Federal Court of Australia

Commissioner of Taxation v Tan [2024] FCA 406

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s appeal be allowed.

2.    The respondent’s cross-appeal be dismissed.

3.    The decision of the Administrative Appeals Tribunal dated 11 August 2023 (the Decision) be set aside.

4.    Matters numbered 2020/6671 – 2020/6674 be remitted to the Administrative Appeals Tribunal for re-hearing according to law with the respondent, Mr Tan (the Taxpayer) being permitted to adduce further evidence at the re-hearing limited to:

(a)    the Taxpayer’s foreign bank statements;

(b)    the Taxpayer’s evidence (by way of statement or affidavit) about those foreign bank statements; and

(c)    alterations to the Taxpayer’s forensic accountant’s report limited to matters (a) and (b) above.

5.    There be no order for costs on the appeal.

6.    The respondent pay the costs of the applicant on the cross-appeal, to be taxed if not agreed.

AND THE COURT NOTES:

7.    The Decision is set aside on the bases identified in Questions 1, 3 and 4 and Grounds 1, 3 and 4 of the Amended Notice of Appeal, being that the Tribunal failed to:

(a)    correctly apply the requirements of s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (TAA);

(b)    correctly apply s 170 of the Income Tax Assessment Act 1936 (Cth) or s 284-90 of the TAA; and

(c)    correctly apply ss 284-75 and 284-90 of Schedule 1 of the TAA.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    By these proceedings, the Commissioner of Taxation (the Commissioner) sought to appeal against a decision of the Administrative Appeals Tribunal (the Tribunal) concerning assessments made by him in respect of the taxable income of the taxpayer, Mr Tan. The parties worked cooperatively to resolve all matters in dispute. By the commencement of the hearing, the parties had reached an agreement that the Commissioner’s appeal should be allowed and that certain orders should be made remitting the matter to the Tribunal for rehearing according to law. The draft orders prepared by the parties also identified the matters that were in issue on this appeal, and in particular, the failings of the Tribunal in its reasons.

2    The only question requiring determination is whether the matter ought to be remitted to the Tribunal with or without the hearing of further evidence from the taxpayer.

Should the taxpayer be permitted to adduce further evidence on remittal?

3    By s 44(4) of the Administrative Appeals Tribunal Act 1975 (Cth), in determining an appeal from a decision of the Tribunal, the Court may make “such order as it thinks appropriate”. Section 44(5) expands upon the orders which may be made on appeal and, relevantly, expressly permits the Court to make an order allowing or disallowing the hearing of further evidence upon remittal to the Tribunal.

4    Despite the apparent width of ss 44(4) and (5), the powers conferred by those subsections must be exercised with caution: see Commissioner of Taxation v Ross (2021) 174 ALD 77, 161 [335] (Ross), referring to Morales v Minister for Immigration & Ethnic Affairs (1995) 60 FCR 550, 560 – 561.

5    This matter is a complex one. That is revealed by the large volume of evidence, as well as the extensive decision of the Tribunal which exceeds some 500 paragraphs. In that decision the Tribunal member was required to deal with many difficult issues. Despite the fact that some errors have arisen, one might say that is not surprising given the complexity and the size of the matter.

6    Of importance in this matter is that the assessments under dispute were made by the application of the asset betterment method. That method has been discussed in a number of recent cases and the logic for the Commissioner’s use of it cannot be challenged: see Ross at 88 – 90 [48] and the authorities cited therein. Its use is appropriate in certain circumstances, as it is often the case that the Commissioner simply does not have sufficient knowledge of the taxpayer’s affairs to make an assessment based on a mathematical calculation.

7    The authorities as to the manner in which a taxpayer might challenge an assessment based on the asset betterment test have been discussed in a number of cases. They were referred to recently in the decision of Ross and in the subsequent decision of Condon v Commissioner of Taxation [2023] FCA 561. Without repeating anything that is said there, the taxpayer is required to establish what their assessable income is in order to show that the Commissioner’s assessment is excessive. It has been pointed out on a number of occasions that picking and choosing between matters raised by the Commissioner in the asset betterment statement is not sufficient, and that, in order to discharge their onus, the taxpayer ought to start with a blank page and then set out all of their assessable income for the relevant income years: see, for example, Gashi v Commissioner of Taxation (2013) 209 FCR 301, 315 [66]; Rigoli v Commissioner of Taxation (2014) 141 ALD 529, 537 [25].

8    In the taxpayer’s oral submissions, some emphasis was placed on the fact that, before the Tribunal, the Commissioner did not raise certain aspects of the taxpayer’s income which the Commissioner then sought to raise in this appeal. In particular, it was said that the Commissioner did not raise below his contention that the taxpayer held undeclared income in foreign bank accounts. This was said to be procedurally unfair, even though the taxpayer was aware that foreign sourced income was generally in issue. To this end, it is necessary to repeat that a taxpayer, challenging an assessment by the Commissioner based on the asset betterment method, cannot rely upon what the Commissioner says is, or is not, their income. The onus falls squarely on the taxpayer to prove their income, and the Commissioner can rely upon any deficiency in that proof.

9    In this case, a substantial effort was made by the taxpayer to establish what their taxable income was. A complication arose because the taxpayer had a perception, or at least exhibited a perception, that he was resident out of the country. That made the manner in which he presented his case slightly more difficult, and in particular, because residency was in issue. Had he succeeded on the residency issue and established that he was not an Australian resident, there would be no question about the matters now in issue, namely foreign sourced income.

10    The further evidence which the taxpayer seeks to adduce is limited to addressing the issue of his alleged undeclared foreign income. Specifically, he seeks to adduce bank statements in relation to his foreign bank accounts and to give evidence about the contents of those statements, including to explain the deposits and withdrawals contained in them.

11    In determining whether it is appropriate to allow the taxpayer to adduce this evidence, attention should be focused on the nature of the remittal. It is to send the matter back to the Tribunal to rehear the appeal from the Commissioner’s assessment, and in doing so, to apply the law as it has been identified by the Court. The intention of that process is to, as best as possible, ascertain what the taxpayer’s true income is. Whilst the taxpayer has had the benefit of the initial hearing and, perhaps, has been found wanting in terms of the evidence he adduced, in the circumstances of this rather complex case, allowing him to adduce evidence within a narrow scope will not amount to giving him a “second bite at the cherry”. Rather, it will simply provide the Tribunal with all the relevant evidence now available.

12    Ultimately, that is a preferable outcome because it means that a more accurate assessment will be made by the Tribunal. That conclusion is reached taking into account the nature of the asset betterment method and the failure of the taxpayer to satisfy the onus. The consequence of the asset betterment method is that the “all or nothing” approach applies, which has result that, on occasion, the taxpayer may be liable for more tax than might be the case if all the necessary evidence had been adduced.

13    It is important to add, however, that any exercise of this discretion is intensely factually dependent and requires consideration of the particular circumstances of the case, including how the matter was conducted previously, and the degree of the additional evidence sought to be adduced on remittal.

14    Although it is not insignificant that allowing the taxpayer to adduce some further evidence may necessitate a longer and more expensive hearing on the remittal, that is something which cannot be helped in this case.

15    In the circumstances, it is appropriate to allow the taxpayer to adduce further evidence on the rehearing of the matter before the Tribunal, limited to the bank statements in relation to his foreign bank accounts and his evidence about the contents of those statements.

16    Ms Chen, counsel for the taxpayer, indicated that adducing such evidence may require some consequent alterations to a forensic accountant’s report that was previously prepared concerning the taxpayer’s financial affairs. Whilst that should be permitted, it would go beyond the bounds of what was asked of the Court were the report to be entirely rewritten. So, whilst additional expert evidence may be adduced, it must be limited to the matters raised in the bank statements and the taxpayer’s evidence about those statements.

17    It is therefore appropriate to order that the matter be remitted to the Tribunal for rehearing according to law, with the taxpayer being permitted to adduce further evidence at the rehearing limited to the following:

(a)    the taxpayer’s foreign bank statements;

(b)    the taxpayer’s evidence (by way of statement or affidavit) about those foreign bank statements; and

(c)    alterations to the taxpayer’s forensic accountant’s report limited to matters (a) and (b) above.

Associate:

Dated:    23 April 2024