matters numbered 2016/4850 – 2016/4859 and 2016/4915 – 2016/4918 be remitted to the Administrative Appeals Tribunal for re-hearing according to law and in accordance with these reasons without the hearing of further evidence.
5. The parties file and serve written submissions on the question of costs limited to five pages within 14 days from the date of the delivery of these reasons.
6. The parties file and serve written submissions in reply on the question of costs limited to three pages within 21 days from the date of the delivery of these reasons.
7. Liberty to apply.
1 On 6 May 2020, a Deputy President of the Administrative Appeals Tribunal (the Tribunal) handed down his decisions and reasons for decisions in the two matters now before this Court. Each involved an application pursuant to s 14ZZ of the Tax Administration Act 1953 (Cth) (the TAA) in relation to objection decisions made by the Commissioner of Taxation (the Commissioner) concerning the taxpayers’ objections to default and amended assessments made in respect of them on an “asset betterment” basis. In substance, the Tribunal partly allowed the applications and determined that alterations ought to be made to the assessments of the taxpayers’ taxable incomes for the several income years. It also concluded that the amounts of certain penalties for which the taxpayers had been assessed should be reduced and that the penalties should be either wholly or partly remitted.
2 In the first appeal, the Commissioner claims that the Tribunal ought not to have interfered with his objection decisions as, principally, the taxpayers failed to discharge the burden of proof imposed upon them in respect of the applications to the Tribunal. He also claims that the Tribunal erred in its decisions concerning the penalties and their remission. In the cross-appeal, Mrs Ross claims that the taxpayers were denied procedural fairness consequent upon a significant delay between the hearing of the evidence in the matter and the delivery of the Tribunal’s decisions and reasons for decisions. While to a limited extent the issues in the separate appeals overlap, the issues in each require separate consideration.
3 Given the unfortunate length of these reasons, it is appropriate to provide a brief summary of the conclusions reached in relation to the appeals and the individual grounds of appeal.
4 In relation to the Commissioner’s appeal, it is accepted that the Tribunal failed to correctly apply the statutory onus carried by the taxpayers in this matter. The taxpayers sought to justify the Tribunal’s approach by submitting that the parties had agreed to contest the appeals on a different basis. No such agreement existed. As it emerged from the consideration of the many issues in dispute, it appears that the taxpayers had commenced and substantially prosecuted their appeals before the Tribunal under a misapprehension as to what they were required to establish. Although this was recognised shortly prior to the Tribunal’s hearings by the then recently engaged Counsel, he lacked sufficient time and evidence to construct a case which satisfied the onus. It was no doubt due to these circumstances that the Commissioner advanced the rather bold submission on appeal that the Court should conclude that, on the basis of the material before the Tribunal, the taxpayers could never have succeeded in satisfying their onus and, in particular, that part which required them to show what were their actual incomes in the relevant years. Although the Commissioner was able to sustain that submission, its value in the disposition of the appeals was ultimately limited in the present circumstances.
5 The Commissioner is also entitled to succeed, in part, on the second ground of appeal. The Tribunal did purport to decide the applications to it based on matters which were not raised in the taxpayers’ grounds of objection. However, to the extent to which that involved the “double counting issue” that was ultimately acquiesced in by the Commissioner. The other issue, being that of the characterisation of amounts received by Mr Ross as “refunds” had not properly been raised, but it was relatively minor in the scheme of the appeal.
6 The Commission is also entitled to succeed the remaining grounds of appeal: that the Tribunal erred by purporting to set aside the imposition of penalty uplift pursuant to s 284-220 of Sch 1 to the TAA (Ground 3); that the Tribunal erred in the manner in which it considered whether administrative penalties should be remitted and by how much (Ground 4); and that the Tribunal denied him procedural fairness by failing to provide him with an opportunity to make submissions as to the impact of Mr Ross’s death of on the issue of remission (Ground 5).
7 Necessarily, the Commissioner is entitled to succeed on his appeal.
8 Mrs Ross is also entitled to succeed on her cross-appeal. It was established, by reference to the numerous errors in the Tribunal’s reasons, that the delay of approximately two years and two months gave rise to a real and substantial risk that its ability to assess the issues in the applications to it was impaired.
9 Despite the Commissioner’s submission that this Court should substitute for the Tribunal’s decision with respect to the taxpayers’ applications a decision that the applications be dismissed and his objection decisions be affirmed, I am not satisfied that the Court has the power to do so in the circumstances of this case. The appeals should therefore be remitted to the Tribunal for re-hearing but, by reason of the matters discussed at the conclusion of these reasons, that hearing should occur without the hearing of further evidence.
10 In October 2015, the Commissioner concluded a covert audit of the affairs of Mr Shane Ross and Mrs Alexandra Ross. It was covert in the sense that it was undertaken without notice to either taxpayer. The audit of Mr Ross’s affairs concluded that he had failed to disclose assessable income over the subject income years in an amount totalling approximately $843,989, resulting in a tax shortfall amount of $353,042. In respect of Mrs Ross, the audit concluded she had failed to disclose assessable income in an amount totalling approximately $466,080, resulting in a tax shortfall of $192,420.
11 In consequence upon the conclusions reached in the audit, the Commissioner made default and amended assessments for Mr and Mrs Ross. In relation to Mr Ross, amended assessments were made on 27 October 2015 for the 2009, 2010, 2012, 2013 and 2014 income years. For each of those income years, the assessments were made pursuant to s 167 of the Income Tax Assessment Act 1936 (Cth) (the ITAA36). In the case of Mrs Ross, a default assessment was made for the 2013 income year and an amended assessment was made for the 2014 income year, each on 28 October 2015. These assessments were also made pursuant to s 167 of the ITAA36.
12 In addition, the Commissioner assessed each of Mr and Mrs Ross for administrative penalties. In respect of Mr Ross, the Commissioner assessed administrative penalties at a rate of 75% of the shortfall amounts for relevant income years, with an uplift of 20% for the income years after the 2009 income year. Similarly, Mrs Ross was assessed for administrative penalties at a rate of 75% of the shortfall amounts for the 2013 and 2014 income years.
13 The results of the audit were disclosed to Mr and Mrs Ross in letters dated 27 October 2015 which explained the basis on which the Commissioner had made the amended and default assessments and assessed the taxpayers for penalties, and included the “Asset Betterment Statement” prepared in respect of each of them on which the assessments were based.
14 On 4 March 2016, objections were lodged on behalf of Mr and Mrs Ross’s in respect of the assessments and penalty assessments. On 15 July 2016, the Commissioner gave Mr Ross a notice of objection decision disallowing his objections in full. On 18 July 2016, the Commissioner gave Mrs Ross a notice of objection decision disallowing her objections in full.
Proceedings in the Tribunal
15 On 13 September 2016, Mr Ross commenced proceedings in the Tribunal seeking a review of the Commissioner’s objection decision. On 15 September 2016, Mrs Ross commenced similar proceedings in which she sought review of the Commissioner’s objection decision in relation to her. These proceedings were heard together in the Tribunal and it is appropriate to adopt the nomenclature used by the Commissioner in his written submissions in describing the combined proceedings as “the Tribunal proceedings”.
16 Mr Ross and Mrs Ross each lodged amended grounds of objection on 19 October 2017 which altered the issues which were to be the subject of review in the Tribunal proceedings.
17 Evidence was received by the Tribunal at a hearing which was initially conducted over four days from 6 to 9 November 2017. The proceedings were then adjourned to 1 February 2018 when further evidence was received.
18 On 26 March 2018, Mr and Mrs Ross filed extensive written submissions with the Tribunal, and, on 27 April 2018, the Commissioner responded with written submissions. Mr and Mrs Ross filed written submissions in reply on 25 May 2018.
19 On 29 October 2019, an email was sent by the legal representatives for the taxpayers to the Tribunal advising that Mr Ross had died. They also enquiring as to the progress of the Tribunal’s decision.
20 On 5 November 2019, the Tribunal responded to the email from the taxpayers’ legal representatives proposing that the matter be listed for a case management telephone directions hearing and stating that it would provide the parties with an opportunity to make any submissions (although in respect of what those submissions were to be made was in dispute).
21 The directions hearing apparently occurred on 13 and 14 November 2019. Subsequently, an application was sent to the Tribunal seeking to join Mrs Ross, in her capacity as the personal representative of Mr Ross’s estate, as a party to his proceedings. The Commissioner did not oppose the application for joinder, although it does not appear that any formal order or direction was made to that effect by the Tribunal.
22 Following the directions hearing, no further hearing was held, no further evidence was led, and no submissions were made by any party regarding the implications of Mr Ross’s death.
23 The Tribunal’s decisions on the applications for review were made on 6 May 2020 and reasons for decisions were given. As identified by Counsel for Mrs Ross, this was more than two and a quarter years from the last receipt of evidence on 1 February 2018 and just short of two and a half years since the hearing of the oral evidence of Mr and Mrs Ross.
24 At this point, there is no need to set out the Tribunal’s reasons in great detail. Where appropriate, relevant parts will be analysed in the reasons which follow. For present purposes, only a brief synopsis is required.
25 First, the Tribunal noted in relation to Mr Ross that, for income years 2009, 2010, 2012 and 2013, the Commissioner relied upon the “fraud or evasion” exception in s 170 of the ITAA36 to the statutory time limit on the making of an amended assessment. It also observed that the taxpayer bore the onus of establishing that the Commissioner could not validly have formed the opinion that fraud or evasion had occurred. In relation to the 2014 income year, the amended assessment was made within the statutory time limit so the Commissioner had not needed to rely on the fraud or evasion exception.
26 The Tribunal further noted that taxpayers claimed that they had done nothing wrong and alleged that the specific amounts which the Commissioner had assumed to be representative of assessable income should properly have been regarded as loans, gifts, the proceeds of recreational gambling, and the proceeds of sales of motor vehicles and components. It then briefly set out a consideration of the taxpayer’s obligation in s 14ZZK(b)(i) of the TAA to discharge the burden of establishing that an assessment was excessive. It also identified that the taxpayer must persuade the Tribunal what the correct assessment should be. After referring to the process of assessing evidence, the Tribunal acknowledged that there had been a “lengthy and regrettable delay in producing [its] reasons for decision”, but indicated that the Tribunal member was confident that he would be able to deal with the challenges posed by the delay by reference to his detailed notes, the transcript and the audio recordings of the hearing.
27 The Tribunal then identified the possibility that the Commissioner’s calculations in the Asset Betterment Statement had involved some double counting of amounts based on Mr Ross’s transfer of funds between his several accounts. It noted that Mr Ross had provided a detailed analysis which “strongly suggest[ed]” that inter-account transfers were mistakenly taken into account in making the amended assessments, and indicated that the Commissioner would need to reconsider all of the assessments with a direction to exclude such transfers.
28 Thereafter, it considered each of the income years in relation to Mr Ross and whether certain amounts should not have been included in his assessable income for the relevant income years. In summary, the findings of the Tribunal were as follows:
(1) In relation to the 2009 income year, it was not persuaded that Mr Ross had discharged the onus of establishing that the sum of $93,000, which the Commissioner had included in the Asset Betterment Statement in making the amended assessment for that year, was a loan from an acquaintance. Further, having concluded that it was not a loan, as Mr Ross had claimed, the Tribunal determined he had not discharged the onus of showing that the Commissioner’s view that there was fraud or evasion should be overturned.
(2) In relation to the 2010 income year, it determined that Mr Ross had discharged the onus of showing that the sum of approximately $8,000, of an amount of $63,473 which the Commissioner had identified as unexplained income, was a gain derived from gambling such that it ought not to have been included in the amended assessment. It also observed that Mr Ross did not dispute the balance of the amount included in his assessable income by the Commissioner or that the Commissioner had erred in determining that there was fraud or evasion in relation to that balance.
(3) In relation to the 2012 income year, it concluded that Mr Ross had discharged the onus of establishing that certain payments which had been received by him from his mother were not income. However, he had not discharged that onus in relation to other payments, nor in establishing that the Commissioner should not have formed the opinion that there was fraud or evasion.
(4) In relation to the 2013 income year, it determined that Mr Ross had not discharged the onus of establishing that the sum of $75,000, which the Commissioner included in the Asset Betterment Statement relating to Mr Ross, was a loan from an associate. Neither did it accept that the sum of $44,000 was the total of the funds received by Mr Ross as cash gifts in connection with his engagement to Mrs Ross. Similarly, it concluded that Mr Ross had not discharged the onus of showing that the totality of the sum of approximately $74,000 received by him in that year could be accounted for as the proceeds of gambling, nor that the Commissioner had erred in determining that there was fraud or evasion. However, it did accept that certain amounts claimed as being the proceeds of gambling (totalling $16,010.40) should be excluded from Mr Ross’s assessable income for that year.
(5) In relation to the 2014 income year, the Commissioner had increased Mr Ross’s taxable income by $425,256 and the Tribunal concluded that Mr Ross had not discharged the onus of showing that the separate sums of $45,000, $50,000 or $140,000 which formed part of that increase were gifts or loans. It also concluded that Mr Ross had not discharged the onus of establishing that the sum of $132,500 received by him in that income year represented the proceeds of the sale of motor vehicles and an engine. It did, however, accept that he had discharged the onus in relation to the sum of $35,000 which he had claimed was a loan.
29 The Tribunal’s conclusions in relation to Mrs Ross were as follows:
(1) In relation to the 2013 income year, it found that the Commissioner had erred in attributing to Mrs Ross’s assessable income the sum of $171,500 representing the value of a 2009 Mercedes Benz ML63 motor vehicle. It concluded that its value was only $32,500 and that it was this amount which should be included in her assessable income.
(2) In relation to the 2014 year of income, the Commissioner’s assessment had attributed an additional $271,003 to Mrs Ross’s taxable income. Before the Tribunal, the Commissioner had accepted that the additional amount assessed should be decreased by the amount of $21,491 which was accepted as representing the proceeds of gambling as well as an amount attributed to Mrs Ross as representing her share of an interest in land. However, the Tribunal held that Mrs Ross had not discharged the onus of establishing that the deposit of the sum of $75,000 in May 2014 represented the proceeds of the sale of the Mercedes Benz motor vehicle such that it was not properly included in her assessable income. Nor was it satisfied that the sum of $60,000 received by Mrs Ross was a loan from her father and should not also be included.
30 The Tribunal then turned its attention to the penalties which had been imposed on Mr Ross, concluding that:
(a) there was no basis on which it could conclude that the Commissioner erred in applying an administrative penalty equal to 75% of the shortfall amount for each income year on the basis that Mr Ross had made statements that were false or misleading in a material particular which resulted in the shortfall and that such shortfalls resulted from an intentional disregard of a taxation law;
(b) no additional 20% uplift should have been imposed for the income years after the 2009 income year pursuant to s 284-220(1)(c) of Sch 1 of the TAA as all of the amended assessments were made at the same time such that Mr Ross was not able to modify his behaviour in response to an earlier imposition of a penalty;
(c) the penalties imposed upon Mr Ross should be remitted in their entirety in the unusual circumstance of his death on the basis that it was difficult to see what purpose the imposition of the penalties would now serve now given he had died and the penalties would simply be paid out of his estate; and
(d) there was, however, no basis on which to waive the shortfall interest charges.
31 In relation to the penalties imposed upon Mrs Ross, the Tribunal determined that:
(a) as she failed to file a tax return for financial year ending 30 June 2013 and a shortfall had been assessed, the conditions were satisfied for the imposition of a penalty at the rate of 75% pursuant to ss 284-75(3) and 284-90(1) of Sch 1 of the TAA, but in relation to a smaller shortfall than the Commissioner had identified;
(b) as to the 2014 income year, Mrs Ross had been guilty of an intentional disregard of taxation laws in relation to the claim that she had received an amount from her father by way of a loan and, accordingly, she did not establish that the base penalty amount was incorrectly assessed at a rate of 75% of the shortfall amount;
(c) no uplift should apply in relation to the penalty for the 2014 income year because Mrs Ross was not in the position of a taxpayer who had been caught out previously and, therefore, there was no opportunity for her to have learned anything from the default assessment for the 2013 income year; and
(d) in the circumstances, in particular the death of Mr Ross, most of the penalty imposed for the 2013 income year and half of the penalty imposed for the 2014 income year should be remitted.
Grounds of appeal and cross-appeal
32 The Commissioner’s appeal is founded upon a number of questions of law concerning what he contended to be errors in the manner in which the Tribunal:
(a) interpreted and applied the onus of proof under s 14ZZK(b)(i) of the TAA;
(b) interpreted and applied s 14ZZK(a) in allowing the taxpayers to raise grounds which were not included in their objections;
(c) interpreted and applied s 284-220(1)(c) of Sch 1 to the TAA by applying the wrong test when setting aside the uplift penalties imposed upon the taxpayers;
(d) interpreted and applied s 298-20 of Sch 1 to the TAA when remitting penalties imposed upon the taxpayers; and
(e) interpreted and applied ss 33 and 43 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) by purporting to exercise powers which were not vested in it.
33 The grounds on which such errors were said to arise were detailed and are considered more fully in the consideration below.
34 By an amended notice of cross-appeal, Mrs Ross, on her own behalf and as the personal representative of the estate of Mr Ross, raised only one question of law. This concerned whether she and her husband were denied a fair hearing of their applications to the Tribunal for review of the Commissioner’s objection decisions, in particular having regard to the delay between the giving of the evidence and the giving of the Tribunal’s decision. The particulars in support of that ground identified a number of alleged errors in the Tribunal’s decisions and reasons for decisions. Those errors were not advanced as grounds which, of themselves, justified overturning the Tribunal’s decisions, but were advanced as evidencing that the lengthy delay had resulted in demonstrable unfairness to Mr and Mrs Ross.
THE COMMISSIONER’S APPEAL
Ground 1: Did the Tribunal err in relation to the taxpayers’ onus under s 14ZZK(b)(i)?
35 The central issue in the Commissioner’s appeal concerned the interpretation and application of s 14ZZK(b)(i) of the TAA. In particular, he submitted that the Tribunal erred by misapplying this section, which imposes a particular onus of proof on a taxpayer when seeking review of an objection decision, and, so the submission went, that error of law vitiated the Tribunal’s decisions warranting their being set aside. He further submitted that the matters should not be returned to the Tribunal for reconsideration because, on the material and evidence before it, had the Tribunal applied the correct onus it could not have done other than affirm the objection decisions. In effect, he submitted that, on the material before it, no properly instructed Tribunal would have set aside the objection decisions. The Commissioner’s submissions concerning the alleged futility of remitting the matter consumed a significant portion of the appeal as it necessitated a close traversing of the material which had been before the Tribunal.
36 Mrs Ross submitted the two matters should instead be returned to the Tribunal for reconsideration. In general terms, she submitted that, before the Tribunal, the taxpayers had discharged the relevant onus but that, if they did not, it was merely because the Commissioner had implicitly agreed to contest the applications on specific issues such that the usual onus did not apply. She submitted the establishment of either of those matters justified the applications being remitted to the Tribunal for a reconsideration according to law.
The relevant legislation and principles on onus
Relevant statutory provisions
37 In part, this matter necessitates a consideration of the distinction between an assessment under s 166 of the ITAA36 and an assessment made pursuant to the power in s 167.
38 Section 166 concerns assessments made by the Commissioner in the ordinary course and provides:
From the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources, the Commissioner must make an assessment of:
(a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and
(b) the amount of the tax payable thereon (or that no tax is payable); and
(c) the total of the taxpayer’s tax offset refunds (or that the taxpayer can get no such refunds).
39 On the other hand, s 167 empowers the Commissioner to make default assessments in certain circumstances. That section provides:
167 Default assessment
(a) any person makes default in furnishing a return; or
(b) the Commissioner is not satisfied with the return furnished by any person; or
(c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
40 The distinction between the two forms of assessment are obvious. Section 166 requires, unequivocally, an evidence-based calculation of a person’s taxable income, tax payable thereon, and tax offset refunds. By contrast, s 167 authorises the Commission to form a judgment as to the amount on which tax ought to be levied, once one of the matters in sub-paragraphs (a), (b) or (c), on which the power is conditioned, is satisfied. Broadly speaking, the substance of those matters is that, in the circumstances, the Commissioner is unable to make an accurate assessment in accordance with s 166.
41 If dissatisfied with an assessment, a taxpayer may object to it in accordance with Pt IVC of the TAA: ITAA36, s 175A. If the taxpayer is dissatisfied with the Commissioner’s decision in relation to their objection, they may apply to the Tribunal for review of that decision (or appeal against the decision to this Court): TAA, s 14ZZ. The onus which must be satisfied by a taxpayer on an application for review is provided by s 14ZZK of the TAA.
42 The current iteration of s 14ZZK provides:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment — that the assessment is excessive or otherwise incorrect and what the assessment should have been;
43 That form of s 14ZZK was introduced by amendments to the TAA made in 2013: see Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (Cth). Section 27 of Sch 5 to the amending act governs the application of the relevant amendments, and provides:
27 Application of amendments
The amendments made by this Division apply to an assessment if:
(a) the assessment is made on or after 1 July 2013; and
(b) in the case of an assessment that relates to an income year or other accounting period:
(i) the income year is the 2013‑14 income year or a later income year; or
(ii) the other accounting period commences on or after 1 July 2013.
44 In this case, while all of the assessments were made in October 2015, most related to income years before the 2014 income year. Necessarily, the current iteration of s 14ZZK only applies in relation to the assessments relating to the 2014 income year, while the unamended version of s 14ZZK applies in respect of the other assessments.
45 Prior to the amendments, s 14ZZK provided that an applicant had the burden of proving that an assessment was “excessive” and did not expressly require, as it now does, proof of “what the assessment should have been”. While this might be taken to suggest that some lower burden of proof applied previously, that is not the case and the latter requirement has always formed part of the taxpayer’s burden of proof in challenging an assessment. See also the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Bill 2013 [7.36] – [7.38]. Accordingly, as Counsel for each of the parties accepted at the hearing, which version of s 14ZZK is inconsequential in terms of the burden of proof that applies.
The nature of the onus of proof
46 The parties generally agreed that the effect of s 14ZZK(b)(i) is that the taxpayers bear the burden of proving, on the balance of probabilities, both that the assessment is “excessive” and, also, what the assessment should have been to make the assessment right, or “more nearly right”: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 (Trautwein) at 88 per Latham CJ; Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (Dalco) at 623 – 625 per Brennan J and at 632 – 634 per Toohey J; Gashi v Commissioner of Taxation (2013) 209 FCR 301 (Gashi)  – . It was also not in dispute that the onus is to the civil standard, being the balance of probabilities. It should always be kept steadily in mind that the rationale for the onus imposed by s 14ZZK(b)(i) is that the facts relating to a taxpayer’s taxable income are peculiarly within their knowledge and they must be taken to know what their income is and how it was derived: Trautwein at 87. It follow that there is no undue harshness in requiring a taxpayer, who has failed to lodge a return or whose return is not compliant with the taxation legislation, to bear the onus of establishing their true taxable income for the relevant income year.
47 Whilst the overarching principles surrounding the onus might be succinctly stated as they are above, a question arose in the present matter as to the application of the onus in the context of a challenge to a default assessment founded upon the “asset betterment method”. In particular, the parties differed as to the manner in which the onus might be discharged in that context.
48 Some guidance as to that question can be gleaned from a more granular analysis of the principles concerning the onus as they have been synthesised in the authorities. In general terms, the relevant authorities establish as follows:
(1) An assessment under s 166 is fundamentally different to an assessment under s 167 and, necessarily, the manner in which they can be challenged are also fundamentally different: Gashi  – ; Rigoli v Commissioner of Taxation (2014) 141 ALD 529 (Rigoli) .
(2) The assessment by the “asset betterment method” is a legitimate form of assessment: Trautwein at 86 – 87, 99 – 100 and 105; even though it necessarily involves an amount of guesswork and, whilst almost certainly inaccurate to some extent, it is no part of the Commissioner’s duty to establish what judgment he has formed in making a s 167 assessment: Gashi ; George v Federal Commissioner of Taxation (1952) 86 CLR 183 (George) at 204. Clearly enough, any inaccuracy follows from the circumstances which impel the Commissioner to make a default assessment, being that a process of calculating assessable income less deductions is not possible: Rigoli .
(3) It is not part of a review of an objection decision concerning an assessment under s 167 to seek to identify the facts the Commissioner adopted for the purpose of making the assessment and whether those facts disclose a taxable income: Gashi ; George at 204. The principal fact which the Commissioner is required to determine in making an assessment pursuant to s 167 is “the amount of income upon which … income tax ought to be levied”: Gashi .
(4) It is insufficient to discharge the burden under s 14ZZK(b)(i) in relation to an assessment under s 167, whether based on the asset betterment method or otherwise, to merely demonstrate that the Commissioner formed a judgment about the taxpayer’s taxable income on a wrong basis and that the amount assessed far exceeded the taxpayer’s taxable income: Gashi ; Rigoli .
(5) In order to establish that an assessment under s 167 is excessive, a taxpayer must positively prove their “actual taxable income” and, in doing so, must demonstrate that the amount of tax levied by the assessment exceeds their actual substantive liability: Gashi ; Dalco at 623 – 625; Trautwein at 88; Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 (Ma) at 230; by, in effect, furnishing a return of actual income which involves establishing both sides of the equation: Bosanac v Commissioner of Taxation (2019) 267 FCR 169 (Bosanac (FC)) .
(6) In the context of a s 167 assessment based on the asset betterment method, the taxpayer must demonstrate that the identified unexplained accumulated wealth was derived from non-income sources and that may be achieved by an accepted denial of any undisclosed source of income, providing acceptable evidence of how the taxpayer spends their time, and demonstrating a reasonable explanation for any appearance of the possession of assets: Ma at 230; Gashi  – . The taxpayer must account for the unexplained increase in assets by explaining the source of those assets and identifying that those sources are not taxable. “[I]f the disclosed “actual” taxable income does not explain the increase in assets, then the taxpayer is unlikely to have discharged the burden of establishing the assessment is excessive”: Gashi .
(7) The converse is that it is insufficient for a taxpayer to prove that an item in their asset betterment statement was wrong or should not have been included: Gashi  – ; Rigoli . If they do not also satisfactorily explain the source or sources for the other unexplained wealth, that is that they were derived from non-income sources, the onus under s 14ZZK(b)(i) will remain unsatisfied: Gashi . A deficiency in proof of the excessiveness of the assessment results in the challenge failing: Dalco at 624 – 626. Necessarily, this prevents a successful challenge to an assessment being made by a process of “picking and choosing” part or parts of the increased wealth relied upon by the Commissioner and attacking them as being improperly included as part of the taxpayer’s taxable income: Gashi ; Rigoli . A process which involves attacking elements of the Commissioner’s calculation and facts in respect of which the taxpayer chooses to lead evidence is not sufficient. The same is true for a default assessment not based on the asset betterment method: Rigoli .
(8) These principles can result in a situation where the default assessment can be assumed to be inaccurate in some respects but, in the absence of the taxpayer establishing what their actual taxable income was, it must nevertheless stand: Gashi  – ; Woellner and Zetle, “Satisfying The Taxpayer’s Burden Of Proof In Challenging A Default Assessment – The Modern Labours Of Sisyphus?”  JlALawTA 11.
(9) The ultimate question in Part IVC proceedings relating to an assessment made under s 167 is whether the amount of the assessment is excessive. That places no burden on the Commissioner to show that the assessments were correctly made: Dalco at 623 – 624. The manner in which the taxpayer can discharge the burden may vary with the circumstances but “absent agreement with the Commissioner to confine the issues for determination in a Pt IVC proceeding, the Commissioner is entitled to rely upon any deficiency in the taxpayer’s proof of the excessiveness of the amount assessed in seeking to uphold the assessment”: Gashi . See also Dalco at 624.
(10) There may be cases where the amount of taxable income depends upon the legal complexion of known facts or upon specific factual questions. In such a case, a taxpayer may successfully discharge the onus by establishing that the Commissioner included in their taxable income amounts which ought not to have been included: Dalco at 624. However, such a situation would only arise where the Commissioner agrees to a process which is different to that described above by confining the scope of the dispute between him and the taxpayer to certain enumerated amounts. One might expect some clear expression of that agreement, involving as it does an abandonment of the advantages accorded to the Commissioner in s 167 in respect of defaulting taxpayers.
49 Central to the dispute between the parties in relation to this issue were three matters. First, the actual nature of the obligation of the taxpayer to prove their taxable income. Second, the manner in which such proof may occur. Third, whether the taxpayers had discharged the onus in the present case and, in particular, whether the handing to the Tribunal of a document which is referred to as “MFI-1” had achieved that objective.
50 In relation to the first two matters, the issue between the parties was whether the taxpayers were able to discharge their onus by giving explanations for some of the transactions and assets identified in the Asset Betterment Statements and otherwise giving an account of the transactions in their bank accounts (which they claimed to have done by MFI-1). The Commissioner submitted that such an approach tacitly assumes that a s 167 assessment identifies the taxpayers’ actual taxable income, such that the attack on the correctness of the assumption that the identified assets were the product of unexplained income would, by a process of calculation, result in the identification of their taxable income. This, he submitted, is an ineffective process for the purposes of the onus in s 14ZZK(b)(i) as it does not go to establish what were the taxpayers’ actual taxable incomes.
51 Mr Hack QC for Mrs Ross submitted that the manner in which a taxpayer discharges the burden of proof varies with the circumstances of the case and that, in the present case, the approach adopted would, if accepted, have satisfied that obligation. In this regard, he relied heavily on the decision in Ma as referred to above and submitted that the decisions in Rigoli and Gashi were mere applications of the principle there stated.
The decisions in Le and Haritos
52 After the initial three days of hearing of the appeal, the parties requested leave to make further submissions in relation to a number of matters including the recent decision of Logan J in Le v Commissioner of Taxation  FCA 303 (Le) as well as the decision of the Full Court in Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315 (Haritos). Leave was given and another half day was allocated to receive further submissions.
53 Mr Hack QC submitted that the decision in Le applied statements of principle from Haritos as to the manner in which a taxpayer might be able to discharge their onus of proof. In particular, it was submitted that the Full Court in Haritos (at  – ) rejected the “all or nothing” approach to the discharge of the onus of proof by a taxpayer faced with a default assessment founded on the asset betterment methodology and that Logan J had adopted that in Le (at ). It was submitted that the result of this was:
Where, by concession or by the Tribunal’s finding, it is concluded that an amount included in an applicant’s assessable income by the Commissioner is not, in truth, assessable income of the applicant the applicant has shown that the assessment is excessive to the extent of that concession or finding.
54 It is appropriate to first consider the Full Court’s decision in Haritos as it was subsequently relied upon by Logan J in Le. There, the Commissioner had undertaken a wide ranging audit of the taxpayers’ affairs over a number of years and issued assessments substantially increasing the amount of their assessable income for each income year. By the time the matter had reached the Tribunal, the issues between the parties had reduced to a consideration of a number of issues relating to certain payments and expenses. In relation to the latter, the most significant issue was the payment by a company of approximately $20 million to the taxpayers which, so they alleged, was used to pay the company’s subcontractors. So much is apparent from the reasons of the AAT: Re Applicant v Federal Commissioner of Taxation  AATA 112  –  and the decision of Pagone J at first instance in Haritos v Commissioner of Taxation (2014) 141 ALD 369 . One issue which arose in that context was whether the Tribunal had erred by making an illogical or irrational finding as to the acceptability of evidence said to be corroborative of the evidence of one of the taxpayers as to the nature and extent of the payments claimed to have been made to the subcontractors. The Tribunal had determined that the corroborating evidence should be given no weight because it was, to some extent, based on the taxpayer’s evidence of which it was suspicious. However, the Full Court found that there was nothing which would support the finding that the corroborative evidence was so based and, as such, that finding was without any foundation whatsoever. The consequence of this conclusion was, so the Full Court found (at ), that the Tribunal had not completed its review function insofar as it required a proper evaluation of the taxpayer’s evidence, and that an element of the taxpayer’s attempt to demonstrate the excessiveness of the assessment had not been considered. In the course of a discussion as to whether the evidence of the corroborating witness had established the amount of costs which might have been properly paid to subcontractors, the Full Court observed that the Tribunal had concluded that the evidence was insufficient to establish the extent to which the Commissioner’s assessments were excessive. The Court identified that the taxpayers were required to show, not only that the assessments were excessive, but also the extent to which they were excessive, and that the import of the evidence of the corroborating witness was to support that of the taxpayer who was able to provide some precision as to the quantum of the costs in question: at . Thereafter the Court said (at ):
In his outline of submissions filed before the hearing, the respondent sought to meet the appellants’ argument by reference to the principle that, in this case, the appellants were required to prove not only that the assessments were excessive, but also the extent to which they were excessive. We reject that argument for the reasons given in the previous paragraph. As it happened, during the course of the hearing of the application for leave to appeal, counsel for the respondent conceded (correctly in our view) that it was “not wrong” to say the Tribunal’s reasoning was illogical to the extent that it said that Mr Dalla Costa relied on Mr Haritos’ evidence.
55 However, the Full Court was not there rejecting the established principles in relation to the application of s 14ZZK(b)(i) or, indeed, its clearly expressed elements, but merely rejecting that the submission had any relevance in the case before it. In the previous paragraph, it had identified how the taxpayer had sought to establish with precision the amount of his income (by establishing that money paid to him was for the purposes of paying his company’s subcontractors), such that the Commissioner’s submission did not meet the argument which the taxpayer was seeking to advance.
56 After considering a number of arguments as to the manner in which the burden of proof applied in the case before them, the Court addressed one further argument as follows:
235. The third way in which the appellants put their argument that the Tribunal had misused the burden of proof section is related to the second. The appellants submitted that even if Mr Haritos’ evidence was correctly rejected, they had nevertheless established subcontractor expenses of at least a certain amount. The Tribunal was not entitled to adopt what the appellants described as an “all or nothing” approach. If an “at least” figure was established on the evidence, then the Tribunal should have made a finding in accordance with that evidence.
236. We think that proposition is correct. If a taxpayer claims his or her expenses were $10, but fails to prove that fact because their evidence is rejected, this does not prevent the Tribunal from finding that the expenses were $5 where there is other satisfactory evidence establishing expenses of at least that amount. In our opinion, the burden of proof section does not dictate a different conclusion.
57 Mrs Ross submitted that this latter discussion by the Full Court in Haritos had the consequence that, in attempting to discharge the burden imposed by s 14ZZK(b)(i) in relation to an assessment made pursuant to s 167, it was sufficient to identify that elements of the Commissioner’s assessment were incorrect or partially incorrect and, to the extent error is shown, the taxpayer’s taxable income is revealed by the remaining amount. With respect, although the Full Court in Haritos may have intended to overturn the earlier decisions of the Full Court in Gashi, Rigoli and Bosanac (FC) by a side-wind, it is probably unlikely. As the Commissioner submitted, Haritos concerned circumstances where the taxpayers and the Commissioner had reduced the scope of the hearing to a number of particular disputed amounts which, depending upon the manner in which they were resolved, would increase or decrease the amount which the parties had otherwise agreed represented the taxpayers’ taxable income. In other words, the underlying circumstances in relation to the taxpayers’ taxable income were generally agreed with the remaining disputed items to be determined by the Tribunal, with the results of those determinations altering the otherwise accepted amount of taxable income. Haritos was not a case where, before the Tribunal, the taxpayers’ were still required to fully and completely establish the actual amount of their taxable income. Given the context in which the Court was discussing the effect of the taxpayer establishing some portion of its expenses, there is nothing exceptional about its comments at  to  and no reason to think the Court was departing from the orthodox principles described earlier.
58 In Le, the Commissioner had made default assessments after conducting an audit and, in part, those assessments were based on the asset betterment method. The Tribunal rejected the taxpayers’ application for review concerning some of the income years under review, but made alterations to the Commissioner’s objection decisions relating to other income years. Logan J critiqued the Commissioner’s approach to undertaking the assessments but observed that the discharge of the statutory onus “entails rather more than just a critique of that approach”: at . His Honour also referred to the observations of Burchett J in Ma which have been mentioned above and identified that they were directed to circumstances where the occurrence of the underlying taxable events is controversial, of which undisclosed income cases offer a paradigm case. The appellants in Le had submitted that, given what the decision in Ma permitted, the Tribunal had failed to address key elements of the explanation which they had provided for their assets. They submitted that, similar to the circumstances in the present case, the Commissioner had erred by double counting amounts which had been transferred between their several accounts and that the Tribunal had erred by not dealing with that contention which was advanced as demonstrating that the assessments were excessive. This, it was submitted, amounted to an error of law. Logan J referred to the decision in Haritos and the passages to which reference has been made above, and observed that the understanding in Ma of the statutory onus of proof as explained in Dalco and Trautwein has not be gainsaid. His Honour recognised that it coincided with the observations of Walsh J in Krew v Commissioner of Taxation (1971) 45 ALJR 324, where it was said (at 327):
He gave evidence of his ordinary business activities and of his gambling activities and of the way in which these were interrelated. If his account of the matter had been accepted in full, it would have been shown that the disputed accruals to his wealth were not assessable income and that the assessments were wrong… But the explanations of the appellant were not accepted and that meant that he had not discharged the onus of showing that the assessments were wrong.
59 Logan J then identified why it was important for the Tribunal to consider the arguments advanced as to why the amount of declared income was excessive. His Honour said (at ):
This statement also underscores the importance of engaging with the explanation proffered by a taxpayer to explain, in each income year, why there is no unexplained wealth such that the taxable income as declared (or additionally conceded) is indeed the true taxable income with the consequence that the contested assessment for that year is excessive.
60 He then considered the taxpayers’ submissions as to the consequences of the Tribunal’s alleged failure to consider the nature and extent of the evidence on which the taxpayers had relied as demonstrating that the credits in their bank accounts were transfers from other accounts and not income (as the Commissioner had assumed for the purpose of the taxpayer’s asset betterment statement), stating (at ):
Against this background, particularly the emphasised parts of the observations in Haritos, the applicants’ allegation that the Tribunal failed to advert to one of their central arguments as to why in each year the amount of the assessment was excessive does not just have force, it should be accepted. The flow of funds into and out of bank accounts was in evidence, as was an explanation as to why outgoings from accounts were not income. The applicants gave precision in their tabulations as to the resultant excess in the amount of each assessment. A failure to consider that explanation is, truly, a failure to undertake the statutory review function. Further, the impact of that failure is not explicable by findings as to credit, because those findings themselves were made without considering the explanation.
61 His Honour then held (at ), in relation to the Full Courts’ observations in paragraphs  to  in Haritos, that a taxpayer is entitled to succeed in having shown that an assessment is excessive even if they have not succeeded to the fullest extent:
The observations made by the Full Court in Haritos offer, with respect, elucidation about the operation of the statutory onus of proof in practice. If the material before, and accepted by, the Tribunal shows that the assessment is excessive in a particular amount, it is nothing to the point that an applicant contends that it is excessive to an even greater extent. Section 14ZZK does not have the effect that, because that contention fails, the applicant has not shown the assessment to be excessive or, related to that, that the Tribunal is thereby relieved from concluding, based on the material it has accepted, that the assessment is excessive to the extent revealed by that material.
62 There is little doubt that, in relation to the circumstances considered in Haritos, those comments are correct. The parties before the Full Court in that case had effectively accepted that the taxpayers’ taxable income in particular years was a certain amount, save that it might be increased or decreased depending upon the manner in which a number of disputed items were resolved. Even if the taxpayers’ contentions in relation to those matters were only partially accepted, the amount of taxable income was to be decreased to that extent, but that was only because of the paradigm in which the parties accepted the dispute was to occur.
63 However, his Honour’s observations should not be accepted in relation to circumstances where the Commissioner has made a default assessment based on the asset betterment method and the taxpayer is faced with having to establish what their actual income is and that it is less than that assessed by the Commissioner. As the authorities previously referred to clearly establish, in such cases the methodology adopted by the Commissioner by which he reached a judgment about the amount of taxable income for the default assessment is not in issue. What is in issue is whether the taxpayer is able to establish both what their actual taxable income was and that it was less than the Commissioner’s assessment (which gives rise to the conclusion that the latter is excessive).
64 The taxpayers seemed to rely upon later discussion of Logan J as suggesting that somehow the decision of the Full Court in Gashi was to the effect that a taxpayer might succeed in an objection by attacking the Commissioner’s default assessment methodology rather than by establishing what their actual income is and, having done so, thereby show the Commissioner’s assessment to be excessive. His Honour said (at  – ):
59. None of this is to gainsay what was stated by the Full Court in Gashi v Commissioner of Taxation  FCAFC 30; (2013) 209 FCR 301 (Gashi), a case emphasised by the Commissioner, along with Trautwein and Dalco, in his submissions. In Gashi, at , the Full Court stated, with reference to Dalco and Trautwein:
A taxpayer who seeks to establish that a s 167 assessment based on the asset betterment method of calculation is excessive must positively prove his or her “actual taxable income” and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer: Dalco at 623 – 625 and Trautwein at 88. The taxpayer must show that the unexplained accumulated wealth was from the non-income sources. The manner in which a taxpayer discharges that burden is not defined or specified — it varies with circumstances: Dalco at 624.
60. The whole point of the applicants’ explanation, offered but not considered by the Tribunal, was, as the emphasised passage from Gashi highlights, to show that what to the Commissioner was unexplained accumulated wealth was from the non-income sources.
65 The subject of his Honour’s comments in paragraph  was the attempt by the appellants to dispute the Commissioner’s assessment by producing tables (similar to MFI-1) to establish that the total sum of the debits from their bank accounts as assessed by the Commissioner involved a double counting of amounts which were transferred between accounts. In so doing, they sought to undermine the methodology by which the default assessment was reached rather than establish what their taxable income was: at .
66 Mr Hack QC for Mrs Ross submitted that the approach adopted by Logan J in Le has the consequence that, where the Commissioner has made a default assessment using the asset betterment method, a taxpayer can succeed in establishing that the assessment is excessive by merely identifying errors in the Commissioner’s methodology which inflated the amount of the default assessment. With respect, that cannot be so. Most obviously it would be directly inconsistent with the Full Court decisions in Gashi and Rigoli and the earlier High Court authorities in Dalco and Trautwein. It is an approach which would assume, wrongly, that the Commissioner’s default assessment was a calculation of actual taxable income from which items might be challenged leaving the remainder as the taxpayer’s actual taxable income. The authorities establish that not to be the case. It is a judgment of what the taxpayer’s taxable income should be and it establishes the taxpayer’s liability to the Commonwealth save and unless they can successfully challenge it by demonstrating the amount of their actual taxable income and that it is less than the amount of the default assessment. Whilst Logan J may have considered some observations in Haritos to suggest to the contrary, those statements were directed to the particular circumstances before the Full Court where the parties had agreed as to the manner in which the remaining issues in dispute were to affect the taxpayers’ taxable income. That situation did not apparently exist in Le and, for the reasons explained below, did not exist in the present case.
67 It follows that there is nothing in the decisions in either Haritos or Le which alters the statement of the relevant principles concerning the operation of s 14ZZK(b)(i) set out above. To the extent to which the decision in Le requires a different approach, it is not consistent with the established Full Court authorities which I am bound to apply: see also Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151 – 152 .
68 The established position remains that a taxpayer’s obligation under s 14ZZK(b)(i) is to show that the Commissioner’s assessment of their taxable income is excessive relative to their actual taxable income. It is not merely to show that his judgment as to taxable income, as identified in the default assessment, is greater than it might otherwise have been because it is based on his limited knowledge of the taxpayer’s affairs.
69 Furthermore, Mrs Ross submissions to this Court misapplied the statement in Gashi that the taxpayer must show that their unexplained wealth was from non-income sources: at . She wrongly assumed that the statement opens the way for a taxpayer to discharge the onus, at least partially, by merely explaining away some of the assets on which the Commissioner adjudged an amount of assessable income using the asset betterment test and accepting that the unexplained balance formed part of their assessable income. In context, all the Full Court was saying was that the effect of discharging the onus is that the taxpayer proves what their actual assessable income was and that explains their accumulated wealth and, to the extent that it does not, that their wealth was acquired from non-assessable sources. In other words, if the taxpayer’s asserted actual assessable income cannot explain their wealth and they also have no or insufficient non-assessable income to explain it, they will have failed to prove the true amount of their assessable income. In that process, they might also prove their actual wealth, including by establishing certain assets which the Commissioner had assumed belonged to the taxpayer for the purposes of the asset betterment method did not so belong to them or that their value was less than the Commissioner assumed. However, it must be kept steadily in mind that the object of doing so is to discharge the burden of having the arbiter of fact accept that they have established the true amount of their taxable income. Merely demonstrating that some of the assets on which the Commissioner relied in estimating the taxpayer’s wealth were not owned by them, not as valuable as thought, or were obtained from non-assessable income does not assist the taxpayer in the absence of proof of their actual taxable income.
Did the Tribunal apply the incorrect onus?
70 The gravamen of the Commissioner’s complaint is that the Tribunal erred by misapplying the principles relating to the taxpayer’s burden of proof. It can be accepted that, at paragraphs  to  of its reasons, the Tribunal, to some extent, correctly articulated the principles relating to the application of the onus under s 14ZZK(b)(i) in an appeal to it. That is not unimportant as it identifies the Tribunal was aware that the issues in the matter included whether the taxpayer has discharged the onus under s 14ZZK(b)(i) as it usually applies. However, as Ms Wheatley QC for the Commissioner submitted, those paragraphs stand in stark contrast to the Tribunal’s earlier statement at paragraphs  to  of its reasons where it articulated its approach in the following way:
7. The financial affairs of Mr and Mrs Taxpayer were – unsurprisingly – intermingled to some extent. I will deal with each taxpayer separately, starting with Mr Taxpayer, but their argument is essentially the same. They insist they did nothing wrong but say a number of specific amounts the Commissioner assumes to be assessable income are properly regarded as:
• loans, gifts or the proceeds of recreational gambling, or
• the proceeds of sales of motor vehicles and components.
8. If the taxpayers are right in relation to the characterisation of (any or all of) those amounts, the amounts in question should not be included in assessable income for the relevant year of income. The amount of the assessment for that year of income should be adjusted accordingly.
The parties’ submissions
71 The Commissioner submitted that these paragraphs, and the Tribunal’s reasons generally, demonstrate that it pursued the erroneous approach of only considering those several items in the Asset Betterment Statements which the taxpayers had selected for contention. Some were found in favour of the taxpayers, others were not, and the matter was remitted to the Commissioner with a direction to undertake the assessment by taking into account the items which the Tribunal had accepted had been explained. In effect, so the Commissioner submitted, the Tribunal merely assumed that those items which were not contested by the taxpayers or which they had failed to demonstrate were acquired from non-income sources were assessable income. He also submitted that neither Mr Ross nor Mrs Ross positively proved what their actual taxable income was and, therefore, what the assessment should have been, with the consequence they had failed to discharge the applicable onus of proof under s 14ZZK(b)(i).
72 On the other hand, the Commissioner accepted that he made certain concessions at the hearing in relation to a few matters which were accepted by the Tribunal. These related to specific amounts which had been included in the Asset Betterment Statements and were to the effect that either those amounts did not represent unexplained wealth or were overstated. However, he submitted that such concessions did not alter the taxpayers’ onus and it is only where the Commissioner and a taxpayer have agreed the underlying facts upon which the assessment was made and/or the issues for determination have been confined, that an approach such as that adopted by Mr and Mrs Ross, and accepted by the Tribunal, could be appropriate: Bosanac v Commissioner of Taxation (2019) 93 ALJR 1327 (Bosanac (HCA))  – ; Zappia v Commissioner of Taxation  FCAFC 185 (Zappia) ; Rigoli  – . Here, at best, the Commissioner’s concessions were that two particular items should not have formed the basis of the amount of taxable income in the default judgment. However, that did not permit the Tribunal to proceed on the basis that the taxpayers might succeed merely by contesting the inclusion of other amounts in the Asset Betterment Statements. Such concessions did not even permit the Tribunal to conclude that the default assessments were excessive to that limited extent: Bosanac (HCA) . Rather, they merely relieved the taxpayers from proof of the facts which the Commissioner had conceded.
73 As mentioned, the taxpayers did not cavil with the statements of principle relied upon by the Commissioner either before this Court or before the Tribunal. Specifically, they accepted that the onus could not be discharged in the case of the default assessment pursuant to s 167 of the ITAA36 unless they were able to positively prove their “actual taxable income”. However, Mrs Ross submitted to this Court that, before the Tribunal, both she and her former husband sought to demonstrate what their true taxable incomes were, but that the Tribunal lost sight of or overlooked their efforts. Alternatively, she submitted that the Commissioner had agreed to confine the issues in relation to the taxpayers’ applications for review of his objection decisions in such a manner that they were entitled to use the Asset Betterment Statements as identifying the amount of their taxable income, save to the extent to which they were able to show that certain amounts were incorrectly included.
74 The submission that the Tribunal had overlooked the taxpayers’ attempts to establish their actual taxable income, through the document identified as MFI-1, was an implicit acknowledgement that the Tribunal did not apply the onus under s 14ZZK(b)(i) in its usual form. If, as Mrs Ross submitted, it did not consider the taxpayers’ attempts to establish their actual taxable income, it must have proceeded on an erroneous assumption that all that they were required to do was to undermine selected items included by the Commissioner in the Asset Betterment Statements. On the other hand, Mrs Ross did not expressly acknowledge the Tribunal’s incorrect application of the onus, but somewhat inconsistently asserted the existence of an agreement by the parties to confine the issues of fact and law to the validity of the inclusion of certain items in the Asset Betterment Statements.
Prima facie the Tribunal adopted the incorrect approach to the onus under s 14ZZK(b)(i)
75 It can be immediately observed that, absent an agreement between the parties to confine the issues in dispute, the process described in paragraph  of the Tribunal’s reasons involved an erroneous application of the onus under s 14ZZK(b)(i) in relation to a default assessment pursuant to s 167. The amount of taxable income in an assessment under that section is not the starting point for the taxpayers in advancing their objections or applications for review and nor do the items specified in an asset betterment statement (which, in a general sense, support the Commissioner’s judgment of their taxable income) prima facie identify the issues which are in dispute between the parties. As the authorities make clear, a taxpayer must positively prove what their taxable income actually is and that onus is not satisfied by merely showing that some element in the Commissioner’s assessment is wrong. A process of picking and choosing between the several elements on which the Commissioner relied in making the default assessment does not suffice because it proceeds on the misapprehension that an assessment made pursuant to s 167 is a proxy for a calculation of a taxpayer’s actual taxable income.
76 It is abundantly clear from its decisions and reasons for decisions that the Tribunal applied the erroneous approach foreshadowed in paragraph  of those reasons. It made no attempt to ascertain whether the taxpayers had established what their actual taxable income was, but merely assumed that the default assessments identified the amounts which constituted the taxpayers’ taxable income, save to the extent to which they were successfully challenged. In the absence of an agreement between the parties to confine the issues in dispute, that constituted an error of law which justifies setting aside the Tribunal’s decisions.
77 As a matter of substance, Mr Hack QC for Mrs Ross did not seek to sustain the Tribunal’s approach in relation to the taxpayers’ challenge to the objection decisions. He acknowledged that the Tribunal was required to ascertain whether the taxpayers had demonstrated what the actual income was and, so he submitted, although the taxpayers had attempted to do so, the Tribunal overlooked their efforts. He said that, despite the taxpayers advancing evidence of what their actual income was, the Tribunal “got the impression that all it had to decide were the big ticket items”. In relation to the taxpayers’ alleged attempt to prove their actual income, he sought to rely upon the document which became MFI-1 before the Tribunal (which is considered in detail below) which, it was said, disclosed the taxpayers’ activity on their several bank accounts and, derivatively, disclosed their assessable incomes.
Did the Commissioner agree to confine the issues on the application to particular points of law or fact?
78 Mrs Ross’s alternative, and somewhat inconsistent, argument was that the parties had agreed to confine the issues in dispute before the Tribunal to certain matters of law and fact such that the taxpayers would succeed to the extent to which they could establish that certain amounts in the Asset Betterment Statements were wrongly included or were overstated. In Mrs Ross’s written submissions to this Court, the following was advanced:
… That the Commissioner agreed to approach the matter on the basis that Mr and Mrs Ross were entitled to a reduction of their taxable income to the extent they demonstrated the correctness of their particular claims is evident, not merely because an experienced Tribunal member proceeded that way; it is evident from the submissions made below on behalf of the Commissioner.
79 With respect, the mere fact that an experienced Tribunal member adopted an erroneous approach to the onus issue is no indication of an antecedent agreement between the parties that such an approach should be taken. It evidences only the Tribunal’s error and, in the circumstances of this case, one which may have occurred as a result of the extensive delay in making a decision on the review applications. Parenthetically, this submission was seemingly at odds with Mrs Ross’s cross-appeal. That aside, in support of the above submission, Mr Hack QC also referred to paragraph  of the Tribunal’s decision. However, it is by no means clear how anything in that paragraph indicates the Commissioner had agreed to confine the application for review to particular points of law or fact. It merely demonstrates that the Tribunal adopted the incorrect approach.
80 Although not articulated with any great clarity, the essence of the alleged agreement by the Commissioner to limit the issues before the Tribunal appears to be derived from implications arising from the submissions which were advanced to the Tribunal.
81 Mrs Ross’s submissions in this respect commenced with the proposition that they are not confined as to the manner in which, in circumstances such as the present, they establish their actual taxable income and that the Commissioner’s assessment was excessive. Put another way, it was said that the taxpayer can discharge the onus by establishing that any unexplained wealth had not been acquired through non-income sources: Gashi . At paragraph 11 of her written submissions to this Court, Mrs Ross submitted that a major part of establishing the amount of her actual taxable income and that the Commissioner’s assessments were excessive was undermining the accuracy of the assumptions and calculations performed by the Commissioner in relation to the default assessments and, in particular, as they appeared in the Asset Betterment Statement. She sought to establish that the amounts of unexplained wealth attributed to her were from non-assessable sources, excessive in value, or not hers at all. She claimed to have done so by challenging the value attributed to a motor vehicle included in her Asset Betterment Statement and eschewing any interest in certain land which was registered in her name. Mrs Ross further claimed that the Commissioner had erred by taking into account amounts paid into her bank accounts (which were adjusted to take into account transfers between accounts). A complaint was then made as to the manner in which the Asset Betterment Statement reconciled the amounts identified to arrive at the figure relied upon by the Commissioner as being her taxable income. The underlying difficulty with this approach has been discussed above.
82 The crux of Mrs Ross’s allegation that there was an agreement to confine the issues appears from paragraph 16 of their written submissions to this Court. There, it was said that, in response to her submissions that the value of the Mercedes Benz motor vehicle which had been attributed to her should be reduced, the Commissioner did not submit that such a conclusion would have no effect on Mrs Ross’s taxable income or that the Tribunal was not authorised to proceed in that way. It was said that, instead, the Commissioner accepted that the value of the motor vehicle, as identified by the Tribunal, would be assessable income to Mr Ross (at paragraph 89 of the Commissioner’s closing written submissions to the Tribunal) and thus indicated his consent to confining the issues in this manner.
83 Mrs Ross also relied upon the position adopted by the Commissioner before the Tribunal in relation to the land known as the “Maudsland land”. Before the Tribunal, the Commissioner apparently accepted (at paragraph 132 of his written submissions) that Mrs Ross provided no funds towards its acquisition of the land, that there was an insufficiency of evidence as to the source of the funds used to purchase the land, and that “[a]ny amounts paid in connection with the purchase of the Maudsland property which are held not to be assessable to Alexandra Ross should be included in Shane Ross’ assessable income.”
84 From this, Mrs Ross submitted that the Commissioner must be taken to have conducted the hearing before the Tribunal on the basis that all the taxpayers were required to do was to provide a sufficient explanation for their increased wealth and that, to the extent to which they were able to do so, such amounts would be deducted from the amounts assessed by the Commissioner which were assumed to be their assessable income. They submitted this is particularly clear from the Commissioner’s concession that amounts which the Tribunal finds were not attributable to Mrs Ross’s income should be added to Mr Ross’s. In addition, they relied upon the Commissioner’s positive assertion (at paragraph 40 of his written submissions to the Tribunal) that Mr and Mrs Ross had the onus “of proving that the amounts in question were in fact loans, gifts, or the proceeds of recreational gambling or the sale of motor vehicles and other chattels”, which was said to be a plain acknowledgement that the Commissioner was not approaching the matter on the basis that the taxpayers carried the onus as identified in Dalco, Gashi and Rigoli.
The existence of any agreement that the usual onus rules did not apply
85 Mrs Ross necessarily asserted that there was an implicit or tacit agreement by the Commissioner to forego his right to require the taxpayers to satisfy the onus in s 14ZZK(b)(i), such that the dispute between the parties before the Tribunal was merely one in which the s 167 assessments were the starting point and that the taxpayers’ only task was to establish where they were excessive. Necessarily, whether an implicit or tacit agreement can be established or not arises as a matter of inference. Mrs Ross’s submissions in this regard were not wholly without merit as there are indicators both for and against the proposition. Somewhat curiously, the manner in which she ran her case on appeal provides the strongest evidence against the conclusion that any such agreement existed before the Tribunal.
86 Nevertheless, given the manner in which the argument was advanced to this Court, it was, perhaps, an unusual submission that the Commissioner must be taken as having agreed that the hearing before the Tribunal should proceed in such a limited or confined manner on the basis of his written submissions given some months after the hearing had been completed. Indeed, as the Commissioner’s submissions were delivered subsequent to the adducing of evidence, the completion of the hearings, and the taxpayers’ closing written submissions, it cannot be said that the latter tailored the presentation of their case according to an agreement said to implicitly arise from the content of the Commissioner’s submissions. Mrs Ross did not explain how that alleged agreement as to the manner in which the hearing was to be conducted could arise after its completion.
87 In response to this, Mr Hack QC submitted that the Commissioner’s written submissions following the conclusion of the hearing reflected the existence of an antecedent agreement as to the manner in which the hearing was to occur.
88 In ascertaining whether there existed some implicit agreement as Mrs Ross submitted, it is essential to consider the context in which the hearing occurred. The starting point is necessarily the taxpayers’ objections to the s 167 assessments and the grounds which they sought to raise. Although those objections each attached a sheet purporting to explain the increase in wealth by referring to alleged sources of income and listing each person’s respective income, they were very light on detail or supporting evidence. Similarly, the amended grounds of objection did not contain specific assertions concerning the sources of income. Rather, the suggestion was that the receipts of substantial sums by the taxpayers were loans, gambling winnings, gifts, or the proceeds of sale of assets.
89 The taxpayers’ Statements of Facts Issues and Contentions (SFICs) filed in or around January 2017 were evidently prepared on the misconception that their obligation was to disprove the assumptions made by the Commissioner in the default assessments and, in particular, in the Asset Betterment Statements. The issues which were identified in the SFICs as being relevant were two-fold. First, whether the relevant taxpayer had correctly reported their income in the relevant periods. Second, whether the taxpayers’ income in the relevant periods should be adjusted by certain specified amounts. In that latter respect, the SFICs asserted that the Commissioner had erroneously included certain amounts as part of their assessable income. That approach was not consistent with the onus imposed by s 14ZZK(b)(i) because, first, it did not seek to identify what was their actual assessable income and, second, merely attacking the elements of the Asset Betterment Statements did not confront the correct question.
90 The Commissioner’s SFICs in the respective applications for review specifically relied upon the onus imposed on the taxpayers by s 14ZZK(b)(i). In each, a form of the following paragraph appeared:
The Respondent relies upon section 14ZZK of the Taxation Administration Act 1953 (TAA 1953) and puts the Applicant to proof of all facts on which he [or she] seeks to rely to discharge his [or her] burden of proving that he [or she] has not under-disclosed his [or her] income and the penalties should not have been imposed or should have been remitted. None of the facts contained in this statement constitute an admission of proof by the Respondent.
91 Each SFIC also specifically cited the decision in Dalco and asserted that, in order for the applicant taxpayer to succeed, they were required to prove, not only that the assessments were incorrect, but what their actual taxable income should be. They further asserted that the taxpayers had not attempted to establish their correct taxable income for the income years but had merely sought to argue why the Commissioner should not have included certain components in assessing the taxable income for those income years. In a very real sense, those assertions crystallised the standard onus issues derived from the authorities discussed previously. Each SFIC then asserted that the taxpayer had failed to discharge their onus under s 14ZZK(b)(i) of establishing that the relevant assessments were excessive. There is nothing in those statements which might suggest that the Commissioner consented to a confined hearing, being one in which the taxpayers might succeed merely by showing the existence of errors in the amounts identified in the Asset Betterment Statements. To the contrary, the Commissioner’s SFICs put each of the taxpayers to proof in relation to the matters which they were required to establish by s 14ZZK(b)(i) and asserted that their approach of attacking the components of the Asset Betterment Statements was in error. It is not irrelevant that the taxpayers did not identify anything in the Commissioner’s SFICs which suggested that he was not requiring them to discharge that onus.
92 Although the taxpayers did not amend their SFICs, on 19 October 2017 (being less than three weeks before the hearing before the Tribunal), the taxpayers filed amended grounds of objections to the assessments. Relevantly, the amended grounds continued their assertions that certain amounts were wrongly included in the Asset Betterment Statements. The taxpayers then claimed that the asset betterment methodology employed by the Commissioner was inaccurate and each concluded by asserting that “the true income of the Applicant in each of the relevant years of income is in an amount less than that assessed by the Commissioner of Taxation”.
93 In support of the alleged agreement to confine the issues before the Tribunal, Mrs Ross submitted to this Court that the Commissioner made no mention of his SFICs at the hearing before the Tribunal and only briefly mentioned the taxpayers’ SFICs in passing. It was submitted that:
the parties just ignored what, in a court, would be called the pleaded case and they proceeded on a basis of a case that was articulated as the case developed as, not infrequently, happens in the tribunal. That’s the nature of the tribunal.
94 There is also tension between that submission, the amended grounds of objection (which Mrs Ross submitted actually raised the issue of the actuality of their respective taxable incomes), and her submission that the taxpayers had sought to prove their actual taxable income by tendering MFI-1.
95 Assuming that it was noticed at the time, the Commissioner was not, during the hearing before the Tribunal, obliged to identify to the taxpayers their failure to address all that they were required to do under s 14ZZK(b)(i). It is also difficult to accept that the Commissioner was in some way at fault by not pointing out the deficiencies in the taxpayers’ case when they had amended their grounds of objection shortly before the trial and had delivered an array of late affidavits only a few days prior to the hearing and a number during the course it. In truth, the actual nature of their case only appeared in their written submissions which were filed some time after the hearing had completed.
96 In the appeal to this Court, Mrs Ross did not refer to any part of the transcript of the hearing before the Tribunal which suggested that the Commissioner had agreed to a less rigorous onus for the taxpayers than he had required by the SFICs. It can be assumed that nothing to that effect was said. That might tend to suggest that the hearing before the Tribunal proceeded within the confines of the issues which the parties had articulated. Indeed, if such an agreement existed or if it was thought that it did, Counsel for the taxpayers would undoubtedly have referred to it during his opening so as to identify to the Tribunal the matters in issue. As it was, nothing of that nature was said during the opening or, indeed, at all during the hearing.
97 It follows that, at least to the end of the hearing before the Tribunal, there was no objective evidence of any agreement to confine the issues in the manner alleged by Mrs Ross.
98 There was also no express statement in the parties’ written submissions which would establish that they had agreed to confine the issues on review before the Tribunal. The Commissioner’s written submissions were served after the hearing of evidence by the Tribunal and after the taxpayers had delivered theirs. As mentioned, that would seem to be a somewhat late stage at which to reach agreement as to the scope of the hearing. To that it can be added that the taxpayers’ own written submissions, filed after the hearing had completed, set out s 14ZZK(b)(i) as well as several statements from the various reasons for judgment in Dalco and from the decision of the Full Court in Gashi as to what was required to fulfil the taxpayers’ onus. Thereafter, the written submissions sought to identify that several items were erroneously included by the Commissioner in the Asset Betterment Statement in relation to Mr Ross and then, by reference to Mr and Mrs Ross’s bank account, purported to identify what Mr Ross’s actual income was. In that latter respect, a table was produced at page 33 of the written submissions under the heading, “Summary of assessable income as contended by the Applicant”, in which amounts were identified as being Mr Ross’s assessable income for each relevant income year. A similar, albeit much reduced, exercise appears in relation to Mrs Ross at page 46 of the written submissions.
99 There is nothing in the taxpayers’ written submissions to the Tribunal which is suggestive of, or is even consistent with, the Commissioner having agreed to confine the issues on review as alleged. If anything, the attempt to articulate what their respective assessable incomes were and to identify how they were calculated is inconsistent with the existence of any such agreement. As Ms Wheatley QC for the Commissioner submitted, had such an agreement existed and been relied upon by the taxpayers in the presentation of their case, it is somewhat incredulous that it was not identified in their closing written submissions.
100 The Commissioner’s written submissions, filed some months after the conclusion of the hearing, were a little more equivocal. There, Counsel on behalf of the Commissioner reiterated the nature of the taxpayers’ onus pursuant to s 14ZZK(b)(i) in matters such as this and, in particular, that the taxpayers were required to show the assessments were excessive and the Commissioner was entitled to rely upon any deficiency in proof of the excessiveness to uphold the assessment. The Commissioner also adopted the principles in relation to the onus of proof as had been articulated in the taxpayers’ submissions. Those submissions included references to the taxpayers’ obligation to prove what their actual income is. Later in his submissions, reference is made to the principles in Gashi and to the obligation of the taxpayer to explain the source or sources of their assets and identify whether the source or sources were taxable and that, in order to succeed, the taxpayer’s assessable income has to explain the increase in assets.
101 As has been discussed above, Mrs Ross also relied upon a statement in paragraph 40 of the Commissioner’s written submissions that the taxpayers had not discharged the onus of showing the amounts in question were loans, gifts, or the proceeds of sales of various items. However, that submission is contained in the section of the written submissions dealing with “Fraud or Evasion”, and was obviously advanced for the purposes of demonstrating that Mr Ross’s failure to prove any legitimate sources of funds revealed his attempt to deliberately mislead the Commissioner. That is, it demonstrated that the failure to include the identified amounts in his returns was a blameworthy act or omission. The submission cannot be taken as some all-encompassing assertion that, for the purposes of the review, the taxpayers were only required to provide explanations for the sources of wealth identified in the Asset Betterment Statements.
102 That is not to say that the Commissioner’s written submissions to the Tribunal were free of all confusion of thought. Although the relevant authorities concerning onus are referred to, there is a focus on the issue of whether the taxpayers had established the assessments were excessive. In that respect, most of the submissions are directed to responding to the taxpayers’ evidence by which they sought to minimise the wealth on which the Commissioner had relied.
103 It can be accepted that the Commissioner’s written submissions do identify in a number of places that the taxpayers had not established that specific amounts had been derived from non-income sources and were, therefore, part of their assessable income. However, those submissions were in part made to rebut the taxpayers’ argument that they had established that the Commissioner’s assessment was excessive in that the amounts not shown to be loans or gambling winnings were amounts of income which Mr Ross had received: see paragraphs 55, 65, 79, 88, 90, 97, 103, 113, 118 and 130. Indeed, the structure of the Commissioner’s submissions discloses that their general focus was upon the failure of the taxpayers to discharge their onus on the question of excessiveness. That theme commences at paragraph 45 under the heading, “Whether the amended assessments were excessive”. In the following paragraphs, the Commissioner sets out general matters relating to the disconformity between the levels of expenditure by the taxpayers and their acknowledged sources of income which had been one of the ways in which the amended assessments were determined. Each of the relevant financial years are dealt with specifically and the submissions in respect of each was to the effect that the taxpayers did not establish that the income assessed by the Commissioner was excessive.
104 The Commissioner’s submissions with respect to the Maudsland land are of a similar nature. That land had been identified by the Commissioner as being held in the names of Mr and Mrs Ross and he attributed 50% of its value to each of them as part of their unexplained wealth in the respective Asset Betterment Statements. At paragraph 132 of his written submissions, the Commissioner had accepted that the evidence did not establish that Mrs Ross had personally provided funds for the land’s acquisition. However, it was then submitted that, to the extent to which the value of Mrs Ross’s interest was not ascribed as part of her income, it should be included in Mr Ross’s. Although this was referred to as a concession, it was not substantial in the sense that there was no outright acceptance that the amounts in respect of the Maudsland land should not be attributed to Mrs Ross. Instead, it was merely accepted that there was no evidence that she had provided funds in respect of its acquisition. Nevertheless, it remains the case that the references to the assessable income of the taxpayers concerned the issue of whether the taxpayers had established that the Commissioner’s assessment of their taxable income was excessive. To the extent to which the taxpayers were unable to show that the amounts which they had received in the relevant years were not from non-assessable sources, they would have been unable to establish that matter. It can be accepted that there are several statements in the Commissioner’s written submissions that follow the taxpayers’ erroneous approach in relation to the question of excessiveness. Merely showing that one or more elements in an asset betterment statement were wrongly included or overvalued will not establish excessiveness. Such matters may assist in discharging the onus where the taxpayer has otherwise disclosed sufficient sources of their income or capital receipts to justify their level of wealth. Although the Commissioner’s submissions respond to the taxpayers’ wrong approach, this does not establish the existence of any agreement to confine the issues.
105 It was also in this context that the Commissioner had made several other concessions in relation to individual items in the Asset Betterment Statement with respect to Mrs Ross. One concession related to an amount of about $21,000 which she claimed was the proceeds of betting. However, there was nothing in the concession which went to the taxpayers’ obligation to fully discharge the onus upon them. The effect of the making of such a concession has been referred to previously. It would not, in the absence of the Commissioner admitting the underlying factual foundation alleged by the taxpayers for their income generally, result in a variation of the taxpayers’ onus. For the purposes of their applications for review, the onus remained on them to “adduce evidence sufficient to establish on the balance of probabilities the true amount of [their] taxable income (of course, making such forensic use as could be made of the Commissioner’s concession that the conceded amounts were not assessable income) and thereby that the amount of taxable income as determined by the Commissioner exceeded the true amount”: Bosanac (HCA)  per Nettle J agreeing with the decision in Bosanac (FC) . The taxpayers could not simply proceed on the basis that the Commissioner’s concession had the consequence that they were free of the onus in s 14ZZK(b)(i) such that the remaining amount could be assumed to be actual assessable income, save to the extent to which the taxpayer established otherwise.
106 Mrs Ross also submitted that the Commissioner’s omission to criticise the content of MFI-1 in his written submissions to the Tribunal was an acknowledgment that it was relevant to the issues which the Tribunal was required to decide. That was a somewhat unusual submission given the taxpayers had relied upon MFI-1 in their initial submissions to the Tribunal as proof of their actual income, and had further referred to it in on numerous occasions in their submissions in reply. If it were understood that their true assessable incomes were not in issue given the Commissioner’s submissions, the taxpayers would have acknowledged the same rather than making further and repeated references to MFI-1 in their written submissions in reply. Furthermore, MFI-1 had played no real part in the hearing which had focused on the taxpayers’ attempts to establish that the amounts identified in the Asset Betterment Statements were erroneously included, in part or in total. Indeed, the original version of MFI-1 was only disclosed by the taxpayers at the very conclusion of the Tribunal’s hearing.
107 It is not possible to detect any inference arising from the manner in which the Commissioner’s submissions dealt with MFI-1 to support the existence of any agreement that the taxpayers were not obliged to prove the actual amount their assessable incomes. In this respect, it is relevant that the taxpayers included an updated version of MFI-1 (referred to as “the Attachment”) as part of their submissions delivered some seven weeks after the completion of the hearing. That strongly suggests that no agreement, as the taxpayers now allege, existed at the time. Had there been one, the production of the updated version would have been entirely inutile.
108 There is, with respect, no basis on which to conclude that the taxpayers and the Commissioner had agreed to confine the issues before the Tribunal to specific matters of fact or law. It is plain that the parties were aware of the onus imposed upon the taxpayers by s 14ZZK(b)(i). The Commissioner had made it clear by his SFICs that he was holding the taxpayers to their obligations to discharge that onus and there was nothing prior to or during the hearing which altered that. Mrs Ross did not point to anything said or any conduct during the course of the hearing which suggested the existence of any agreement of the nature now alleged. Although the Commissioner’s written submissions focussed on rebutting the taxpayers’ generally misguided approach to discharging the onus, that did not establish or evidence any agreement that the Tribunal proceedings would be confined to specific issues.
109 Rather, it would seem likely that, at some stage shortly prior to the commencement of the Tribunal hearing in November 2017, Counsel for the taxpayers, who had only recently been engaged, identified the serious deficiencies in their case, including their limited grounds of objection. The grounds were then amended in a way which may have permitted the taxpayers to establish the amounts of their actual assessable incomes. However, an obvious difficulty was that the preparation and filing of evidence on behalf of the taxpayers had occurred some many months previously. That evidence was of a poor quality and the statement of Mr Ross of 13 February 2017 was entirely confined to disputing the elements of the Asset Betterment Statement. It contained no attempt to identify his actual assessable income in the relevant financial years. Shortly prior to the hearing, there occurred a flurry of activity in which a number of additional affidavits by Mr and Mrs Ross were prepared in an attempt to deal with the evidential inadequacies. In them, they sought to explain their financial positions in greater detail and to establish that they had no other sources of income other than had been identified. On the fifth and last day of the hearing, the taxpayers produced a further affidavit, being that of a Mr Konrad Wojtasik, which attached a document containing over 100 pages of tables purportedly ascribing transactions in the taxpayers’ bank accounts and identifying the reasons for them. The tables were identified for the purposes of the hearing as “MFI-1”. It is by reference to those tables that Mrs Ross submitted that the taxpayers were able to show the amount of their actual assessable income for the relevant income years. That, indeed, appears to have been its only purpose. Although the efficacy of MFI-1 is considered below, this recitation of how the taxpayers adduced substantial new evidence at the end of the hearing evidences that they held no belief as to the existence of some agreement with the Commissioner by which the issues before the Tribunal were confined. Had they believed otherwise, there would have been no need for the late production of further evidence seeking to establish what the taxpayers would say was their assessable income in the relevant years. In addition, by their written submissions after the conclusion of the hearing before the Tribunal, including those in reply, it is plain the taxpayers regarded their obligation to prove their actual assessable income remained in issue.
110 Ms Wheatley QC for the Commissioner submitted that any agreement between the parties to confine the issues concerning the underlying factual foundation of an assessment could not be implicit but would, as a matter of necessity, need to be express or explicit. So the submission went, an express agreement was required such that the Tribunal would be aware of what was in issue in relation to the taxpayers’ obligation to discharge the relevant onus. As a consequence of the conclusions reached above, it is not necessary to form any final view with respect to this submission. However, it can be readily accepted that, given the impact of any such agreement on the Tribunal’s process, the occasions on which an implicit agreement might be detected would be relatively rare.
111 In the absence of any agreement between the parties that the issues on the applications for review of the objection decisions would be confined, it can only be concluded that the Tribunal did not apply the onus required by s 14ZZK(b)(i). It follows that its decisions concerning the objections to the assessments of the taxpayers’ taxable income for the various income years suffer from significant errors of law and should be set aside.
Misapplication of the required standard of proof
112 A further error in the Tribunal’s reasons relied upon by the Commissioner concerns the standard of proof which was applied. The requisite standard in relation to the Tribunal’s findings is that of the balance of probabilities: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 303 per Gibbs J. Mrs Ross did not submit to the contrary. However, the Tribunal determined in its reasons that one ground for setting aside the assessments was that MFI-1 had raised the “possibility” that some of the expenditure included in the Asset Betterment Statements by the Commissioner involved an element of double counting. This was said to have arisen because the Commissioner regarded the totality of the withdrawals from Mr Ross’s bank accounts as expenditure but did not take into account the transfers between his many accounts. In remitting the assessments to the Commissioner, the Tribunal directed that he recalculate Mr Ross’s liability “in light of the possibility that transfers between the applicant’s accounts were inadvertently double counted”. Even though those directions reflect the mistaken onus which the Tribunal applied, reliance on the mere possibility that double counting occurred would not be a legitimate basis for setting the assessments aside. The Tribunal’s obligation was to make its determinations on the basis of facts which it had determined to exist to the required standard of proof, being on the balance of probabilities. It could not set aside the assessments or require them to be varied merely because it found that there was a possibility that double counting had occurred.
113 Mrs Ross only faintly opposed the Commissioner’s submissions on this issue. It was suggested that the highly experienced Tribunal Member would not have misapplied the standard of proof and that statements such as “strongly suggests inter-account transfers were mistakenly included in the assessments” should be taken as indicating satisfaction to the required standard of proof. That submission cannot be accepted. Although the Tribunal occasionally used stronger language, its observations in relation to double counting were often that there was a “possibility” of it having occurred: see paragraphs  and  of the Tribunal’s reasons and the decisions in relation to each financial year; or that there “may” have been double counting: see paragraphs  of the Tribunal’s reasons. The conclusion that there was a possibility of double counting or that it may have occurred could not sustain the required state of satisfaction on the balance of probabilities. This also was a significant error in the Tribunal’s decision.
Conclusion as to the misapplication of the onus
114 The necessary conclusion from the foregoing is that the Tribunal erred in applying s 14ZZK(b)(i) and overlooked the taxpayers’ obligation to establish the true amount of their assessable income. To an extent, that appears to be a consequence of the manner in which the taxpayers had framed their initial grounds of objection and SFICs. The result is that the Tribunal’s decisions in relation each of the objections must be set aside.
Whether the objection decisions should be remitted to the Tribunal
115 The issue which consumed a substantial amount of the hearing before this Court was whether, if on either appeal the Tribunal’s decisions should be set aside, the applications for review should be remitted to the Tribunal for redetermination. The Commissioner submitted that the Court should substitute for the decisions of the Tribunal, determinations that the assessments be affirmed and that remittal would be futile as the taxpayers could not succeed before the Tribunal if the onus was correctly applied. So the submission went, on no view of the taxpayers’ evidence could a properly instructed Tribunal have concluded that they had established, to the relevant standard of proof, what their actual income was.
116 Mrs Ross submitted that before the Tribunal the taxpayers had adduced evidence of their actual assessable income (even though this was inconsistent with the alleged agreement with the Commissioner) and that the applications should be remitted for the Tribunal to undertake the reviews by applying the correct onus. They also ask that they be at liberty to adduce further evidence on the re-hearing of the applications for review.
117 The consequence of these contentions was that the Court was called upon to undertake an extensive factual analysis of the evidence to ascertain whether the taxpayers might be able to satisfy the onus imposed by s 14ZZK(b)(i).
Could the taxpayers have satisfied the onus on the material they adduced?
118 The Commissioner submitted that the material adduced by the taxpayers before the Tribunal did not attempt to, and did not, explain all of their sources of income which were known to have potentially existed. This involved two separate submissions. First, that the evidence adduced and relied upon by the taxpayers did not discharge their onus under s 14ZZK(b)(i). Second, that the document MFI-1 did not overcome the deficiencies in the evidence and, in particular, contained errors, was incomplete and, indeed, revealed that the taxpayers’ expenditure could not have been supported by their claimed level of income.
119 Conversely, Mrs Ross submitted that the material before the Tribunal was sufficient to enable them to discharge the onus under s 14ZZK(b)(i) and it could not be said that they would have no chance of succeeding before a properly instructed Tribunal. In particular, they rely on MFI-1 (and the Attachment as it became) as establishing their actual assessable income for the relevant income years.
120 The consideration of this issue must commence with the taxpayers’ SFICs filed with the Tribunal in which they adopted the incorrect approach to confronting the issues necessary to discharge the onus which they bore. The SFICs advanced grounds which were no more than attempts to selectively attack the assumptions made by the Commissioner in the supporting Asset Betterment Statements and to assert that, if those attacks were successful, the amount of taxable income identified by the Commissioner would be reduced.
121 To an extent, that approach was also reflected in paragraphs 85 and 86 of the taxpayers’ closing written submissions where it was identified that the initial approach in relation to Mr Ross’s application was to lead evidence about amounts included by the Commissioner in the Asset Betterment Statement which were not, so it was said, reflective of assessable income. On the other hand, the taxpayers also claimed that they had demonstrated through MFI-1 their “true taxable income … in each relevant year of income after a very close analysis of the relevant bank accounts and each item of expenditure and receipt in those bank accounts”. (See also paragraphs 101 and 189 of the taxpayers’ closing written submissions to the Tribunal). At paragraph 149 of their written submissions, the taxpayers asserted that there was no need to analyse the bank statements in relation to Mrs Ross as there were significant assumptions in relation to a number of key amounts included by the Commissioner in the Asset Betterment Statement which were plainly wrong. This, so the Commissioner submitted, also indicated the limited manner in which the taxpayers sought to discharge their onus.
122 Nevertheless, it is apparent that Counsel for the taxpayers who appeared before the Tribunal was alive to the obligation to establish what their assessable income was in each of the relevant income years and, in this context, the document MFI-1 assumed significance. Whilst the existence of such a document was foreshadowed during the course of the hearing, it was only produced as an exhibit to an affidavit filed at the end of the last day. That affidavit was given to the Tribunal with the express statement that it was not being tendered “as evidence of anything”. It was said that the document merely accurately summarises the existing evidence. On that express basis, Counsel for the Commissioner did not object to it being handed to the Tribunal and it was accepted as an aide-memoire and marked for identification as “MFI-1”.
123 MFI-1 was subsequently amended by Counsel for the taxpayers who added further notations to it by including references to the transcript of the hearing before the Tribunal where evidence had been given in relation to the amounts in question. This new document was attached to the taxpayers’ written submissions delivered some seven weeks after the last day of the hearing. In the course of this appeal, the updated document was referred to as “the Attachment” and that description of it will be used in these reasons.
The case advanced by Mrs Ross that her evidence was sufficient to discharge the onus
124 Before turning to the sufficiency of the contents of MFI-1 and the Attachment, it is important to identify other parts of the taxpayers’ case relied upon to establish their actual taxable income.
125 In relation to Mrs Ross, Mr Hack QC referred to her affidavit of 2 November 2011 and specifically that she gave evidence:
(a) as to her various accounts and the purposes for which they were used;
(b) that, in the 2013 and 2014 income years, her only sources of income were from Centrelink and her work as a bookkeeper with Compass Pools which was deposited in an ANZ bank account with an account number ending in “5175”;
(c) that other deposits were made into that account from transfers from her other accounts or Mr Ross’s accounts such as the family trust bank account;
(d) that Mr Ross and she topped up their personal accounts when they wanted more money from the family trust bank account; and
(e) as to the origin of other miscellaneous amounts which were deposited into that ANZ account in the relevant income years.
126 It was observed that Mrs Ross was not cross-examined on much of this evidence and it was not suggested to her that there were other sources of income beyond those which she had described. It was also submitted that she had adequately explained receipts from the family trust in the relevant income years. Mrs Ross did not specifically state how much was received although it appears that in her 2014 return she identified that she had received $96,702.
127 The substance of Mrs Ross’s submissions in this regard was that she disclosed all of her sources of income for the relevant income years and that the amount of trust income was otherwise available to be considered. It is not irrelevant in the context of the cross-appeal that neither Mrs Ross’s affidavit nor the content of it was not referred to by the Tribunal in its reasons for its decisions.
128 As to the relevance of MFI-1 and the Attachment, it was submitted that the taxpayers’ solicitors had matched amounts appearing in the bank statements with one of Mrs Ross’s general statements in her affidavit as to the source of money such that the documents merely summarised her evidence and the Tribunal was entitled to agree with it or not.
129 In relation to the Mercedes Benz motor vehicle, the value of which had been ascribed to her in the Commissioner’s Asset Betterment Statement, Mrs Ross had given somewhat inconsistent evidence. She had initially claimed that she acquired the vehicle using a loan from Mr Ross, but in the hearing had acknowledged that this was more of an assumption than an actual understanding. In the course of submissions, Mr Hack QC submitted that it, or the money used to pay for it, should be treated as a gift from Mr Ross because he had provided money for it.
130 From this it was submitted that Mrs Ross had advanced credible explanations for the amounts said to be unexplained wealth, had produced all her bank accounts, and had given unchallenged evidence as to her sole source of income in the 2013 and 2014 income years, such that she had discharged her onus of establishing her taxable income for those income years.
The case advanced by Mr Ross that the evidence was sufficient to discharge the onus
131 Mr Hack QC accepted that the case advanced by Mr Ross before the Tribunal was substantially more complex, involving as it did substantially more transactions and the default assessments which covered several more income years. He also accepted that most of Mr Ross’s case focused on challenging the major payments he had received during those income years or assets which he owned which had been included in the Asset Betterment Statement in respect of the default assessments. However, it was also submitted that he had given sworn evidence of the sources of his income. In his affidavit of 2 November 2011 he stated (at paragraph 46) that he had “not generated any other income in the 2009 to 2014 financial years other than the income identified in the bank statements discussed in my affidavit.” The bank statements were annexed to his affidavit and his earlier statement of 13 February 2017. He was not challenged on his evidence in this respect before the Tribunal and there is nothing in the Tribunal’s reasons as to whether that statement was believed or not. It was then said that the next step was that MFI-1 updated the detail of those bank accounts which disclosed what Mr Ross’s actual income was in the relevant income years. In part, that was done by the author of the document attributing to each payment a particular character and description of whether it was assessable or non-assessable.
132 The manner in which Mr Ross discharged his onus was, so Mrs Ross submitted, reiterated by passages in their closing written submissions which identified MFI-1 and the Attachment as showing their actual assessable income: see for example paragraphs 18, 21, 78, 79, 85 and 86 of those submissions. The table in MFI-1 (or the Attachment) and transposed into the taxpayers’ written submissions at paragraph 78, under the heading “Summary of assessable income as contended by the Applicant”, was said to be his “best estimate” of his assessable income in those years.
133 It was also submitted that Mr Ross had explained that he had an interest in a business called, “Monstr Clothing Co”, that he had borrowed $50,000 to commence it, that his accountant, Mr Karim, indicated that he had derived money from it in about April 2014, and that money was funnelled through the family trust as was any revenue derived from Mrs Ross’s dog breeding business. This was said to explain the distributions from that trust of in excess of $90,000 to each of Mr and Mrs Ross in the 2014 income year. It was also submitted that Mr Ross denied that he made any significant income in the relevant years from selling drugs.
Did MFI-1 sufficiently explain the sources of income and identify actual incomes?
134 The Commissioner’s main contention before this Court was that MFI-1 and the Attachment were insufficient to identify the taxpayers’ actual assessable incomes and, as such, it did not, either by itself or with other evidence, satisfy the onus under s 14ZZK(b)(i). Ms Wheatley QC submitted that MFI-1 was inaccurate in myriad respects and incomplete. For the reasons which appear in the following paragraphs, that submission should be accepted.
135 Prior to turning to a detailed consideration of MFI-1, it is appropriate to note an initial objection by Mr Hack QC for Mrs Ross to the Commissioner’s submissions as to the inadequacy or inaccuracy of MFI-1. He submitted that no objections of this nature was taken below and there is no appeal ground which specifically raises the issue. Whilst it is correct that no detailed analysis of MFI-1 was undertaken by the Commissioner in his submissions to the Tribunal, that may not be especially surprising as the main focus of the taxpayers’ case before the Tribunal concerned the veracity of the items included in the Asset Betterment Statements which underpinned the default assessments. As MFI-1 was adduced only at the very conclusion of the hearing, the issues which it raised could obviously not have been the subject of discussion and debate during its course. A further answer to Mr Hack’s submission is that the Commissioner’s contentions in this regard are advanced to support the proposition that it would be futile to remit the matter to the Tribunal for reconsideration as the evidence, including MFI-1 and the Attachment, were insufficient to satisfy the onus imposed on the taxpayers. As it was, the Commissioner sought leave to amend Notice of Appeal to include a ground as to the adequacy of MFI-1 and that was granted without objection by Mrs Ross. The result was that the main debate as to its veracity occurred before this Court and the parties were given leave to file written submissions in relation to that matter. The result was that over 100 pages of submissions were received in the form of schedules which minutely assayed the entries which had been collected in MFI-1 and the Attachment. As a result of some disagreements as to the veracity of the submissions which had been made by the taxpayers, the Commissioner sought and was given leave to re-open his case for the purposes of making further submissions. Ultimately, the hearing resumed for a further day, being a fourth day, to allow the parties to make submissions in relation to MFI-1 and the Attachment. Numerous issues arise from those submissions and they are dealt with below.
136 In their submissions to the Tribunal, the taxpayers alleged that MFI-1 and the Attachment disclosed their assessable income in the relevant years: see paragraphs 78 and 189 of the taxpayers’ submissions to the Tribunal. The amounts which Mrs Ross asserted the taxpayers had established as being Mr Ross’s true assessable income in the relevant income years was $37,450 in 2009, $27,405.85 in 2010, nil in 2011, $7,335.83 in 2012, $11,8414.03 in 2013, and $174,226.90 in 2014. For Mrs Ross, the amounts were $34,477.54 for 2013 and $7,770.77 for 2014, although noting that Mrs Ross had declared the amount of approximately $96,000 as distributions from the family trust in her return for the 2014 income year. It was far from clear that by the conclusion of the appeal they adhered to those figures. Indeed, they implicitly acknowledged the existence of errors in MFI-1 (and the Attachment) but retorted with the assertion that, if complaint had been made before the Tribunal, it might have been corrected and an adjustment could be made. This overlooks the difficulty that the document was advanced by the taxpayers as discharging their onus to positively prove what their assessable incomes were. Further, the making of “adjustments” is somewhat vague, but it appears that what was in contemplation was that, if an amount was found to be unexplained or insufficiently explained by the taxpayers, an alteration might be made to the quantum of taxpayers’ assessable incomes. However, that is not an answer where the taxpayers have not established the nature of a particular receipt. As has been discussed above, apart from circumstances where the parties otherwise agree, it is not to be assumed that anything not explained falls on the income side. The taxpayers’ onus is to show what their actual assessable income is, and that is not achieved by trying to explain away the amounts of the constitutive items in the asset betterment statement and admitting that where they fall short the amount is to be regarded as income.
137 In response to several of the deficiencies identified by the Commissioner in MFI-1 and the Attachment, Mrs Ross’s submission is that those documents indicate the taxpayers accept that the amounts in question are assessable such that there is no reason for the Commissioner to complain. That, also, is no answer. First, MFI-1 and the Attachment were not advanced as evidence of anything with the result that assertions in them that an amount is “Not Assessable” or “Assessable” are mere statements by the legal representatives. It is not evidence of the truth of those statements which give a factual foundation to the amounts being derived from assessable sources or otherwise. Necessarily, the impugned payments remained unexplained receipts by the taxpayers. Second, even if the statements were given as evidence, they would be meaningless in the context of the objection. The taxpayers’ obligation is to prove their actual assessable income. A statement by them that a receipt is not assessable is not sufficient to establish that it is not income and, conversely, a statement that a receipt is assessable does not render it as such. Third, such statements make the same erroneous assumption just discussed. The onus is only discharged by showing, inter alia, what is the actual amount of assessable income. The amounts expended from the bank accounts only operate as evidence or a proxy on which the Commissioner forms a judgment of assessable income for the purposes of the default assessment. They are not parts of a calculated assessment which might be reviewed with the parts not successfully challenged remaining as income.
138 In their submissions, Mrs Ross complained that the Commissioner did not cross-examine the taxpayers with respect to the manner in which the transfers of funds between the several accounts occurred or the reason for them. That criticism is accurate to an extent. However, until MFI-1 was produced at the very end of the hearing, it would have been difficult, if not impossible, for Counsel for the Commissioner to understand how the taxpayers’ proposed to characterise the payments. The absence of any indication in the grounds of objection or the SFICs of double counting claims or of the rationale for the payments had the consequence that the import of the transactions in the bank statements could not have been apparent during the relevant parts of the hearing.
139 It is convenient to deal first with those matters in MFI-1 (and the Attachment) which pertain peculiarly to Mr Ross.
140 The Commissioner’s first submission corresponds with a statement in paragraph 45 of Mr Ross’s affidavit of 2 November 2017, where he referred to certain actions taken with respect to his bank account with the ANZ Bank ending in “3702”. He claimed that a deposit of $25,000 made on 23 November 2009 into that account “must have been an accumulation of cash savings as I never did a job that paid that much.” In MFI-1, an entry is made in the table relating to that account and the explanation for the amount is stated as being “Accumulation of cash savings as evidenced at para 45 of the Affidavit of Shane Ross sworn 2 November 2017”. A notation is made that the amount is “Not Assessable”. As Ms Wheatley QC submitted, that notation was not evidence and it did not enhance the explanation of the payment otherwise provided by MFI-1. Although Mr Ross deposed to the amount being cash savings, he does not identify the source of the funds or say anything to demonstrate that it was from a non-assessable source. The information provided does not disclose whether the amount of $25,000 should be included as Mr Ross’s assessable income and, to that extent, it remained unexplained.
141 The Commissioner also referred to Mr Ross’s affidavit of 2 November 2017 where he discussed the evidence in relation to a bank account ending in “5728” which he had with the ANZ Bank. In reference to attached bank statements relating to that account, Mr Ross said at paragraph 30 of his affidavit:
All the amounts I have described in hand writing as “salary” or “rent” in the account statement for ANZ account [ending in “5728”] are income in character including the 4 March 2013 $4,000 I refer to above. Annexed hereto and marked "SR-1" is a true copy of the account statement ANZ account [ending in “5728”] with my hand-written descriptions.
142 In the attached statements relating to that account, a deposit is recorded as having been made on 26 November 2012 in the sum of $4,504 with the description of “Card entry at Southport Branch”. Mr Ross had apparently notated that entry with the words “Tax paid Salary” as, apparently, indicating that the funds were received as salary and that he had paid tax on that amount. In MFI-1, that amount is recorded in the tables for the relevant bank account and the solicitors inserted the following comment adjacent to it of:
This is salary as evidenced at paragraph 30 of Affidavit of Shane Ross sworn 2 November 2017 and page 8 of Annexure to Affidavit of Shane Ross sworn 2 November 2017.
143 However, in the course of the Tribunal’s hearing, Mr Ross was examined in relation to this amount and asserted he had made an error in making the notation on the bank statements. He claimed that the amount, in fact, represented winnings from gambling activities. That accorded with a statement made by Mr Ross in a subsequent affidavit sworn on 3 November 2017 in which he claimed that the amounts were winnings. The point made by the Commissioner was that the solicitor’s commentary in MFI-1 in relation to this amount was, at least on some of the material, inconsistent and that Mr Ross’s vacillation as to the origin of the money made it impossible to identify his actual assessable income.
144 At page 100 of MFI-1, there appears a table which is headed, “Shane Ross bank accounts – debit transactions/withdrawals”, which has a row for each of the nine accounts operated by Mr Ross and a column for each of the relevant income years. This table purports to show the amounts debited from each of these accounts in each of the relevant income years. For the 2009 income year, the total debits from the accounts was $353,188. However, the table at page 75 of the same document which is headed “Summary of Assessable Income as contended by the Applicant” purports to show that Mr Ross’s income, as derived from the accounts, was only $37,450 ($35,910 in the Attachment). Ms Wheatley QC submitted that this disparity was not capable of explanation on the basis of there being transfers between Mr Ross’s several accounts resulting in double counting. That was supported by reference to a second table on page 100 of MFI-1 which, itself, acknowledged there were no transfers between the accounts identified for the 2009 income year. There is, quite demonstrably, substantial force in Ms Wheatley QC’s submission in this respect. On the material provided in MFI-1 and the supporting affidavits, it appears that, in the 2009 income year, expenditure by Mr Ross from the accounts totalled $353,188 and that none of this amount was attributable to transfers between Mr Ross’ several accounts. In particular, the sum of $186,990 was debited from the ANZ account ending in “4864” and there was nothing to suggest that this money was transferred to any other account or, indeed, from another of his accounts. The only evidence of a transfer of funds between accounts in this income year concerns the sum of $2,023.18 which was deposited to the account on 19 June 2009. It is fair to conclude that the source of money to the accounts from which the funds were withdrawn were not explained at all by Mr Ross. Similar issues arise in relation to the 2010, 2011 and 2012 income years, being income years in which substantial withdrawals were made from the account. Based on the second table on page 100 of MFI-1, none of the expenditure from Mr Ross’ accounts in those income years was attributable to transfers between his several accounts. In respect of the 2010 income year, Mr Ross asserted that his income was $27,405 (page 116 of the Attachment) but his withdrawals from this accounts totalled $67,428 (MFI-1 page 100). In respect of the 2011 income year, he reports his income as being “Nil” yet he withdrew $36,506 from his accounts. For the 2012 income year, he reports an income of $7,335 but the records show that he withdrew $119,056 from his accounts.
145 The tables on page 100 of MFI-1 also highlight other difficulties. One table shows that the total debits from Mr Ross’s accounts in the 2014 income year totalled $2,012,033. Accepting the assertion that, of that sum, the amount of $1,273,565 was attributable to transfers between his accounts, this leaves a remainder of debits of $738,468. However, at page 75 of MFI-1, the total assessable income of Mr Ross based on the accounts was said to be only $174,226. The point made by the Commissioner was that there was no explanation as to how Mr Ross might have expended in excess of $738,000 on a claimed income of just over $174,000.
146 The Commissioner also referred to the table at page 75 of MFI-1, which purported to identify the amounts expended from Mr Ross’s accounts (excluding transfers between accounts) which thereupon disclosed his assessable income. However, two bank accounts referenced in the table, being ANZ account ending in “7317” and ANZ account ending in “4404”, were accounts of a company called S Ross Enterprises Pty Ltd which was the trustee of the S Ross Enterprises Trust. For the 2014 income year, an amount of $66,167 expended from ANZ account ending in “7317” is attributed to Mr Ross as being part of his assessable income for that year. In fact, that would appear to be a distribution from the trust to Mr Ross. However, in his tax return for that income year, Mr Ross identified that he had received $96,702 from the trust. This, so the Commissioner submitted, indicates that MFI-1 contains another significant error as to what was Mr Ross’s actual income for that year. It may be that it understates it, although that merely accords presumptive weight to the assertion in the tax return.
147 A deposit of $14,000 on 2 November 2009 appearing in Mr Ross’s ANZ account ending “3702” was not explained by him. The entry in MFI-1 asserts the funds were from “OSR NSW”, presumably, the Office of State Revenue of New South Wales. Mrs Ross submitted that it should be inferred that the funds were not assessable, however without any knowledge of the circumstances in which the amount became payable to Mr Ross, no such inference to the requisite degree of satisfaction could arise. Some evidence of the underlying transaction would need to exist before any such inference would be available. Similarly, on 19 November 2009, a deposit of $1,000 was made to that account which was not explained in any way. Mrs Ross submitted that there was no cross-examination in relation to this amount, but that confuses the identity of the party who carried the onus of proof.
148 The commentary included in MFI-1 identified various amounts paid into Mr Ross’s ANZ account ending in “3702” in the 2010 income year, as money received from labouring when there is no evidence to support the assertion. Although reference is made in MFI-1 to some of Mr Ross’s evidence, it is misconceived and the payments in question do not fall within the referenced evidence. Mrs Ross submitted that these funds are identified in MFI-1 as being assessable and so no further explanation is required. The several ways in which that submission is erroneous have been referred to above.
149 MFI-1 also identifies multiple transfers of funds to Mr Ross’s ANZ account ending in “3702” allegedly either from the account of Sharon Ross, being Mr Ross’s mother, or by way of direct deposit by her. These payments occurred from 11 May 2010 to 12 September 2012 and are identified by MFI-1 as being “Deposits from Shane Ross’s mother as evidenced at para 45 of Affidavit of Shane Ross sworn 2 November 2017”. Although that paragraph refers to the making of deposits, the issue is dealt with more completely at paragraph 32 where Mr Ross deposed that he was incarcerated from 13 April 2010 to 13 October 2011 and that, during that period, his mother paid money into his account to assist his wife with living expenses. In his evidence to the Tribunal, he said that the payments ceased when he was released. The Tribunal ultimately accepted that payments up to 18 May 2012 were received from his mother to assist the family while he was incarcerated, but rejected the claim in relation to two further payments in that income year on the basis that they were irregular and did not fit the erstwhile pattern. For present purposes, the Commissioner identifies that, although Mr Ross’s release from jail occurred on 13 October 2011, MFI-1 records payments continuing to be paid into his account allegedly from his mother until 12 September 2012. This does not accord with Mr Ross’s evidence that the payments from Mr Ross’s mother ceased when he was released and, as such, demonstrates an attempt to introduce evidence about those payments through MFI-1 when none existed. In other words, MFI-1 incorrectly seeks to explain substantial payments received by Mr Ross after 13 October 2011, when no explanation existed on the evidence. That deficiency concerns the amount of $32,260 in the period from 17 October 2011 for the 2012 income year and the sum of $64,270 for the 2013 income year. In this respect, the commentary in MFI-1 was misleading and inaccurate and had the effect of concealing substantial sums of unexplained income. It appears that the Tribunal omitted to consider the amount of $64,270 which is said in MFI-1 to have been received by Mr Ross in the 2013 income year from Sharon Ross. Mrs Ross submitted on this appeal that the fact that Mr Ross’s evidence did not address these amounts may be rectified by adjusting the calculation of his taxable income. As mentioned previously, that is no answer to the taxpayers’ omission in relation to these payments with the result that the amount remains unexplained.
150 A number of entries in MFI-1 relating to ANZ account ending in “4864” concern deposits in sums between $2,000 and $2,500 during the 2012 calendar year which total, approximately, $11,000. The account into which the funds were paid was a home loan account although the identity of the depositor is not stated. MFI-1 did not identify any explanation for these payments or the source of funds. There was no evidence from either Mr or Mrs Ross as to the origin of the funds. By her submissions, Mrs Ross observed that MFI-1 asserts that the amounts are assessable and they muse as to why the Commissioner is concerned with them. The inadequacy of that submission in relation to the issue under consideration has been set out above. The assertions that the amounts are “assessable” is not evidence. Even if they were, they would not satisfy the onus as they do not establish that the amounts are assessable income.
151 The Commissioner referred to a sum of $30,500 received by Mr Ross into his ANZ account ending in “5728” on 31 October 2012. In MFI-1, the notation made in respect of this amount is “These are gambling winnings as evidenced at paragraph 6 of Affidavit of Shane Ross sworn 2 November 2017”. In the Attachment, references are given to a number of transcript pages from the Tribunal hearing. However, those transcript references reveal that Mr Ross initially claimed it was the receipt of a deposit which was returned after a transaction did not proceed but later claimed that it was money transferred from a betting account. Subsequently, Mr Ross’s accountant told the Tribunal that the amount represented the return of a deposit from a transaction. Mrs Ross’s response is that this confusion goes to weight and either way the amount is not assessable. Whilst there is some force in that, as the question is whether MFI-1 could possibly be relied upon as establishing the taxpayers’ true taxable incomes, instances such as this, by themselves, demonstrate it to be less than fully reliable. Even when taking into account the nature of administrative decision-making, it is near impossible to ascertain how a Tribunal, faced with this evidence, might be satisfied on the balance of probabilities as to the origin of this amount so as to determine whether it was assessable income.
152 Similar comments can be made in respect of the entry relating to transfers of 11 payments to Mr Ross’s ANZ account ending in “5728” from November 2013 to February 2014 totalling $11,000 which are identified in MFI-1 as the receipt of salary. That assertion was contrary to Mr Ross’s testimony that he was always paid in cash for any work that he did. Although Mrs Ross submitted that this merely goes to weight, that is not correct. The question is whether the income is explained in the sense that the taxpayer has established what his actual income was. In relation to these payments, there was no evidence as to their origin or as to their nature. Mr Ross’s evidence in relation to wages for work did not relate to them as they were transfers from other accounts and deposits of cash. In the result, they remain as unexplained payments received by Mr Ross and the mere fact that the author of MFI-1 has asserted that the amount was assessable is not evidence of its origin or whether it is correctly so identified.
153 MFI-1 also identifies approximately 16 deposits into Mr Ross’s ANZ account ending in “7317” in the period from July 2013 to June 2014 totalling just over $66,000. No explanation is given in MFI-1 for these payments and no reference is given to any evidence by Mr or Mrs Ross as to their source. That said, the amounts are identified in MFI-1 as being “Assessable” and, in his evidence, Mr Ross claimed they were payments from his concreting work and that his accountant told him to put his wages through the family trust. Despite this being somewhat implausible, it was an explanation for the amount received and may have been capable of discharging the burden of proof in respect of those individual amounts.
154 It is appropriate to now turn to those matters in MFI-1 which relate specifically to Mrs Ross
155 The initial version of MFI-1 also failed to identify trust distributions in the 2014 income year to Mrs Ross despite her having filed a return which identified that she had received $96,702. However, a table in MFI-1, which appears to identify her total assessable income for that income year, states that it was only $7,770.77. That not insignificant error was readdressed to some extent in the Attachment which contained an addendum, apparently made by Counsel, which identified that Mrs Ross’s tax returns had identified her distributions from the trust. It seems that, by this alteration, Mrs Ross sought to assert that her assessable income was that identified in the table in MFI-1 plus the amount of the trust distribution.
156 More significant difficulties exist in relation to Mrs Ross’s receipt of funds from a family trust as found in MFI-1 and the Attachment. Those documents identify a large number of deposits made into Mrs Ross’s account ending in “5175” in the period from August 2013 to June 2014 and which are described as, “Transfer from Shane Ross ANZ Account [ending in “7317”]” and further describe the relevant tax treatment as being “Not Assessable”. The documents describes the verifying evidence as being, “Transfer from Shane Ross ANZ [accounting ending in “7317”] as evidenced by page [relevant page varies] of Annexure to Affidavit of Shane Ross sworn 2 November 2017 to this account as evidenced by [relevant page varies] and paragraph 4 of Affidavit of Alexandra Ross sworn 2 November 2017”. The basis for the assertion that the payments were not assessable is not given in MFI-1 or the Attachment, although Counsel for Mrs Ross submitted that any such payments would obviously be gifts. There is no basis for that assumption and the payments may well have been income funnelled through Mr Ross or payments made on behalf of others or remuneration of some other description. There is simply no evidence one way or the other.
157 Nevertheless, that issue can be put to one side. The Commissioner observes correctly that the amounts in question were actually transferred from the S Ross Enterprises Pty Ltd as trustee for the S Ross Enterprises Trust and not from Mr Ross. They are, in fact, payments from the accounts of the family trust. By the conclusion of the appeal, Mrs Ross accepted that to be the case, however, she submitted that nothing turns on that because she had lodged a tax return in the 2014 income year acknowledging the receipt of $96,702 as trust distributions. The difficulty with that is that the amount of these incorrectly labelled payments is approximately $143,000 and, as such, does not correspond to the amount declared in Mrs Ross’s tax return. The Commissioner also submitted that there is no evidence that the amount of $96,702 acknowledged by Mrs Ross in her 2014 return is included in the payments set out in MFI-1. Mrs Ross submitted that she was not cross-examined about these amounts and it was not suggested to her that the amounts in excess of $96,702 had been distributed to her by the trust. That may be so, but that has the consequence that the nature of the payments, in terms of whether they were assessable or not, remains unexplained. To say, as she did, that funds were transferred from the trust account to top up her account does not identify whether the amounts were assessable or not. On the material before the Tribunal, the receipt of these amounts was not explained or justified by identifiable income.
158 Mrs Ross’s submissions complained that there was no cross-examination in relation to this issue, however, that would have been somewhat difficult given that the manner in which the taxpayers sought to characterise these payments was unknown until the production of MFI-1 at the end of the hearing. In any event, the tables which purport to show what Mrs Ross’s assessable income was must necessarily be substantially incorrect for this reason alone. It can also be observed that the amounts were identified as being non-assessable and, therefore, not regarded by Mrs Ross as being distributions from the family trust which Mrs Ross, in her 2014 return, accepted were assessable.
159 Another recurring error in MFI-1 relating to Mrs Ross were the not uncommon transfers to her accounts from Paypal. In her evidence, she claimed that money from Paypal was in respect of small sales made by her and those moneys were paid into an account which she held with ING Direct. As the Commissioner submitted, there were several transfers to Mrs Ross’s ANZ account from Paypal and these are not explained by that evidence. In the post-appeal submissions, Mrs Ross submitted that her evidence may have been mistaken and an inference should be drawn that the funds were received as a result of sales of Mrs Ross’s personal items. It is difficult to see how such an inference can be drawn in the circumstances although the total amount of these errors is not great. Nevertheless, when the errors are considered cumulatively, they severely undermine the veracity of MFI-1.
160 For reasons which are unexplained, MFI-1 (and the Attachment) included amounts received by Mrs Ross which are recorded as refunds from Medicare as being assessable income. Mr Hack QC asserts that these are obvious errors. That may or not be so. Nevertheless, their inclusion in the alleged totals of Mrs Ross’s income also has a distorting effect.
161 MFI-1 identifies deposits into Mrs Ross’s account ending in “5175” in July 2013 totalling $2,200, one of $2,000 on 30 September 2013, one of $5,000 on 9 October 2013, one of $4,540 on 17 October 2013, one of $5,000 on 2 December 2013, and one of $2,000 on 26 May 2014. Although are described as being supported by Mrs Ross’s evidence in paragraph 4 of her affidavit of 2 November 2011, it is clear that evidence does not relate to card entry deposits into this account. That paragraph read:
In the 2013 and 2014 financial years my only sources of income were from Centrelink and from my work as a bookkeeper at Compass Pools. All of that income was deposited directly into my ANZ bank account number ending [in “5175”]. Other deposits include transfers from either mine or Shane's accounts, such as the Sross trust account. We topped up personal accounts from the trust's account when we wanted more money for personal expenditure.
These cash deposits are not transfers from other accounts so as to fall within the scope of Mrs Ross’s evidence. They were deposits of cash made at various branches of her bank. Although Mrs Ross submitted that she was not cross-examined on this, she had left the witness box before MFI-1 was given to the Commissioner with the assertion made in it that these irregular deposits were not assessable. In terms of discharging the onus of proof, those assertions were not evidence and, ultimately, the material does not evidence any basis on which to determine whether these funds were assessable or not. Again, the receipt of these amounts which total $20,740 are not explained by Mrs Ross’s evidence or MFI-1 and no decision could be made as to whether it was or was not part of her assessable income.
162 The transactions in MFI-1 also include a number of payments which were transfers from Mr Ross’s account to Mrs Ross’s account in May 2013 totalling $2,510, and are stated to be “Not Assessable”. Before this Court, Mrs Ross accepted that the details of the payments as recorded in MFI-1 are incorrect, but submitted that the evidence from the bank statements sufficiently showed that they were transfers from Mr Ross and, therefore, not assessable. Again, if there were evidence that the amounts were gifts or contributions towards household expenses it might be accepted that the amounts were not assessable. However, there is no evidence to that effect and the mere fact that the amount passed through Mr Ross’s accounts does not establish it. The amounts remain unexplained.
163 MFI-1 records four amounts, each of $500, as being transferred from Mrs Ross’s account ending in “5175” in April, May and August 2013. The evidence shows that the amounts were, in fact, deposits and the Commissioner relied on this as supporting the inadequacy of MFI-1. Mrs Ross submitted that, had the Commissioner made a similar submission at the hearing, the error could have been corrected and “adjustments” could have been made. It is not clear what such adjustments might be. If it is the acceptance that the amounts are not explained, that does not assist Mrs Ross as she will have failed to demonstrate whether these amounts were assessable or not and, hence, will have failed to demonstrate the true amount of her assessable income.
164 MFI-1 also identifies a payment of $1,505.59 into Mrs Ross’s account ending in “5175” on 26 October 2012 which is described by the author of MFI-1 to be assessable although there is no evidence as to that matter. The Commissioner correctly identifies that the amount is not explained by the evidence. Although Mrs Ross submitted that MFI-1 identified it as being assessable, that is not evidence of anything and the amount remains unexplained.
Conclusion as to MFI-1 and the taxpayers’ ability to discharge their onus
165 The above analysis of the submissions as to the veracity of MFI-1 has not dealt with every issue raised by the Commissioner. However, those considered are sufficient to found the conclusion that MFI-1 and the Attachment were insufficient mechanisms through which the taxpayers could demonstrate what their true taxable incomes were in the relevant income years. Rather, the contrary is true. On examination, MFI-1 and the Attachment do not reconcile the evidence before the Court so as to reveal the taxpayers’ incomes, but reveal that their stated incomes could never justify their expenditures or the amounts received by them. The documents do not disclose that the amounts claimed by the taxpayers in the relevant income years were their actual amounts of assessable income nor what those amounts should be. It is apparent they both received money in those years well in excess of the asserted incomes which is unexplained, with the result that, on the evidence which they produced, no properly instructed Tribunal could reach the conclusion that they had discharged the onus of proving what their true taxable income was.
166 The Commissioner also submitted that the taxpayers’ evidence was otherwise deficient in that it failed to deal with all of the matters which had arisen and which may have been productive of assessable income for them. In particular, he submitted that the evidence about the family trust was wanting and deficient. It is apparent that the trust was discretionary and that Mr Ross was a beneficiary since its creation on 8 October 2009. However, the taxpayers only produced the bank statements for the trust for the 2014 income year in respect of one account and for the period from October 2013 in relation to the other account. Nothing is said by Mr or Mrs Ross in their statements as to what amounts were received by them as trust distributions in the previous income years and neither party identified any other evidence as to what the trust distributions might have been in those years even though there is a suggestion in paragraph 4 of Mrs Ross affidavit of 2 November 2017 that for each of the 2013 and 2014 income years she received payments from the trust. Whilst the Commissioner’s criticism of the paucity of the evidence is not inaccurate, as the matter was not raised with Mr or Mrs Ross before the Tribunal, it is not appropriate to raise it now. Had it been raised, the taxpayers may have responded to it with evidence to the effect that there are no further documents relevant to their assessable incomes.
167 The Commissioner also directed attention to the evidence of Mr Ross where he acknowledged that he had set up a clothing business prior to March 2014 and it started making money from April 2014. The relevance of this was that Mr Ross gave no evidence as to what, if any, income he derived from that business, whether it was operated by him personally, in partnership or through a company. This was said to be yet a further lacuna in his establishing the amount of his actual taxable income in the relevant period. Again, there is force in that submission but it too is a matter which ought to have been raised before the Tribunal. In addition, Mr Ross gave evidence that all of his income was contained in the bank statements and albeit that was somewhat general, in the absence of contradiction, it was probably sufficient.
168 Reference was also made to the tax office records showing that in the 2012 income year, Mr Ross was involved in a business called Rossy Enterprises which apparently provided handyman services. It is recorded that the business received total revenue in that year of $73,340. However, the records also show that the business of Rossy Enterprises ceased in the 2009 income year. In his affidavit of 2 November 2011, Mr Ross deposed that, in September 2012, he was working as a contractor providing labour services for concreters and that he was paid in cash in whole figure sums. In relation to this, the Commissioner observed that there was no real explanation by Mr Ross as to where or if this income was accounted for in his evidence. Whilst fully appreciating that the onus fell on the taxpayers to establish on the balance of probabilities their true taxable incomes in the relevant years, their general statements about the source of their incomes were sufficient to prevent the Commissioner relying on this issue for the first time on appeal. It is a matter which ought to have been raised at trial.
169 In the course of the hearing before the Tribunal, Mr Ross referred to his wife operating a dog-breeding business and that the income from it was passed through the family trust. Mr Hack QC rightly submitted that the evidence about that issue was not particularly clear and it was not apparent that the comment referred to the income years which were the subject of the objections. However, under cross-examination, Mrs Ross stated that she had commenced her dog-breeding business in the 2013 income year and that she may have been in receipt of income from it through the family trust in that income year and the following one. In her evidence Mrs Ross asserted that from time to time she topped up her personal account with money from the accounts of the family trust but it is far from clear how that was accounted for and, as mentioned, MFI-1 did not deal with that specifically even though an amendment was made in the Attachment. This issue is also redolent of the unsatisfactory nature of the taxpayers’ evidence as to the level of their actual assessable incomes, but it too is an issue which could have been answered at the hearing had it been raised.
170 The Commissioner also identified that the evidence before the Tribunal was that the parties were used to dealing in cash. That conclusion was well founded as Mr Ross’s evidence was to the effect that he was paid in cash for work he did as a labourer, he received large amounts in cash which he claimed were loans, he sold motor vehicles for substantial amounts which were also received in cash, and there was evidence that he exchanged $20,000 in cash at a currency exchange at an international airport. The point to be made of this was that the taxpayers faced difficulties in positively proving their true assessable income in the absence of records. Whilst it can be accepted that the propensity of the taxpayers to engage in cash transfers and payments might render it difficult for them to discharge the relevant onus, it is only a matter of general concern and, given that they made general statements as to how they dealt with their income, it cannot be used on appeal to undermine their case when it was not raised below.
Conclusion with respect to Ground 1
171 As identified, the Tribunal’s reasons contained a number of serious errors, the least of which being that it misapplied the onus of proof test required by s 14ZZK(b)(i). That warrants the setting aside of its decision. However, it is sufficiently clear that, if it had applied the correct test, it could not have reached the conclusion that the taxpayers had satisfied it. On the material produced by the taxpayers, no properly instructed Tribunal could reach that conclusion. The taxpayers initially approached their applications for review of the Commissioner’s objection decisions with a misunderstanding as to the onus to be discharged and, although that was apparently realised shortly prior to trial, the production of additional evidence and MFI-1 and the Attachment did not remedy the situation. Although MFI-1 was intended to discharge or assist in discharging the onus of proving the taxpayers’ assessable income, when examined it reveals that their receipts cannot be justified by their claimed levels of income and nor can their actual levels of income be discerned. MFI-1 and the Attachment do not and cannot explain or identify what were Mr and Mrs Ross’s actual income in the various income years. As the prior analysis reveals those documents are inaccurate and, when the misleading statements in them are recognised, it is apparent that the commentary actually tended to conceal the receipt of substantial sums by each of the taxpayers in the relevant income years which remains unexplained. When properly considered neither document comes close to achieving that which it they were proffered as doing, namely identifying the taxpayers’ actual income in the income years under consideration.
172 It is, therefore, appropriate to accept the Commissioner’s submission that it would be inutile to remit the matter to the Tribunal for further consideration. No properly instructed decision-maker, who considers all of the available material, could conclude that the taxpayers had discharged the required onus of proof in relation to the objection decisions under review. However, as appears from the discussion in the conclusion of these reasons as to the appropriate form of relief, that finding is ultimately of less value in the present appeal than might be expected for the purposes of the disposition of the appeals. The purpose of seeking that finding was to support a submission that it would be futile to remit the appeals and that the Court should instead exercise the Tribunal’s power to affirm the objection decisions. Ultimately, however, I am not satisfied that any such power exists in the present circumstances.
Ground 2: Did the Tribunal deal with issues outside the scope of the grounds of objection?
173 By this ground, the Commissioner contended that the Tribunal erred in taking into account the double counting issue raised by MFI-1 and relying upon it for the purposes of setting aside the objection decisions concerning the assessments made in relation to Mr Ross because no such issue had been raised in his grounds of objection. The Commissioner also complained that the Tribunal took into account claims made by the taxpayers in the course of their submissions that amounts recorded as unexplained income were refunds received by Mr Ross when no such ground to that effect had been raised in his grounds of objection.
174 In relation to this issue, s 14ZZK of the TAA relevantly provides:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant, is unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates;
175 There was no dispute between the parties that the effect of s 14ZZK(a) is that a taxpayer is generally not entitled to raise before the Tribunal, and it is not entitled to consider, matters not detailed in the taxpayer’s taxation objection to the relevant taxation decision, being in this case the amended assessments. That is subject to the express proviso that, in certain circumstances, the Tribunal may permit a taxpayer to raise other matters: see Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation (1991) 32 FCR 148 at 155 – 156; Lewski v Commissioner of Taxation (2017) 254 FCR 14  – .
176 Section 14ZU(c) imposes the additional requirement that the person making the taxation objection must “state in it, fully and in detail, the grounds that the persons relies on”.
177 Relevantly, paragraph 1(c) of Mr Ross’s amended grounds of objection stated that “the amounts assessed are incorrect and the assessments are excessive for the following reasons”. Thereafter, specific amounts used by the Commissioner in the Asset Betterment Statement with respect to Mr Ross were identified in sub-paragraph 1(c)(i). Sub-paragraphs 1(c)(ii) and (iii) then provided:
(ii) further, the amended assessments are excessive because the asset betterment methodology employed by the Commissioner involved errors and did not give a result which truly reflected the income of the Applicant in each of the relevant years of income;
(iii) the true income of the Applicant in each of the relevant years of income is in an amount less than that assessed by the Commissioner of Taxation.
178 At the commencement of the hearing before the Tribunal, Counsel then appearing for the taxpayers sought leave to amend the grounds of objection in respect of each taxpayer in the above terms. In the course of a wide-ranging submission, Counsel said:
There’s also a lot of transfers between the accounts, which greatly complicates the matter because when you’re trying to analyse these things years after the event, you've got to be able to trace through all the transfers from one account to another because there would have only been one receipt on say income account, or capital account, that would have come in to one of the accounts initially and then the moneys just shuffled around between various accounts. So, it’s not a new receipt. It might be a new receipt to that account but it’s not a new receipt to the taxpayer and that’s a very complicating factor in this case as well and we’re undertaking some analysis that we’re going to put before the tribunal in final submissions about that.
179 Whilst, with the benefit of hindsight, one might see that the issue of double counting of the amounts constituting Mr Ross’s expenditure was being hinted at, it is by no means apparent that such an issue was being raised. Indeed, the statement that the taxpayer’s legal representatives were undertaking some analysis in relation to the information indicates that, at that time, there was no known conclusion as to if and to what degree there had been any double counting. That conclusion is supported by the fact that the above statement was made on 6 November 2017 and the document which was MFI-1 was only produced to the Tribunal and the Commissioner at the end of the hearing on 1 February 2018, being approximately three months later.
180 It is sufficiently clear that there is nothing in sub-paragraphs 1(c)(ii) and (iii) of the amended grounds of objection which specifically identified that an error in the Commissioner’s assessments was that he double counted certain deposits into Mr Ross’s bank accounts because he failed to consider transfers between accounts held by the same entity. Similarly, there is nothing which specifically identified that a calculation error occurred because amounts received by Mr Ross as refunds were counted as assessable income.
181 Mrs Ross submitted that the issue of double counting is within the broad scope of sub-paragraph 1(c)(ii) above. She asserted that the terms of that paragraph are wide and that, by not opposing the making of the amendment, the Commissioner must be taken as having accepted that it complied with the obligation in s 14ZU to state the grounds “fully and in detail”, and that he should be taken to have regarded himself sufficiently informed. She also submitted that the Commissioner did not oppose the raising of the issue at the commencement of the hearing in the above cited passage and raised no opposition in relation to MFI-1 when it was tendered or in his written submissions. It was submitted that, had the Commissioner raised opposition to it, the taxpayers would have been entitled to apply to amend the grounds of objection.
182 Even when the circumstances in which the making of the amendments to the grounds of objection are taken into account: Szajntop v Commissioner of Taxation (1993) 42 FCR 318 at 320; sub-paragraph 1(c)(ii) of the amended grounds does not direct the Commissioner’s attention to the respects in which Mr Ross contended that the assessments were erroneous and the reasons for that contention: see Cajkusic v Commissioner of Taxation (2006) 155 FCR 430, where the Full Court said (at ):
Section 14ZU of the Taxation Administration Act 1953 (Cth) provides, inter alia, that a person making a taxation objection must state in it, fully and in detail, the grounds on which the person relies. In HR Lancey Shipping Co Pty Ltd v Commissioner of Taxation (1951) 9 ATD 267 at 273, Williams J said:
The grounds of objection need not be stated in legal form, they can be expressed in ordinary language, but they should be sufficiently explicit to direct the attention of the respondent to the particular respects in which the taxpayer contends that the assessment is erroneous and his reasons for this contention. In each case the sufficiency of the grounds is a matter for the Court. Vague grounds such as that the assessment is excessive are not, in my opinion, a compliance with the Act.
In our view, the applicants' notices of objection lodged against the amended assessments for the year ended 30 June 1998, in particular the express reference in [(5)] to s 97 of the 1936 Act, is sufficiently explicit to direct the attention of the respondent to the fact that his reliance on s 97 is considered to be erroneous, and is put in issue. It is not necessary, in our view, that the component arguments under s 97 of the 1936 Act be articulated at this stage. In this Court, if not in the Tribunal, the medium for that function comes later in the form of the respondent's appeal statement (O 52B, r 5 of the Federal Court Rules 1979 (Cth)) and the applicant's statement of facts, issues and contentions in response thereto.
183 Although in this case sub-paragraph 1(c)(ii) of the amended grounds of objection refers to the Commissioner’s methodology in relation to the Asset Better Statements involving errors, it did not attempt to identify, even in a general sense, what those errors were. The words of the sub-paragraph assert little more than that the Asset Betterment Statement was wrong and did not reflect the taxpayer’s assessable income. On Mrs Ross’s case, the ground stated in that sub-paragraph would be sufficient to raise any imaginable error which might have been identified in MFI-1 from a misidentification of transactions, errors in calculations, misreading of documents and the like.
184 It cannot be said that the Commissioner’s representatives should have been aware that sub-paragraph 1(c)(ii) was intended to cover an issue of double counting or the characterisation of refunds as assessable income. Despite Mr Hack QC’s submissions to the contrary, no such issues were sufficiently articulated by the taxpayers’ Counsel at the commencement of the hearing before the Tribunal, and one can only speculate as to why, if it was intended to include the matters which subsequently arose in MFI-1, no express statement was made to that effect. As has been discussed above, it seems relatively clear that the legal representatives who were briefed in the matter shortly before the Tribunal hearing realised that the case as prepared was defective and did their best to remedy the situation. That included undertaking a review of the taxpayers’ bank statements which, apparently, could not be done until after the first three days of the hearing in November 2017. It would seem that the amended grounds of objection were drawn in an attempt to capture what might come out of that review, however, as that was not known at the time, it was not possible to state the grounds fully and in detail.
185 Although the Court was not assisted by any reference to the authorities on the application of s 14ZU, it can be concluded that sub-paragraph (c)(ii) of the amended grounds of objection did not identify the respects in which the amended assessments were allegedly in error and identify the reasons for that contention. It did not raise the alleged errors in the Commissioner’s amended assessments which apparently came to the attention of the taxpayers’ legal representatives some months later. It necessarily follows that the Tribunal ought not to have considered the issues of double counting and the inclusion of refund monies in Mr Ross’s assessable income.
186 Mrs Ross’s submissions that the amended grounds of objection should be taken as having raised the two new issues because the Commissioner did not complain about them during the hearing or afterwards should also be rejected. The Commissioner is not under any obligation to draw or revise the taxpayer’s grounds of objection for them. Nor for that matter is he required to identify fatal errors in any grounds which are produced. That is especially so when a taxpayer is represented by accountants and lawyers as Mr and Mrs Ross were in this case. Additionally, the taxpayers only expressly raised the possibility of double counting in their written submissions nearly two months after the completion of the hearing before the Tribunal. It can hardly be said that a complaint should have been made then. In any event, it is the taxpayer and not the Commissioner who is obliged to draft the grounds of objection.
187 It was submitted in the alternative that the Tribunal can be taken as having implicitly given leave to raise the issue of double counting, not in the least because it relied heavily upon that issue in its reasons. In relation to this point, Mr Hack QC relied upon on a brief passage in the recent decision in Carter v Commissioner of Taxation  FCAFC 150. In that case, a question arose as to whether the Tribunal’s decision was in error because it relied upon a point not raised in the grounds of objection. The Full Court held that, as the matter had been raised and the Tribunal had dealt with it, the necessary leave to raise it had been implicitly granted under s 14ZZK(a): at . The circumstances in that case were somewhat different to those in the present matter. Here, the issue of double counting was not raised at the commencement of or during the substantive part of the hearing. It was only averted to on the last day by MFI-1 which was handed to the Tribunal after the examination of witnesses had been completed. That document was provided almost immediately before the hearing concluded and with the assurance that it did not contain evidence and only “summarises the existing evidence”. There was obviously no time on that day for the Commissioner’s Counsel to consider the 108 pages of tables so as to ascertain whether it did raise new issues, and if so, what they were. As has been discussed, MFI-1 did more than summarise the existing evidence. It purported to analyse the bank accounts, to draw conclusions as to the transfer of funds between accounts, and to demonstrate that the Commissioner’s assessment of expenditure from those accounts involved an element of double counting. In those circumstances, it cannot be said that the Commissioner’s conduct in the course of the hearing was such that it can be said that he accepted that the issue of double counting was part of the dispute between the parties which would then permit the Tribunal to accept it as being a live issue.
188 That, however, is not the end of the matter. It is necessary to note that, in paragraph 46 of his written submissions to the Tribunal, the Commissioner engaged with the assertion in paragraph 22 of taxpayers’ submissions that he had double counted amounts moving between bank accounts as receipts of income in the creation of the respective Asset Betterment Statements. Whilst the Commissioner could have ignored the point or submitted that it was outside the scope of Mr Ross’ grounds of objection, he did not. He engaged with it as part of the issues in dispute and must be taken as signifying his acceptance of it as a matter for the Tribunal to consider: cf. Banque Commerciale SA v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 – 287; Holdway v Arcuri Lawyers  2 Qd R 18  – . Whilst these are unusual circumstances and it would seem the taxpayers were less than up front with the issues they were advancing, it cannot be denied that the Commissioner joined issue with the late-raised point. He, having invited the Tribunal to deal with it, cannot now deny that it was appropriate for it to be considered.
189 It follows that, in these unusual circumstances, the Tribunal can be taken to have granted leave to the taxpayers to amend their grounds of objection to include the double counting issue. That conclusion does not extend to the Tribunal’s consideration of the whether certain amounts included in the Asset Betterment Statements were in fact refunds. There was no relevant engagement in the Commissioner’s written submissions to the Tribunal with any allegation to that effect by the taxpayers.
190 As the Commissioner has succeeded on Ground 1, his lack of success in relation to the double counting issue is of no consequence to the outcome. Even if, by his written submissions, this issue was joined, it was ultimately immaterial given the extent to which the taxpayers fell short of satisfying the onus which they were obliged to discharge.
Ground 3: Did the Tribunal err in setting aside the penalty uplift under s 284-220(1)(c)?
191 This ground of appeal concerns the interpretation and application of s 284-220(1)(c) of Sch 1 to the TAA which, in certain circumstances, increases the amount of a penalty payable by a taxpayer by 20% of the base penalty amount worked out under s 284-90.
192 Here, Mr Ross was liable to the administrative penalties imposed upon him by reason of s 284-75(1) of Sch 1 to the TAA and it was not submitted that, if the Commissioner’s conclusions stood, the penalties were not correctly imposed pursuant to that sub-section.
193 Section 284-85 of Sch 1 to the TAA provides that the amount of a penalty imposed by Div 284 is the “base penalty amount” worked out under s 284-90, unless that amount is increased under s 284-220 or reduced under s 284-225. That base penalty amount is calculated by reference to either the relevant “shortfall amount” or certain other amounts, and certain fixed criteria relating to the taxpayer’s culpability. In particular, Item 1 of s 284-90 provides that, where a taxpayer has a shortfall “as a result of a statement described in subsection 284-75(1)” and it “resulted from intentional disregard of a taxation law” by the taxpayer or their agent, then the base penalty amount is 75% of the shortfall.
194 Sub-section 284-220(1) identifies circumstances in which an uplift is applied to the base penalty amount to reach the amount of the penalty. Relevantly for present purposes, paragraph (c) provides that an uplift is applied where “the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284-90(1) and a base penalty amount for [the taxpayer] was worked out under one of those items previously”. That section imposes an uplift on the base penalty amount for each successive penalty imposed on a taxpayer where the base penalty amount for the penalties is worked out using the relevant items in s 284-90(1). Necessarily that excludes at least the first instance of the penalty being worked out under the relevant items of the table in s 284-90(1). The issue that arose on appeal concerned the operation of s 284-220(1)(c) where a series of penalty assessments, each involving a base penalty amount worked out using the relevant items in the table in s 284-90(1), are made contemporaneously.
195 In its decision, the Tribunal affirmed the Commissioner’s decision in relation to Mr Ross that the shortfall amounts in the several income years arose as a result of “intentional disregard” of a taxation law, with the consequence that ss 284-75(1) and 284-90(1) applied to impose a penalty with a base penalty amount equal to 75% of the shortfall amounts in each of the relevant income years. However, as to the imposition of the additional 20% uplift on top of the base penalty amounts for the income years after the 2009 income year, the Tribunal said (at ):
The amended assessments were all issued on the same day. In those circumstances, there was no opportunity for Mr Taxpayer to modify his behaviour in response to a finding that was made in support of the assessment of penalty for a particular year.
196 Plainly, the Tribunal regarded the inability of Mr Ross to modify his behaviour as providing a cogent reason as to why the uplift should not be imposed. This approach clearly assumed that the imposition of the uplift on the base penalty amounts was a matter of discretion which the Commissioner had erroneously exercised. The Tribunal then purported to re-exercise the discretion and conclude that no uplift should be imposed: at .
197 That approach was wrong. The operation of s 284-220(1)(c) was considered in Bosanac (FC), which was decided at first instance and on appeal after this matter was heard by the Tribunal. In that case, the Full Court held that s 284-220(1)(c) applied by its own force and applied even where multiple assessments were issued on the same day: at  – . All that is therefore required is that there has been a base penalty amount for a penalty worked out under Items 1, 2 or 3 of s 284-90(1) in respect of a shortfall amount that arose for a previous tax liability. On that construction, it is the mere repetition of the same conduct that gives rise to the additional culpability warranting the imposition of the uplift, rather than the repetition of conduct after the earlier imposition of a penalty: at . The Court concluded (at ):
It follows that where there are shortfall amounts that arise in respect of successive tax liabilities and a base penalty is to be worked out in respect of each shortfall amount under Items 1, 2 or 3 of s 284-90(1) then in the case of each successive tax liability any increase in the base penalty amount may apply under s 284-220(1)(c) because there will be a penalty “worked out under one of those items previously”.
198 This Court is bound by the decision of the Full Court in Bosanac (FC) and it must be concluded that the Tribunal’s decision in relation to the application of s 284-220(1)(c) was in error. On the natural meaning of the words used, the preferable construction is that the uplift applies automatically and it is not a matter for the exercise of discretion by the Commissioner. It follows that the Tribunal erred in purporting to set aside the imposition of the uplift on the penalties imposed with respect to Mr Ross and its decision in this respect cannot stand. In her written submissions, Mrs Ross formally submitted that the Full Court’s decision in Bosanac (FC) was wrongly decided, but she also acknowledged that this Court was nonetheless bound by it.
199 It was submitted in the alternative that the uplift imposed upon Mr Ross should have been remitted by the Tribunal using the general power to remit penalties in s 298-20 of Sch 1 to the TAA. That question, however, was not one which was considered by the Tribunal and, more significantly, is also not raised by a ground of appeal nor any notice of contention filed by Mrs Ross. It is simply a question that does not arise on this appeal.
200 It follows from the conclusions reached above that the Tribunal’s decisions concerning the penalty assessments in relation to Mr Ross should be set aside and the matter remitted to the Tribunal for a reconsideration of the relevant objection decisions in accordance with law.
Ground 4: Did the Tribunal err in remitting penalties pursuant to s 298-20?
201 The primary issue raised by the Commissioner in relation to the remission of penalties was whether, in exercising the general discretion to remit in s 298-20 of Sch 1 to the TAA, the Commissioner was confined to the consideration of matters which arose prior to the imposition of the penalty which, apparently, was said to occur at the completion of the audit and the making of the default assessments. He submitted that any matters which arose after that time were irrelevant. This issue manifested itself consequent upon the Tribunal taking into account Mr Ross’s death in the period following the hearing and prior to the delivery of its decisions and reasons for decisions when remitting all of the penalties imposed on Mr Ross and partially remitting those imposed on Mrs Ross.
The Tribunal’s determination with respect to the remission of penalties.
202 The Tribunal first observed that Mr Ross’s evidence at the hearing and his submissions to it following the hearing did not focus on the issue of remission, but that “the story did not end there”: at . It continued (at ):
Mr Taxpayer passed away following the hearing. While his case for remitting the penalties if he had survived was not persuasive, it is difficult to see what purpose would be served in persisting with the penalties now. They would, in effect, be paid out of his estate. The deterrent or punitive value of the penalties has diminished or disappeared; only their burden remains. To impose penalties in the circumstances would be an example of the sort of unreasonable behaviour discussed by Logan J in Sullivan v Civil Aviation Safety Authority.
203 On that basis, the Tribunal concluded that the penalties imposed on Mr Ross should be remitted in their entirety: at .
204 Similarly, the Tribunal accepted in relation to Mrs Ross that the evidence and submissions lodged in connection with the hearing did not set out a persuasive case for remitting the penalties imposed on her: at . Nonetheless, it purported to exercise the power to remit on the basis that she now faced unusual circumstances following the untimely death of her husband, specifically that she had been left to raise her daughter with special needs. For that reason, it reduced the penalties imposed upon her in respect of the 2013 income year to 25% of the shortfall amount with the balance remitted and, for the 2014 income year, remitted half of the penalty: at . It may also be noted that there was then an error in the Tribunal’s actual decision in relation to the latter income year in that it ordered the penalty imposed upon Mrs Ross for that income year to be wholly remitted.
The principles controlling the exercise of the discretion
205 Central to this issue is s 298-20 of Sch 1 to the TAA which relevantly provides:
298-20 Remission of penalty
(1) The Commissioner may remit all or a part of the penalty.
206 That discretionary power is conferred in broad and linguistically unfettered terms: Mingos v Commissioner of Taxation (2019) 274 FCR 148 ; Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483  (Sanctuary Lakes). It is intended to confer a wide and flexible discretion on the entity exercising it. Nevertheless, such a discretionary power may only be exercised for the purposes for which it is granted and subject to the implied restrictions which exist in the legislation. In particular, whether a particular consideration is relevant or irrelevant to the exercise of the discretion is to be discerned from the subject matter, scope and purpose of the statute: Sanctuary Lakes  –  per Griffiths J. See also BHP Billiton Direct Reduced Iron Pty Ltd v Deputy Commissioner of Taxation (2007) 67 ATR 578 . Those matters apart, what considerations are taken into account or are ignored are for the repository of power to determine. Undoubtedly, the circumstances in which the discretion is to be exercised are infinitely variable with the consequence that it will be exercised as the circumstances dictate.
207 An aspect of the legislative context in which s 298-20 operates is that, whilst the principal purpose of the imposition of penalties for contraventions of taxation legislation is to deter infringements: Commissioner of Taxation v Arnold (No 2) (2015) 324 ALR 59 : the section operates to ameliorate the imposition of those penalties. In Sanctuary Lakes, Greenwood J identified in general terms the nature and object of the administrative penalty regime provided by Div 284 in the following terms (at ):
The object of Div 284 is to provide a uniform administrative penalty regime for all taxation laws to enable administrative penalties to apply to entities that fail to meet their obligations under those laws in relation to making false or misleading statements, taking positions that are not reasonably arguable, entering into schemes, refusing to provide documents to the Commissioner and disregarding private rulings. Later Divisions and Subdivisions of Pt 4-25 impose penalties, by operation of the Administration Act, in relation to conduct falling within those categories.
208 More specifically, ss 284-20 and 284-25 provide that Div 284 applies to statements made orally, in a document, or in any other way for a purpose connected with a ‘taxation law’, including if made by a taxpayer’s agent. The imposition of penalties relating to statements and how they are calculated is provided for by Subdiv 284-B. In general terms, liability to penalties arises as a result of the taxpayer’s conduct in the particular circumstances attracting their imposition. By s 284-75(1), a taxpayer is liable to an administrative penalty if they make a statement to the Commissioner or an entity that is exercising a power or performing a function under a taxation law and the statement is false or misleading in a material particular. However, s 284-75(5) provides that the taxpayer is not liable to an administrative penalty under subsection (1) if they took reasonable care in connection with the making of the statement.
209 As described above in relation to the penalty uplift issue, Subdiv 284-B provides for the calculation of the amount of the several penalties imposed by s 284-75(1) by reference to fixed criteria relating to the taxpayer’s culpability. For instance, if a taxpayer has a shortfall amount as a result of the making of a false or misleading statement and the amount or part of it resulted from an intentional disregard of a taxation law, the penalty is 75% of the shortfall amount: s 284-90(1), Item 1. If the shortfall amount arose by reason of a failure to take reasonable care to comply with a taxation law, the penalty would be 25% of the shortfall: s 284-90(1), Item 3. Obviously, the rate of the penalty correlates with the seriousness of the taxpayer’s conduct which resulted in the shortfall. The amount of a penalty is also increased in the circumstances set out in s 284-220(1), such as where the taxpayer has taken steps to prevent or obstruct the Commissioner from finding out about the shortfall. Conversely, the penalty amount is decreased as provided by s 284-225, including where the taxpayer voluntarily informs the Commissioner of the shortfall amount. Such increase or decrease in the amount of the penalty plainly relates to the presence of aggravating or mitigating circumstances arising after the circumstances giving rise to the imposition of the initial penalty.
210 It is in that context that s 298-20 affords the Commissioner a discretion to remit all or part of a penalty for which a taxpayer assessed. The scope of that discretion was considered in detail in Sanctuary Lakes by Griffiths J (with whose reasons Edmonds J agreed). One major issue discussed was whether, where a penalty had been assessed on the basis that the taxpayer had failed to take reasonable care (Item 3 of s 284-90(1)), it was an irrelevant consideration in the exercise of the discretion to remit that the position adopted by the taxpayer was reasonably arguable. His Honour considered that, as the two standards – a lack of reasonable care and a position being reasonably open – were plainly different, it could not be said that the latter matter was irrelevant to whether penalties imposed on the basis of the former standard ought to be remitted: at .
211 Speaking generally of the manner in which the discretion should be exercised, Griffiths J said:
 … It may be appropriate in a particular case to remit a penalty on the basis that the outcome otherwise could be described as “harsh”, but that does not mean that “harshness” should be elevated to an essential element in determining whether or not to remit the penalty under s 298-20.
 In my opinion, the correct question which arises under s 298-20 should not be expressed in terms of “harshness”. Rather, the question is simply whether the decision-maker is satisfied having regard to the taxpayer’s particular circumstances that it is appropriate to remit penalty in whole or in part. For example, a decision-maker might determine that it is appropriate to remit penalty in whole or in part because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh (see the observations of McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 on the different meanings of the individual words “harsh”, “unjust” and “unreasonable” in a different context concerning unfair dismissal and the collocation of those words in both legislation and an industrial award). In my view, there is no warrant for confining the otherwise broad discretion in s 298-20 to circumstances where the outcome of imposing administrative penalty would otherwise be “harsh”.
212 Importantly, Griffiths J did not eschew “harshness” as a factor which may be taken into account in appropriate circumstances, but merely observed that it was not the touchstone of the exercise of the power and nor was it essential for its exercise. For the purposes of the submissions made in this case, his Honour’s reference to “the taxpayer’s particular circumstances” does not identify any temporal limits on those circumstances or whether they are only those circumstances relating to the conduct in respect of which the penalty was imposed or are of a more generic nature. However, the foundation of the taxpayer’s claim to have adopted a reasonably arguable position in that case was the construction of a particular contractual provision and his Honour held that such an issue “necessarily relates to the particular circumstances of the taxpayer”: at .
213 After reviewing the legislative history of the penalties regime and the power to remit, his Honour concluded that the fact that a taxpayer had adopted a reasonably arguable position was not excluded from consideration on the exercise of the discretion to remit. In relation to the power to remit, he then observed that “there needed to be circumstances that could be regarded as mitigating the taxpayer’s behaviour in some way”, and that which may be relevant in a particular case will necessarily be dictated by the manner in which the case is advanced to the Tribunal: at  – .
214 The centrality of the requirement identified by Griffiths J of circumstances that might mitigate the taxpayer’s behaviour is important. That conclusion arose from his Honour’s analysis of the legislative history including the extraneous materials to the progenitor amending legislation. In particular, the Explanatory Memorandum to the 1992 Bill which relevantly amended the ITAA 1936 identified that the penalty regime in the new Bill “prescribes specific penalties for breaches of the standards set by the Bill, which means that taxpayers will know what penalties will be attracted for delinquent behaviour.” However, it also identified that the discretion to remit ameliorated the manner in which that operated. The Explanatory Memorandum provided:
While the Bill provides a set of rules and accompanying penalties which will cover all but exceptional cases, there may be cases that do not fit neatly into a category, or for which the prescribed rates of penalty are inappropriate. For this reason the discretion which the Commissioner has to remit penalty in whole or in part (sections 227 and 160ASB of the ITAA) is not removed by this Bill, so that the Commissioner has the flexibility to deal with hard cases that may arise.
215 The examples then given in the Explanatory Memorandum all relate to circumstances which might be taken to mitigate the culpability of a taxpayer in respect of the behaviour which resulted in the imposition of a penalty.
216 Similarly, the Revised Explanatory Memorandum to the Bill inserting Div 284 into the TAA being, A New Tax System (Tax Administration) Act (No 2) 2000 (Cth) was considered by Griffiths J in Sanctuary Lakes. That memorandum too focusses the discretion to remit on those circumstances which ameliorated the culpability of the conduct which caused the penalty to be imposed, stating:
1.140 There are a number of factors which the Commissioner takes into account when deciding to remit a penalty. These include:
• treating taxpayers in like circumstances consistently;
• considering a taxpayer’s particular circumstances and compliance history; and
• tailoring the penalty to secure improvements in compliance behaviour.
217 In relation to the guidelines to be issued in relation to the exercise of the discretion to remit, the Revised Explanatory Memorandum then provides:
1.142 The guidelines will look to remit penalties where taxpayers and their agents make a genuine attempt to meet their obligations, but will maintain an appropriate level of penalty where taxpayers don’t make an effort to do the right thing. For taxpayers that deliberately flout the law or participate in fraudulent activity, the maximum penalties will be imposed with prosecution action being taken in appropriate cases.
218 The observations in the two Explanatory Memoranda are logical and coherent. The introduction of the regime in Div 284 pursuant to which the identification of a specific type of conduct in relation to non-compliance with the taxation laws will automatically result in the imposition of a specified level of penalty has the advantages of uniformity in the punishment for contraventions and, specifically, of treating like cases alike. However, despite the scaled approach based on the seriousness of the conduct, it remains somewhat of a blunt instrument. As the Explanatory Memoranda explain, the power to remit exists for the purpose of ameliorating the effects of the taxonomical rigidity in the penalty regime. Given the infinite variety of human activity there must necessarily be cases where a taxpayer’s conduct results in the imposition of a particular penalty but the circumstances surrounding that conduct render the taxpayer less culpable than would usually be the case.
219 It should also be observed that the consideration by Griffiths J in Sanctuary Lakes of concepts such as “unreasonable”, “unjust” and “harsh” did not appear to involve the general personal circumstances of the taxpayer: at  – . Rather, the question was whether there was something in the circumstances giving rise to the imposition of the penalties which rendered the imposition of the fixed rate of penalty inappropriate in the sense of it being unreasonable, unjust or harsh. No doubt that conclusion is reached because, in those circumstances, the taxpayer’s culpability is less than that deserving of the automatic level of penalty. The consideration was, therefore, not one of whether the penalty imposed was inappropriate having regard to circumstances which were divorced from the contravening conduct for which it was imposed.
220 It may be accepted that where the death of a taxpayer has arisen from or impacts upon their conduct in attempting to comply with their taxation obligations, that death may be relevant to the exercise of the discretion to remit a penalty: Mathoura Property Pty Ltd v Federal Commissioner of Taxation  AATA 922; (2013) 97 ATR 1059 . In such a case, it might provide a reason why the imposition of the penalty or the full amount of the penalty may be inappropriate in the circumstances. That, however, is quite different to the circumstances here where Mr Ross’s death in no way relates to the conduct for which the penalties were imposed. Whilst Mr Ross’s death may render it more difficult for either his estate or Mrs Ross to satisfy the liability to pay the penalties, his death and its sequelae do not constitute circumstances that could be regarded as mitigating his behaviour in some way insofar as it gave rise to the imposition of those penalties. Accordingly, they are not circumstances relevant to the discretion to remit in this case.
221 That conclusion is coherent with the existence of the separate and distinct power in s 340-5 of Sch 1 to the TAA by which the Commissioner may release a taxpayer from particular liabilities incurred personally or as trustee of a deceased estate, where satisfying that liability would cause “serious hardship”. That section enables a taxpayer or the trustee of their deceased estate to make a specific application for the exercise of that discretion in their favour. The Commissioner’s decision in respect of such an application is then reviewable pursuant to the regime in Part IVC of the TAA: s 340-5(7). The existence of such a specific power strongly indicates that concerns as to the financial hardship on a taxpayer arising from the imposition of a penalty are not considerations relevant to the exercise of the discretion to remit under s 298-20 as, were it otherwise, the power in Div 340 would be otiose. In other words, the existence of the power in Div 340 which permits the Commissioner to relieve against the imposition of a penalty in cases which involves “serious hardship” assists in demarcating the scope of the power to remit in s 298-20 and, specifically, the matters relevant to the exercise of the latter power. The apparent legislative intention is that issues of hardship fall to be considered in exercising the power in s 340-5 and that the operative hardship which needs to be established is that which amounts to “serious hardship”.
222 The focus of s 340-5 is on the financial capacity of the taxpayer to pay the liability arising from the imposition of the penalty. In the consideration of any application made under that section, the Commissioner (or the Tribunal on review) will be required to consider the taxpayer’s financial obligations, including the needs of their dependants. On any application, he would, no doubt, be required to satisfy himself of the taxpayer’s financial position and demands upon their resources. Unlike the considerations relevant to the exercise of the power to remit, those considerations are divorced from or separate to the circumstances from which the obligation to pay the penalty arose.
Conclusions as to the discretion to remit in s 298-20
223 From the foregoing and, in particular, the majority’s reasons in Sanctuary Lakes, it can be concluded that the considerations which might be relevant to the exercise of the discretion to remit in s 298-20 are those which concern circumstances that could be regarded as mitigating the taxpayer’s behaviour in some way or, in other words, those which go to reducing the taxpayer’s culpability for the circumstances which brought about the imposition of the penalty. Other matters are necessarily irrelevant.
The Tribunal erred in exercising the power to remit penalties.
224 It follows that in exercising the discretion to remit the penalties imposed upon Mr Ross, the Tribunal erred in taking into account the irrelevant circumstance that he had died subsequent to the hearing. Mr Ross’s death had no relevance to the circumstances which resulted in the imposition of the penalties, being his “intentional disregard” of a taxation law in making of statements that were false or misleading. The consequence of taking that circumstance into account was that the Tribunal’s purported exercise of the discretion involved an error of law and the purported remission of penalties in respect of Mr Ross should be set aside.
225 Although the precise foundation of the exercise of the Tribunal’s power to partially remit the penalties in relation to Mrs Ross was not entirely clear, it is sufficiently apparent that the substance of its conclusion was that the death of Mr Ross and its sequelae rendered it “harsh” not to remit the penalties imposed upon her given her then personal circumstances, particularly that she was required to maintain a child with additional needs. However, such considerations are entirely divorced from the circumstances which resulted in the imposition of the penalties, being her contraventions of taxation laws, and they were therefore irrelevant to the exercise of the power to remit. They are not circumstances that could be regarded as in some way mitigating her culpability for the behaviour which resulted in the imposition of the penalties. Accordingly, the Tribunal’s purported exercise of the discretion to remit in relation to Mrs Ross also involved an error of law and the purported remission of penalties should be set aside.
226 Whilst one may be sympathetic to Mrs Ross’s situation, whether some or all of her liability to pay penalties should be reduced as a result of her personal and financial circumstances consequent upon Mr Ross’s death and her responsibility for her children is a matter which falls to be considered under s 340-5 if and when it is sought to be invoked.
Alleged temporal limitations in s 298-20
227 The above conclusions render it unnecessary to consider the Commissioner’s alternative submission that any circumstances occurring after the conduct which gives rise to the imposition of a penalty pursuant to Div 284 are necessarily irrelevant to the exercise of the discretion to remit in s 298-20. This submission was said to proceed from the proposition that the conduct as a result of which penalties are imposed by Div 284 is that which occurs prior to the penalty’s imposition. So the submission went, it follows that only circumstances occurring prior to the point in time at which the liability to a penalty is imposed can be relevant to the exercise of the discretion in s 298-20 to remit.
228 Ms Wheatley QC for the Commissioner took the Court to numerous provisions in Div 284 relating to the imposition of penalties on errant taxpayers and identified that the concern of those provisions was the conduct relevant to their imposition, all of which were said to occur prior to the legislation operating to impose the penalty. The proposition sought to be made was that the necessary consequence was that the only matters which could be relevant to the discretion in s 298-20 are those which also occur prior to the imposition of the penalty. For this reason, she submitted that the Tribunal erred in taking into account, when remitting the penalties in this case, the occurrence of Mr Ross’s death and its impact upon Mrs Ross and her ability to care for her children as these matters all post-dated the imposition of the penalties on the finalisation of the Commissioner’s audits. In advancing this submission, Ms Wheatley QC sought to draw support from s 284-220 which imposes an additional uplift where the gravamen of the taxpayer’s conduct is exacerbated by one of the matters specified in the section. They include the taking of steps to prevent or obstruct the Commissioner from finding out about a shortfall amount or a false or misleading statement (s 284-220(1)(a)), failing to inform the Commissioner within a reasonable time about the existence of a shortfall amount or the false or misleading nature of a statement made to him (s 284-220(1)(b)), or engaging in multiple instances of conduct attracting the imposition of a base penalty (s 284-220(1)(c)). The Commissioner submitted that the conduct attracting the imposition of an uplift by these provisions also relates to a point in time prior to the imposition of the penalty.
229 The Commissioner’s submissions mischaracterise the operation of the administrative penalties regime in Part 4-25 and, in particular, the manner in which liability to such penalties arises. In particular, they tended to assumed that liability to an administrative penalty is imposed at some point in time after the occurrence of the circumstances giving rise to the penalty, ostensibly being the time of the assessment or notification of the penalty pursuant to Div 298. This is possibly quite incorrect. Relevantly, the standard chapeau to the provisions imposing liability to an administrative penalty provides that “You are [or a particular entity is] liable to an administrative penalty if”: see e.g. s 284-75(1). Thereafter, the provisions list the circumstances the occurrence of which gives rise to liability to the relevant penalty. The significance is that such liability arises automatically, and it is incorrect to view the imposition of a penalty as being separate from the occurrence of the circumstances giving rise to the liability to that penalty. This construction of the operation of the administrative penalty regime is confirmed by s 298-5 which, in relation to the machinery provisions concerning administrative penalties in Subdiv 298-B, provides:
This Subdivision applies if:
(a) an administrative penalty is imposed … by another Division in this Part; or
230 In Sanctuary Lakes, Griffiths J described regime in Pt 4-25 as follows (at ):
Broadly speaking, the legislative scheme under the TAA 1953 has the following relevant features;
(a) both the liability to a penalty and the base amount of that penalty are imposed by the legislation itself;
(b) such liability is imposed by reference to the happening of various prescribed events, including:
(i) the making of a false or misleading statement which has a material effect in the manner described in s 284-75(1); or
(ii) in making a statement, the taxpayer treated an income tax law applying to a matter in a way that was not reasonably arguable and the consequential shortfall amount is above the threshold set out in Item 4;
See also Sanctuary Lakes  per Greenwood J.
231 The machinery provisions in Subdiv 298-B require the Commissioner to notify an entity of its liability to a penalty and, in the case of administrative penalties under Div 284, to make an assessment of the amount of such penalty. (The significance of this latter step being to bring the Commissioner’s assessment of an administrative penalty pursuant to Div 284 within the operation of s 350-10). Although the amount of an administrative penalty is not determined and cannot be due and payable prior to such notification or assessment, it is nonetheless incorrect to characterise that as being the point in time at which liability to the penalty is imposed. See also Sanctuary Lakes , .
232 In that context, it is difficult to identify any foundation for the temporal limitation on those matters which can be taken into account in the exercise of the discretion to remit in s 298-20. Contrary to the Commissioner’s submissions, there are no significant temporal indicators in the administrative penalty regime which support such a construction. One might also observe that the conduct in s 284-220(1)(a) and (b) are matters which follow the conduct which attracts the initial imposition of the penalty. Accordingly, the point in time at which an administrative penalty is imposed, being the supposed temporal limit on the discretion in s 298-20, can be anterior to later occurring circumstances which affect the amount of the penalty. On the Commissioner’s preferred construction, it might be thought that it would be irrelevant to the exercise of the discretion in s 298-20 to consider circumstances which mitigate a person’s culpability in relation to circumstances giving rise to an increase in the amount of a penalty pursuant to s 284-220. Such a construction would be surprising in light of the construction adopted in Sanctuary Lakes.
233 Nevertheless, given the construction of the discretion articulated by Griffiths J in Sanctuary Lakes, the occasions on which matters occurring subsequent to the totality of the circumstances giving rise to and affecting the amount of an administrative penalty might be considered may well be uncommon. His Honour’s reasons identify that the discretion is concerned with “circumstances that could be regarded as mitigating the taxpayer’s behaviour in some way” and, by necessity, they will usually have arisen at or prior to that behaviour, including any conduct causing an increase in the penalty pursuant to s 284-220(1)(a) or (b). Such circumstances surround or inform the offending conduct rendering it less culpable and less deserving of the imposition of the penalty at the prescribed level.
234 In the absence of receiving submissions on the point, it is not appropriate to exhaustively consider whether a taxpayer’s subsequent expression of remorse or contrition for past conduct which gave rise to a penalty is relevant to the discretion to remit. On one view, such conduct might be seen as relating to circumstances which mitigate the taxpayer’s behaviour in some way and would, therefore, not be an irrelevant consideration to the discretion to remit. Conversely, false denials made by a taxpayer of the conduct which resulted in the imposition of penalties may also be relevant as a consideration weighing against the exercise of the discretion to remit. It may also be said that the fact that a taxpayer challenged the Commissioner’s taxation decision before the Tribunal on the basis of assertions which were found to be untrue could be another circumstance militating against exercising the power to remit. The lack of contrition for the behaviour which resulted in the imposition of the penalty or an attempt to conceal it is conduct relating to that behaviour and relevant to the taxpayer’s culpability for it. It does not mitigate the taxpayer’s behaviour in any way, but it does exacerbate it and that may well be a relevant consideration in the exercise of the discretion. Conversely, it might therefore be expected that a taxpayer expressing genuine contrition for behaviour or voluntarily disclosing or assisting the Commissioner in his examination of such behaviour would also be a relevant consideration weighing in favour of the exercise of the discretion to remit penalties imposed in relation to that behaviour. Assuming that the presence of such circumstances would be a relevant consideration, it would also be necessary to consider the extent to which such circumstances have already been taken into account in determining the amount of the liability: see e.g. s 284-225.
235 Mrs Ross submitted that the existence of temporal limitations suggested by the Commissioner would not be consistent with the regime for merits review of administrative decisions by the Tribunal. In particular, she submitted that s 25 of the AAT Act requires the Tribunal to make the correct or preferable decision which is to be determined on the material before it. She also relied on the decision in Frugtniet v Australian Securities and Investments Commission (2019) 266 CLR 250  –  (Frugtniet) for the proposition that the Tribunal may take into account evidence which was not before the primary decision-maker and that may include evidence of events subsequent to the original decision.
236 With respect, those submissions fail to deal with the essential question of whether s 298-20 permits account to be taken of matters which have occurred subsequent to the imposition of the penalty. The answer to that question does not change depending upon whether the power is exercised by the Commissioner or by the Tribunal upon a review. As was stated in Frugtniet, “identifying the question raised by the statute for consideration will usually determine the facts that may be taken into account in connection with the decision”: at .
237 Ultimately, there is no need to reach any final conclusion on this issue. The Tribunal took into account matters which were irrelevant to the exercise of the power in s 298-20 in relation to each of Mr and Ross which resulted in an error of law. This necessitates the setting aside of the purported remission of the penalties imposed upon them.
The decision in Commissioner of Taxation v Burness
238 In connection with the above submissions, Ms Wheatley QC for the Commissioner very properly directed the Court’s attention to the decision of Gordon J in Commissioner of Taxation v Burness  FCA 1021; (2009) 77 ATR 61 (Burness). There, the taxpayer had failed to disclose a substantial capital gain as a result of which, some seven years later, the Commissioner issued an amended assessment for the tax shortfall and assessed additional tax in the form of a penalty of 75% of the tax shortfall on the basis that the shortfall had arisen from the intentional disregard by the taxpayer or his agent of the ITAA36. On review, the Tribunal exercised the discretion formerly in s 227(3) of the ITAA36 and reduced the penalty to 25% of the tax shortfall. It did so taking into account the following circumstances: that the findings made against the taxpayer were primarily based upon him failing to discharge his onus of proof; that he was not legally represented; that the asset on which he had made the capital gain had probably been acquired at an undervalue in a non-arm’s length transaction; that it had been sold 10 years previously; and that he was liable to pay the general interest charge over which the Tribunal had no jurisdiction. The Commissioner subsequently appealed to this Court, submitting the Tribunal had taken irrelevant matters into consideration in the exercise of the discretion to remit the additional tax.
239 It must be kept steadily in mind that this decision concerned the former statutory regime for the imposition of “additional tax” by way of administrative penalties then in Part VII of the ITAA36. That regime predated, and was partly the basis for, the uniform administrative penalty regime in Part 4-25 of the TAA and also predated the Full Court’s decision in Sanctuary Lakes. The former regime in Part VII also included a power to remit, albeit in different terms to that in s 298-20.
240 In concluding that the Tribunal had not taken into account any irrelevant consideration, Gordon J held that the discretion to remit was unconfined as was the scope of matters which might be taken into account, save to the extent to which there were any implied restrictions or obligations arising from the subject matter, scope and purpose of the statute: at  – . Her Honour also considered herself bound to follow the decision in Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 (Dixon), where the Full Court had held that the touchstone of the exercise of the discretion in s 227(3) was whether there would be a “harsh” outcome if the penalty was not remitted and that this required a consideration of the particular circumstances of the taxpayer: Dixon , . Her Honour found that none of the matters considered by the Tribunal were irrelevant to its consideration. In relation to the Tribunal taking into account the manner in which the taxpayer had failed to discharge his burden of proof, her Honour said (at ):
However, it cannot be said that the manner in which a taxpayer fails to discharge the burden is extraneous to the power or is extraneous to the “particular circumstances of the taxpayer”. The Commissioner has long accepted, correctly, that the conduct of the taxpayer “at all stages” is relevant to the level of the penalty imposed on a taxpayer. If the Commissioner’s submissions on this appeal were to be accepted, the taxpayer’s conduct before the Tribunal (including the manner in which it sought to discharge the burden of proof) would be a prohibited consideration for the Tribunal even though the Tribunal stood in the shoes of the Commissioner. Such a result would be contrary to the express statutory language and long standing authority: see  above.
241 Her Honour’s comments in that passage are obviously at odds with the Commissioner’s submission that a temporal limitation exists on the matters relevant to the discretion’s exercise. Ms Wheatley QC sought to distinguish Gordon J’s observations on the basis that her Honour was considering the nature of the material which might be advanced for the purposes of discharging the onus in relation to the assessment and that did not apply to the discretion to remit, which was only concerned with material temporally related to the conduct giving rise to the penalty. With respect, it is not possible to read Gordon J’s decision in that way. On the contrary, her Honour was specifically dealing with the discretion to remit the penalty and, in doing so, indicated that the manner in which the taxpayer attempted to discharge their burden before the Tribunal was relevant to that discretion: at . Self-evidently, this was a matter which arose after the conduct in respect of which the penalty was imposed and necessarily tells against the construction contended for by the Commissioner. The same conclusion flows from her Honour’s determination that it was relevant to consider that the taxpayer was not represented.
242 To the extent to which Gordon J’s construction of the former penalties system is relevant to the present discussion, her Honour’s decision tells strongly against the Commissioner’s submission that a temporal limit exists on the matters which might be taken into account in exercising the discretion in s 298-20. However, it is to be recognised that her Honour’s observations were made with respect to the former regime and not that presently under consideration. It is apparent those comments cannot apply to the present Div 284 and s 298-20 given the construction placed on the latter section by the majority in Sanctuary Lakes. The matters taken into account by the Tribunal in Burness in the exercise of the discretion were not limited to “circumstances that could be regarded as mitigating the taxpayer’s behaviour in some way”. Indeed, most did not even relate to such circumstances. In the result, the decision would have been different if decided under the present scheme for the imposition of penalties.
243 As a result of the conclusions reached above, the decision in Burness does not alter the outcome of this case.
Ground 5: Did the Tribunal err in relation to ss 33 and 43 of the AAT Act?
244 The Commissioner’s submissions in relation to this issue focused upon an apparent denial of procedural fairness when the Tribunal failed to afford him an opportunity to be heard in relation to the issue of the relevance of Mr Ross’s death on the remission of penalties. In particular, he submitted that s 39 of the AAT Act provides that all parties to a proceeding in the Tribunal must be given a reasonable opportunity to present their case and that it is well established that the Tribunal is required to afford parties procedural fairness when conducting hearings. That obligation extends to the decision-making process: Fletcher v Commissioner of Taxation (1988) 19 FCR 442 at 454 – 455 (Fletcher) (appealed on different grounds); and includes the requirement that the Tribunal must not base its decision on grounds which were not raised at the hearing: Comcare v Wuth (2018) 260 FCR 89 .
245 In the Commissioner’s submission, the Tribunal failed to accord him procedural fairness by taking into account Mr Ross’s death when determining to remit the penalties as it did because he was denied the opportunity to be heard in relation to the relevance of that issue. It was not denied that no such submissions were made as the Tribunal records at paragraph  of its reasons that “the parties did not make any submission in this connection”, being the death of Mr Ross.
246 One of the difficulties associated with this issue is a paucity of evidence surrounding a directions hearing which the Tribunal held subsequent to receiving notice of Mr Ross’s death. It is known that, on 29 October 2019, the solicitors for Mrs Ross wrote to the Tribunal informing it of that matter. The Tribunal’s response on 5 November 2019 suggests that it considered that it retained jurisdiction to determine an application where the applicant dies between a decision being reserved and a decision being delivered. However, it then indicated that it “intend[ed] to list the matter for a case management telephone directions hearing to provide the parties with an opportunity to make any submissions in respect of the aforementioned issue”. Apparently, a directions hearing did occur on 13 November 2019, although there is no evidence of what transpired at it. It appears that the issue of the joinder of Mrs Ross as the legal representative of her husband’s estate was one matter discussed as an application was made shortly thereafter seeking orders to that effect.
247 Although the evidence is not satisfactory, it is fairly certain that the hearing of the applications before the Tribunal was not re-opened to allow submissions to be made in relation to the effect of the death of Mr Ross on the exercise of the discretion to remit under s 298-20. Mr Hack QC for Mrs Ross submitted that the terms of the Tribunal’s email identified that the opportunity for the parties to make submissions was at the directions hearing. However, it is apparent that the opportunity was to make submissions in relation to whether the Tribunal retained jurisdiction with respect to Mr Ross’s application. That is the only issue which is identified in the Tribunal’s email as flowing from Mr Ross’s death.
248 In any event, whilst the email indicated that it was the Tribunal’s intention to raise the issue of further submissions, there is no evidence as to what actually did occur. Moreover, there is nothing to suggest that the parties were informed that the Tribunal intended to have regard to Mr Ross’s death in relation to the question of the remission of penalties. On the other hand, it can be inferred from the fact that the hearing was not reopened and no further submissions were received, that the parties were not accorded the opportunity to provide written submissions to the Tribunal in relation to that issue. There can be no doubt that this would have been unintentional. Naturally enough, it was not an issue in the proceedings at its commencement and it unlikely that, on the occasion of the directions hearing, the Tribunal or any party recognised its significance.
249 Ultimately, the death of Mr Ross played a significant part in the Tribunal’s determination to remit the penalties imposed and the parties were entitled to have notice of that issue and to make submissions in respect of it. It is more than likely that, as a result of the prolonged delay in delivering reasons, the fact that the parties had not been given this opportunity was overlooked. Nevertheless, it constituted a denial of procedural fairness which the Tribunal was obliged to afford to the Commissioner as well as a contravention of s 39 of the AAT Act because it denied the Commissioner a reasonable opportunity to present his case. This too constituted an error of law by the Tribunal which warrants allowing the appeal with respect to the question of the remission of penalty and setting aside the purported remission of the penalties imposed upon the taxpayers.
250 In his written submissions, the Commissioner also sought to argue that the Tribunal’s finding that there was a possibility of double counting in the assessments also involved a failure to act in accordance with ss 33 and 43 of the AAT Act. This was not clearly articulated, but apparently related to whether such a finding was sufficient for the purposes of the taxpayers’ onus pursuant to s 14ZZK(b)(i). Given the conclusion reached above in relation to Ground 1, it is unnecessary to consider this any further here.
Conclusion as to the Commissioner’s appeal
251 The foregoing has the consequence that the Commissioner’s appeal should be allowed. He is entitled to succeed on the major point agitated in the appeal being that the Tribunal applied the incorrect onus and not that required by s 14ZZK(b)(i) of the TAA. For that reason, the Tribunal’s decisions concerning the default and amended assessments should be set aside. The Commissioner has also established that, on the material advanced to the Tribunal at the hearing of the applications, no properly instructed Tribunal could reach the conclusion that the taxpayers had discharged or could discharge that onus. That latter issue is relevant to the nature and scope of the orders which are to be made on the disposition of the appeals and is considered further at the conclusion of these reasons. As foreshadowed above, although the conclusion in relation to that issue might be of significance in different circumstances, ultimately it has no value for the purposes of the disposition of these appeals.
252 The Commissioner has only partially succeeded on Ground 2. By his written submissions filed after the hearing, he joined issue with the taxpayers on the question of whether the Asset Betterment Statements had been prepared on the basis that there had been some double counting in the analysis of their bank accounts. However, that issue remains somewhat irrelevant given the conclusion reached in relation to Ground 1. The Commissioner is entitled to succeed on Ground 2 in respect of the question of the refunds which had not been properly raised by Mr Ross in his amended grounds of objection.
253 The Commissioner is also entitled to succeed in relation to Ground 3 in relation to the penalty uplift under s 284-220(1)(c) of the TAA. That section operates by its own force rather than by the exercise of discretionary power as the Tribunal had considered. Accordingly, the Tribunal’s purported discounting of the penalties was without power.
254 The Commissioner’s appeal in relation to Ground 4 should also be allowed. The power to remit penalties under s 298-20 of the TAA is not based upon vague notions of harshness or fairness founded upon the taxpayers personal circumstances. It is a power to be exercised, as was described by Griffiths J in Sanctuary Lakes, by reference to the circumstances which might mitigate the taxpayer’s culpability for the behaviour in respect of which the penalty was imposed. Relatedly, the Commissioner is entitled to succeed on Ground 5. He was not afforded an opportunity to make submissions in relation to the impact of the death of Mr Ross on the question of whether the penalties imposed upon him and Mrs Ross should be remitted. As the Tribunal’s purported exercise of power in relation to the remission of penalties miscarried it is appropriate, as the parties agreed, that the relevant decisions should be set aside and this question should be remitted to the Tribunal for reconsideration.
MRS ROSS’S CROSS APPEAL
255 Mrs Ross’s cross-appeal was concerned solely with the substantial delay by the Tribunal in delivering its decision on the objection decisions. Under the heading “Questions of Law”, the amended notice of cross-appeal reads:
1. Whether the respondents were denied a fair hearing of their applications to review the Commissioner’s reviewable objection decisions, having regard to:
(a) the delay between the giving of evidence in the proceedings and the giving of the Tribunal’s decision;
256 Thereafter follows sub-paras (b) to (m) which purport to be other matters supporting Mrs Ross’s allegation that the taxpayers were denied a fair hearing including that the Tribunal’s orders failed to reflect the factual conclusions made in its reasons, that the Tribunal failed to deal with submissions advanced on behalf of the taxpayers, that the Tribunal failed to have regard to certain unchallenged and uncontradicted evidence, and a number of allegations (in sub-paras (h) – (l)) which were to the effect that the reasoning of the Tribunal was illogical.
The true nature of the cross-appeal
257 An initial issue raised by the Commissioner concerned the validity of the cross-appeal as it was advanced. On one view, the matters raised by the taxpayers are, of themselves, matters which would not ordinarily amount to a justiciable ground of appeal. Pursuant to s 44 of the AAT Act, appeals to this Court are limited to those which are “on a question of law”. That is narrower than an appeal which merely involves a question of law: Comcare v Etheridge (2006) 149 FCR 522  – ; and it cannot involve reviewing the Tribunal’s factual findings, save to the extent to which they involve an error of law: Haritos . An example of the latter circumstance is where there is no evidence to support a conclusion of fact: Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390  – .
258 The Commissioner submitted that many of the matters raised by the cross-appeal are matters of a purely factual nature in which the gravamen of the complaint is the acceptance or non-acceptance by the Tribunal of particular types of evidence.
259 He further submitted that, in the assessment of the manner in which the Tribunal dealt with evidence before it, it must be kept in mind that the Tribunal is not limited in the way it conducts the hearing, nor is it bound by the rules of evidence. Specifically, it is not obliged to accept unchallenged or uncontradicted evidence: Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 (2003) 198 ALR 59  – . Nevertheless, in accordance with the usual method of the assessment of evidence, weight is usually placed on contemporary materials (if available) which have been objectively established and the apparent logic of events, rather than reliance on the appearance of witnesses: see Fox v Percy (2003) 214 CLR 118 . It should also be recognised that an administrative process has little in common with the corresponding curial process. The former entitles the decision-maker to adopt any of a wide range of valid approaches to determining factual questions which is reflective of the underlying rationale for the “no evidence rule”. It is sufficient that there is some evidence on which the administrative decision-maker could rely to make a finding even if the same conclusion could not be justified in a curial process.
260 On the face of Mrs Ross’s written submissions, there is some justification for the Commissioner’s submission that an apparent attempt is made to challenge the Tribunal’s fact finding processes in relation to a number of issues. However, that was ultimately not the case. As Mr Hack QC for Mrs Ross submitted, these individual matters were not raised as matters which would each individually justify the overturning of the decision, but as matters which cumulatively evidenced that the extended delay in the delivery of the Tribunal’s reasons resulted in the occurrence of an unfair process. At  of Mrs Ross’s written submissions, the following was stated:
The accumulation of these matters points to a real and substantial risk that the Tribunal’s capacity to assess the cases for Mr and Ms [sic] Ross was impaired with the result that they did not have a fair hearing of their cases. There was a constructive failure to exercise the jurisdiction conferred upon the Tribunal.
261 This conclusory submission suggests that the factual findings queried by Mrs Ross are only advanced as evidencing the principal contention that the Tribunal’s delay in making its decision and delivering its reasons denied the taxpayers procedural fairness. On the other hand, Mrs Ross also makes a claim that the identified alleged defalcations constituted a jurisdictional error by the Tribunal because it constructively failed to exercise the jurisdiction conferred on it. Whilst that has the appearance of a separate ground of appeal, it is more accurately regarded as a different characterisation of one of the particulars of the taxpayers’ main ground.
262 In recent years, a number of cases have considered the consequences of a prolonged delay between the hearing of a matter and the delivery of a judgment or decision: NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470 (NAIS); Monie v Commonwealth (2005) 63 NSWLR 729 (Monie); Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17 (Expectation). Those cases confirm that delay by itself does not usually constitute an error which vitiates a judgment of a court or a decision of an administrative decision-maker: NAIS ; Monie ; Expectation .
263 The discussion in those cases also identifies that there are two ways in which delay may vitiate a judgment or decision. First, the existence of a significant delay may contribute to a finding that the judgment or decision is affected by error: Expectation  – . In such cases, it is not the delay which warrants setting aside but any error which is inferred to be the consequence of the delay: NAIS ; Monie . In this regard, the existence of a significant delay may preclude the making of assumptions favourable to the trial judge or decision-maker, including that they have not overlooked matters, and, to the contrary, a more detailed statement of their reasons may be required: Expectation  – ; Monie . Where there is delay, it may be more readily concluded that a trial judge or decision-maker erred by failing to take into account a particular matter if it is not mentioned in their reasons. Likewise, deference to findings below on the basis that the trial judge or decision-maker had the advantage of seeing the witnesses may be inappropriate where delay has weakened any such advantage: Expectation ; Monie . However, the availability of a transcript or other recording can minimise the impact of delay: Expectation ; Monie .
264 Second, delay may vitiate a judgment or a decision where it gives rise to a real and substantial risk that the decision-maker’s capacity to assess matters has been impaired: NAIS . If there is such a risk, then the parties will have been denied a fair hearing and a fair determination which entails a denial of procedural fairness. Put another way, the delay may deny a party the opportunity to have their matter properly considered, thereby denying them procedural fairness: NAIS .
265 Mrs Ross’s case on the cross-appeal concerned the second category of case. The amended notice of cross-appeal identified various matters that Mrs Ross raised not as being errors, but as matters supporting her principal contention that it should be inferred that there was a real and substantial risk that the Tribunal’s capacity to assess matters had been impaired. In other words, Mrs Ross contended that those matters were the sequelae of the Tribunal’s delay in giving its decisions and reasons for decisions as a means of demonstrating that the delay does give rise to the relevant risk in this case.
Errors which are alleged to have arisen from delay
266 The notice of cross-appeal identified various matters that Mrs Ross contended to be errors and which she submitted are the sequelae of the Tribunal’s delay in giving its decisions and reasons for decisions. In considering those matters, it is useful to adopt the categorisation of the alleged errors advanced on behalf of the Commissioner.
Grounds 1(a) and (m): delay generally
267 By these grounds, Mrs Ross relied upon the delay between the giving of the evidence in the proceedings and the Tribunal’s decisions generally, as well as the absence in the reasons of any reference to the notes made by the Tribunal or the audio recordings of the hearing, and the limited references to the transcript of the hearing.
268 Undoubtedly, the delay between the hearing at which evidence was received in November 2017 and February 2018 and the delivery of the Tribunal’s decisions and reasons for decisions in this matter in May 2020 was extensive. True it is that the matter returned to the Tribunal for a directions hearing in November 2019, but that was unlikely to ameliorate the potential consequences of a significant delay. On the other hand, as the Tribunal recorded, it had both an audio recording and the transcript of the hearing, and the Tribunal member had taken detailed contemporaneous notes in the course of the proceedings. The existence of the delay was noted in the Tribunal’s reasons and the Tribunal member said (at ):
I must also acknowledge there has been a lengthy and regrettable delay in producing these reasons for decision. I am confident I have been able to deal with the challenge posed by the delay by careful reference to my detailed notes and the transcript and audio recordings of the hearing. The hearing ran for a number of days before being adjourned for an extended period so that further evidence could be taken. Those delays meant it was always going to be important to make careful notes and rely extensively on the transcript.
269 It was not submitted on behalf of Mrs Ross that the Tribunal member had not taken careful notes, that the transcript was unavailable, or that the Tribunal did not have an audio recording of the hearing. Nor has it been suggested that the Tribunal member’s statement, to the effect that he was confident that he was able to deal with the challenge posed by the delay by careful reference to those detailed notes, the transcript and the audio recordings, was other than an accurate expression of the member’s belief. It might be added that the Tribunal member had access to multiple written statements by Mr and Mrs Ross and to the documents tendered during the course of the hearing.
270 However, Mr Hack QC for Mrs Ross submitted that the Tribunal’s reasons do not support the conclusion that the transcript, notes and audio recording were sufficiently used in order to overcome the consequences of the delay. In particular, he relied upon the absence of reference in the reasons to those materials. However, whilst it may be that no reference was made to the audio recording or the Tribunal member’s notes, that is not unexpected. Unless there were some particular point to be made by the reference to such matters, a reference to them would be unusual. On the other hand, as was submitted on behalf of the Commissioner, the Tribunal made extensive reference to the evidence before it including some 79 references to the transcript of the hearing. A perusal of the Tribunal’s reasons demonstrates that to be so. The reasons refer to the evidence of those appearing before it and the transcript references indicate the source of the information on which the Tribunal member relied. Those transcript references are substantially more numerous than usually appear in reasons delivered by the Tribunal. Similarly, where the evidence had been derived from a statement or affidavit, the Tribunal member referenced those materials as well.
271 It is self-evident that, on the face of its reasons, the Tribunal member made extensive reference to the transcript of the hearing, the statements provided, and the evidence adduced. Therefore, at least superficially, it is difficult to conclude that the delay prevented the Tribunal member from understanding the nature of the case which the applicants before it sought to make. The reasons of the Tribunal were by no means brief, comprising 43 pages and 157 paragraphs, and the structure indicates, in a prima facie way, a logical and rational approach to the consideration of the issues raised. The content of the reasons also identifies an attempted careful analysis of the evidence. It is, therefore, not possible to reach a conclusion on the face of the reasons alone that the extensive delay has denied the taxpayers a fair hearing in relation to the matters in issue between them and the Commissioner.
Alleged specific deficiencies in the Tribunal’s reasons evidencing prejudice caused by delay
272 Putting aside the overall appearance of the Tribunal’s reasons, Mrs Ross also identified a number of substantive matters which raised doubt that it was able to overcome the detrimental impact of the extensive delay.
Questions of credit
273 Mr Hack QC for Mrs Ross first submitted that the Tribunal’s delay in preparing its decision prejudiced Mr and Mrs Ross because it was no longer appropriately placed to make credit findings in relation to the witnesses at the hearings. Whilst there is some force in that submission, it should not be overstated. Although the Tribunal member did not expressly find that he disbelieved the evidence of Mr Ross and witnesses called on behalf of the taxpayers, it is evident that their evidence in respect of various matters was not accepted. However, it is also evident that the Tribunal member did not reach such conclusions based upon the demeanour or appearance of the witnesses in question. Neither did he make any blanket adverse credibility finding. Indeed, the evidence of Mr and Mrs Ross and some of their witnesses in respect of other matters was accepted. The decisional process through which the Tribunal rejected the efficacy of much of the taxpayers’ evidence was its insufficiency in discharging the burden of proof which they carried. In many cases, the Tribunal member concluded that, despite the evidence of one of the taxpayers and/or a corroborating witness, the circumstances were such that it was not satisfied with the explanations given for various amounts received by the taxpayers and which had been included in the Asset Betterment Statements. In a number of instances, the Tribunal held that the taxpayers had not sufficiently discharged the onus of demonstrating a non-assessable source of certain amounts, yet that conclusion carried with it the implicit rejection of the direct sworn evidence of Mr or Mrs Ross, that of their corroborating witnesses, or purported documentary evidence as to those matters. Those implicit credit findings, while not insignificant, were based upon an objective evaluation of the evidence adduced by the taxpayers against the circumstances which would ordinarily be expected to exist concerning such transactions and, in this respect, are not likely to have been affected by the elapsing of time. Certainly, the taxpayers did not identify any specific finding which might have been so affected.
Grounds 1(b)(i) and (c)(i) – nature and treatment of MFI-1
274 Mrs Ross relied heavily upon a complaint that the Tribunal had failed to take into account or give credence or weight to the document referred to as “MFI-1”, although just how it was relied upon is itself a matter of dispute and is discussed below. In Mr Ross’s written submissions to this Court, the import of that document was described as follows:
MFI-1 comprised tables listing the deposits made into the accounts of Mr Ross and Ms [sic] Ross, one listing withdrawals from Mr Ross’ accounts, and a commentary, explaining where relevant to do so, and by reference to the evidence, particular transactions. MFI-1 also contained tables summarising what each of Mr Ross and Ms [sic] Ross contended their true taxable income was.
275 Despite intimations to the contrary, Mrs Ross quite clearly asserts that MFI-1 has evidential value in establishing the nature of the transactions in the taxpayers’ accounts, their origin, their purpose and, more importantly, that it identifies the taxpayers’ actual assessable income for each of the relevant income years. The Commissioner denies that MFI-1 can be given such weight. He submitted that the document rises no higher than a submission and that the statements purporting to evidence the origin, nature and purpose of the transactions are not of themselves information on which the Tribunal might have relied. He further submitted that this was made clear by the manner in which the document was provided to the Tribunal as being merely an aide-memoire for the Tribunal’s assistance. That submission is supported by reference to the transcript before the Tribunal:
MR BICKFORD: Now, I also had - we have actually prepared - well, the solicitors have prepared a folder. I will just give this to my learned friend and it has got an affidavit of my solicitor in it and those tables that I mentioned to you earlier are attached to it and in his affidavit, he explains what he has done and how he has gone about doing it. So, if I could hand that up to you now and then, my friend can have a look at it and see whether he has got any difficulty with that being tendered or otherwise put before the tribunal. It is going to go to submissions and there is nothing in there – we certainly do not contend that it is evidence of anything. It is basically a document that summarises the existing evidence in a way we believe is accurate and then of course, the solicitor has indicated in a column whether a particular item is assessable or not assessable, in our submission, but we are not saying that is an opinion upon which you could or should rely. It is just a matter for submissions.
DEPUTY PRESIDENT: Do you - - -
MR JEDRZEJCZYK: On that basis, I would not have an objection. I just think (indistinct) submission an aide-memoire.
DEPUTY PRESIDENT: Yes. Why don’t we call it - we will mark it for identification.
MR BICKFORD: Yes.
DEPUTY PRESIDENT: As aide-memoire.
#MFI 1 - APPLICANT’S AIDE-MEMOIRE
276 In the light of the manner in which MFI-1 was given to the Tribunal, it is impossible to regard that document as containing evidence of any matter. It was expressly not advanced as such and it is not now possible to criticise the Tribunal on the basis that it failed to treat the statements in it in that way.
277 As Ms Wheatley QC for the Commissioner submitted, the Tribunal did in fact have regard to MFI-1: see at  and  –  of the Tribunal’s reasons. Indeed, as has been discussed previously in relation to the Commissioner’s appeal, it was submitted the Tribunal mistakenly regarded the narrations in the tables in MFI-1 as evidence of the origin, nature and purpose of the dealings there referenced. However, for present purposes, Mrs Ross submitted that, whilst the Tribunal had regard to MFI-1 in concluding that it strongly suggests inter-account transfers were mistakenly included in the Commissioner’s assessments, it “did not detail its findings that led to that conclusion nor otherwise deal with the submissions advanced by Mr Ross (and Mrs Ross) as to the overall conclusions to be drawn from MFI-1”.
278 One of the difficulties with the taxpayers’ submissions in this regard is that, in substance, their complaint is that the Tribunal did not treat the commentary and narrations in MFI-1 as evidence and as being true and accurate, particularly in relation to matters other than those listed in the table at  of the Tribunal’s reasons. Conversely, the Commissioner submitted that some of the Tribunal’s findings are only explicable only on the basis that it accepted information contained in MFI-1 and that the information was evidence. This was particularly so in relation to payments received from Mr Ross’s mother on 18 May and 14 June 2012 in that the Tribunal’s conclusions in relation to these payments could only be justified if it gave evidential weight to the notations in MFI-1. It also apparently considered the document in relation to the submissions made by Mrs Ross although, as the Commissioner maintains, her submissions focussed on the transactions rather than the entries in MFI-1.
279 Overall, the major point in issue on Mrs Ross’s case is that the Tribunal only faintly considered MFI-1 and then only in relation to a relatively few matters, and that it did not address it in relation to several other matters and, in particular, in establishing what the true incomes of the taxpayers were in the several income years. There is force in that general submission. Given its apparent importance in relation to the taxpayers’ actual incomes, the Tribunal’s failure to have any significant regard to it in relation to that topic indicates that it may have forgotten the nature of the case being advanced in the written submissions. On the other hand, it is not possible to be too critical of the Tribunal in this respect. The taxpayers’ grounds of appeal, amended grounds of appeal, and SFICs were generally misdirected towards attacking the amounts which the Commissioner had included in the Asset Betterment Statements rather than attempting to satisfy the onus as properly understood. It is also somewhat ironic that had the Tribunal fully engaged with MFI-1 it would, or should, have reached the only conclusion possible, being that it was unable to establish the taxpayers’ actual income in the relevant years, and that their applications should have been dismissed. Apart from those two caveats, it should be accepted that the Tribunal’s failure to satisfactorily consider MFI-1 in relation to the several live issues before it supports the conclusion that the passage of time had caused it to lose track of the matters it was required to consider.
Grounds 1(b)(ii) and (f) – payments by Mr Ross’s mother
280 In the period between 13 April 2010 and 13 October 2011, Mr Ross was in jail. In both the 2011 and 2012 income years, Mrs Sharon Ross, being Mr Ross’s mother, made deposits to Mr Ross’s ANZ bank account ending in “3702”. The Tribunal concluded that the regular payments made by Mrs Sharon Ross prior to 18 May 2012 were not assessable income but were likely to be gifts made by Sharon Ross to assist with the mortgage and other household expenses which were incurred by Mrs Alexandra Ross in maintaining her household. However, it also found that two other payments, being made on 18 May and 14 June 2012, were not payments of a similar nature. It considered they should be counted as income as they did not fit into the erstwhile established pattern of deposits and were not otherwise adequately explained.
281 Mrs Ross submitted that the Tribunal’s reasons are bereft of any discussion as to why the payments made on 18 May and 14 June 2012 were not also regarded as gifts from Mr Ross’s mother. That, however, is not the case. As mentioned, the Tribunal found that those payments did not fit into any previous pattern of gifts by Mr Ross’s mother and nor were they adequately explained. As the Commissioner submitted, the payments were not made during the period in which Mr Ross was incarcerated and the bank statements available did not provide any notation that the transfers in question were, in fact, from Mr Ross’s mother. On the assumptions made by the Tribunal it was open to it to conclude that the payments made on 18 May and 14 June 2012 were not of the same character as previous payments which were allegedly received from Mrs Sharon Ross.
282 However, as was submitted on the Commissioner’s appeal, the more serious error made by the Tribunal in relation to the payments allegedly received from Mrs Sharon Ross was its failure to appreciate the actual evidence before it, being that she made the payments only during the period of Mr Ross’s incarceration. That had terminated on 13 October 2011 and yet the Tribunal accepted that subsequent payments received into Mr Ross’s account were from Mrs Sharon Ross. It is likely that this resulted from the Tribunal’s reliance on the misstatements in MFI-1 as to the source of those funds. The result is that the Tribunal’s findings on this issue are confused. First, there was no evidence that payments recorded in MFI-1 as being from Mrs Shane Ross after 13 October 2012 were, in fact, gifts from her to assist Mr Ross’s family with living expenses. Second, in reaching the conclusions which it did, the Tribunal apparently erroneously relied upon the commentary in MFI-1 as being evidence that payments into Mr Ross’s account after the period of 13 October 2011 to 18 May 2012 were gifts from his mother.
283 In this manner, the most significant issue which arose in relation to the payments allegedly received from Mrs Sharon Ross was not that of which the taxpayers complain, but that the Tribunal had overlooked that MFI-1, and especially the legal representatives’ commentary, was not evidence of the matters there stated and could not be relied upon as such. This had the consequence that it made findings in favour of the taxpayers (that payments received from after 13 October 2011 to 18 May 2012 were gifts from Mrs Sharon Ross) which were not open.
284 Although not for the reasons on which the taxpayers relied, it can be accepted that an analysis of the manner in which the Tribunal dealt with the payments said to be received from Mrs Sharon Ross reveals that the passage of time prevented it from accurately recalling the limited use to which MFI-1 could be put and the evidence which was available to it on this topic. It was also plain that the Tribunal’s decisions failed to reflect its conclusions that the amounts received during the period from 13 October 2011 to 18 May 2012 were not assessable income.
Ground 1(b)(iii) – the claimed gambling winnings of $21,491.40
285 Before the Tribunal, Mrs Ross claimed that an amount of $21,491.40 included by the Commissioner in the Asset Betterment Statement as reflective of her assessable income in the 2014 income year represented gambling winnings. At the conclusion of the hearing, the Commissioner acknowledged that there was sufficient evidence to establish Mrs Ross’s assertions in this respect. The Tribunal in its reasons at  noted the concession and agreed that no part of that amount ought be included in Mrs Ross’s assessable income. However, the schedule of orders to the Tribunal’s reasons for decisions omitted any direction that the Commissioner, on remittal of the matter, should recalculate Mrs Ross’s liability excluding the gambling winnings.
286 Mr Hack QC for Mrs Ross submitted that this error evidenced that the Tribunal’s decision was done in haste and without sufficient care, consequent upon the significant pressure which had accumulated on the Tribunal as a result of the delay in the production of the judgment. For his part, the Commissioner accepts that the Tribunal’s orders do not reflect its finding that the $21,491.40 represented gambling winnings for Mrs Ross. However, he submitted that the reasons clearly demonstrate an understanding of the taxpayer’s case and an analysis of the evidence surrounding it. Further, he submitted that errors of this nature may be corrected by s 43AA of the AAT Act which permits the correction of obvious errors. That section provides as an example of an “obvious error” which may be corrected the circumstance where there is an inconsistency between the Tribunal’s decision and the statement of its reasons. It is apparent that the section has application in relation to this particular issue.
287 This particular error does not, of itself, bespeak of a defective decision-making process consequent upon the extensive delay. The analysis in the reasons on the issue of Mrs Ross’s gambling winnings indicates some understanding of the import of the issue and of the surrounding evidence. Taken by itself, the error in the formulation of the decision and the schedule thereto might suggest no more than that the Tribunal was confronted with numerous issues (being objections in relation to multiple income years with multiple issues arising in respect of each income year) and that a mistake occurred in properly formulating the decisions from the reasons. Unfortunately, this was far from the only error of this kind.
Ground 1(b)(iv) – the Maudsland land
288 A similar complaint is made by Mrs Ross in relation to the manner in which the Tribunal dealt with the value of the purchase price of land located at Maudsland, Queensland which was acquired during the 2014 income year in the names of herself and Mr Ross. A major aspect of Mrs Ross’s case before the Tribunal concerned the Commissioner’s inclusion of 50% of the purchase price of that land, being the amount of $184,500, in her assessable income for the 2014 income year. The evidence before the Tribunal from both Mr Ross and Mrs Ross was to the effect that the totality of the funds used to acquire the Maudsland land were derived from Mr Ross. This was accepted by the Tribunal and, indeed, by the Commissioner who, in his written submissions, acknowledged that no amount ought be included in Mrs Ross’s assessable income in relation to the land’s acquisition. Although the Tribunal accepted the Commissioner’s concession (at  of the reasons), it again failed to indicate in its decisions that, on remittal, the sum reflecting 50% of the value of the Maudsland land should not be taken into account in calculating Mrs Ross’s assessable income for the 2014 income year. The Commissioner again submitted that such error in the Tribunal’s decision could be corrected pursuant to the power in s 43AA of the AAT Act.
289 It is apparent that in dealing with the evidence before it the Tribunal was cognisant of the issue, the evidence raised in respect of it, and the Commissioner’s concession. Although the Tribunal’s reasons suggests the decisional process was generally unimpeded, the failure to reflect its reasons in its decision does raise questions as to whether the Tribunal had lost sight of the nature of the case with which it was dealing.
Ground 1(c)(ii) – Mr Ross’s claimed gambling winnings
290 In the several amended assessments made by the Commissioner, certain lump sums were identified by him as being assessable income of Mr Ross. Mr Ross claimed that some of those amounts were winnings which he had derived from gambling, in particular the amount of $7,946.70 received in the 2010 income year, $73,795.62 received in the 2013 income year, and the amount of $27,226.90 received in the 2014 income year.
291 In its reasons, the Tribunal accepted Mr Ross’s claim that the sum of $7,946.70 received in the 2010 income year represented the receipt of the proceeds of gambling. That was despite it observing the claim had not been supported by fulsome detail. In relation to the 2013 income year, the Tribunal accepted that an amount of $16,010.40 represented gambling winnings. It did so on the basis that Mr Ross was able to produce copies of cheques received and banked by him equal to those amounts. However, Mrs Ross complains that the Tribunal made no reference to the claimed gambling winnings of $27,226.90 in the 2014 income year when dealing with the amounts and transactions in issue in that income year. This, it was submitted, shows that the Tribunal overlooked this issue, further evidencing undue haste by the Tribunal consequent upon the pressure of an increasingly outstanding decision.
292 It is undoubtedly the case that the Tribunal did not deal specifically with the amount of $27,226.90 received in the 2014 income year by Mr Ross and claimed by him to be gambling winnings. However, that is not necessarily decisive. At paragraph  of its reasons, it specifically and expressly identifies the amount, the income year in respect of which the Commissioner had included it as part of Mr Ross’s assessable income, and Mr Ross’s claim that the amount represented gambling winnings. In its consideration of the 2010 income year, the Tribunal had accepted that Mr Ross was a regular and avid gambler and that he did not keep receipts of his winnings. It detailed Mr Ross’s gambling habits and processes in that section of its reasons in a manner which was not restricted to that particular income year. That said, it also determined that Mr Ross’s winnings were rather more modest than he had claimed and, in relation to the 2013 income year, it determined that the substantially greater amount claimed as the proceeds of gambling required further scrutiny. Although the Tribunal did not specifically detail the claimed gambling winnings in its analysis of the 2014 income year, the Commissioner submitted that they were dealt with by the Tribunal in the manner in which they were advanced by the taxpayers before it. In this respect, reference was made to the closing written submissions filed on behalf of the taxpayers. There, a number of transcript references are referred to but little reference is made to the relevant income years. In general terms, the written submissions assert that the receipts from gambling are all recorded in bank account records and the explanation in relation to them is in the evidence of Mr Ross. It is also submitted, again in general terms, that there was no reason to disbelieve that evidence. The point sought to be made here by the Commissioner is that the submissions in respect of the amount of $27,226.90 claimed by Mr Ross to be gambling winnings were made only as part of broad submissions relating to gambling winnings generally. It is said that the Tribunal’s reasons ought to be read in a similar fashion and as dealing with the gambling claims in a general way and it is only when the Tribunal was satisfied that some amounts were not appropriately regarded as the proceeds of gambling that an amount was specifically mentioned. There is force in that submission and it is possible to draw some connection between the Tribunal’s general comments in relation to the gambling winnings claims and the manner in which the taxpayers advanced their submissions in respect of the 2014 income year.
293 Although this aspect of the reasoning is troubling, on balance, it is difficult to be satisfied that the Tribunal did not turn its mind to the claimed gambling winnings in the 2014 income year which it had specifically referenced earlier in its decision. It is possible, and perhaps likely, that it treated the amount in the 2014 income year in the same way that it had treated the amounts claimed to be gambling winnings in the 2013 income year which were not supported by cheques deposited by Mr Ross. While that conclusion may reached in relation to this issue when viewed in isolation, the real concern is that the degree of generality with which the Tribunal dealt with the issues might be taken as suggesting it had lost an appreciation of the detail of the issues before it.
Ground 1(d) – loan of $93,000
294 By this particular of the ground of appeal, Mrs Ross claims that the manner in which the Tribunal dealt with an alleged loan of $93,000 from a Mr Peter Underhill to Mr Ross in the 2009 income year reveals that the decisional process was adversely effected by the delay. The complaint made is that the Tribunal failed to have regard to the unchallenged and uncontradicted evidence of Mr Ross and Mr Underhill and, in particular, as to the nature of their relationship. It was accepted before the Tribunal that the sum of $93,000 was deposited into Mr Ross’s bank account on 2 April 2009. Mr Ross gave evidence that it was a loan from Mr Underhill who gave corroborating testimony. The Tribunal concluded that it was not persuaded that Mr Ross had discharged his burden of establishing that the assessment for the relevant income year was excessive on the basis of the inclusion of the $93,000 in Mr Ross’s assessable income for the 2009 income year. It is not incorrect to say, as Counsel for Mrs Ross did, that this conclusion was informed by the Tribunal’s view of the nature of the relationship between Mr Ross and Mr Underhill. Both Mr Ross and Mr Underhill had claimed that they had, as between them, a close relationship, however this was not accepted by the Tribunal. It regarded Mr Underhill as being only an acquaintance of Mr Ross whereas the transaction between them was an arrangement of a kind that one would normally find between family or close friends. Mrs Ross submitted the Tribunal failed to have regard to important evidence advanced to it that Mr Ross and Mr Underhill shared a close relationship and, in particular, statements made by Mr Ross that he had known Mr Underhill since he was about seven years old or that he had known him since he was young. This evidence was not referred to by the Tribunal despite it not being questioned by the Commissioner and Mr Ross not being cross-examined in relation to it. The Court was also taken to other statements of Mr Ross in the course of his evidence to the Tribunal as to the closeness of the relationship.
295 Whilst it may be that the Tribunal did not refer to every piece of evidence before it, its analysis of the circumstances surrounding the alleged loan agreement between Mr Ross and Mr Underhill indicates that it was aware of the relevant evidence. It noted the absence of corroborating evidence recording the payment of the money said to be advanced by way of a loan, the absence of any evidence of its receipt, the absence of any evidence of the source of the money, the uncertainty around the evidence of Mr Underhill as to the source of funds used to make the loan, and the failure to adduce evidence about it when he was in a position to do so. The Tribunal also noted the evidence of Mr Underhill’s lack of curiosity about the loan, how it was to be used, whether it was to be used solely by Mr Ross or with Mrs Ross, whether Mr Ross could repay the loan, and whether Mr Ross was working, as well as the absence of security and Mr Underhill’s failure to ask for repayment of the loan when the property for which it was used was sold. It also queried Mr Ross’s assertion that he did not feel obliged to tell Mr Underhill of the sale of the property and his belief that he was at liberty to use the sale proceeds for any purpose regardless of the loan having been intended for the acquisition of the land. It further observed that Mr Ross had never made any repayment on the loan or received any request for repayment. Overall, the Tribunal observed that, rather than being in the nature of a loan, the conduct between the parties suggested otherwise.
296 The evidence relied upon by the Tribunal in support of its conclusion is set out in full in its reasons and that reasoning has substantial weight regardless of whether Mr Underhill was regarded as a close friend of Mr Ross or an acquaintance. The conclusion that Mr Underhill was an “acquaintance” of Mr Ross does not exclude the Tribunal’s acceptance that they had known each other for many years and would see each other weekly. Whilst the Tribunal may have concluded that Mr Underhill was neither a relative nor a close friend of Mr Ross, that does not mean that it failed to take into account Mr Ross’s assertion in his statement that he and Mr Underhill shared a close relationship. The Tribunal found that they were acquaintances which is a relatively broad description, and would include persons with whom one had a close relationship even if they did not meet the category of close friends.
297 This complaint has the characteristic of a complaint that not all of the evidence is referenced in the decision. However, there is no requirement that such must occur: AAT Act, s 43AA.
298 The Tribunal was entitled to view the vaguery surrounding the making of the loan, lack of documentation, and lack of any objective evidence of the parties acting as if a loan existed between them as significantly negating its existence. As the Commissioner’s written submissions to this Court emphasise, the discussion of the circumstances of the loan are replete with references to the transcript, documents in evidence, and parts of witness statements which were tendered. It is not possible to reach the conclusion that the Tribunal made any error in the deliberative process in reaching its conclusion in relation to this issue. Ultimately, it determined that Mr Ross had not discharged his onus of showing that the amount was not assessable income. There is no basis on which the Tribunal’s conclusion in this respect can be faulted and nor does the manner in which the Tribunal dealt with it suggest some lack of awareness of the relevant issues.
Ground 1(e) – double counting in 2013 income year
299 In relation to the 2013 income year, the Commissioner had concluded that Mr Ross’s taxable income had been understated by approximately $209,000. Of this amount, Mr Ross claimed that $75,000 deposited into his account on 25 February 2013 was a loan from an associate. The associate had been summonsed but did not attend at the hearing. The Tribunal assayed the evidence produced by Mr Ross and concluded the circumstances surrounding the alleged loan were insufficiently identified such that it was not persuaded the money had been received by him as had been claimed. The Tribunal also dealt with Mr Ross’s claim that a sum of $44,000 had been received by him in cash from friends in connection with his engagement to Mrs Ross. After considering the evidence, the Tribunal was not persuaded that it should accept the amount was a gift. Mr Ross had also claimed that the amount of approximately $74,000 were the proceeds of gambling. However, apart from amounts which Mr Ross was able to verify by way of cheques drawn in his favour, the Tribunal was not satisfied that the balance of the amount claimed as gambling winnings had that characteristic. It was also not satisfied that the Commissioner should not have formed the opinion that there was fraud and evasion. The only decision made in relation to the 2013 income year was that the objection decision be varied such that the amounts of the cheques, totalling $16,010.40, be excluded from Mr Ross’s putative assessable income on the basis that they were the proceeds of gambling.
300 The difficulty here is not with the Tribunal’s analysis of the 2013 income year, but with its failure to reflect its findings in its decisions. As mentioned previously, the Tribunal had accepted MFI-1 as generating some evidence of double counting which manifested itself in the inflation of the figures used in the Asset Betterment Statement. In its decision, the Tribunal remitted the objection decision to the Commissioner with a direction to recalculate the taxpayer’s assessable income for the income years other than the 2013 income year “in light of the possibility that transfers between [Mr Ross’s] accounts were inadvertently double counted”. Mr Hack QC for Mrs Ross did not seek to defend the Tribunal’s conclusion that suspected double counting should be addressed by the Commissioner in his reconsideration of the taxpayer’s objections. Nevertheless, the inexplicable omission of a similar direction in relation to the 2013 income year in the Tribunal’s decision was relied upon as supporting Mrs Ross’s principal contention in the cross-appeal that the delay affected the Tribunal’s consideration of the matters raised by the taxpayers’ applications for review.
301 Mrs Ross’s submissions rely upon the Tribunal’s general analysis of the issue in paragraph  of its reasons where it concluded:
But Mr Taxpayer was able to provide a detailed analysis (set out in document MFI-1) which strongly suggests inter-account transfers were mistakenly included in the assessments. Subject to the balance of my findings, it will be necessary for the Commissioner to reconsider the assessments with a direction that any inter-account transfers are excluded.
302 When read in its context, it can readily be accepted that this conclusion was not limited to a particular income year. It follows that the omission to refer to the possibility of double counting in its decision relating to the 2013 income year is rather inexplicable.
303 The Commissioner conceded this error, and again sought to rely upon s 43AA of the AAT Act. However, unlike some of the other errors referred to above, this error is of greater significance. In discussing the 2013 income year, the Tribunal does not refer to double counting and the impact of MFI-1. The error which exists is not merely in the formulation of the decision from the reasons as they are articulated. The error appears to be a confusion as to the nature and extent of the impact of the calculations in MFI-1. This rather strongly suggests something more than a clerical error in the formulation of the written decision and reasons for decision. In this respect, the Tribunal’s reasons and its decision tend to support Mrs Ross’s contention that the delay between the conduct of the hearing and the preparation of those reasons has adversely affected its decisional process.
Ground 1(g) – claimed gifts of $44,000 in 2013 income year
304 In relation to this issue, Mrs Ross submitted the Tribunal dealt with the claimed gift of $44,000 to Mr Ross in the 2013 income year in an illogical manner because, while the Tribunal had accepted that an engagement party had occurred and that guests may well have gifted cash to the couple, it concluded that the whole of the amount claimed was assessable income solely on the basis that Mr Ross was unable to sufficiently quantify the amount of the gifts. As is set out in Mrs Ross’s written submissions, the Tribunal did not suggest the money received had any other character and it did not identify what other evidence might have persuaded it that the sum of $44,000 comprised amounts that were gifts. It is also pointed out that the events had occurred some years ago and they were not business transactions in respect of which one would ordinarily keep records. It was submitted that the conclusions of the Tribunal in this respect were inadequate in that no reasons, or no adequate reasons, were given for rejecting Mr Ross’s evidence on this issue. This, so it was submitted, reveals illogical or irrational reasoning indicative of undue haste in the preparation of the decisions and reasons for decisions.
305 With respect, Mrs Ross’s submissions on this issue cannot be accepted. The Tribunal carefully identified the evidence articulated by Mr Ross concerning the circumstances in which he claimed to have received $44,000 from guests at his engagement party. Whilst the Tribunal accepted he might have received gifts of money, it queried the substantial amount in question. It also identified that Mr Ross’s statements as to the amount in question were inconsistent and he was unable to say how much he had, in fact, received. He had also acknowledged that he did not have “a strong independent recollection of the amount received”, and that he arrived at the figure of $44,000 through a process of reconstruction. From this, the Tribunal concluded that Mr Ross was doing no more than guessing as to the amount involved and that it was thereupon justified in concluding that it was not persuaded that it should accept that the amount claimed was a gift.
306 The Tribunal’s evaluative process in this respect is entirely orthodox in an administrative decision-making process. That is particularly so in circumstances where the taxpayer bore the onus of establishing the character of the money received and the quantum.
307 This conclusion does not add to any conclusion that the overall decisional process miscarried.
Grounds 1(h) and (i) – claimed sales of motor vehicles
308 The issue here concerned the receipt by Mr Ross of significant amounts of money which he claimed were derived from the sale of motor vehicles. The first was in relation to a car described as a “VK Commodore track car”. This vehicle was allegedly sold for $75,000 to a friend of Mr Ross who was a mechanic, a Mr Glasset. The Tribunal noted that although Mr Ross claimed that he built the track car out of parts over a long period of time, there was no record of the vehicle being acquired, owned or sold, and there was no other evidence that one would expect from a car enthusiast like photographs of Mr Ross with his vehicle. Although it was claimed the vehicle was sold to Mr Glasset, the funds paid for it came from the account of a third party. That third party was said to be Mr Glasset’s ex-girlfriend but it was claimed the money was Mr Glasset’s and was being concealed in the ex-girlfriend’s account. The Tribunal noted that the vehicle in question was in very poor shape which raised the question as to why such a large amount of money was paid for it. It also noted that there was no record of the vehicle being subsequently sold, wrecked or transferred. After expressing these doubts, the Tribunal said (at ):
I accept MG paid Mr Taxpayer an amount of money via an account conducted by his girlfriend. But the evidence about the substance of the transaction – the sale of a vehicle – is less clear cut. MG and Mr Taxpayer both insisted it was a sale of goods, but the transaction appeared so obviously uncommercial that one wonders if the transaction was cover for something else. I accept the transaction might have been exactly as the witnesses described – people can make singular choices in relation to collector items and leisure equipment which defy commercial explanation – but I would have expected more evidence like photographs of MG, at least, revelling in his purchase to support the claim.
309 Mrs Ross submitted that the absence of photographs with the car was a poor basis on which to reject the evidence of Mr Ross and Mr Glasset and to implicitly find that they were not telling the truth. She also submitted that, in so concluding in relation to Mr Glasset’s evidence, the Tribunal failed to refer to the explanation given by him in cross-examination for the lack of photographs.
310 However, that first submission does not accurately describe the character of the Tribunal’s consideration of the issue. It had also questioned the absence of records relating to Mr Ross acquiring the vehicle or selling it. Moreover, as the issue concerned the alleged existence of a somewhat uncommon vehicle which held particular value for car enthusiasts, the Tribunal questioned why persons such as Mr Ross and Mr Glasset claiming to be enthusiasts did not have pictures of themselves with the car. That is a far from an unrealistic concern, and one which cannot be viewed in isolation from the Tribunal’s earlier observation that there was no other documentary evidence relating to the car, or its sale, transfer, or wreckage. It had also expressed concerns about the absence of any commerciality in the transaction given the vehicle’s poor condition. These factors, taken as a whole, were sufficient to justify its lack of satisfaction as to the veracity of the claimed transaction. There was no illogicality about its concern in relation to the absence of photographs, and nothing to suggest that the prolonged delay had adversely affected the decision-making process.
311 The failure to refer to Mr Glasset’s proffered explanation for the absence of photographs of him with the car is a separate matter. It is true that Mr Glasset, a claimed car enthusiast, gave evidence that he previously had photos of him and his vehicle on an old phone which had been discarded and on disused social media platforms, and that this is not mentioned in the Tribunal’s reasons. However, it is not required to refer to all of the evidence before it and his explanation did not alter the fact that there was no photo of Mr Glasset with the car. It is to be recalled that the Tribunal engages in administrative fact finding which is distinct to fact finding which occurs in a court. It is entitled to rely upon the absence of any pictorial evidence of the car as supporting its conclusion and it was not bound to deal with Mr Glasset’s explanation for the absence of any photo of him with the car. In the circumstances, this point does not bespeak of the delay affecting the Tribunal’s understanding of the evidence before it.
312 Mrs Ross also complains that the Tribunal’s rejection of Mr Ross’s claims regarding the sale of other motor vehicles and parts in the 2014 income year was, at best, terse. She submitted that the operative delay in preparing the reasons resulted in an inadequate consideration of this issue. With respect to those matters, the Tribunal had concluded the evidence in relation to them was in an even less satisfactory state than was available in relation to the VK Commodore. Mr Ross had claimed that he sold a Holden Clubsport vehicle for $85,000 in October 2013. He was not able to provide a statement from the purchaser and nor did that person give evidence at the hearing. There was no documentation substantiating the vehicle’s acquisition and there was no evidence or other record of Mr Ross ever owning the vehicle in advance of the sale. Mr Ross had also claimed to have sold a Ford F6 vehicle in December 2013 but, similarly, he did not produce any documentation as might be expected to exist.
313 The Commissioner submitted that the evidential deficiencies identified were sufficient to enable the Tribunal to properly reach the conclusion that Mr Ross had failed to discharge his burden of proof in relation to the amounts allegedly received from the sale of motor vehicles. In the context of an administrative decision, that submission ought to be accepted. In effect, Mrs Ross’s submission amounts to no more than saying that the Tribunal should have accepted Mr Ross’s assertion as to the manner in which he received the amount of $125,000 despite the absence of any supporting documentation. The Tribunal was not bound to do so and its non-acceptance of Mr Ross’s evidence was a sound basis for the conclusion it reached.
314 Similar justifications exist in the Tribunal’s reasons in respect of Mr Ross’s claim that he received $12,500 in May 2014 in respect of the sale of a V8 car engine. He produced no records or other evidence confirming that the engine ever existed, that he had acquired it, or that he had acquired parts used in it. He was also admittedly uncertain in his recollection. Although there was a notation in a bank statement against a receipt of money being “engine engine”, that does not prove the contrary of the Tribunal’s observations as to the lack of documentation establishing the existence of the engine. The evidence in support of Mr Ross’s assertion was meagre at best and it cannot be said that any illogicality existed in the Tribunal’s rejection of the claim.
315 The taxpayers submitted that, in light of the delay, the Tribunal was obliged to properly explain why the notations in the bank statements did not give rise to an inference that the amounts were paid in respect of an engine. The difficulty with that submission is that no inference arises that the funds which were there recorded as being received represented payment for the sale of an engine. By itself, it is only a statement that those words were included in the transaction when the details were entered into the account. Again, the Tribunal is not required to mention every piece of evidence which is before it.
316 In relation to the sale of the motor vehicles and engine, there is nothing in the reasoning of the Tribunal to suggest that it was illogical or that it evidenced some delinquency in the decision-making process resulting from the extended delay between the hearing of the evidence and the making of the decision.
Grounds 1(c)(iii), (j) and (k) – Mercedes Benz ML63 motor vehicle
317 Mrs Ross also complains as to the manner in which the Tribunal dealt with her husband’s dealings with a 2009 Mercedes Benz ML63 motor vehicle. In the application of the asset betterment method in making the default assessment for the 2013 income year, the Commissioner included in her taxable income the sum of $195,077 reflecting the putative cost of that vehicle. In considering the issues before it, the Tribunal identified that Mr Ross indicated the vehicle was four years old when acquired and the odometer recorded that it had travelled 75,000 kilometres. It noted that Mr Ross claimed he had seen the vehicle on the website carsales.com.au being offered for between $70,000 and $80,000 but was able to acquire it for $32,500 due to its age and a number of serious faults. He agreed that this had been a very good price. That evidence was consistent with information recorded in the vehicle registration transfer application which was before the Tribunal. Nevertheless, the Tribunal was concerned with Mr Ross’s evidence that he had paid for it in cash from money he had lying about. It also observed the discrepancies between the evidence of Mr Ross and that of Mrs Ross as to the circumstances in which the vehicle was purchased, although nothing particular turned on those discrepancies. Ultimately, the Tribunal accepted the vehicle was acquired in the 2013 income year at an exceptionally good price, being $32,500. It also accepted the funds which were used by Mrs Ross to acquire the vehicle had been derived from Mr Ross. That said, it was not satisfied that Mrs Ross had discharged the onus of establishing that the value of the motor vehicle was improperly counted as part of her taxable income. It indicated that it was not convinced as to the explanation of the source of cash used to make the purchase.
318 Mrs Ross submitted that the Tribunal failed to explain why the value of the vehicle purchased by Mr Ross with his funds should be treated as her assessable income. In response, the Commissioner submitted that the basis of the Tribunal’s decision was that the source of the cash used to make the purchase was unclear and that no convincing explanation had been given for it. It followed that Mrs Ross was the recipient of the $32,500 from an unknown source, even if it passed through the conduit of her husband’s account. On the material before the Tribunal, it was entitled to reach that conclusion even if it might also have concluded that the funds from an unknown source ought to be included in Mr Ross’s assessable income. Again, this issue does not raise any question as to the veracity of the Tribunal’s decisions and reasons for decisions.
319 Mrs Ross makes a similar complaint in relation to the Tribunal treatment of what she said was the proceeds of the sale of the Mercedes Benz motor vehicle. She claimed that the car was sold and Mr Ross caused the proceeds of $75,000 to be paid into her account on 22 May 2014, but he then caused an equivalent amount to be paid from the account. She claims that before the Tribunal this was relied upon as supporting the submission that the funds were not assessable income in her hands and that its failure to deal with this issue discloses that the delay caused the Tribunal to overlook all of the evidence which had been adduced in relation to the many issues raised before it. Although it is correct that the Tribunal did not deal with the evidence of the alleged $75,000 as alleged, it is far from clear that this was raised in the submissions made to the Tribunal. Some reference is made to the general issue in paragraph  of the written submissions but it is not to the effect that the evidence of Mr Ross’s control of Mrs Ross’s account demonstrated that the proceeds were his. Nevertheless, it can be said that the manner in which the Tribunal dealt with the proceeds of the sale of the car were somewhat cursory in the circumstances of the case. That may support the conclusion that the lapse of a long period of time has affected its appreciation of the scope of the evidence on each topic.
Ground 1(l) – $60,000 deposit on 14 November 2013
320 This complaint related to the sum of $60,000 deposited by Mrs Ross’s father, Mr Karl Petith. It was claimed that this amount was loaned to Mrs Ross on or about 14 November 2013. The Tribunal observed the loan was undocumented, Mr Petith did not charge interest on it, and no repayments were made. Mrs Ross claimed that she spent the money on her wedding which took place about 10 months after the receipt of those funds. Although the Tribunal ultimately accepted that the money was transferred from Mr Petith to his daughter, it remained unconvinced about the purpose of the loan. It said (at  – ):
129. It is not difficult to believe KP would loan money to his daughter, nor is it surprising that a loan would be undocumented. But the evidence Mrs Taxpayer and KP gave about the purpose of the loan is unconvincing given the money was provided in a lump sum so far in advance of the wedding and there was no evidence of significant expense being incurred at that point. KP did not clearly explain why he chose to go to the bank to access his savings account when he already had cash on hand; his suggestion that it was more convenient to transfer the money was not born out by the bank statement which suggests the money was withdrawn from the account rather than transferred.
130. I am ultimately unsure what was going on with the deposits and withdrawals in KP’s account. I accept he had a financial interaction with his daughter but the evidence does not clearly establish any of the monies in Mrs Taxpayer’s account were referable to a loan provided by KP. In those circumstances, the $60,000 amount in dispute must be included in Mrs Taxpayer’s taxable income.
321 It is apparent that the Tribunal’s conclusion that Mr Petith transferred the money to his daughter, Mrs Ross, by withdrawing cash from his account and giving it to her added weight to its concerns in relation to the evidence of Mrs Ross and Mr Petith on this issue. Unfortunately, its conclusion as to the manner in which the funds were transferred was in error. They were, in fact, transferred from Mr Petith’s account to his daughter’s. It appears that the Commissioner’s written submissions to the Tribunal contained the erroneous statement that the funds were handed over in cash rather than being remitted by an inter-account transfer and that was accepted by the Tribunal.
322 The Commissioner’s submissions on this point do not squarely confront the issue of what is an apparent factual error in the Tribunal’s reasoning which originated in his submissions. Whilst it is obvious that the particular manner in which the money was transferred and Mr Petith’s evidence about it had some relevance to the conclusion reached, it was not great. Nevertheless, it is apparent that there was a misunderstanding of the evidence. On the other hand, the Tribunal’s error does not necessarily bespeak of, nor is it necessarily reflective of, delay impacting adversely on the decisional process. Most likely it arose as a consequence of the Tribunal relying upon the Commissioner’s inaccurate submissions. It is not of such a nature as would give rise to an appeal on a question of law and nor was the erroneous fact finding so significant as to amount to a jurisdictional error. However, it is an error of fact which, when taken with the other difficulties with the Tribunal’s reasons tends to suggest that the lapse of time had an adverse impact on its ability to marshal the evidence on each topic.
323 A further complaint by the taxpayers relates to the Tribunal’s reasoning in concluding that it was not satisfied that the amount of $60,000 Mrs Ross received from her father, Mr Petith, was not assessable income. The complaint is that although it concluded that the amount was not a loan it did not go on and explain why it did regarded it as assessable income. However, that submission fails to appreciate the effect of the onus and that the taxpayers were required to identify the actual amount of their assessable income. Even in the context in which the Tribunal dealt with the applications, it was for the taxpayers to demonstrate that the funds coming into their hands were not assessable income.
Conclusion as to Mrs Ross’s cross-appeal
324 From the foregoing discussion, there were several issues with the Tribunal’s decisions and reasons for decisions which, collectively, could support a finding that there is a real and substantial risk that the Tribunal’s capacity to assess the matters before it was impaired by the substantial delay between the hearing of the taxpayers’ applications and the delivery of its decisions and reasons for decisions.
325 It is convenient to summarise them here, again adopting the categorisation in the Commissioner’s written submissions. First, there were various respects in which the Tribunal’s decisions did not reflect the findings it reached in its reasons:
(a) (Grounds 1(b)(ii) and (f)) the failure to direct the Commissioner to take into account the payments to Mr Ross which were accepted as being from his mother prior to 18 May 2012 in the 2012 income year;
(b) (Ground 1(b)(iii)) the failure to direct the Commissioner to take into account Mrs Ross’s gambling winnings of $21,491.40 in the 2014 income year;
(c) (Ground 1(b)(iv)) the failure to direct the Commissioner to take into account the error in attributing half of the value of the Maudsland land, being the amount of $184,500, to Mrs Ross in the 2014 income year; and
(d) (Ground 1(e)) the failure to direct the Commissioner to take into account the suspected double counting in relation to the 2013 income year.
326 Although not relied upon in the notice of cross-appeal, to that list might also be added the error in the Tribunal’s decision in remitting in full the penalties imposed upon Mrs Ross in respect of the 2014 income year where its reasons contemplated only partial remission.
327 Second, there were various other aspects of the Tribunal’s reasons which it was accepted were at least concerning, even when viewed in isolation, or which did tend to demonstrate errors in the Tribunal’s deliberative process with respect to these matters:
(a) (Grounds 1(b)(i) and (c)(i)) the nature and treatment of MFI-1 by the Tribunal was problematic. In part, it did not fully appreciate its purpose in attempting to establish the taxpayers’ actual incomes in the relevant years. More relevantly, however, it is apparent that it failed to keep in mind that the document did not have evidential status with the consequence that it relied upon the commentary in it which was not supported by the evidence;
(b) (Grounds 1(b)(ii) and (f)) the Tribunal used MFI-1 as being evidence of the matters contained in it when that was clearly not the case. It is likely that the passage of time had caused it lose appreciation of the limited nature of the document in that respect;
(c) (Ground 1(c)(ii)) the failure to specifically address with the amount of $27,226.90 received by Mr Ross in the 2014 income and claimed to be gambling winnings; and
(d) (Ground 1(l)) the acceptance of the Commissioner’s erroneous submission that the transfer from Mr Petith to Mrs Ross did not occur by bank transfer.
328 The errors of which the taxpayers complain were not individually sufficient to raise any error on which an appeal might be sustained and nor were they advanced as such. They were, however, significant in numerical terms. The delay in delivering the reasons of the Tribunal was prolonged and the number of errors identified supports the conclusion that the length of time between the hearings and the delivery of the decision gave rise to a real and substantial risk that the Tribunal’s capacity to assess the merits of the claim was impaired. Whilst a few errors of a more technical nature may be acceptable as part of the administrative process, here the nature and number of the errors on which the taxpayers relied were sufficient to support the above conclusion with the result that the taxpayers were denied procedural fairness.
329 Although it was not necessary to decide, the above conclusion is strengthened when the fundamental error relied on by the Commissioner in Ground 1 of his appeal is taken into account. It would appear that the long delay caused the Tribunal to lose sight of the case which the Commissioner had been advancing based on the onus under s 14ZZK(b)(i) and the taxpayers’ failure to establish the actual amounts of their taxable incomes in the several income years. Had the Tribunal been able to attend to the matter sooner, it may not have been misled by the erroneous manner in which the taxpayers’ case was, in part, advanced to it.
330 It follows that the taxpayers have established that they were denied procedural fairness as a consequence of the prolonged delay. For the reasons which are discussed below, they are entitled to an order that the Tribunal’s decisions be set aside.
331 The conclusion reached above in relation to the cross-appeal is not the end of the matter. As the Commissioner submitted, even if a denial of procedural fairness was established, it is necessary to consider whether the appropriate consequential orders should be that the matters be remitted to the Tribunal for re-hearing. In particular, he submitted that such relief ought to be refused because the taxpayers could never have succeeded on their appeals as no properly instructed Tribunal could have been satisfied that they had discharged the onus under s 14ZZK(b)(i) of the TAA. On this basis, it was submitted that regardless of the outcome of the taxpayers’ appeal, the matters should only be remitted to the Tribunal for further hearing on the question of the exercise of the power to remit penalties. However, the Commissioner is not satisfied with the Tribunal’s decisions as they presently stand and he asks that the Court substitute for them decisions dismissing the taxpayers’ appeals. Conversely, Mrs Ross submitted that the taxpayers’ appeals should be allowed and the matter remitted to the Tribunal and that the Tribunal be at liberty to determine whether the parties should be able to adduce further evidence on the re-hearing.
The applicable principles
332 The issues which arise on the question of the appropriate orders are difficult and somewhat complex. Unfortunately, the parties provided only meagre submissions in relation to them.
333 The appropriate place to start is the statutory powers vested in the Court to make orders on appeal from the decisions of the Tribunal, being found in ss 44(4) and (5) of the AAT Act. Those sections provide:
(4) The Federal Court of Australia shall hear and determine the appeal and may make such order as it thinks appropriate by reason of its decision.
(5) Without limiting by implication the generality of subsection (4), the orders that may be made by the Federal Court of Australia on an appeal include an order affirming or setting aside the decision of the Tribunal and an order remitting the case to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the Court.
334 Those provisions are unaffected by the alterations to the application of the AAT Act in matters under Pt IVC of the TAA: TAA, s 14ZZA.
335 Despite the apparent width of sub-sections (4) and (5), they must be exercised with caution. This was made clear by Sackville J in his reasons in Morales v Minister for Immigration and Ethnic Affairs (1995) 60 FCR 550, where his Honour observed (at 560 – 561):
In certain circumstances, however, the Court may exercise the power in s 44(4) of the AAT Act and make orders finally resolving the matter. In Harradine v Secretary, DSS, for example, the only question was the construction of a particular section of an Act. The parties agreed that whoever succeeded on that issue was entitled, as a matter of law, to succeed in the AAT. Accordingly, the Court made orders finally disposing of the case without remitting the matter to the AAT (at 36, 43, 49). Similarly, if the Court hearing an appeal from the AAT finds an error of law in its reasons, but nonetheless considers that the decision was clearly correct on the material before the AAT it is open to the Court to dismiss the appeal: Austin v Deputy Secretary, Attorney-General’s Department (1986) 12 FCR 22 (FCA/FC), 316 at 26-27; McAuliffe v Secretary, Department of Social Security  FCA 483; (1991) 23 ALD 284 (FCA/von Doussa J), at 295-296, aff’d at (1992) 28 ALD 609 (FCA/FC), at 618-619; State Rail Authority of New South Wales v Collector of Customs  FCA 610; (1991) 33 FCR 211 (FCA/FC), at 217.
The scope of the power conferred by s 44(4) of the AAT Act is, however, subject to limitations. These flow from both the fact that an appeal from the AAT is on a question of law only and from the language of s 44(4) and (5). The limitations were explained by Sheppard J in Minister for Immigration and Ethnic Affairs v Gungor  FCA 99; (1982) 63 FLR 441 (FCA/FC), at 454-455:
It is in my opinion not correct to say that this Court is by these provisions given wide powers to make such orders as it thinks fit. Implicit in its powers are a number of restrictions. The appeal is expressly limited to error of law, which alleged error is the sole matter before this Court and is the only subject matter of any order made consequent on the appeal. The order which this Court can make after hearing the appeal is also similarly restricted to an order which is appropriate by reason of its decision. It follows that the only order which can be properly made is one the propriety of which is circumscribed by and necessary to reflect this Court’s view on the alleged or found error of law. To go further I would see as amounting to exceeding the jurisdiction of this Court under this section. A power to make “such order as it thinks appropriate by reason of its decision” is much more restrictive than a power “to make such order as it sees fit” or a power “to make a decision in substitution for the decision” the subject of the appeal. S 44(5) confirms, though it states that it does not purport to limit, this as an appropriate reading of the power in s 44(4) when it limits its statement to the express power of the Court when setting aside a decision to the making of an order remitting the case to be heard again. Having set aside a decision, it has no express power to substitute what it sees as the correct decision unless such is the appropriate order by reason of its decision on the point of law in the context of the particular proceedings.
336 It is recognised that there are cases where it has been held that it would be futile to remit the matters for re-hearing because they admit of only one possible outcome: Musgrave v Martin (2003) 130 FCR 546 at 567 ; Arnott v Repatriation Commission (2001) 106 FCR 83 at 93  – ; McAuliffe v Secretary, Department of Social Security (1992) 28 ALD 609. However, they are almost invariably occasions where the Tribunal has committed an error of law but the conclusion reached was the only correct one available with the consequence that no order for remittal should be made. For example, in Dunn v Secretary, Department of Social Security (1990) 21 ALD 248, O’Laughlin J concluded that the Tribunal had erred in its construction of the relevant statute under consideration, but nevertheless dismissed the appeal on the basis that, even if the Tribunal correctly applied the law, it could have come to no other conclusion. It is to be emphasised that these are cases where the effect of refusing to remit would be to leave the decision of the Tribunal below in place.
337 The decision in Harradine v Secretary, Department of Social Security (1989) 25 FCR 35 is closer to the circumstances of this case. In that case, the appellant had been denied unemployment benefits on the grounds that he was engaged in a course of education on a full time basis. On appeal to the Full Court of this Court, it was held that the relevant section of the legislation required a consideration of whether the objectively ascertainable activity of the student might be described as a full time engagement in a course of education. The Court concluded that, as on the facts as found and on the proper construction of the statutory provision in issue, the matter admitted of only one answer the appropriate order was to allow the appeal, set aside the Tribunal’s decision, and order that the application to it be allowed. However, in that case, as the parties had agreed that the Court’s determination should resolve the issue which had been before the Tribunal, the Court did not have to definitively reach a conclusion on the existence of its power to make the orders. A not dissimilar outcome occurred in Truchlik v Repatriation Commission (1989) 25 FCR 414, where Sheppard and Foster JJ held (at 424) that, as the facts were fully found and not in dispute and the question of law could only lead to one conclusion, it was appropriate to set aside the Tribunals decision and order that the application to it be allowed. There was no discussion in that case of how the Court might validly exercise the power of the Tribunal and it did not appear that the point was in issue.
338 Relevant to the exercise of the Court’s power to dispose of the appeals is that the taxpayers’ success was founded upon a denial of procedural fairness and the substance of that ground did not alter even though it was advanced as an issue of an error of law for the purposes of s 44 of the AAT Act. Were the matter one of judicial review, the court would retain a discretion to not set aside an order of the Tribunal despite it being established that a denial of procedural fairness had occurred where it has been shown that the denial did not deprive the applicant of the chance of a successful outcome: see the cases collected in Baig v Minister for Immigration and Multicultural Affairs  FCA 380  and more recently the development of materiality as a necessary element of jurisdictional error in the decision of the High Court in MZAPC v Minister for Immigration and Border Protection  HCA 17. Similar considerations would necessarily apply in relation to the nature of the relief which might be granted on an appeal on a question of law under s 44 of the AAT Act. Other cases tend to limit the power of the Court to deciding the matter only where the facts are beyond dispute and the matter turns on a question of law: Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297 at 309; Australian Trade Commission v Richard Shrapnel Consulting Services Pty Ltd (1988) 85 ALR 287 at 290.
What ought to happen in the present case?
339 The essential difficulty in this case is that neither party was satisfied with the Tribunal’s decision which only partially allowed the appeals from the objection decisions. Although each opposed the other’s appeal, neither is satisfied with the Tribunal’s decisions in remaining intact. This case is, therefore, unlike those discussed above where one option was dismiss the appeal and allow the Tribunal’s decision to stand.
The Commissioner’s preferred outcome
340 Here, it has been concluded that the Commissioner should succeed on, inter alia, Ground 1 of his appeal in relation to the onus question. It has also been concluded that no Tribunal, properly applying the correct onus, could have reached a conclusion favourable to the taxpayers on the material before it. The Commissioner submitted that if that position were reached it would be futile to remit the matters for re-hearing because the Tribunal could only ever determine to affirm the Commissioner’s assessments. As identified above, his preferred outcome is that this Court should order that the appeals be allowed, the Tribunal’s decisions be set aside and, in lieu thereof, an order be made affirming the Commissioner’s objection decisions. An exception to this was said to be in relation to the question of the remission of penalties as that had to be exercised afresh by the Tribunal according to law.
The taxpayers’ preferred outcome
341 Mrs Ross, in each of her capacities, submitted that if her cross-appeal succeeds the matters should be returned to the Tribunal for re-hearing and on the basis of fresh evidence. It is undoubtedly the case that in less complicated circumstances, if the Court concludes that there was a denial of procedural fairness and the possibility of a different outcome was denied, then the ordinary course would be to remit the matters to the Tribunal for some form of reconsideration. Mr Hack QC for Mrs Ross went further and submitted that, if the taxpayers succeeded in respect of the cross-appeal, then the issues raised by the appeal fell away entirely. The logic of this submission was not entirely clear and no authorities were identified which supported such a proposition.
The appropriate orders
342 On the basis of the Commissioner’s appeal and the conclusion that no properly instructed Tribunal would allow the appeals from the objection decisions, there is an element of futility in requiring a re-hearing in the Tribunal. Conversely, the Tribunal’s error in delaying the delivery of judgment had the consequence that the taxpayers were denied procedural fairness in the determination of their appeals and that ought to usually result in the matters being remitted. There is no clear path to the resolution of this conundrum. Ultimately, however, the course urged by the Commissioner to vary the Tribunal’s decision or make one in substitution for it requires the Court to exercise the Tribunal’s power under s 43 of the AAT Act for the purpose of disposing of the appeal. In the absence of any clear authority which would justify taking such a step and, keeping in mind the Constitutional imperatives of not trespassing into the field of executive power, I am declined to do so. More particularly, the authorities to which I have referred above suggest that the power of the Court to effectively decide the matter itself is limited to those cases where the facts are found and beyond dispute, and the matter turns on a question of law. That is not the position here where the conclusion that the taxpayers could not succeed before a properly instructed Tribunal is, essentially, a factual determination rather than one of law.
343 Further, in line with the decision in Minister for Immigration and Ethnic Affairs v Gungor (1982) 63 FLR 441, an order setting aside the Tribunal’s determinations on the Commissioner’s appeal is one which conforms to and reflects the error of law on which the appeal succeeded. The same cannot be said of the relief sought by the Commissioner that the Court make orders that the appeals to the Tribunal be dismissed. That would necessarily be reflective of the factual determination that the evidence before the Tribunal could not satisfy the onus under s 14ZZK(b)(i).
Should a remitted hearing be on the hearing of further evidence?
344 The next question is whether, if the matter were remitted to the Tribunal, it should be on the basis that it be reheard on a hearing of the same or further evidence. Although the parties had different positions on this, neither made any substantial submission as to how the issue ought to be decided. The taxpayers’ seek an order that they be entitled to adduce further evidence on the re-hearing and that apparently underpins a desire to advance a new case based on additional material. It is not immediately clear why they should be given that second chance, merely due to the Tribunal’s delay in delivering its decisions.
345 In this context, it is relevant that the taxpayers did not indicate the nature or extent of the further evidence which they wished to adduce before the Tribunal. All that was said that they should be at liberty to do so. With respect, that is inadequate given they were aware of the Commissioner’s submission that it would be futile to remit the matter for re-hearing. A further difficulty is that by the evidence adduced at the original hearing they have already purported to assert the sources of their income and how it came to be transferred to and from their bank accounts. That evidence was, in part, shown to be erroneous and, otherwise, not believed. Necessarily, in order to secure a different outcome it is likely that they will be required to adduce evidence which contradicts that which they adduced at the first hearing. This case is not similar to many before the Tribunal where the facts might be constantly evolving, such as claims by persons who have suffered illness or injury, where new evidence might throw light on a developing situation. Here, any new evidence which might be advanced must necessarily be evidence which could have been obtained for the earlier hearing. That being so, the absence of any explanation as to why it was not then made available militates strongly against exercising a discretion to allow additional material on any remitted hearing.
346 A reason for remitting the matter for hearing on new evidence would exist had it been demonstrated that the passage of time had adversely impacted upon the Tribunal’s credit findings. That was not the case here. Although the Tribunal’s findings in relation to the specific transactions involved a rejection of the evidence of the taxpayers and their witnesses, that was the result of the objective, inherent implausibility of what they said rather than the manner in which they said it or their dispositions when giving evidence.
347 It should be also recognised that the taxpayers’ position, which was strenuously advocated with respect to the Commissioner’s appeal, was that the evidence before the Tribunal was more than adequate to satisfy the onus under s 14ZZK(b)(i). If that be so, they can agitate that argument before the Tribunal on any re-hearing. No submission was made to the effect that the evidence which was originally advanced to the Tribunal did not remain available for its reconsideration and no submission was made that, in order to properly understand the case, a reconstituted Tribunal would need to see and hear the witnesses again.
348 In these circumstances, if the appeals from the Commissioner’s objection decisions are to be remitted to the Tribunal for re-hearing, they should be heard without the hearing of further evidence. There is no warrant for effectively starting the proceedings from the beginning.
349 I recognise the relevance to this issue of the conclusion in these reasons that the evidence adduced by the taxpayers before the Tribunal was insufficient to satisfy the onus under s 14ZZK(b)(i) of the TAA. However, that was made in the context of the Commissioner’s submissions that the appeals should not be remitted to the Tribunal for further hearing and, as that submission failed and the relief sought by the Commissioner in that respect has been rejected, any Tribunal re-hearing the appeals will make of those conclusions what it will.
350 Whilst it is appreciated that the conclusion that the matters be remitted for a re-hearing may seem somewhat impractical and unproductive, that is unavoidable in the context of the unusual circumstances of this case. In any event, given that the appeals to the Tribunal are to be reheard without the hearing of further evidence, any reconsideration before the Tribunal should not be prolonged.
351 The parties asked to be heard on the question of costs once they have had an opportunity to consider these reasons. In those circumstances, they should be allowed a period of time to make submissions as to the appropriate orders in relation to costs and, thereafter, an appropriate time to make submissions in reply to their opponent’s submissions.
QUD 165 of 2020