Federal Court of Australia

Commissioner of Taxation v Ross [2021] FCA 766

ORDERS

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.

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

REASONS FOR JUDGMENT

DERRINGTON J:

INTRODUCTION

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.

Summary

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.

BACKGROUND

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.

Tribunal’s decision

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:

166     Assessment

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

If:

 (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) [61] – [67]. 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 [61] – [67]; Rigoli v Commissioner of Taxation (2014) 141 ALD 529 (Rigoli) [12].

(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 [55]; 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 [12].

(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 [55]; 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 [56].

(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 [62]; Rigoli [12].

(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 [63]; 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)) [57].

(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 [64] – [65]. 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 [65].

(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 [63] – [67]; Rigoli [12]. 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 [66]. 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 [66]; Rigoli [25]. 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 [12].

(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 [77] – [79]; Woellner and Zetle, “Satisfying The Taxpayer’s Burden Of Proof In Challenging A Default Assessment – The Modern Labours Of Sisyphus?” [2014] 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 [61]. 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 [2021] 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 [233] – [237]) 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 [54]). 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 [2013] AATA 112 [3] – [4] and the decision of Pagone J at first instance in Haritos v Commissioner of Taxation (2014) 141 ALD 369 [4]. 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 [219]), 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 [223]. Thereafter the Court said (at [224]):

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 [235] to [236] 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 [31]. 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 [52]):

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 [53]):

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 [54]), in relation to the Full Courts’ observations in paragraphs [233] to [236] 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] – [60]):

59.    None of this is to gainsay what was stated by the Full Court in Gashi v Commissioner of Taxation [2013] FCAFC 30; (2013) 209 FCR 301 (Gashi), a case emphasised by the Commissioner, along with Trautwein and Dalco, in his submissions. In Gashi, at [63], 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.

[Emphasis added]

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 [60] 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 [36].

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 [135].

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 [63]. 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 [11] to [12] 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 [7] to [8] 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)) [24] – [30]; Zappia v Commissioner of Taxation [2017] FCAFC 185 (Zappia) [3]; Rigoli [25] – [26]. 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) [24]. 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 [8] 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 [8] 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 [8] 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 [63]. 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.

(Original emphasis).

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) [29] per Nettle J agreeing with the decision in Bosanac (FC) [64]. 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 [29] and [36] of the Tribunal’s reasons and the decisions in relation to each financial year; or that there “may” have been double counting: see paragraphs [45] 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.

Other matters

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 [124] – [133].

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 [17]):

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 [2020] 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 [78]. 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 [2009] 2 Qd R 18 [60] – [61]. 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.