Federal Court of Australia

South Seas Holdings Pty Ltd (Trustee) v Commissioner of Taxation [2025] FCA 848

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The applicant pay the respondent's costs of the appeal.

3.    There be liberty to apply within 21 days to vary the order for costs by proposing the terms of a different order as to costs.

4.    The liberty reserved by order 3 may be exercised by filing written submissions of no more than 5 pages specifying the order sought and any necessary affidavit in support.

5.    Any responsive submissions of no more than 5 pages and any necessary affidavit shall be filed within 14 days of any submissions filed pursuant to order 4.

6.    Unless otherwise ordered, any further issue as to costs shall be determined on the papers.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The applicant pay the respondent's costs of the appeal.

3.    There be liberty to apply within 21 days to vary the order for costs by proposing the terms of a different order as to costs.

4.    The liberty reserved by order 3 may be exercised by filing written submissions of no more than 5 pages specifying the order sought and any necessary affidavit in support.

5.    Any responsive submissions of no more than 5 pages and any necessary affidavit shall be filed within 14 days of any submissions filed pursuant to order 4.

6.    Unless otherwise ordered, any further issue as to costs shall be determined on the papers.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The applicant pay the respondent's costs of the appeal.

3.    There be liberty to apply within 21 days to vary the order for costs by proposing the terms of a different order as to costs.

4.    The liberty reserved by order 3 may be exercised by filing written submissions of no more than 5 pages specifying the order sought and any necessary affidavit in support.

5.    Any responsive submissions of no more than 5 pages and any necessary affidavit shall be filed within 14 days of any submissions filed pursuant to order 4.

6.    Unless otherwise ordered, any further issue as to costs shall be determined on the papers.

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

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The applicant pay the respondent's costs of the appeal.

3.    There be liberty to apply within 21 days to vary the order for costs by proposing the terms of a different order as to costs.

4.    The liberty reserved by order 3 may be exercised by filing written submissions of no more than 5 pages specifying the order sought and any necessary affidavit in support.

5.    Any responsive submissions of no more than 5 pages and any necessary affidavit shall be filed within 14 days of any submissions filed pursuant to order 4.

6.    Unless otherwise ordered, any further issue as to costs shall be determined on the papers.

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

REASONS FOR JUDGMENT

COLVIN J:

1    Four taxpayer entities associated with Mr Vanda Gould, a former tax accountant, claimed deductions for interest and management fees allegedly incurred in particular tax years between 2001 and 2014. Assessments were issued by the Commissioner of Taxation on the basis that the taxpayers were not entitled to the deductions claimed. On the basis of the Commissioner's opinion that there had been 'fraud or evasion' by the taxpayers, the Commissioner maintained that there was no applicable time limit in respect of the assessments. The taxpayers were assessed for penalties. The Commissioner also determined that shortfall penalties should not be remitted.

2    Three of the taxpayer entities were trusts. The Commissioner issued assessments to the trustee of each trust on the basis that the income earned (after disallowing the deductions) was assessable to the trustee under s 99A of the Income Tax Assessment Act 1936 (Cth) (ITAA36).

3    The taxpayers lodged objections to the income tax assessments, the penalty assessments and the decision not to remit shortfall penalties. After the objections were lodged, the Commissioner made determinations under Part IVA of the ITAA36 to the effect that the deductions, if otherwise allowable, should not be allowed because the tax benefits afforded by the claimed deductions had been obtained in connection with a scheme carried out for the dominant purpose of enabling the taxpayer to obtain that tax benefit.

4    In 2019, the objections of two of the taxpayers were wholly disallowed and the objections of the other two taxpayers were substantially disallowed.

5    In January 2020, the taxpayers exercised their statutory rights to appeal to this Court. Orders were made for the four appeals to be heard together with evidence in one proceeding being evidence in the others. The final hearing of the four appeals was conducted as a single hearing.

6    The income tax years for each of the four taxpayers ended at 30 June. In these reasons, I will identify a particular tax year by referring to the year in which the tax year ended. So, for example, I will refer to the income tax year that commenced on 1 July 2001 and ended on 30 June 2002 as the 2002 tax year. I will also use the description tax year to refer to a period ending on 30 June in the nominated year.

The scope of the appeals

7    The taxpayers say that there was a proper legal basis for the deductions in the form of valid and enforceable contractual arrangements. For the most part, those arrangements are said to have been put in place by Mr Gould acting as a director of both the entities who were party to the arrangement (in the case of trust entities, as a director of the corporate trustee of the trust). Consequently, Mr Gould is a critical witness in the appeal.

8    As to the claimed interest deductions, the taxpayers say that the interest was paid in respect of genuine loans that were made for business purposes and the amounts of interest paid were reasonable in that they represented less than the interest that would have been charged between parties dealing at arms' length. As to the claimed management fees, the taxpayers say that the fees were charged for services actually provided to the relevant taxpayer and were reasonable in amount. As to all the deductions for interest and management fees, they say that the entries in the relevant accounting records reflected those arrangements and should be accepted as evidence of them. They also contend that there was a proper basis for the other deductions.

9    The case for the taxpayers is put on the basis that imperfections, anomalies and inconsistencies in the evidence of Mr Gould were to be expected given the passage of time and the fact that the accounting records were not pristine was consistent with their authenticity.

10    The taxpayers also claim that the opinion held by the Commissioner to the effect that there had been fraud or evasion that justified assessments extending back to 2001 was formed without any proper foundation.

11    The Commissioner says that the taxpayers did not incur the interest and management fee obligations and that entries made in the books of account for the taxpayers (and related entries in the books of account for other entities) did not reflect the reality of underlying transactions. Rather, the disputed amounts are said to be no more than movements of funds between various entities under the control of Mr Gould with the funds being moved solely for tax purposes. Amongst other things, this is said to be supported by an analysis to the effect that many of the contentious amounts were a kind of balancing item that ensured there was little or no taxation liability (after allowing, in relevant cases, for enough income to ensure that all available franking credits could be offset against income). The descriptions of most of the contentious amounts in the accounts as 'interest' or 'management fees' is said to have been allocated subsequently and, in effect, to involve the application of contrived labels.

12    There are some further issues raised by the appeals. As to two of the taxpayers, it is also said that alleged tax losses in years before 2001 (calculated by taking into account alleged interest expenses) are not established and consequently are not a basis for any deduction in subsequent years. Also in dispute is (a) whether Mr Gould's family trust made losses in years prior to and including the 1997 tax year which could be applied to reduce net capital gains in the 2012 and 2014 years; and (b) whether the family trust received deemed dividends in the 2014 tax year and whether the Commissioner's decision not to exercise the statutory discretion to treat those deemed dividends as frankable can be overturned.

13    As will emerge, there is a considerable degree of obscurity in Mr Gould's own account of what occurred in the conduct of the financial affairs of the taxpayers and other entities controlled by him. In part, this is due to the deliberate and elaborate steps taken by Mr Gould to conceal the extent of his involvement in various offshore entities. His explanation for this conduct was to the effect that he wished to avoid the aggravation. In effect, his position was that he would rather keep the arrangements secret than try and justify them to the Commissioner.

Claims and findings

14    Throughout these reasons I will identify those parts which are reciting claims made by the taxpayers or simply recording the account given by a particular witness or other aspects of the evidence. Unless I qualify what is recorded in that way, I should be taken to be making findings to the effect recorded.

Mr Vanda Gould

15    Mr Gould was a chartered accountant. He specialised in tax law and had a particular interest in international taxation. Throughout the relevant period (being the 2001 to 2014 tax years), Mr Gould conducted his own accounting practice through Melbourne Corporation of Australia Pty Ltd. Melbourne Corporation shared office space with Gould Ralph & Company (a tax accounting practice of which Mr Gould had been a partner until 1996). On Mr Gould's account, aspects of his personal affairs were intertwined with those of his clients. At times, he sought to explain certain dealings on the basis that they were being conducted on behalf of a client rather than in his personal interest. It will be necessary to consider whether that was the case.

16    Mr Gould was also involved as a founder of Continental Venture Capital Limited (now known as CVC Limited), an investment company and fund manager. Continental Venture Capital also shared office space with Gould Ralph and Melbourne Corporation. The staff who worked for Continental Venture Capital were employed by CVC Investment Managers Pty Ltd (later renamed Leagou Pty Ltd, being the name I will use to refer to the company in these reasons). Leagou was said to have provided staff and management services to Continental Venture Capital in return for management fees. Mr Gould's account was that, during the relevant period, he was also involved in the provision of those management services, particularly supervising accounting staff undertaking work for Continental Venture Capital.

17    Also involved in founding Continental Venture Capital was Mr John Leaver, a stockbroker and long-time business associate of Mr Gould. Mr Gould's accountancy staff did the tax and accountancy work for Mr Leaver's private business interests, first through Gould Ralph (where Mr Gould had handled those matters as a partner) and later through Melbourne Corporation.

The taxpayers

18    Three of the taxpayers have been assessed as trustees. The relevant tax law applies to the trusts as if each was a legal entity: Sunlite Australia Pty Ltd v Commissioner of Taxation [2023] FCAFC 43; (2023) 296 FCR 600 at [14]-[24] (Colvin, O'Sullivan and Feutrill JJ). The trusts are (a) the Gould Family Trust; (b) the VR Gould Family Settlement Share Trust; and (c) the Educational Gold Trust. The fourth taxpayer is Philadelphia Investments Pty Ltd.

19    By reason of the status of the trusts as legal entities for tax purposes, in these reasons I will generally refer to the various trusts as entities even though it would be more accurate to refer to the trustee of the trust as conducting the affairs of the trust. Context should indicate where, as a matter of law, the dealings would be conducted by the trustee of the trust with tax law recognising the affairs of the trust as an entity for tax purposes and tax liability for the affairs of the trust falling on the trustee. I approach matters in this way on the basis that nothing turns on the legal distinctions in the circumstances of the present case where it is the taxation liabilities of the three trust entities (and Philadelphia) that are in issue.

The Gould Family Trust

20    During the relevant period, the trustee of the Family Trust was Southsea Nominees Pty Ltd and Mr Gould was a director of Southsea Nominees.

The VR Gould Family Settlement Share Trust

21    During the relevant period, the trustee of the Share Trust was South Seas Holdings Pty Ltd. The sole shareholder of South Seas Holdings was Morning Star Fiduciaries Pty Ltd. Mr Gould was the sole director of South Seas Holdings and one of his associates was the sole director of Morning Star such that Mr Gould controlled both entities in the relevant period. Mr Gould described the Share Trust as having been established as a sub-trust of the VR Gould Family Settlement Trust (a different trust to the Family Trust). By that description, he seemed to refer to it being established as a distinct fund of investments held and managed by South Seas Holdings as trustee on the terms of the Settlement Trust and for its beneficiaries. There are various contemporaneous records to support the establishment of the Share Trust as comprising a portfolio of investments to be managed by South Seas Holdings as trustee for the Settlement Trust. Separate accounts were maintained for the Share Trust. It has its own tax file number. However, there is no trust deed for the Share Trust.

22    The trustee of the Settlement Trust at all relevant times was Fennelltown Pty Ltd.

23    In what follows, I will eschew the nomenclature sub-trust adopted by the parties to describe the Share Trust. The peculiarities of the relationship between the two trusts can be ignored because the Share Trust had its own trustee (South Seas Holdings), had its own set of accounts and was a separate tax entity.

The Educational Gold Trust

24    During the relevant period, the trustee of the Gold Trust was Education Corporation of Australia Pty Ltd. Broadly speaking, the Gold Trust was conducted for the joint benefit of interests associated with each of Mr Gould and Mr Jim Raptis (a long time client and business associate of Mr Gould).

Philadelphia Investments Pty Ltd

25    Philadelphia was not a trustee company. Since 2004, its sole shareholder has been Southsea Nominees (the trustee of the Family Trust and Share Trust). At relevant times, Mr Gould was a director of Philadelphia.

Other entities

26    The dealings that were said to give rise to the deductions claimed by the taxpayers involved a number of other entities. These other entities will be introduced and their relevance explained as these reasons unfold.

Onus on the taxpayer

27    The taxpayers have the onus. They must prove that the assessments are excessive: s 14ZZO of the Taxation Administration Act 1953 (Cth). Although the Commissioner has raised various affirmative reasons as to why the deductions should not be allowed, at the end of the day the taxpayers will fail if they have not affirmatively established the factual and legal basis for the deductibility of the amounts claimed.

28    There is no special burden upon the taxpayer. The degree or standard of proof is that which applies in civil proceedings generally: Commissioner of Taxation v Cassaniti [2018] FCAFC 212; (2018) 266 FCR 385 at [88] (Steward J, Greenwood and Logan JJ agreeing).

29    Ordinarily, discharge of the onus born by the taxpayer on a statutory appeal after assessment and unsuccessful objection will require the taxpayer to prove the extent of assessable income as well as all deductions claimed, including their deductibility as outgoings incurred for a business purpose (as well as any other amounts affecting the assessable income). However, to the extent that there is an issue as to income in the present case it is the subject of agreement reached between the parties during the hearing. The terms of that agreement are described later in these reasons. One aspect of that agreement is that where deductions for interest paid by the taxpayers were not upheld then corresponding amounts recorded as income earned (whether paid or accrued) by any of the taxpayers who were said to have earned that income is not to be included in the taxpayer's income.

30    Beyond that, there was no issue between the parties as to the other amounts in the accounting records of the taxpayers affecting the taxation payable by them in the relevant years (save for the capital gains tax issues and the issue about carried forward losses to which I have referred).

31    Therefore, the main issue on which the parties are joined is whether the deductions for interest and management fees had been properly claimed by each of the taxpayers. In addressing that question it may be relevant to consider whether the interest earned was recorded as assessable income by any party and in what circumstances because that would be relevant to whether there was a genuine borrowing in respect of which interest was paid. Otherwise, the income side of the taxation affairs of the four taxpayers is not in issue.

32    During the relevant period, the affairs of the taxpayers were tied up with those of other Australian entities controlled by Mr Gould as well as other Australian entities controlled by Mr Leaver (noting that, in the case of the Gold Trust, Mr Raptis had an interest). In addition, there were also dealings with overseas entities. The extent to which those overseas entities were conducted at the direction of Mr Gould in his own interests is contentious. The significance of these wider dealings is that they are relied upon by the taxpayers to support the claimed deductions and by the Commissioner to challenge the credibility of Mr Gould's version of events concerning the affairs of the taxpayers. In effect, the Commissioner says that regard to those dealings when taken together with other aspects of the evidence casts very considerable doubt upon Mr Gould's account, which was to the effect that there were both loans on which the taxpayers had incurred interest and a proper basis to charge management fees.

33    The Commissioner has no burden to demonstrate what actually occurred. If the taxpayers fail to discharge their burden by reason of the unreliability of the account given and the absence of other evidence as to what was actually going on in the relevant dealings then the taxpayers' appeals must fail.

The evidence for the taxpayers

34    The taxpayers sought to discharge their onus by evidence from Mr Gould and from the contents of accounting statements received as business records. As to the latter, whilst the tax accounts for the taxpayers were in evidence as well as general ledger information, there was little by way of any contemporaneous records as to the dealings which were said to provide the basis upon which interest charges had been raised or management fees charged. As to the basis for the interest charges and the management fees, as well as the alleged business purposes that were said to justify those deductions, all depended upon the account given by Mr Gould.

35    Evidence was also given by Mr Benjamin Jones, a lawyer who had worked under the supervision of Mr John Hyde Page, a barrister who had acted for the taxpayers. Mr Jones undertook an analysis based upon the accounting records. He was not a participant in any of the historical events that bear upon the taxation liabilities of the taxpayers. The analysis sought to demonstrate that relevant amounts deposited into the bank accounts of the taxpayers had been used to conduct their affairs. The evidence was relied upon to support a contention that the interest charges had been imposed on principal amounts that had been used for income-producing purposes.

36    The taxpayers also called in aid expert reports from Mr Paul Hyde Page and Mr Russell Good (in addition to the evidence of Mr Jones) to support submissions to the effect that the interest amounts charged were reasonable. However, that evidence is only of relevance to the taxpayers' case if the assumed foundation for that evidence is established, namely that there were actually loans in place, that the loan amounts were used for income-producing purposes and that the amounts paid were bona fide interest payments. As to the reasonableness of the management fees, the only evidence was from Mr Gould.

37    In written opening submissions, a case was put to the effect that the accounting entries in the records of the taxpayers were a sufficient basis to conclude that there were loan contracts in existence and that the amounts claimed as interest were deductible. However, in closing, counsel for the taxpayers accepted that in order to succeed (that is, in order to discharge the onus born by the taxpayers) it was necessary for the Court to be persuaded to accept both Mr Gould's evidence and the accounting records. The concession was properly made. The accounting records as to interest and management fees claimed as deductions were obscure. The charges were made at irregular intervals. For the most part, they were implemented by end of year adjustments supervised by Mr Gould. The only evidence as to the basis upon which those adjustments were made came from Mr Gould. This was not a case where the books and records were demonstrated to contain entries as to interest claimed and management fees that were recorded in the ordinary course of keeping the accounts for a business and of a kind that may be said to speak for themselves. The only evidence to support the claim that the interest and management fees were outgoings incurred for a business purpose came from Mr Gould.

38    Therefore, the whole of the case of each of the four taxpayers depended upon the credibility of the testimony of Mr Gould.

39    The Commissioner undertook a measured and detailed attack on Mr Gould's credibility. Mr Gould was cross-examined on his account over eight days. Key aspects of the Commissioner's case were put to Mr Gould in specific terms. He was taken through the documentary records relied upon by the Commissioner to impeach his account. The credibility of virtually the whole of his account of what had occurred was challenged. He was given ample opportunity to respond. In closing, the Commissioner relied upon different aspects of Mr Gould's testimony to support a submission that he was not a witness of credit and his testimony could not be relied upon. I will return to those matters in due course.

THE OVERALL STRUCTURE OF THESE REASONS

40    In these reasons, I will begin by considering some submissions advanced for the taxpayers concerning the approach to be taken when considering the accounting records received in evidence in the proceedings. After that I will address briefly the authorities relied upon by the taxpayers as to the deductibility of interest.

41    Then I will address key respects in which Mr Gould's evidence concerning the claimed deductions for interest and management fees lacked credibility. I do not seek to be exhaustive. There is no need to be. Mr Gould's evidence was lacking in credibility at almost every turn. For reasons that follow, I find that no reliance can be placed on any aspect of his version of events. That finding is sufficient to dispose of the taxpayers' appeals concerning the deductions claimed for interest and management fees. It also has significance for other aspects of the appeals.

42    Although strictly unnecessary given my view as to the evidence given by Mr Gould, I will then deal briefly with the evidence of other witnesses. I will first explain why the analysis of Mr Jones was flawed. I will also explain why the expert evidence is of no assistance in reaching conclusions as to whether the various interest deductions claimed by the taxpayers were reasonable in amount.

43    After that I will deal with the issue raised in respect of two of the taxpayers concerning carried forward losses. I will then outline the issues concerning capital losses and deemed dividends. I will also deal with a trivial issue, not yet mentioned. It concerns an alternative claim that an interest expense of $8,000 is not deductible because interest withholding tax was not paid.

44    Having dealt with those matters, I will summarise the consequences for the individual deductions claimed by the taxpayers.

45    As the taxpayers have failed to establish the deductions claimed there is no need to consider the case relied upon by the Commissioner in the alternative to the effect that there was a Part IVA scheme which meant that the deductions could not be claimed (which was advanced by the Commissioner only if any of the deductions were otherwise found to be valid). Claims of the existence of a Part IVA scheme are difficult to deal with in the alternative in cases where they rely upon the characterisation of events and dealings that have unfolded over many years and, as here, require the Court to posit different conclusions to those which have been reached. For those reasons, even if the concession had not been made by the Commissioner, having regard to the conclusion I have reached as to the deductions, in the interests of overall efficiency and avoidance of further delay in delivery of these reasons, I would not have addressed the Commissioner's alternative claim.

46    I will then deal with the claim that the Commissioner's opinion that there had been 'fraud or evasion' by the taxpayers was not validly formed.

47    Finally, I will address the aspects of the appeals that sought to challenge the penalties imposed.

THE REQUIRED APPROACH TO ACCOUNTING RECORDS

48    The case advanced for the taxpayers relied to a considerable extent upon matters recorded in the general ledger and end of year financial statements for the taxpayers and other Australian entities controlled by Mr Gould. The taxpayers relied upon s 69 of the Evidence Act 1995 (Cth) and s 1305 of the Corporations Act 2001 (Cth) in respect of those financial records.

49    Those statutory provisions allow for 'business records' or certain 'books' kept by a body corporate to be received in evidence. The records themselves are received as evidence of the truth of the matters they represent: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at [69] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). However, the provisions do not confer any particular evidentiary status upon those records. In particular, resort to s 1305 does not make the contents of records admitted under the provision conclusive in the absence of evidence to the contrary: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 at [396]-[400] (Austin J); and Whitton as Trustee of the Estate of John Emmanuel Rose v Regis Towers Real Estate Pty Ltd (In Administration) [2007] FCAFC 125; (2007) 161 FCR 20 at [59] (Buchanan J, Marshall and Tracey JJ agreeing), noting the possibility of tension in the authorities of other courts: Hoh v Ying Mui Pty Ltd [2019] VSCA 203 at [193] (Beach and Hargrave JJA and Sifris AJA). Like any evidence, records admitted under the statutory provisions must be weighed and considered with other evidence.

50    The position was explained in Advanced Holdings Pty Limited as Trustee for The Demian Trust v Commissioner of Taxation [2021] FCAFC 135 at [169] (Logan, McKerracher and Perram JJ) in the following way:

A court may be entitled to accept at face value for all purposes, including the underlying transactions, those documents admitted under the statutory provisions. But it is not obliged to do so. In circumstances where there are factors which may mitigate against the prima facie acceptance of such records as, for example, where there are other findings of fact firmly adverse to the quality of corporate management by a sole director (as there were in this case), a court is not obliged to accept at face value and for all purposes, the existence and efficacy of challenged underlying transactions referred to in a company minute. This may present a sobering bookkeeping reminder to directors of small companies, but the evidentiary rules established under these statutory provisions were not intended to circumvent the need to establish the efficacy of all the underlying transactions recorded in a company's minutes in all cases. In this case, those underlying transactions were squarely in issue and their efficacy open to being doubted.

51    As the Victorian Court of Appeal said in Hoh at [193]:

In any case where a party to a legal proceeding relies upon financial statements of a company as proof of a contested fact, the court is required to consider all the evidence and attribute such weight to the entries in the financial statements as is appropriate in the context of the evidence as a whole.

52    The reasoning in Hoh was applied in Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188 at [136].

53    Relatedly, the taxpayers relied upon authorities to the effect that the existence of a loan may be inferred from conduct or the nature of dealings in a particular case. Consequently, so it was submitted, matters recorded in the financial statements and general ledgers received into evidence in the appeals could form the basis for conclusions as to the existence of loans giving rise to obligations to pay interest. Particular reliance was placed upon reasoning by Nettle J in VL Finance Pty Ltd v Legudi [2003] VSC 57. In that case, loans were allegedly made by a family company to family members to purchase shares in another family company. A contention was raised to the effect that the loans, though recorded in the accounts, did not exist. Nettle J dealt with that aspect of the case and its resolution in the following way (at [29]-[30]):

In the end, very little of the defendants' case at trial was devoted to the contention that the debts do not exist. In effect it amounted to no more than assertions of the defendants from the witness box that the loans transaction was just book entries conceived by Charles Legudie and Mr Curwood and that there could not have been any loans in reality because not one of the family members got any cash in their hands. But Mr Stark, who appeared for the defendants, did not seek to make anything of the witnesses' assertions. In the course of his final submissions he contented himself with the observation that the gist of his non-existence case was really the product of his unconscientious advantage argument.

In the circumstances I think it suffices to say of the book entries point that, in the absence of any suggestion of sham, there is no reason why loans agreed to [be] made by a family company to members of the family cannot be created orally or by conduct and sufficiently evidenced by book entry, and that it is enough to dispose of the consequences of the lack of cash in hand contention to observe that it has been the law since Spargo's case that obligations may effectually be set off one against another, leaving a net balance due, without any money changing hands.

(footnotes omitted)

54    It can be seen that his Honour was dealing with a claim that was little more than an assertion. Significantly for present purposes, VL Finance was not a case where there was a concerted attack upon the credibility of the person who had been responsible for directing the relevant entries to be made in the accounts as to whether they reflected genuine loans. In the present case, as will emerge, there was a very detailed attack upon the credibility of Mr Gould and the foundation that he advanced for relevant entries in the accounts. In short, the case for the Commissioner was to the effect that Mr Gould simply directed flows of funds through the various companies all of which were under his control and that most of the relevant entries in the general ledgers of the companies were end of year adjustments directed by Mr Gould for tax purposes. The very different circumstances of the present case mean that the observations of Nettle J are of no present assistance.

THE DEDUCTIBILITY OF INTEREST

55    Most of the deductions in issue in the appeals were deductions claimed by the taxpayers for alleged interest. The following propositions advanced by the taxpayers may be accepted:

(1)    interest on a loan that is incurred for business purposes is an allowable deduction and '[t]he circumstance that each item of expenditure cannot be traced to a particular item of income does not prevent the deduction of the expenditure': Federal Commissioner of Taxation v Total Holdings (Australia) Pty Ltd (1979) 43 FLR 217 at 224 (Lockhart J, Northrop and Fisher JJ agreeing); and

(2)    a refinancing of a borrowing takes on the same character for income tax purposes as the original borrowing 'and gives to the interest incurred the character of a working expense': Commissioner of Taxation v Roberts (1992) 37 FCR 246 at 257 (Hill J).

56    However, as will emerge, the main field of forensic engagement in the present case was as to whether there had been any loans at all. There were also issues as to whether a business purpose had been demonstrated for the funds and as to whether dealings that were alleged to be the refinancing of borrowings were in fact no more than the direction of funds by Mr Gould to create the impression that there had been a refinancing. There were also secondary issues about the use to which the alleged borrowings had been put by the taxpayers.

57    Therefore, the general principles as to interest deductions advanced by the taxpayers were outside the territory in which the issues were joined.

THE LACK IN CREDIBILITY OF MR GOULD'S ACCOUNT

Overview of Mr Gould's case as to deductibility of interest

58    I will begin by seeking to extract from his inconsistent account, Mr Gould's version as to what went on when it came to the loans that financed the business activities of the taxpayers (and other entities with which Mr Gould was involved). It is the credibility of this overall account that is at the heart of the interest deductions claimed by the taxpayers. To be clear, in this section I am recording Mr Gould's version of events. I am not to be taken to be making findings (save to the extent that I identify various entities or expressly identify matters as either not being in issue or agreed by Mr Gould).

59    It was said for the taxpayers that since the 1970s, Mr Gould and entities with which he was associated provided accounting, financial and investment services. Over time, he established various private entities including the taxpayers.

60    Mr Gould, together with Mr Leaver, arranged finance for their various Australian private entities. Funds were borrowed from the Cheung Wah Bank Ltd in Samoa and Swire Investments Limited in the United Kingdom. From about March 1995, their overseas borrowings were consolidated through an Australian in-house financing entity that was said to operate as a private banker for the private interests of each of Mr Gould and Mr Leaver.

61    During the relevant period, there were four offshore entities that, at various times, were said to be the source of funds for business activities undertaken by Mr Gould through Australian entities controlled by him. Those offshore entities were Chemical Trustee Limited, Normandy Finance and Investments Limited, Hua Wang Bank Berhad and Derrin Brothers Properties Limited (together, the Offshore Funders). By the time of trial, there was no issue that each of those entities was ultimately controlled by either or both of JA Investments Limited and MH Investments Limited, companies incorporated in the Cayman Islands.

62    Mr Peter Borgas was the person ostensibly conducting the affairs of JA and MH. At all relevant times, a company controlled by Mr Borgas operated a corporate services business based in Neuchatel in Switzerland. Mr Gould agreed that he was introduced to Mr Borgas because Mr Borgas offered a service of providing directors and shareholders for offshore companies for clients. He also agreed that when he first dealt with Mr Borgas that was the nature of the service that he sought from him.

63    A significant issue in the proceedings was the extent to which Mr Borgas acted at the direction of Mr Gould when it came to the affairs of JA and MH (as well as the various entities, including the Offshore Funders, that were controlled by those two companies). As will emerge, Mr Gould's evidence was to the effect that Mr Borgas 'owned' the Offshore Funders and controlled those entities for Mr Borgas' own benefit and for the benefit of Mr Borgas' family. Mr Gould maintained that his own interest in JA and MH, described as the 'appointor', was a tenuous one which enabled him to suggest what should occur in the conduct of the companies, but always subject to Mr Borgas' ultimate ownership and control. Mr Gould also gave evidence to the effect that his close personal friendship with Mr Borgas meant that he made suggestions to Mr Borgas that were accepted by him, but Mr Gould maintained that Mr Borgas could ignore those suggestions and, on the account given by Mr Gould, there were times when he did. However, as will emerge, Mr Gould's evidence as to the nature and extent of his involvement in the affairs of JA, MH and the Offshore Funders was far from consistent.

64    Each of Chemical Trustee, Normandy Finance and Derrin Brothers were entities that were administered by Lubbock Fine, a London firm that provided administration services for companies. A key person at Lubbock Fine was Mr Hasmukh Vara.

65    It is common ground that Mr Gould had considerable dealings over many years with each of Mr Borgas and Mr Vara. Mr Gould maintained that he did so on behalf of clients of his accounting practice or in circumstances where he made requests of Mr Borgas to arrange finance for the private business activities in Australia of Mr Gould and his associates which was then provided through the Offshore Funders.

66    As to Hua Wang Bank, it was based in Samoa and was managed through an offshore corporate service provider called Asiaciti Trust Group headquartered in Singapore with offices in other jurisdictions including Samoa. Hua Wang Bank did not have shareholders. It was a creditor-controlled entity. Under local law, it was controlled by the holder of a security rather than shareholders. The holder of that security was JA.

67    As has been mentioned, on Mr Gould's account, throughout the relevant period there were arrangements in place whereby an Australian company controlled by him acted as a form of private banking entity for various business activities that were conducted in Australia by each of Mr Gould and Mr Leaver. Initially, the private banking entity was said to be CVC Fund Managers Pty Limited (CVC I). Later, the relevant entity was allegedly changed by novation of the loans to CVC Investment Nominees Pty Ltd which came to be renamed Sub Prime Nominees Pty Ltd in 2008 (CVC II). There were no documents for the novation, just accounting entries which were said to reflect the novation of the loans. Finally, it was said that a number of years later there was a further novation to a different company with the same name as the first (CVC III). By that time, CVC I had been deregistered. In what follows in these reasons, I will at times refer to the CVC entity as a generic term to ascribe to the entity that, on Mr Gould's version of events, from time to time, was undertaking the private banking function. Where it is necessary to identify which of the three entities was involved, I will enumerate which entity.

68    Mr Gould's case was that the CVC entity was from time to time owed debts by private entities controlled by Mr Gould and also by Mr Leaver's own Australian private entities. His evidence was that he acted on the understanding that loan arrangements could be made and changed orally between senior people making agreements to that effect. Mr Gould's affidavit evidence was to the effect that there were various loans between the Australian private entities controlled by each of Mr Gould and Mr Leaver and 'it was common for these loan arrangements to be re-organised between the entities'. On Mr Gould's account 'these loan arrangements were created and managed … through oral agreement between the relevant persons'. However, Mr Gould's oral evidence about the alleged loan arrangements and the changes made to them was to the effect that he directed the affairs of his Australian entities and that the alleged loan arrangements as between those entities were matters that he decided. In effect, he made the arrangements by acting in different capacities and those arrangements were what came to be recorded in the accounts.

69    As to these matters, in oral opening submissions, counsel for the taxpayers referred to the alleged loans that were said to give rise to interest obligations as often involving decisions rather than actual conversations. It was said that references to agreement being 'oral' should be understood on that basis.

70    As to the amount of interest paid under the alleged loans, Mr Gould's evidence was to the effect that he and Mr Leaver would discuss the inter-company debts and orally agree on how much interest was payable and any novation of debts. He said this occurred shortly prior to 30 June of each year. Indeed, he was emphatic that this was the case because, on his version, he needed to arrange the cash to pay the interest to the Offshore Funders. On his affidavit account, the accounting staff were told of the agreed arrangements which they implemented by updating the accounts and effecting transfers of funds. These matters reinforce the foundational significance of the credibility of Mr Gould's account for the taxpayers' appeals.

71    In his affidavit evidence, Mr Gould said that his approach as to these loan arrangements was that the CVC entity needed sufficient funds to meet its own obligations and 'each of John Leaver's and my Australian private entities would make payments of interest to the group banking entity by reference to the sums our respective entities had borrowed'.

72    It was Mr Gould's evidence that towards the end of the 2001 income year, he decided to simplify the intra-company debts within his private companies. He said that, at that time, debts owed to CVC II by various entities within his private group of companies were all novated so that they were owed to the Family Trust. The Family Trust took on the debt that had been owed by those companies to CVC II. In consequence, his case was that from that point there were amounts due by Mr Gould's private entities to the Family Trust and a single debt owed by the Family Trust to CVC II. Thereafter, on Mr Gould's version of events, the Family Trust operated as the lender to private companies associated with Mr Gould. Over the relevant period he claimed that the extent of the loans provided by the Family Trust to his Australian private entities increased to the tens of millions. However, beyond generalities, there was a distinct lack of evidence about the use to which those funds were put.

73    The arrangements between the Family Trust and the private companies were undocumented. The arrangements between the Family Trust, the CVC entities and the Offshore Funders were said by Mr Gould to have been documented, although certain key documents were not produced in evidence. Mr Gould said that those documents had been in existence but could not be found.

74    It was Mr Gould's evidence that, at the end of each tax year, he determined the amount of interest to be paid to the Family Trust by his private companies. His evidence as to how that overall amount was determined was not entirely consistent. In broad terms he said that he needed to make sure there were enough funds in the Family Trust to meet the payments to be made to the Offshore Funders and that he had regard to (a) the capacity of each of his private entities to pay; (b) the amount of interest that was fair and reasonable for each entity to pay in the circumstances; and (c) the tax effectiveness within the group of a particular entity paying an amount of interest. At times he said that he determined the rates. At other times he said that the rates were set after discussion with his staff.

75    There was no suggestion that there were established terms as to the rate of interest or the time for payment of interest. In effect, on his account, after agreeing matters with Mr Leaver, Mr Gould's share of the interest obligations to the Offshore Funder at the time was met by the Family Trust charging interest to certain of the private companies controlled by Mr Gould in amounts that were determined by Mr Gould each year. The evidence of Mr Gould as to the way in which this occurred was vague and generalised. He maintained that the amounts involved were reasonable but offered no evidence as to their calculation or the method by which the interest amounts had been ascertained. He simply insisted, in general terms, that they were reasonable and reflected a reasonable charge for the use of the funds which had been obtained through the CVC entity from overseas. He gave no details of how that assessment was undertaken. Again, these aspects of the case expose why the credibility of Mr Gould's account is key.

76    Mr Gould also said that when CVC II was replaced by CVC III, new overseas funding was arranged with Derrin Brothers. On his account, CVC III used the funds that it borrowed from Derrin Brothers to make a loan to CVC II. He said that CVC II then used those funds to repay its debt to Normandy Finance and that CVC II repaid its debt to CVC III by novating its receivables (which were payable to CVC II by Mr Gould and Mr Leaver's Australian private entities) to CVC III. On Mr Gould's version of these events, by those dealings CVC III became the private banker in place of CVC II and the source of the overseas funding from Normandy Finance was replaced by funding from Derrin Brothers.

77    The case with respect to Education Corporation as trustee of the Gold Trust was different. That is because its borrowings were not through the Family Trust but came directly from Chemical Trustee. However, Mr Gould's evidence was to the effect that there were genuine loan arrangements in place and the amounts claimed as interest deductions were determined by him. This version of events was also challenged. It is only the evidence of Mr Gould that was advanced to support the claim that there was a genuine loan for business purposes in place.

78    It was said that the Gold Trust invested in and received rental income from commercial property. The case for the Gold Trust was opened on the basis that in 2001 Mr Gould asked Mr Borgas of Chemical Trustee for a loan of $1 million to purchase real estate in Surfers Paradise. The loan was provided and interest was paid.

79    It was also said that in November 2008 there was a further loan of $15 million. It was said to have been sought and advanced in the same way as the $1 million loan and was also for the purchase of a commercial property in Surfers Paradise. Mr Gould deposed that he decided that the Gold Trust should invest in the property and that he thought it would be possible to get a loan from Chemical Trustee. He said that he contacted Mr Borgas who said that Chemical Trustee could lend the money and a cash transfer was arranged to the solicitors for the Gold Trust. Mr Gould deposed that the investment did not proceed and that as a result he decided to repay the funds to Chemical Trustee in November 2009 (a year later).

80    Mr Gould also said that in February 2009, Chemical Trustee advanced a further $900,000 in relation to the prior purchase of a property in Broadbeach. The property was said to have been purchased in 1999 using funds borrowed from St George Bank. Again, Mr Gould said he contacted Mr Borgas to borrow funds to pay out the St George Bank loan. Mr Gould said he spoke to Mr Borgas and asked for a further advance of $900,000. He said that Mr Borgas said that Chemical Trustee would lend the Gold Trust the money and a cash transfer was organised.

81    The same form of dealing was said to have occurred in 2010 to obtain funds from Chemical Trustee to repay a loan that had been provided by Suncorp Metway. Mr Gould said he made the call to Mr Borgas who agreed that Chemical Trustee could lend the money and a cash transfer was arranged.

82    On the basis of those matters deposed to by Mr Gould, he maintained that the interest deductions claimed for monies paid by the Gold Trust to Chemical Trustee were for loan advances that had been used for income producing purposes.

83    It can be seen that the case for the Gold Trust depends upon Mr Gould's evidence as to what occurred in relation to the amounts received from Chemical Trustee.

84    It was accepted by the taxpayers that the relevant loan arrangements had features of informality, a characteristic which was said to be unremarkable in any instance where the relevant entities had common controllers or were closely held. Examples were given of the kinds of 'informality'; specifically, there being no written loan agreement, common changes to the loans (such as by novation) and changes to interest rates and amounts. It may be accepted that loans and obligations to pay interest may be created in an informal way and that dealings between related entities may explain a lack of documentation. However, the issue in these proceedings is not so much about informality but rather whether there were any real loans at all, even allowing for the legal possibility of effective loans being brought into existence in an informal way.

Overview of Mr Gould's case as to management fees

85    The case advanced by the taxpayers as to the management fees that were charged was very opaque. There was no consistent charging of management fees. The deductions claimed as management fees were ad hoc and were sought to be justified by reference to Mr Gould's account of what had occurred. It was said that the fees were charged to give effect to end of year decisions made by Mr Gould. His evidence as to how and when that occurred and his evidence as to the extent to which staff acting under his supervision were involved was not consistent. Mr Gould made references to working papers. Despite the management fees being effected by end of year adjustments there were no annotations in the accounts as to the basis for those adjustments. There was no evidence in the affidavits of Mr Gould suggesting there had been some form of documented basis for the fees.

86    The written opening submissions for the taxpayers were to the effect that there was 'less documentary evidence for the management fees than for the loans and interest liabilities', but that it was 'plain' that the payments made were compensation for the management of each entity. There was no indication in the submissions as to the nature of the services that might have been charged for by one entity to another. As will emerge, Mr Gould gave a generalised account about the management fees. In his account, there was no suggestion of any basis for the determination of the amounts that had been charged. There were no management fee agreements. There was no coherent explanation as to why fees were charged in particular years and not others.

87    The initial affidavit evidence of Mr Gould about management fees was vague and generalised. He said that during the period 2001 to 2014 he personally performed work in relation to the Australian private entities that he controlled. Some of that work was said to be accountancy but a great deal of it involved making decisions as a company director. He also said that he supervised work done by the accounting staff in his accounting practice that related to the activities of the Australian private entities. As to this work by him personally, Mr Gould claimed that it was appropriate for a fee to be charged as the work was being done in a corporate or trust capacity. He said that he referred to these fees as management fees. However, it 'was not the case that these fees invariably related to management fees as such'. Rather, Mr Gould said they were for 'everything I did in connection with the entity that was charged a fee'.

88    Mr Gould's affidavit evidence was that as he was in a position to bind both entities and 'at certain points' he made a decision either to transfer funds from one entity to another 'intending that the transfer would satisfy the amount of the fee' or inform his accounting staff to enter the fee into the accounts. Precisely how it might be that one entity might be entitled to charge such a 'management fee' to another for things done by Mr Gould in respect of the affairs of that other entity was not described.

89    Mr Gould also deposed that when the fees were charged his motive went beyond ensuring that his work was remunerated and said that: 'Frequently an aspect of my motivation would be to create the rationale for moving a sum of money between two of my Australian private entities so that it would be available to the recipient entity'.

90    A number of the management fees claimed by the taxpayers were charged by Melbourne Corporation. Mr Gould described Melbourne Corporation as an entity that he had used 'from at least the 1980s as an entity which invested in Australian property' and shares quoted on the Australian stock exchange. Those fees were charged to the Family Trust and, in one instance, to Philadelphia.

91    The accountancy work that Mr Gould did after he retired from Gould Ralph in 1996 was generally done through Melbourne Corporation. From the 1990s, the staff of Mr Gould's accountancy practice were employed by Melbourne Corporation.

92    There were also modest fees charged by Golden Investments Pty Limited to the Family Trust late in the relevant period.

93    The management fees claimed by the taxpayers to be deductible were as follows:

(1)    a fee of $5,000 (2009 tax year) charged by the Share Trust to the Family Trust;

(2)    a fee of $50,000 (2005 tax year) charged by Melbourne Corporation to Philadelphia;

(3)    a fee of $100,000 (2009 tax year) charged by the Family Trust to Philadelphia;

(4)    a fee of $44,000 (2004 tax year) charged by Philadelphia to the Family Trust;

(5)    a fee of $15,000 (2006 tax year) charged by CVCII to the Family Trust;

(6)    fees of $235,000 (2006 tax year), $87,500 (2007 tax year), $250,000 (2008 tax year), $145,000 (2009 tax year) and $200,000 (2010 tax year) charged by Melbourne Corporation to the Family Trust; and

(7)    fees of $5,000 (2013 tax year) and $5,500 (2014 tax year) charged by Golden Investments to the Family Trust.

94    There were no management fees claimed by the Gold Trust.

95    It is apparent that in some years within the relevant period there were no management fees and there is no consistency in the fees charged.

96    Mr Gould supplemented his initial affidavits with additional affidavit evidence about management fees. He said that the work that he performed in connection with his Australian entities 'were services and could have been recorded as a "service fee"'. He said that the term 'management fee' was used by him as an 'all inclusive term' that included fees for when (a) an entity provided security for a loan by offering unencumbered property as security; (b) accountancy work was performed by my staff and himself; and (c) the management of the business of the relevant entity.

97    Mr Gould's supplementary evidence was to the effect that he decided what the fee should be in May or June each year after discussion with his staff. He claimed that he would then generally make or ask a member of his staff to make a record in the books and records, but that the 'actual financial statements or tax returns would usually be finalised many months later'. Mr Gould also gave additional evidence concerning each of the management fees which sought to explain the basis for the fees.

Mr Gould's account as to the way in which claimed deduction amounts were determined

98    Mr Gould's oral evidence was to the effect that he had a practice of establishing interest and management fees prior to the end of each financial year. His affidavit evidence was to the effect that he had conversations with Mr Leaver about those matters shortly prior to 30 June of each year. He resisted the proposition that any discussion about those matters occurred after 30 June when the assessable income and allowable deductions apart from interest and management fees were known.

99    Early in his oral evidence, Mr Gould said that it was absolutely essential for interest to be charged to various Australian entities before 30 June each year because the major debt 'coming into' the CVC entity 'was always due to be paid by 30 June'. That is to say, on Mr Gould's account the CVC entity had an obligation to pay interest to the relevant Offshore Funder by 30 June each year and, consequently, the CVC entity needed to be put in funds in order to meet that obligation. (Mr Gould's account concerning the Gold Trust borrowing from Chemical Trustee was somewhat different and has been addressed above).

100    Mr Gould said that after agreeing with Mr Leaver the share of those charges that was to be charged to Mr Gould's Australian entities, he arranged for interest to be charged to his Australian entities so that there would be cash to pay the interest. He described the 'dominant purpose' of the interest charges as being to address the 'fundamental problem' that he had which was that he had to 'get the money together to pay the interest'.

101    Further, Mr Gould's account was to the effect that it was necessary to work out 'where we were going to get the money from' to meet the annual interest obligation to the relevant Offshore Funder. On his version of events, it was the extent of that obligation and its pressing nature that determined how much had to be charged to Australian entities by way of interest and when those amounts were determined. He said that 'the amount we had to find to pay was basically sort of determined by reference to what the obligation was [that is, the obligation of the CVC entity to the Offshore Funder]'. Further, he said that 'the rate of interest broadly was determined by the amount of interest which was ultimately payable to [the Offshore Funder]' and gave him 'sort of a guide as to what would be fair and reasonable in terms of each of the companies that were involved in paying some proportion of that obligation'.

102    Mr Gould said that sometimes some companies paid more than other companies so there were 'slightly different rates applicable'. He rejected the proposition that a considerable part of what was said to be interest payable by the CVC entity to the Offshore Funder was actually funded by drawdowns on other sources of overseas funds. His response was to the effect that there would be an occasion when that occurred 'to actually pay debt' but maintained that by the interest charges to the various Australian entities including the taxpayers he was looking to meet the obligations to pay interest to the Offshore Funder.

103    Therefore, Mr Gould's evidence was to the effect that, broadly speaking, the interest obligation on the part of the CVC entity to the Offshore Funder was passed through to those Australian entities who had the use of those funds in their business activities. That is to say, the interest charges claimed by the taxpayers as deductible expenses reflected actual interest charges by the Offshore Funder to the CVC entity (being the entity acting as the private banking entity for the companies who had the use of the funds) allocated to those Australian entities who sourced their funds from the private banking entity with the charges to the Australian entities being reasonable in amount.

104    In the case of the Gold Trust, Mr Gould said that there were obligations to pay interest to Chemical Trustee (one of the Offshore Funders) when invoices were provided. On his account, Chemical Trustee was an arms' length party who had advanced funds by way of loan and there were interest charges paid by the Gold Trust on those borrowings.

105    Later, during his cross-examination, Mr Gould gave a different account of how the interest to be paid by the various Australian entities was determined. It was in the following terms:

Well, then, basically, I would, you know, talk to my staff and say, 'What funds have we got available to make our share' - 'to pay our share of the interest?' And they - there would be discussion along those lines, and I would say, 'Well, let's then charge' - 'let's, looking at the quantums, the interest' - because, obviously, some of the entities have no cash. Some of the entities are essentially long-term investments which don't produce immediate cash, so some of the other investments would have to carry the totality of the debt or - sorry, not the totality - they have to carry, perhaps, a larger share of the debt than might otherwise be, you know, by strict apportionment, applicable. So then we would work out, and then I would sort of look at and say, 'Well, I don't' - you know, looking at the amount of, let's just say, with the share trust, assuming it had the cash. The share trust can afford to pay maybe 7 or 8 per cent, 10 per cent, on each share, even though the interest we're paying offshore is, basically, maybe, sort of 6 per cent, something like that, but - so one of my entities would probably pay a larger share than the actual amount of interest which was applicable from the original - from the offshore debt. That's, sort of, the sort of discussion we would have, then I would have a look at it and make sure it was reasonable. The unfortunate thing is that, because of the length of time that has gone by, we don't have the working papers which would go with these individual companies, and, you know, the different calculations that got done.

106    This revised version was to the effect that before 30 June each year Mr Gould was looking to find entities under his control that could pay cash to cover the interest due to the Offshore Funder and then he looked to how much interest that entity could pay. Then, after that was done, he would 'have a look at it and make sure it was reasonable'. Precisely how that reasonableness assessment was undertaken was never indicated by Mr Gould. As has been mentioned, at times he said that there would have been working papers showing the calculations but those papers were no longer available. I will say more about this aspect of Mr Gould's evidence later in these reasons. However, it was not the specific calculations that Mr Gould was being asked to provide. Rather, it was some evidence of the process or methodology by which the interest was determined to be reasonable. Given the detail of his evidence about other aspects of the financial affairs of the taxpayers (and other companies) the absence of any specific evidence about how the amount of interest charges and management fees were calculated was stark. The inconsistencies in his account also caused me to doubt its reliability.

107    Having recanted his initial evidence to the effect that the rate of interest payable to the Offshore Funder was used as a sort of guide, Mr Gould gave no indication at all as to the sources used for rates or by what standard or rubric he identified whether the rate of interest was reasonable. That was so even though his revised version was to the effect that much higher rates (and very different rates) were used for different Australian entities. The only explanation proffered by Mr Gould for that course seemed to be the fact that some entities were able to pay more than others. That is no foundation for establishing that the rates were reasonable, especially in the context of evidence that the amounts were not charged with any type of consistency and, in those years when they were charged, they were charged at levels that had the consequence that little or no taxation was required to be paid.

108    In due course I will refer to the expert evidence of Mr Good which demonstrated the extreme variability in the effective interest rates that were reflected in the interest charges when applied to the debt balances shown in the accounts for the taxpayers.

109    In substance, Mr Gould did not dispute the fact that the amount of the interest charges consistently operated to ensure that there was little or no tax liability in the tax year in which they were claimed. In particular, he did not suggest that there might be other aspects of the financial affairs of the taxpayers which explained why the tax returns might consistently indicate little or no tax was payable despite the fact that interest was paid in some years and not in others and the amount of interest that was charged varied considerably. Nor did Mr Gould dispute that the tax consequences were part of the equation when considering the amount of those interest charges. Rather, he insisted that the interest liabilities were in respect of financial accommodation genuinely provided to the taxpayers and that they were reasonable in amount. In those circumstances, the claimed tax outcomes for all the taxpayers over a number of years counts strongly against the credibility of Mr Gould's version of events concerning the way in which the amounts of interest were established.

110    There were further problems with Mr Gould's revised version. Some of the interest charges were incurred on an accruals basis and therefore did not generate any cash that could be used to pay the alleged interest obligations to the Offshore Funders. Mr Gould also accepted, eventually, that some of the alleged interest due to Offshore Funders was paid by increasing the overall loan amount said to be due. Accordingly, Mr Gould's evidence to the effect that the interest was charged to ensure there was cash to meet 30 June interest obligations to Offshore Funders did not accord with the financial records that were relied upon by the taxpayers.

111    Mr Gould's evidence as to when the interest was determined (and the way in which that was done), namely in order to find cash to pay the Offshore Funders before 30 June each year, assumed particular significance because it was deployed repeatedly by Mr Gould to reject the Commissioner's position as to when the interest amounts were determined. Part of the case advanced for the Commissioner was that the interest charges (and management fees) were set well after 30 June each year at a time when the tax returns for the Australian entities were being determined and that the interest amounts (and management fees) were simply labels given at that time to amounts that were required as deductions in order to ensure that no tax was payable. That is to say, the Commissioner contended that the charges or fees were not real but were amounts that were determined by reference to the extent of the tax liability that would arise if there was no available deduction. Mr Gould maintained that the interest was determined before 30 June each year because there was a need to obtain that cash to be able to pay interest to the Offshore Funders. As has been explained, that evidence did not square with the taxpayers' own records.

112    Mr Gould gave a general account about sharing the costs of providing accounting and management services. His evidence in this regard was most unconvincing and appeared to be an attempt, after the event, to provide some form of general explanation to justify the management fees.

113    As to management fees, Mr Gould's evidence was that they were charged to reimburse Melbourne Corporation for costs that it was incurring for the benefit of all companies in the group. As he said: 'every one of these companies was actually enjoying benefits which were being provided by Melbourne Corporation' and the costs of providing those benefits had to be reimbursed. In providing that answer he said that 'the issue of taxation would have been a factor in my mind, of course'. Mr Gould was asked to explain what he meant by that statement. He responded:

Well, when you're looking at an individual company - I mean, obviously, I would have - I would have been, you know, aware that it would be desirable, if we could, to actually move that company down to a zero point, but fundamentally I'm looking at what's fair and reasonable, in terms of charging management fees, and I believe all the management fees we did charge were fair and reasonable.

114    Amongst the many difficulties with that version of events is that beyond the general assertion that the fees were fair and reasonable there was no evidence to support that claim. There was simply no evidence of any form of assessment or estimate or record of time spent by staff of Melbourne Corporation to provide any basis for the fees charged.

115    Another difficulty is that a number of the management fees claimed by the taxpayers were not fees paid to Melbourne Corporation.

Mr Gould's evidence concerning the Offshore Funders

116    At the heart of Mr Gould's account to support the interest charges was his evidence that the Offshore Funders (controlled by JA and MH) provided arms' length funding with an obligation to pay annual interest by 30 June of each year that had to be met through funds raised by interest being charged to the taxpayers (and his other Australian entities).

117    Although these proceedings concern interest deductions claimed by the taxpayers (each taxable Australian entities), the nature of the Offshore Funders (and their source of funds) assumed considerable significance because of the pivotal part they played in the account given by Mr Gould as to how the alleged interest deductions arose. On Mr Gould's evidence, borrowings to fund the business activities of the Australian entities controlled by him (including the taxpayers) came from the Offshore Funders. On his version of events, the obligation on the part of the CVC entity to pay interest to the Offshore Funders gave rise to the need to charge interest to those Australian entities who ultimately received the benefit of those funds. Further, as has been explained, at times, Mr Gould indicated that the interest charged to those Australian entities who ended up with the use of the funds broadly reflected the extent of the charges incurred by the CVC entity.

118    In the case of the Gold Trust, as has been explained, the interest claimed was said to be the subject of invoices issued by Chemical Trustee, a party that was allegedly being conducted at arms' length, to Mr Gould and Mr Raptis.

119    Mr Gould accepted that the Offshore Funders were controlled by JA and MH. No case was advanced by the taxpayers to the contrary. Rather, the focus of the contest concerning JA and MH was on whether Mr Gould directed the conduct of those entities in his own interest. Of course, if Mr Gould directed the affairs of JA and MH in his own interest then issues would arise as to the character of the funds available to those entities that were provided to the CVC entity and to the Gold Trust, particularly as to whether they were funds under the control of Mr Gould and held for his benefit that were simply directed by him to be paid into his Australian entities.

120    Significantly, the taxpayers made no attempt to explain the interest deductions on the basis of some form of borrowing by the taxpayers that arose independently of the character of the funds sourced from the Offshore Funders. Put another way, the allegation that funds had been borrowed at prevailing rates of interest from the Offshore Funders as entities that were not conducted by Mr Gould in his own interest was an essential plank in the case advanced by each of the taxpayers as to why there were genuine loans by the taxpayers on which they had been charged interest.

121    If these aspects of the case advanced by the taxpayers are not accepted then that supports the Commissioner's contention to the effect that the funds that came into the CVC entity and the Gold Trust from the Offshore Funders were simply overseas funds at the disposal of Mr Gould that were being funnelled into his Australian entities. However, it is not necessary for me to make affirmative findings as to whether that was so or indeed to reach conclusions as to all of what actually occurred in relation to JA and MH when it came to the provision of funds. It is enough if I reject Mr Gould's account. If I do so, the taxpayers have not established the basis upon which they contend I should conclude that the alleged interest amounts are deductible. There being no other alternative basis advanced by the taxpayers upon which to sustain those deductions, their appeals as to those amounts must fail.

122    Mr Gould maintained that the conduct of the affairs of JA and MH and the various offshore entities under their control was entirely a matter for Mr Borgas. He maintained that Mr Borgas was the beneficial owner of those entities.

123    Mr Gould accepted that he provided suggestions to Mr Borgas as to what might be done in conducting the affairs of the various offshore entities and sometimes Mr Borgas accepted those suggestions. However, the main thrust of his account was that these communications reflected their long-standing friendship and the confidence that Mr Borgas placed in Mr Gould and did not indicate that the relevant offshore funds were under the control and direction of Mr Gould.

124    It was not in issue that both JA and MH were established with Mr Gould being the 'appointor', an office referred to in the articles of association of each of the companies (which, for present purposes, were expressed in the same terms). Much attention was focussed upon the nature and extent of the authority conferred upon the appointor when it came to the conduct of the affairs of JA and MH. Mr Gould's version was that the appointor's office was held at the whim of the shareholders in each company (when they became companies with share capital). Initially, the sole shareholder was a nominee company controlled by Mr Borgas. Later, Mr Borgas was the shareholder. At all times, Mr Borgas and members of his family were the directors of each of JA and MH.

125    Mr Gould explained his involvement in the affairs of JA and MH in different ways. The account was not consistent nor was it coherent or logical, for reasons I will explain. Although Mr Gould's evidence was often given by reference to the arrangements that pertained to JA, he accepted that the same arrangements applied to MH as those that applied to JA (and the case for the taxpayers was conducted on that basis).

The business conducted by Mr Borgas

126    Mr Gould agreed that at all material times Mr Borgas lived and worked in Switzerland where he was the principal of a business and that 'fundamentally' he provided corporate services that included providing the directors and shareholders for offshore companies. The business was called Anglore SARL. Mr Gould gave evidence that Mr Borgas was not an Australian resident (though he was originally from Australia) and had been admitted as a solicitor in the United Kingdom (but had not practiced there). Mr Gould accepted that Mr Borgas charged his usual fees for holding offices for JA and MH.

127    Mr Gould also agreed that Mr Borgas was paid fees for providing the service of being the director and shareholder of the offshore companies (that is, JA and MH as well as Chemical Trustee and the other Offshore Funders). Mr Gould was cross-examined about his involvement in setting those fees as well as the apparent inconsistency between Mr Gould's evidence that Mr Borgas charged his usual service fees for being a director and shareholder of those companies (which were matters that he discussed with Mr Gould) and his evidence that Mr Borgas was acting in his own interests in respect of the conduct of the affairs of those companies. The incoherence in this evidence was obvious. There was no logical reason for Mr Borgas to be charging fees to the Offshore Funders for providing to them the services of being a director and shareholder when, on Mr Gould's account, he was acting in those capacities in his own interest and not on behalf of others. On the other hand, charges of that kind made sense if Mr Borgas was undertaking his usual business of being a director and shareholder of offshore companies for a client for a fee.

128    As to the amount of such fees charged by Mr Borgas, initially Mr Gould said that he would 'possibly' have had a discussion with Mr Borgas about the fees he was charging to the offshore companies. Then he gave evidence that Mr Borgas would have told him the fee that he wanted for that year and Mr Gould would have agreed by saying 'okay, that's fine'. Mr Gould then said that Mr Borgas would agree and approve Mr Gould's fees if he had fees coming out of a company like Chemical Trustee and tried to characterise the fees charged by Mr Borgas for acting as a director and secretary in his own interest as being of the same character. Obviously, they were not. Mr Gould then changed his evidence to say that they did not talk about the quantum of fees charged and that Mr Borgas told him things as a matter of courtesy. Mr Gould then said that the reason he was involved in discussions about matters like the fees that Mr Borgas charged for being a director of the Offshore Funders was that he (Mr Gould) needed to know what was going on so that if Mr Borgas died, he could work out how to deal with his family. Mr Gould then gave the following evidence:

[Mr Borgas] had an absolute right to pay whatever fees he wanted to, but we worked collaboratively and that's the way it was. I mean the - there's nothing more to it than that. He was the owner. It's like with many of my clients, basically the same is true - I don't know in their businesses, but they would discuss with me their salaries, fees, all sorts of things, just the way professional - you know, work for a tax accountant operates. Also, don't forget, Chemical Trustee had a - had considerations re Australian taxation which I needed to be across. So I needed to know pretty well what was - you know, what was going on, as their tax agent, things - things like that.

129    Mr Gould then accepted that his view was that Chemical Trustee was a non-resident for Australian tax purposes and provided the following explanation for why he, as an Australia tax accountant, would have work to do for the offshore entities for which he would charge fees:

Well, we just did it as a matter of prudence. I needed to know what was going on. Also, as I mentioned to you, Peter's health was questionable, and basically I needed to know - because he - I would be the person who would be involved with his estate, you know, if he died or something like that happened, and what to do with the problems of his children inheriting these shares and those sorts of things.

130    The shifting sands of these answers, which emerged as difficulties with each answer given by Mr Gould were exposed, were characteristic of his evidence. It was a pattern that reflected adversely on the credibility of his evidence.

131    To summarise, on Mr Gould's version of events, the business conducted by Mr Borgas was as a provider of directors and shareholders for overseas companies. Yet, in the case of JA and MH, the affairs of those entities were conducted for the personal benefit of Mr Borgas and his family (and also as some form of trustee for clients of Mr Gould, see below). Then, through his control of the Offshore Funders, Mr Borgas conducted a business in his own interests. It involved arranging many millions of dollars in finance just for the Australian entities controlled by Mr Gould and Mr Gould's associates (particularly Mr Leaver) as well as for the Gold Trust. Why Mr Borgas would be able to undertake these finance-raising activities for the Australian entities in which Mr Gould had an interest when his business was not described in those terms by Mr Gould remained a mystery.

Establishment of JA and MH

132    Despite Mr Gould's insistence that the activities of the Offshore Funders were conducted for the personal benefit of Mr Borgas and his family and that Mr Gould had no personal interest in JA and MH, it was not Mr Borgas who arranged the establishment of JA and MH as the entities that controlled this financing business. Rather, it was Mr Gould who dealt with Australian tax counsel with a view to setting up a structure for the purpose of ensuring that JA and MH would not be connected with Australia in a way that would make them liable to Australian tax law.

133    As to the actual steps taken to establish JA, Mr Gould maintained that it was created on the instructions of senior counsel with expertise in Australian tax law, although he (Mr Gould) was 'involved in the creation of it'. He also said that Mr Borgas was 'aware of what was going on'. This is strange language to use if indeed, as Mr Gould maintained elsewhere in his evidence, the structure was established as an entity which carried on activities and held assets for the personal benefit of Mr Borgas and his family.

134    Significantly, Mr Gould did not explain his own involvement in the establishment of JA and MH as being undertaken for Mr Borgas as a client. Rather, his account gave varied explanations as to the nature, extent and reasons for his involvement in establishing those entities.

135    Mr Gould gave some rather confused evidence to the effect that the overseas entities also acted in some form of trustee capacity for Mr Gould's clients. This evidence was given as part of his explanation as to why he had concerns about not having control over JA and MH (see below).

136    However, the overall thrust of Mr Gould's evidence was to the effect that he dealt with senior counsel in Australia with whom he had a long standing working relationship and that senior counsel provided him with advice about the structure and how it would work having regard to tax precedents in Australia. Precisely why Mr Borgas (a resident of Switzerland conducting a business in which he charged fees to his clients for acting as a director and shareholder of companies in places outside Australia) was interested in establishing a company in the Cayman Islands to be conducted in his own interests in this way was not explained by Mr Gould. At one stage in his evidence, confronted with the apparent inconsistency between the nature of the business of Mr Borgas and the notion that Mr Borgas was the beneficial owner of JA, Mr Gould simply said that sometimes Mr Borgas ran a business of holding shares and directorships for other people and sometimes he held things for himself. This does not explain the entanglement of both these things in one entity (to the extent that Mr Gould said that client monies were involved) nor why Mr Borgas, a Swiss resident, might want Mr Gould in Australia to arrange for an entity to be incorporated in the Cayman Islands for the personal benefit of Mr Borgas after taking advice from Australian tax counsel and guided by views as to Australian tax law affecting Australian residents (when Mr Borgas was not an Australian resident).

137    Nor did Mr Gould explain why he might arrange for his own clients' monies to be directed into an entity that was also being conducted for the personal purposes of Mr Borgas. Indeed, as is explained below, Mr Gould's evidence as to the nature of those arrangements and how they might be described as trust arrangements was quite vague and unconvincing. In any event, to the extent that it descended into any detail, that evidence was confined to client monies in relation to overseas superannuation funds. Mr Gould gave no evidence at all of any other respect in which JA or MH dealt with his clients' monies. The evidence about the superannuation funds is addressed separately. As is there explained, Mr Gould's evidence about the arrangements as to the overseas superannuation funds of his clients does not explain why Mr Gould would have been an appointor under the articles for JA and MH nor his concerns about control of those entities. Indeed, on Mr Gould's account, the activities of the overseas superannuation funds were undertaken through other entities and did not involve Mr Borgas.

138    Suffice to say, Mr Gould failed to give any satisfactory account as to why it might be that he was instrumental in establishing JA for the personal benefit of Mr Borgas in circumstances where it was Mr Gould who was to hold the office of appointor for reasons to do with Australian taxation law, yet Mr Gould had no personal interest in the affairs of JA (and, in due course, MH).

139    Further, Mr Gould referred to the advice from senior counsel as 'our legal advice'. He referred to 'my senior counsel who I worked with in those days'. When it was put to Mr Gould that JA was 'created for your purposes and/or for the purposes of your clients', Mr Gould answered 'I mean, certainly that was a factor in it, but it was also [Mr Borgas'] purposes as well. It was, you know, a joint arrangement that we had'. Although he initially referred to Mr Borgas as 'being aware of what was going on', later (after being challenged as to his reasons for being concerned about losing control of JA) he elevated the involvement of Mr Borgas in the incorporation of JA by giving the following answer: 'I don't deny that I was intimately involved in it, but equally, you know, Peter Borgas was intimately involved with it too'.

140    Mr Gould initially said it was senior counsel who made the arrangements to incorporate JA. He disagreed with the proposition that he gave those instructions. When asked about who paid for the incorporation, Mr Gould initially said he could not recall. Mr Gould was then taken to a letter from Gould Ralph Services Pty Ltd Chartered Accountants sent in December 1993 to WS Walker & Company solicitors in the Cayman Islands. It referred to arrangements for a telegraphic transfer of funds from London. He then maintained that he was involved as an accountant in setting up JA and that was why the money was coming from London. I observe that Mr Gould did not identify any client in London and did not suggest that the money coming in from London was coming from Mr Borgas. Accordingly, this evidence was both vague and inconsistent with Mr Gould's own account that the establishment of JA was a form of joint arrangement that he had with Mr Borgas and that JA was established in part for Mr Gould's purposes (or those of his clients) and in part for the purposes of Mr Borgas.

141    In making these observations, I have regard to the fact that the evidence concerns matters that occurred many years ago. However, they are not matters that require recollection of specific events or the details of conversations or dates or places or amounts or similar matters of detail. Rather they concern the broad characteristics of arrangements that were put in place to establish entities with which Mr Gould had very significant dealings over the course of decades. It is to be expected that Mr Gould would be able to recall matters that concern the fundamental characteristics of JA and MH.

142    Further, Mr Gould's account about his involvement must be considered in the context of other parts of his evidence. He recounted considerable detail about the nature of the matters discussed with senior counsel when JA was established. Mr Gould also gave emphatic evidence about the advice given about the lack of control that he would have as appointor. He also explained the way the contents of the form of articles used for the companies had been obtained from the records of the High Court and the fact that senior counsel viewed the structure as having a form of intellectual value for which Mr Gould was being charged. That is to say, Mr Gould's evidence about what happened when JA was incorporated (and why) was quite detailed as to aspects that he advanced to support the position of the taxpayers to the effect that there had been genuine loan arrangements in place with the Offshore Funders and that he was not the source of the funds that came from overseas to the taxpayers and his other Australian entities.

143    Returning to the letter from Gould Ralph Services to Walkers, it contemplated that Walkers would provide the directors for JA (which was then to be limited by guarantee). There was no mention of Mr Borgas. It referred to what 'we [namely Gould Ralph] have in mind' for the company; namely that 'other than possibly acquiring from time to time shares in other "off-shore" companies', JA 'would be solely passive'. There is no mention of JA acting as some form of trustee or receiving client money or buying listed shares in Australian public companies (each of which were put forward by Mr Gould at various times in his evidence as the reason for establishing JA). It certainly does not refer to any involvement by Mr Borgas. The letter also raised questions about the 'appointor' being safeguarded from removal, a matter referred to below in dealing with the topic of Mr Gould's concerns about control of JA and MH.

144    Mr Gould's evidence as to these matters was inconsistent and unconvincing, especially in circumstances where there was much to indicate that JA had been incorporated for the benefit of Mr Gould, most notably provision for the office of appointor and Mr Gould's own evidence about his concern about control and that he had some form of moral authority over the activities of JA as well as his ongoing involvement in the conduct of the affairs of the relevant overseas entities. These are matters to which I now turn.

Extent of Mr Gould's authority as appointor

145    Mr Gould said that he never had any legal capacity when it came to JA 'except maybe a moral capacity'. Having regard to the terms of his other evidence (particularly his evidence about legal advice that he received at the time that JA was established), the expression 'moral capacity' indicated that by reason of Mr Gould being the appointor there was some authority founded in some kind of moral obligation that he could exercise when it came to the affairs of JA (and MH). Bearing in mind his other evidence to the effect that he had no interest in the assets or business activities carried on by JA or MH (or the Offshore Funders controlled by them), the reason for the significance of that moral authority is obscure. It suggests that, adopting a moral perspective, there was a reason why Mr Gould had some capacity to influence the affairs of JA and MH. It is difficult to see why moral authority of that kind might arise if, as Mr Gould maintained elsewhere in his evidence, the affairs of JA and MH were not conducted in his own interests in any way (and that he had no interest in their assets).

146    On one occasion Mr Gould likened the arrangements for the appointor for each of JA and MH to that which applied to trust companies saying that in most trust companies you have appointors. A comparison of that kind suggested that his authority as appointor was retained in order to ensure that any changes to key aspects of the structure of JA and MH could not be undertaken without his consent. Mr Gould was asked whether he was saying that JA was a trust. He gave answers to the effect that it had always been a type of trust because 'it acts for various clients'.

147    Mr Gould was then asked who was the beneficial owner of that which is held by JA. It was a pertinent question given Mr Gould's evidence up until that point in time was that Mr Borgas was the beneficial owner and that the company also held monies on behalf of some of Mr Gould's clients. Mr Gould's answer was to the effect that no-one owned JA until it converted to a company having share capital at which time Mr Borgas became the beneficial owner. None of which explains why each of JA and MH was established with Mr Gould as appointor if indeed Mr Borgas was the beneficial owner and the company was, on Mr Gould's account, one that operated, at least in part, for the benefit of Mr Borgas and his family. If the appointor role was said to be explained by the alleged 'trust' character of the entities holding monies for Mr Gould's clients, then as has been explained that suggests that Mr Gould was to retain some form of authority in the interests of protecting those clients. Yet, as will emerge, he disavowed any such authority. Also, as has been mentioned, the only identified clients were those involved in superannuation arrangements. As is explained later in these reasons, Mr Borgas had no involvement in those matters.

148    Mr Gould was also asked about a statement that he had made in the previously mentioned letter dated 20 December 1993 that was sent by him as part of arranging the establishment of JA which asked for comments as to how an appointor under proposed articles of association for JA would 'safeguard himself from the company subsequently revoking that appointment'. He gave an answer to the effect that he was concerned to have a measure of control if that was possible.

149    Nevertheless, Mr Gould maintained that Mr Borgas could remove him as appointor of JA and MH at any time. He maintained that position even though the articles provided that after his death, Mr Gould's legal personal representatives would be the appointor and no person could be admitted as a member without the consent of the appointor.

150    There was in evidence some legal advice from Cayman Islands' lawyers about the nature of the role of appointor. In my view, none of those matters assist because the issue is not as to the legal characterisation of Mr Gould's powers. Rather, the relevant question for present purposes is whether Mr Gould's account to the effect that the Offshore Funders were financiers controlled by Mr Borgas for his own benefit should be accepted. Whether that is so depends in part upon whether Mr Gould's claim that he had no beneficial interest in JA or MH should be accepted. The problem with the evidence of Mr Gould concerning his status as appointor is that it does not sit well with the rest of his account irrespective of the extent of the authority conferred by being an appointor. Further, even if Mr Gould had no legal claim, it may still be the case that, in fact, the affairs of JA and MH were conducted in whole or in part for his benefit.

151    Mr Gould was taken to a nominee agreement dated 31 August 2005 marked as having been cancelled on 6 February 2009. It was an agreement between Mr Gould and Offshore Nominees Ltd (the shareholder of JA of which Mr Borgas was director and shareholder). The agreement described Mr Gould as 'the Beneficiary', but those references had been struck-through and replaced in handwriting by Mr Gould with the word 'Appointor'. Allowing for these changes, the recitals to the nominee agreement were as follows:

A.    The Appointor has a Company with the name J.A. Investments Ltd (hereinafter called 'the Company') to be registered in the name of one or more of the Nominees.

B.    The Nominees are acting solely as Nominee for the Appointor with respect to the said shares.

C.    The Appointor wishes to appoint one or more of the Nominees as an Officer and/or Directors of the Company.

152    The provisions of the nominee agreement included terms to the effect that the shares in JA 'together with all dividends, bonuses and interests therein' were held 'on behalf of' the appointor and would be dealt with as the appointor may direct. There was an indemnity given by the appointor to Offshore Nominees for its activities. There were provisions about how instructions were to be provided by the appointor. The document was signed by Mr Gould and on behalf of Offshore Nominees.

153    Mr Gould's explanation for the nominee agreement was to the effect that he was contacted by a Ms Ratcliffe from 'the service company, management company, sort of in the Cayman Islands' who needed a document signed by Mr Borgas. However, so Mr Gould said, Mr Borgas was 'away on holidays or something' and he signed the document 'as a favour to her late one night'. He said that he signed a covering letter at the same time. He maintained that the letter made it very clear that he was not the beneficial owner. It was Mr Gould's evidence that the document was to be signed by Mr Borgas because Offshore Nominees was the beneficial owner of JA and it was holding the shares in JA beneficially for Mr Borgas.

154    There were obvious problems with that version of events given the other evidence given by Mr Gould. It was inconsistent with his evidence that JA was some form of 'joint arrangement'. It was inconsistent with his account to the effect that JA operated as a form of trustee and that it held monies of clients of Mr Gould. Finally, if this part of Mr Gould's version of events is correct, then the document that he signed was false in many respects because he denied that his role as appointor enabled him to direct what happened with JA or that it gave him any interest in its assets (or dividends).

155    Confronted with the terms of the nominee agreement, Mr Gould resorted to describing the whole document as being 'logically inconsistent' and the provision to the effect that the dividends, bonuses and interest would be held on behalf of the appointor and dealt with as the appointor would direct as 'absolutely ludicrous'. However, none of that evidence explained why Mr Gould would sign a document with provisions of that nature as some form of favour because Mr Borgas was not available. If the provisions of the nominee agreement did not properly reflect Mr Gould's understanding of his authority as appointor then why was it signed by him? The evidence he gave provided no satisfactory explanation for why he signed an instrument in the terms expressed (with the changes he made throughout to alter 'Beneficiary' to 'Appointor').

156    Mr Gould maintained that the nominee agreement had to be read with the accompanying letter to Ms Ratcliffe which he said made it very clear that he was 'not the beneficial owner'.

157    After a call for the letter to which Mr Gould referred as being sent with the nominee agreement when it was returned, the letter was produced. It said:

J A Investments Limited and M H Investments

Thank you for your letter of 31 August 2005.

As requested, I return the Nominee Agreement between FCM Ltd and each of the abovenamed entities duly signed and dated as requested. You will note that I am not the beneficiary of the companies. If I was, our tax legislation would potentially bring the entities within the Australian tax net.

Please forward the fully executed copy of the Nominee Agreement to Mr Hasmukh Vara for safe-keeping.

Your assistance is appreciated.

158    The terms of the letter to Ms Ratcliffe provide no support for Mr Gould's account which was to the effect that he only signed the document as a favour to satisfy inspectors about ownership of JA and MH and that it was, in some way, not an accurate record of the nature of the authority that he held in respect of JA and MH. On the contrary, the contents of the letter point to a concern to ensure that the terms of the nominee agreement are accurate so as to ensure that its terms, in the view of Mr Gould, do not mean that JA and MH are brought 'within the Australian tax net'. Of course, that is an outcome that suggests that Mr Gould (or perhaps his Australian clients) were concerned about that net applying to their earnings in JA and MH (and the entities controlled by them). It is not a concern that is consistent with the account that JA and MH were controlled by Mr Borgas for the benefit of him and his family.

159    Confronted with the terms of the letter in cross-examination, Mr Gould gave answers to the effect that he was possibly concerned with Australian tax consequences if he was a beneficiary of the companies. Again, those answers do not explain why he was willing to sign a document that recorded powers of a kind that, in his evidence, he claimed not to have when it came to JA and MH.

160    Mr Gould went on to say that he probably should have 'deleted some more verbiage' in that agreement but his understanding was that Mr Borgas was the beneficial owner of the companies and Mr Gould was not the beneficial owner. He suggested that he had been given an assurance that the nominee agreement would be kept confidential as some form of explanation for its contents.

161    I do not accept the evidence of Mr Gould to the effect that the terms of the nominee agreement did not accurately record the nature and extent of the authority that was able to be exercised by him in respect of JA and MH having regard to the arrangements that he had with Mr Borgas. Rather he was concerned to ensure that he could exercise control over the two entities even though he was not an officer or shareholder. He meant and intended to have (and indeed, as the balance of these reasons disclose, did have) considerable authority to control the affairs of the two entities.

162    Mr Gould was taken to a letter dated 6 February 2009 on the letterhead of JA signed by Mr Borgas and addressed to Ms Ratcliffe of FCM Limited in the Cayman Islands. It included the following:

In the meantime, I need your urgent assistance in relation to the transfer of the issued share in JA. I attach a copy of the share register and would be grateful if you would arrange for the share now held by Offshore Nominees Ltd to be transferred to me. Mr Gould knows about that and has agreed to the transfer.

163    Obviously, the reference to the agreement with Mr Gould is consistent with the terms of the nominee agreement being carried into effect. Mr Borgas is indicating to Ms Ratcliffe that the required agreement of Mr Gould has been obtained. In response to a question to the effect that the statement in the letter that he had agreed was important information to be communicating because Mr Gould was the appointor for JA, Mr Gould gave the following answer:

Well, more than that, and basically it's because invariably, things like this, Peter would have discussed with me. Yes, for - as a formality, I was the appointor, but, again, my ability to be the appointor was always subject to his ability to change me - remove me by an appropriate resolution.

164    It was typical of the responses given by Mr Gould by which a series of non-committal words built to a kind of non-answer. The point of the question was to put to Mr Gould that Ms Ratcliffe needed to know the important information that Mr Gould had agreed to the share transfer as appointor. Agreement with that proposition would have been inconsistent with Mr Gould's other evidence. Instead, Mr Gould sought to diminish the plain purport of the letter.

165    It was then put to Mr Gould that the letter from Mr Borgas to Ms Ratcliffe was sent on the instructions of Mr Gould to which he responded: 'I don't think so'. It was a revealing answer. After all, Mr Gould's evidence given elsewhere was to the effect that Mr Borgas made the decisions as beneficial owner, that he might have consulted Mr Gould but it was a matter for Mr Borgas as to what to do. If indeed that was the case, you would expect the answer Mr Gould to have given would have been an emphatic no. The equivocal answer given on this foundational aspect of the case as advanced by the taxpayers reflects adversely on Mr Gould's credibility.

166    Confronted with the strangeness of his equivocation, Mr Gould then gave a characteristically shifting answer in which he appeared to be searching for a way to explain the contents of the letter in a way that was consistent with other evidence he had given. The question and answer was as follows:

Is it possible that Mr Borgas sent this letter on your instructions?---Well, not on my instructions at all. I disagree with that, but it could - I mean, it - it could have been something where we were discussing maybe we need to tidy up the affairs of JA, something like that. So - I mean, it's possible I was involved - well, quite probably involved in a discussion with him of that nature.

167    He was pressed as to what might need to be tidied which produced the following exchange:

And what was untidy about the affairs of JA Investments?---Well, it should be - the shares should be in Peter's name. They shouldn't really be in the nominee company's name.

Why?---No particular reason, just to make clear what the situation was.

To make it clear to the outside world that - - -?---Well, these - these - -

I'm sorry, Mr Gould. You wanted a person's name on the members register so that if anyone asked formally who was the owner of this entity, they would not get an entity with the name Offshore Nominees Limited, they would get a person. That's what you wanted, wasn't it?---No. I think you will find that what happened was that the - Peter was also establishing a bank account in England at that time and it was important that basically it was clear, because it was a bank account for JA, that the shares were registered in his name.

168    The answers began with the proposition that the change was made because the shares should be in the name of Mr Borgas. When asked why that may be, Mr Gould could not give a reason. Then, having indicated there was no particular reason, he immediately pointed to a very particular reason concerning the establishment of a bank account. I do not accept this explanation which emerged in a most unconvincing manner. Other problems with that account are addressed below.

169    Mr Gould was also taken to a written resolution headed 'J.A. INVESTMENTS LTD. ("the Company")' and signed by Mr Gould. It was in the following terms:

WRITTEN RESOLUTION of the sole Member/Appointer/Beneficiary of the Company passed as at the 6th day of February 2009 and made pursuant to the Articles of Association of this Company … THAT, I, Mr Vanda Russell Gould hereby acknowledge being the sole appointer of the Nominee Agreement held between the Company and Offshore Nominees Ltd, sole Member of the Company dated the 31st August 2005 THAT it is hereby authorised to cancel such Nominee Agreement with immediate effect. AND THAT Mr Peter Borgas be accepted and appointed as the Sole Member of the Company with immediate effect as in the herein attached Director resolution hereby being made part of the corporate minutes of the Company.

170    Mr Gould could offer no credible explanation for the fact that he had signed that document in the terms in which it was expressed. It was put to him that the change in shareholder occurred because Mr Gould had learned that the Australian Taxation Office was looking into the affairs of JA and some of its subsidiaries. In response Mr Gould maintained that it was not until 2010 that he became aware that the Australian Taxation Office was looking into JA's affairs and also maintained his evidence that the change occurred so that Mr Borgas could open a bank account for JA in England (as to which, see below).

171    Mr Gould was then taken to a letter from the Deputy Commissioner of Taxation to Bell Potter Securities Limited seeking information about international fund transfers to various entities including Chemical Trustee and Derrin Brothers. It was dated 29 January 2009. The letter to Ms Ratcliffe from Mr Borgas about changing the shareholding in JA was dated 5 February 2009. Mr Gould did not dispute that he had signed the document referring to the cancellation of the nominee agreement (with the same date as the nominee agreement to which reference has already been made) with immediate effect.

172    For reasons I have already given, I do not accept Mr Gould's account as to the circumstances in which he came to sign the nominee agreement or the suggestion that it did not operate according to its terms. Those findings are further supported by the fact that in early February 2009 Mr Gould went to the trouble of signing a document which cancelled the nominee agreement. Further, for reasons I have given, I do not accept Mr Gould's evidence as to why he signed that document which instated Mr Borgas as a shareholder of JA many years after the structure had been set up with Offshore Nominees as the sole shareholder. The fact that Mr Gould sought to explain away the document by testimony that lacked any credibility reinforces the significance of the document.

173    All these findings count strongly against Mr Gould's overall account as to what was occurring when it came to dealings by Mr Gould's Australian entities with the Offshore Funders being subsidiaries of JA and MH.

Concerns about control of JA and MH and the Offshore Funders

174    Mr Gould gave evidence about concerns that he had about his ability to control the offshore companies and that he might lose his ability to influence what went on. This evidence tended to contradict his evidence to the effect that those companies were not operated for his benefit.

175    When the issue of the nature of Mr Gould's own interest in JA and MH and the Offshore Funders was first raised with him in cross-examination, Mr Gould said that the structure whereby he only held a power of appointment was a concern because he could be removed as appointor and Mr Borgas could do something 'out of left field' and that he had been told by senior counsel involved at the time that JA was established that there was always going to be a problem because 'you cannot have control over these offshore companies'.

176    Although there was reference to client monies being involved, these concerns were initially expressed in terms of Mr Gould's own interest in controlling what was happening with the offshore companies. He explained how, unlike his Australian entities, when it came to the offshore entities he did not have rights as a shareholder to change the directors.

177    Mr Gould's evidence about the problem concerning control over the offshore companies and the comparison to Mr Gould's Australian entities strongly indicated that JA and MH were established by Mr Gould at his personal instigation and in his own interest as part of his personal financial affairs. Taken with the evidence concerning his attempt to conceal any involvement on his part with JA and MH (addressed below), there is considerable reason to doubt his account about his lack of any capacity, in practice, to influence the conduct of the financial affairs of JA and MH in his own interests.

178    It was only when Mr Gould was pressed about whether the concern about control was a concern to him that he then explained that concern in terms that he 'also had client monies involved' and that he was 'also dealing with a number of clients' moneys' (emphasis added). At this point in his evidence, Mr Gould was not suggesting that the sole reason for his concern was the alleged involvement of client monies. Rather, Mr Gould appeared to be answering on the basis that he had a personal involvement of some kind and he also had client monies involved which was a reason for concern.

179    In particular, there was a question and answer as follows:

And that's of a concern to you because it would put the funds and the assets in those entities out of your control; correct?---Not out of my control, but in terms - I'm also dealing with a number of other clients' moneys, and I had a general responsibility for supervising - or keeping an eye on what was going on, but that was the reality: that Peter Borgas basically, sort of, owned, you know, JA Investments and was the sole director of it and he had the capacity any time to remove me from holding the power of appointment, which was always going to be subject to the shareholders and - and more particularly, the - there was issues, in terms of - if I was just holder of a power of appointment, I was not a director, not a shareholder, how you would actually have any ability to enforce anything anyway was a question mark.

180    Like many of the answers given by Mr Gould, it is evident that he is searching for words that suit the case of the taxpayers rather than giving a frank account. Significantly, as has been mentioned, it can be seen that Mr Gould's reference to other clients' monies is added as something that is also happening. It is certainly not advanced as the only thing that he is doing as appointor. Further, it is revealing that Mr Gould says that 'Peter Borgas basically, sort of, owned, you know, JA Investments'. Then Mr Gould refers to the difficulty that he would have in being able to enforce anything, not that he has no personal interest to enforce. Taken as a whole the answer is indicating that Mr Gould had some kind of interest and that there were also client monies involved and together those are the things that gave rise to his concern. The evidence to the effect that Mr Borgas 'sort of owned' JA is contrary to evidence given at other times by Mr Gould to the effect that JA and MH and the entities controlled by them were conducted for the personal benefit of Mr Borgas and his family.

181    As has been mentioned, Mr Gould was taken to a letter that was sent by Gould Ralph Services to the law firm in the Cayman Islands that was arranging the incorporation of JA. In that letter, a concern was raised 'as to how the appointor safeguards himself from the company subsequently revoking that appointment'. It was put to Mr Gould that the statement in the letter indicated that he was concerned to retain control over JA. His answer was as follows:

No, I was concerned to have a measure of control if that was possible. And as [senior counsel] pointed out, in the end, it's impossible, basically, for the appointor to - other than have a moral persuasive ability to influence. That's about it. That's all you can do. In the end, if you have, basically, directors of these entities which you run off with the money, not much you can do about it. Because you've also got the practical problem - as the appointor you're not a shareholder, you're not a director, so you probably have no standing in the courts of the Cayman Islands to even bring an action to do anything.

182    The answer given does not address the basis for the question. If indeed Mr Gould had been told that it was impossible for the appointor to be able to exercise any form of control then why would he have been seeking safeguard from removal? The fact that he did so suggests that he was concerned about reserving personal control. His evidence seeking to diminish the obvious contents of his own contemporaneous letter casts doubt on the credibility of his evidence.

183    Later in his evidence, Mr Gould maintained that Mr Borgas owned the offshore entities (noting that he also gave some evidence about Chemical Trustee being operated for charitable purposes). If indeed, as his later evidence sought to suggest, Mr Borgas was the beneficial owner of JA (and MH) then it is difficult to see why there would be any reason for the concern beyond dealing with client monies. Mr Borgas would be entitled to exercise his rights of beneficial ownership.

184    At various points, Mr Gould intimated that his role as appointor was to be exercised in the interests of his clients and that JA and MH acted in some form of trustee capacity when it came to those interests because client monies were 'involved'. The only example Mr Gould gave of such alleged 'trustee' activities concerned the international superannuation funds of various clients. However, as will be explained, the evidence about those superannuation funds was to the effect that those activities were conducted through other entities and without the involvement of Mr Borgas at all. In short, there were no specifics as to what trustee activities were said to have been undertaken by JA and MH for clients of Mr Gould. The suggestion of some form of trustee role for JA and MH was so lacking in any detail as to lack any credibility.

The role of JA, MH and the Offshore Funders

185    It was not suggested that the Offshore Funders conducted finance businesses in which they provided funds for a range of borrowers. There were no records to suggest that there were other borrowers. On the evidence given by Mr Gould, their activities were centred upon providing funds to Australian entities controlled by each of Mr Gould and Mr Leaver (and, in the case of the Gold Trust, Mr Gould and Mr Raptis). As has been explained, Mr Gould maintained that the interest rate that was charged by the Offshore Funders was determined by Mr Borgas who would issue an invoice because he had the decision-making power. However, Mr Gould also gave evidence that he had an involvement with Mr Borgas and Mr Vara 'in determining those things' and that he would talk with them about what was appropriate. His account as to why that would be so when the business of the Offshore Funders was supposedly conducted for the benefit of Mr Borgas and his family was most unconvincing.

186    As has been mentioned, Mr Gould did give vague and general evidence to the effect that JA and MH (as distinct from the Offshore Funders) also acted as a kind of trustee for some of Mr Gould's clients (as well as for the personal benefit of Mr Borgas and his family). It was evidence that lacked any detail and therefore lacked credibility. Further, Mr Gould did not suggest that Mr Borgas was involved in arranging finance for those clients. Rather, he indicated in a vague and general way that JA and MH acted in some form of trustee capacity. Aside from mentioning dealings in relation to the superannuation funds of those clients, Mr Gould gave no details of the nature of the dealings where JA and MH were allegedly acting in a trustee capacity for clients of Mr Gould. As has been mentioned, the evidence as to the role of JA in dealings concerning the superannuation funds of clients of Mr Gould is addressed separately below. That evidence was confined to JA acting as the holder of the security interest in Hua Wang Bank. Otherwise, Mr Borgas was not involved in the dealings concerning the superannuation funds.

187    Mr Gould sought to explain his own ongoing involvement in the affairs of JA and MH (and the Offshore Funders) in various different ways. At times he sought to do so on the basis of what he described as his long standing friendship with Mr Borgas. At other times he referred to their 'collaboration'. In relation to Chemical Trustee, Mr Gould also referred to their alleged shared charitable purposes in conducting the affairs of that entity. These explanations were not consistent. They emerged as different explanations at different stages in Mr Gould's cross-examination when he attempted to explain why he was involved in communications with Mr Borgas and Mr Vara about significant aspects of the affairs of entities allegedly under the control of Mr Borgas.

188    Mr Gould described the way that activities of Chemical Trustee were conducted in the following terms: 'usually, if I put up something sensible, he [Mr Borgas] would go along with it, but he would make his own investigations. There were times when, basically, he said, "No, I don't think we should do that," and I would say, "Fine"'. This evidence indicated that Mr Gould was proposing to Mr Borgas what he should do in conducting the affairs of Chemical Trustee and Mr Borgas usually agreed. That is to say, Mr Gould instigated what would happen.

189    It was put to Mr Gould that Chemical Trustee was operated by Mr Gould giving instructions to Mr Borgas who would carry them out and Mr Vara would move the money around. Mr Gould responded to the effect that he (Mr Gould) was influential but he was not an officer of the company. He then went on to explain 'and so, for audit purposes, Peter Borgas had to approve and authorise everything'. It is a strange way to explain what occurred if indeed Mr Borgas was in control and he was the one arranging finance to be provided to the Australian entities.

Revealing answer given by Mr Gould as to his involvement in Chemical Trustee

190    On Mr Gould's account, at various times Chemical Trustee was a major lender to the Gold Trust and to CVC II. Chemical Trustee was an entity that was ultimately controlled by JA. As has been mentioned, Mr Gould maintained that Mr Borgas controlled Chemical Trustee in the interests of himself and his family. At one stage, it was put to Mr Gould that Mr Borgas did not manage Chemical Trustee's money. He disagreed. It was then put to Mr Gould that movements out of the bank account of Chemical Trustee were managed by Lubbock Fine out of London. Mr Gould gave the following answer:

Well, Peter was a - a - was a signatory, but practically we couldn't - or he couldn't open a bank account in Switzerland to deal in Australian dollars. So that's why it was dealt with - dealt with out of London.

191    It was a revealing slip of the tongue when it came to describing who conducted the affairs of Chemical Trustee. It was obvious that Mr Gould corrected himself in the course of giving the answer. In my view, the terms of the initial answer were accurate. It is understandable that Mr Gould would default to the real state of affairs that had applied to the conduct of those companies in which JA and MH controlled the shareholding. It was an activity that he had undertaken for decades with Mr Borgas.

192    The slip of the tongue prompted the following further question and answer:

Mr Gould, you said 'we' and then you said 'he'. You said 'we' because - - -?---Well, you know, I - I - I'm part of the system, in a sense. I'm their financial adviser.

193    In giving that answer Mr Gould was searching for an explanation for his use of the word 'we' when it came to the conduct of the affairs of Chemical Trustee. I do not accept the explanation that he gave. He was pressed with the same proposition and gave a further unconvincing answer in somewhat stuttering terms: 'That is incorrect, but certainly I was involved in - I've done - you know, I mean - you know, talking to them all the time'.

Efforts by Mr Gould to stop release of documents concerning JA and MH

194    Mr Gould was asked about the steps that he took to prevent the Australian Taxation Office from obtaining and using information about the affairs of JA and MH. He initially said that it was his preference that the Australian Taxation Office did not know that he was the appointor of JA. He was then asked whether he took any steps to stop that occurring. His initial answer was: 'Well, it probably would be my preference and that certainly would be true, but what I did I don't know'. He then said that he 'presently' [that is, at the time of being cross-examined] had no recollection as to whether he took steps to prevent the Australian Taxation Office from finding out that he was the appointor. He then said it was possible that 'we sought some legal advice on the matter, but I just don't recall'.

195    Mr Gould also gave evidence about events that occurred in relation to a subpoena that he received in 2012 in the context of proceedings brought by the Commissioner in Australia against Chemical Trustee. The course of that evidence (and the documents produced during the exchange) revealed that Mr Gould went to some lengths to object to those parts of the subpoena that sought documents about the extent of his power over the conduct of the affairs in JA and MH and did not produce documents in relation to his power of appointment that were held outside Australia. He said he took those steps on legal advice. For present purposes it is sufficient to find that the answers given support the submission for the Commissioner to the effect that Mr Gould went to considerable lengths to keep secret information of that kind.

Concerns about confidentiality of information about Mr Gould's role as appointor

196    Mr Gould was asked whether he did not want the Australian Taxation Office to learn that he was the appointor of JA. He began by saying that it was irrelevant to him because anyone who got a copy of the incorporation documents could tell he was appointor. He then said that he would prefer not to have to deal with the issue but that he didn't recall taking any active steps to stop that. He then said: 'I think it would be fair to say it would be my preference that [the Australian Taxation Office did not know that he was appointor], but that's all'. It was then put to him that he took active steps to prevent the Australian Taxation Office from finding out to which he answered: 'Well, it probably would be my preference and that certainly would be true, but what I did I don't know'. He said it was his preference because it was 'one less layer of aggravation'. All of this evidence sought to play down any interest that Mr Gould might have in keeping from the Australian Taxation Office knowledge of his role as appointor for JA.

197    Later in his evidence, Mr Gould was confronted with various documents about the extensive steps that were taken to preserve the confidentiality of documents concerning his role as appointor. Those documents and Mr Gould's responses to them indicated that Mr Gould had some interest in the affairs of JA that he did not want the Australian Taxation Office to know about.

Contrasting account given by Mr Gould in 2010 as to his role

198    In 2010, Mr Gould gave a different account of his connection to the Offshore Funders in which he made no mention of JA or MH or his role as appointor. In that year, the Commissioner sought freezing orders against Hua Wang Bank, Chemical Trustee, Derrin Brothers and two other companies. Mr Gould deposed an affidavit in those proceedings in which he gave certain evidence about the role of Mr Borgas in Chemical Trustee and Derrin Brothers. In that affidavit, Mr Gould cast himself in the role of accountant and advisor to the Offshore Funders.

199    In the affidavit, Mr Gould referred to the five companies the subject of the freezing order application as companies which had been his clients and described each of them as having 'a personal friend or client of mine as its major stakeholder'. Mr Gould referred to having had 'some personal involvement with each of these stakeholders'. However, he did not specify the nature of that involvement and did not refer to any involvement on his part in the conduct of their affairs.

200    In Mr Gould's affidavit in the freezing order proceedings, Mr Borgas was cast as the 'principal' of Chemical Trustee. There was no indication in the affidavit of the involvement of Mr Gould in the establishment of JA (the holding company of Chemical Trustee) or the attributes of JA (including Mr Gould's role as appointor). There was no account of the kind given by Mr Gould in these proceedings concerning the way in which he and Mr Borgas were said to have established JA nor the collaborative way in which Mr Gould now says they conducted the affairs of the overseas entities with Mr Gould making suggestions as to what should happen. For example, the affidavit stated:

The principal of Chemical Trustee is its director, Mr Peter Borgas, whom I have known for more than 25 years. Peter was born in Australia and has a natural affinity with me because of my Australian involvement. His father was a Lutheran pastor and we share a common interest in charitable activities. He works as a trustee and fund manager. He has been a wonderful supporter of what I have endeavoured to do for many years. I would speak to him on the telephone at least once a month, sometimes more often than that when particular issues arise.

201    In the affidavit, Mr Borgas went on to refer to investments by Chemical Trustee in new public companies of Continental Venture Capital. He deposed to conversations with Mr Borgas as to why it was worth investing in companies that were being floated. The plain impression conveyed by the affidavit was to the effect that Mr Borgas was an arms' length investor in public companies in Australia.

202    The contents of the affidavit do not conform with any of the conflicting accounts about JA given by Mr Gould in these proceedings. The differences reflect adversely on his credibility as to matters central to the taxpayers' appeals.

The approval of the accounts of Chemical Trustee by Mr Gould

203    Early in his oral evidence Mr Gould said that he did not approve the financial statements of Chemical Trustee. Later, he was cross-examined about that topic.

204    On 30 July 1999, Mr Borgas sent a letter on Derrin Brothers letterhead to Mr Vara at Lubbock Fine. It concerned accounts for the year ended 30 June 1998. It said: 'The financial statements referred to above are returned to you, duly signed and dated, on the strict understanding that they have been seen and approved by the Accounting Consultant'. Mr Gould accepted that he was the accounting consultant referred to by Mr Borgas in the letter.

205    Mr Gould was then questioned as to the correctness of his earlier statement that he did not approve the financial statements having regard to the contents of the letter. He began by saying: 'It would be occasionally - like, in this situation, Peter, for whatever reasons, wanted me to - me to see them, but …'.

206    Mr Gould was taken to other documents concerning Chemical Trustee and matters relating to Altrec Irrigation Inc and Mr Kurt Penberg. It was apparent from the contents of those communications that Mr Borgas was reporting to Mr Gould. In particular, there was a letter from Mr Borgas to Mr Vara of Lubbock Fine concerning the sale of shares by Altrec Irrigation. It included the following statement:

I confirm that in accordance with our mutual client's instructions, I have signed this agreement as a director of Chemical Trustee and have faxed the same to Mr Penberg.

207    Mr Gould accepted that he was the 'mutual client'.

208    There were other such written communications. As to one such communication Mr Gould gave unconvincing evidence to suggest that the 'mutual client' was Mr Borgas.

209    These communications showed that Mr Gould was a person whose approval or authority was required for matters relating to Chemical Trustee. They were inconsistent with Mr Gould's account to the effect that it was Mr Borgas who was in charge. They were also inconsistent with Mr Gould's various contradictory accounts as to the extent to which the affairs of Chemical Trustee (and other offshore entities) were conducted by Mr Borgas in the interests of the Borgas family.

The recasting of the accounts of Chemical Trustee

210    The accounts for Chemical Trustee were audited. Unusually for a United Kingdom company they had a financial year end date of 30 June, being common practice in Australia but not in the United Kingdom.

211    The audited financial statements for Chemical Trustee for the year ended 30 June 2009 were in evidence. They showed 'investments' of £18,922,513 as at 30 June 2009. The notes to the accounts showed that a considerable part of those investments were loan investments. They totalled £11,278,795 before write offs. A separate spread sheet for Chemical Trustee for the year ended 30 June 2009 listed three loans for the Gold Trust. They were shown in Australian dollar amounts with Sterling equivalents. The Australian dollar balance for year end for the three loans were $584,000, $15,000,000 and $900,000. Mr Gould accepted that these amounts were consistent with the audited accounts.

212    Separate accounts were prepared by Mr Gould for the purposes of filing Australian income tax returns for Chemical Trustee on the basis that it was an Australian resident for tax purposes. In a letter to the Australian Taxation Office in January 2016 concerning the preparation of those Australian accounts, Mr Gould said that he had not been involved in the preparation of the audited financial statements for Chemical Trustee and the staff at Lubbock Fine at the time had 'largely left'. Nevertheless, he said that he had access to the cash books which should enable Chemical Trustee to prepare the accounts. He did not explain why he might have such access.

213    In the letter, Mr Gould described the relevant activities of Chemical Trustee as 'dominated' by its share investments in Australian listed companies. He referred to the only other relevant activity of Chemical Trustee as 'its involvement in commercial loans in Australia'. He said: 'The loans basically were to Education Corporation … as trustee for the [Gold Trust] and to [another entity]. To enable these loans to be made Chemical has borrowed funds which it has serviced'. It was also said that interest owing by Chemical Trustee to JA as its parent company was partially met by Chemical Trustee paying expenses for JA. It was asserted by Mr Gould in the letter that when all the interest charged by JA to Chemical Trustee was brought to account there would be a substantial loss.

214    Mr Gould was challenged as to the truth of the statement in the letter that he had not been involved in the preparation of the United Kingdom financial statements of Chemical Trustee. It was put to him that it had been demonstrated by previous documents put to him that he had approved those financial statements in at least two years. Mr Gould gave the following answer:

Well, the answer is yes. I mean, basically, I have had no involvement in the actual preparation. I haven't recommended any changes or corrections to them and fundamentally they've been prepared by the Lubbock Fine's staff and certainly I don't recall ever the auditors - well, maybe they did once, but I don't know - the auditors ever speaking to me about it. So that is fundamentally correct. And, of course, you're talking about a couple of transactions in a sea of thousands. You can't just sort of say and make an assumption because I had some involvement in one transaction, ergo I'm involved in thousands of other transactions.

215    I do not accept this evidence. It is inconsistent with the written communications to the effect that Mr Gould was the mutual client of Mr Borgas and Mr Vara. It is also inconsistent with the evidence of the nature of the businesses conducted by each of them. As I have explained, Mr Gould's evidence as to the role of Mr Borgas in conducting the affairs of Chemical Trustee (and the other Offshore Funders) was confused, inconsistent and unconvincing. As the letter discloses, Chemical Trustee was involved in investing in Australian listed shares and providing funds to a few Australian companies associated with Mr Gould. There is evidence that Mr Gould communicated with Mr Vara about the settlement of the share purchases. There is no suggestion that Mr Vara conducted the share investment portfolio. There was some suggestion by Mr Gould in the course of his evidence that it was Mr Borgas who decided where to invest. The evidence was hedged with evidence from Mr Gould to the effect that he provided input and suggestions. For reasons I have given, I reject Mr Gould's account which seeks to distance himself from the conduct of the affairs of the Offshore Funders. I do not accept the credibility of Mr Gould's account as to those matters.

216    As to the advances made by Chemical Trustee, the evidence is to the effect that they were arranged by Mr Gould through dealings with Mr Borgas. The evidence of the actions of Mr Gould in relation to JA and MH demonstrate the clandestine way in which those dealings were conducted. As has been explained Mr Gould went to considerable lengths to keep those affairs out of the scrutiny of the Australian Taxation Office.

217    All these matters and regard to the consistently unconvincing evidence by Mr Gould seeking to distance himself from involvement in the affairs of JA, MH and the other Offshore Funders including Chemical Trustee cause me to reject Mr Gould's evidence that he was not involved in the conduct of the affairs of Chemical Trustee and the finalisation of its audited United Kingdom accounts.

218    In cross-examination Mr Gould accepted that Mr Vara and others at Lubbock Fine who had been referred to by Mr Gould were still at Lubbock Fine.

219    For those reasons, I do not regard the matters in the letter as explaining why new accounts were required to be prepared for Chemical Trustee from scratch, without regard to the audited accounts, in order to prepare the tax returns for Chemical Trustee as an Australian resident company.

220    In his oral evidence, Mr Gould attempted to cast further doubt over the audited accounts of Chemical Trustee. In answer to a question as to what was wrong with the existing audited financial statements, Mr Gould said:

Well, first of all, they were actually in compliance with UK standards, and they're not necessarily applicable to Australian accounting standards, and certainly not necessarily applicable to Australian tax standards, so the accounts had to be redone. Also, basically, the - the way they treated the valuation of currencies was - was different to what we do in Australia. There were just a number of issues. And also I don't think, you know, having looking at it, as my memory is, I just wasn't satisfied that they had actually done a good job.

221    When the proposition was put to Mr Gould that there were international accounting standards that applied both in the United Kingdom and in Australia, Mr Gould gave the following answer:

No. They're - they're - they're basically different in some important ways. Off - off the top of my head, I think - I can't - I just - it's a long time since I've looked at them, but they are different.

222    In considering the veracity of these answers I observe that Mr Gould had been asked about at least some of the audited accounts at the time. There is no indication that he had any concerns with those accounts. There is certainly no indication in the letter to the Australian Taxation Office that there were concerns of the kind enumerated in the answer. No detail was given as to why there were differences that required a whole new set of accounts. Further, the explanation given to the Australian Taxation Office concerned uncertainty about accounting treatment because of an inability to be able to interrogate people at Lubbock Fine. It was only when the veracity of that explanation was called into question that Mr Gould then proffered the suggestion that Lubbock Fine (and presumably the auditors) had not done a good job in their preparation (and the audit review). It will be remembered that Mr Gould had dealings with Mr Vara and Lubbock Fine over decades. There is no suggestion as to general dissatisfaction in their competence or ability to do a good job.

223    Further as will emerge, the differences between the audited accounts and the accounts prepared by Mr Gould could not be explained by the matters raised by Mr Gould.

224    By March 2016, Mr Gould had lodged tax returns for Chemical Trustee for the period 2000 to 2014 and had provided a copy to the Australian Taxation Office of what was described as the full general ledger for Chemical Trustee for that period. Balance sheets, profit and loss statements and cashflow statements were also provided by Mr Gould.

225    The profit and loss for Chemical Trustee for the 2009 tax year showed a net loss of $4,888,399 for the year. The audited profit and loss for the same period showed a profit of £2,827,346.

226    When questioned about the difference, Mr Gould again sought to attribute the difference to negligence on the part of the auditors. He suggested that the difference between the two sets of accounts was explicable by the fact that many of the assets on the balance sheet no longer existed or were valueless and had not been properly written off. When challenged about the proposition he gave the following answer:

Well, as we know, we talked the other day about double-entry accounting. You know, in the situation in the UK where they kept an investment which was at book value, let's say, but actually had become valueless, that needed to be reflected in the profit and loss account. But, you know, I never - because I never thoroughly looked at these accounts, you know, previously because they were - you know, there was nothing from this from an Australian tax point of view which if I looked at them they're just the accounts would have leapt out - leapt out at me. But when I came to actually sort of - or my staff did, to look closely at how these accounts were put together in the UK, that's when the problems started to come out and that's when we detected that there had been some serious - well, very poor accounting. They were just too casual in the way they did the accounting in the UK.

227    Again, the explanation for the difference concerns the treatment of the value of the shares held by Chemical Trustee. Mr Gould explained that the audited accounts had been prepared on the basis that the company was an investor in shares (that is, accumulating capital value) whereas the Australian tax accounts prepared in 2016 were on the basis that the company was a trader in shares (that is, seeking to generate income from buying and selling shares). I observe that this explanation appears to be inconsistent with other evidence given by Mr Gould that the shares were purchased and held for the long term using the Warren Buffett approach to investing. In any event, it is not an explanation as to why the contents of the audited accounts were in error in the sense that they might be viewed as unreliable as a record of particular amounts.

228    Incidentally, it was not the case that the audited accounts did not include a revaluation of the shares held. For the 2009 tax year they showed an amount of £1,950,503 as an amount of investments as being written off and an amount of £1,225,344 of loan investments as written off. There was a note to the effect that the investments were held on a long term basis and were not adjusted for short term diminution in value.

229    Mr Gould was taken to the Australian tax accounts' balance sheet for the 2009 tax year which showed a very large amount of cash at bank and total current assets of $15,504,551 of which almost all was 'Trading Stock - shares and convertible notes'. Significantly, there was no record of a loan of $15,000,000 having been extended to the Gold Trust. Mr Gould was asked about the apparent discrepancy with his evidence about the existence of a loan being extended in November 2008 by Chemical Trustee to the Gold Trust which was repaid in November 2009. The question and answer was as follows:

And then we move into liabilities. So that's the total assets. And if Chemical Trustee had lent money to the Educational Gold Trust, would it not appear as an asset in its balance sheet?---Well, no, if this was actually Chemical acting as a trustee for a third party. I just don't know, without the working papers, what actually the situation was.

230    I formed the view that in giving that answer Mr Gould was searching for a way to explain the obvious discrepancy between the accounts and his evidence about the loan rather than giving evidence as to his actual recollection. It is evident in the form of the answer which is expressed in terms of a possibility. It is also evident in the next question and answer:

Are you saying, Mr Gould, that Chemical was acting as a trustee for a third party when it made a loan to the Educational Gold Trust?---It's possible. I just don't recall 30 how that was - how that structured, and you would have to get the whole working papers out to have a look at it.

231    This is not evidence at all. It is a form of conjecture.

232    Mr Gould was then taken to the general ledger that had been produced after his letter to the tax officer in January 2016. He said that the general ledger would not necessarily assist because it 'won't have trust transactions in it'. However, in the general ledger there was the following entry for one of the bank accounts maintained by Chemical Trustee:

14/11/2008    PAY    Short Punch Trust    $15,000,000.00

233    The significance of that description is that Mr Gould had given evidence that the lawyers trust account to which the $15 million was transferred by Chemical Trustee after he spoke to Mr Borgas was for a firm of lawyers named Short Punch. Mr Gould made the connection quite quickly. There was the following question and answer when he was taken to the entry he said:

Do you see that, Mr Gould?---Yes. And Short Punch were the solicitors acting for this transaction on the Gold Coast. Of course, the problem is the whole transaction got repaid before the end of the financial year.

234    Mr Gould was then taken to another entry in the general ledger for a ledger account headed 'JA Investments'. The entry read recorded the $15,000,000 as a receivable from JA Investments:

14/11/2008    PAY    Short Punch Trust -

Short Punch Trust a/c for

Proposed Loan to        $15,000,000.00

235    Those were the only two entries in the general ledger in respect of the amount of $15,000,000.

236    Significantly, there was no entry posting the $15,000,000 amount to a loan account extended by Chemical Trustee to the Gold Trust. This was the way the amount was recorded in the Australian accounts prepared under the supervision of Mr Gould.

237    Therefore, what had been shown in the audited accounts of Chemical Trustee as a loan to the Gold Trust, was recorded in the general ledger prepared subsequently under the supervision of Mr Gould from the cash book records maintained by Chemical Trustee as an amount received from JA and paid to the Short Punch trust account. It prompted the following question and answer:

So I put it to you that the way it has been recorded as somehow JA Investments was responsible for the $15 million payment?---Well, quite possibly. I mean, basically the - Chemical has acted on behalf of JA Investments in relation to this transaction. You know, as I mentioned to you, some transactions which Chemical undertook were undertaken for other parties, including JA.

238    Given the bland terms of the affidavit evidence given by Mr Gould as to how the $15,000,000 was arranged, namely by calling Mr Borgas and asking him whether Chemical Trustee could lend $15,000,000 to the Gold Trust, the answer is significant. Pressed with the details of the accounting records prepared in 2016 from the cash book records of Chemical Trustee, Mr Gould was forced to accept that the source of the $15,000,000 was JA. It was not Chemical Trustee. Which brings into significance the findings I have made concerning JA, MH and Mr Gould. I have not accepted his evidence to the effect that he had no control over the affairs of JA.

239    The whole course of the evidence casts great doubt over Mr Gould's evidence about the $15,000,000 being a loan extended by Chemical Trustee to the Gold Trust. It is quite possible that the funds were under the control of Mr Gould in JA and he directed the funds to be funnelled through Chemical Trustee. However, it is not necessary to make any findings as to whether that was the case. It is sufficient to find, as I do, that Mr Gould's account about the $15,000,000 should not be accepted.

240    Indeed, the Australian balance sheet for Chemical Trustee for the 2009 tax year shows that Chemical Trustee had very substantial liabilities to JA. They were $39,104,897 as at 30 June 2008 and had fallen to $34,304,490 by 30 June 2009. The difference of $4,800,407 is the net movement in the JA general ledger account for Chemical Trustee as prepared in 2016 under the supervision of Mr Gould. As has been explained, that general ledger includes the amount of $15,000,000. Yet, there is no asset shown for a loan of $15,000,000 to the Gold Trust. It is just a direction of funds received by Chemical Trustee from JA to the Gold Trust which results in a liability by Chemical Trustee to JA.

241    Eventually, Mr Gould was forced to suggest, contrary to the rest of his evidence, that the reason the amount was not shown as a loan was because it was in and out in the 2009 tax year. However, that did not accord with the very substantial interest amount claimed to have been due by the Gold Trust to Chemical Trustee on the amount of $15,000,000 which formed one of the interest deductions claimed by the Gold Trust. It was another example of Mr Gould seeking to conjure an explanation that he thought suited the interests of the taxpayers rather than give a truthful account. When the inconsistency was pointed out to him he resorted to the mantra 'Well, without the working papers, I just can't really add anything to that'. It is not evident how resorting to working papers might explain why on the one hand when it suited one purpose he said that the $15,000,000 had been borrowed for a year and then on the other hand when he was seeking to explain a discrepancy he gave the explanation that the amount was quickly repaid.

Mr Gould's evidence about alleged charitable purposes of Chemical Trustee

242    At one point in his evidence, Mr Gould said that the understanding that he had with Mr Borgas about Chemical Trustee was that 'ultimately, we would … try to use it for charitable purposes'. Mr Gould gave evidence of the charitable purposes for which Chemical Trustee had allegedly been used. He described the things that 'we used it for'. This was not given as evidence of suggestions that Mr Gould made to Mr Borgas about how to use his funds. It was given as a list of charities that had been funded by both of them.

243    Reference has been made to an affidavit deposed by Mr Gould in 2010 in freezing order proceedings. In that affidavit Mr Gould said:

I agree that I was influential in encouraging Peter Borgas to make a $1 million donation to Moore Theological College in Sydney.

244    Mr Gould was asked about that statement. Mr Gould rejected the proposition that he instructed Mr Borgas to make that donation and gave the following further answer:

It's something we mutually discussed and agreed to. As we - as we've just said - I said yesterday afternoon, our principal purpose, when there was any surpluses in these entities, was to use them for charitable purposes.

245    Notice that Mr Gould did not refer to the purpose of Mr Borgas but rather gave his answer in terms of 'our principal purpose' as being to use any surplus for charitable purposes. As previously mentioned, earlier in his evidence, Mr Gould had given evidence about the beneficial ownership of the assets held by Chemical Trustee. He gave a long answer which began: 'The understanding that we had was that, ultimately, we would try with that company to - to use it for charitable purposes'. He then described various charitable efforts that 'we have' supported. He concluded his answer by saying that 'fundamentally, we just saw it as a, you know - as a vehicle for charitable giving'.

246    His evidence about charitable giving was followed by the following question and answer:

It's the case, is it not, Mr Gould, that sometimes you also used it to provide funds to your own personal benefit?---Yes. There were occasion[s] where I actually also borrowed money on commercial terms. That's - that is true.

247    Then, after a further question and answer, there was the following exchange:

Well, I put it to you, Mr Gould, that you also, when you received funds from Chemical Trustee, could have treated them in the books of account of your own entities and the books of account of Chemical Trustee in whatever way you wanted them to be treated and you simply chose for them to be treated as loans because that was to your benefit?---I disagree. They were loans. They were genuine loans. They were usually documented loans, and that's the way it was, because ultimately - you know, my interest was not for personal benefit, but for charitable purposes. So ultimately the benefits would go - flow back into Chemical Trustee. … Those sort of things, you know, are very close to my heart. I really think, you know, they're very good things to do and that's - I mean, I'm - I'm comfortably off. I don't really need any more money, but if I can help other people, we will.

(emphasis added)

248    Although these answers were focussed upon Mr Gould's account of charitable giving, the language used in the answers reveal that Mr Gould had an interest in Chemical Trustee which enabled him (either alone or acting together with Mr Borgas) to direct its surplus funds to charitable purposes. The language used, is certainly inconsistent with Mr Gould having no personal interest in Chemical Trustee.

249    Later Mr Gould described what he discussed with Mr Borgas when he travelled overseas to visit him. He was asked what he would do when he was there with Mr Borgas. Mr Gould answered:

We just talk about basically the business things that we were doing, you know, what was happening, updating on transactions I thought that I - that I basically perceived we might need to undertake in the future, talk about charitable giving, talk about basically a whole host of things.

250    Here, as on other occasions, the transcript records Mr Gould correcting his initial language. He began by saying that he was updating Mr Borgas on transactions 'I thought that I'. He then completed the sentence by saying: 'that I basically perceived we might need to undertake in the future'. Even the change in language does not suggest a conversation in which Mr Gould was making requests of Mr Borgas or making suggestions to him.

251    This account may be contrasted with his evidence in these proceedings about the charitable activities of Chemical Trustee.

The alleged $15 million loan by Chemical Trustee to the Gold Trust

252    Mr Gould's affidavit evidence about the $15 million loan allegedly extended by Chemical Trustee to the Gold Trust was to the effect that he decided that the Gold Trust should buy a property and he called Mr Borgas to borrow $15 million from Chemical Trustee, to which Mr Borgas agreed and sent $15 million to the solicitors for the Gold Trust.

253    There was no suggestion that there was a written loan agreement between Chemical Trustee and Education Corporation as trustee of Gold Trust or any documentation of any kind (aside from entries in the accounts of the Gold Trust). On Mr Gould's affidavit account, the agreement to lend the money was reached in a telephone conversation with Mr Borgas. He deposed to it in the following terms:

Peter, I'm hoping to [sic] Chemical Trustee can lend $15 million to Education Gold Trust. The loan will be interest bearing.

Yes, Chemical can lend $15 million.

254    Further, on Mr Gould's account the money was provided immediately without security and before an agreement to purchase the property. Indeed, on Mr Gould's evidence, in the end, the purchase did not proceed and the alleged loan was paid back a year later.

255    In a subsequent affidavit, Mr Gould explained why he was able to recall the effect of the words spoken so many years later. Mr Gould deposed that he was able to recall the conversation because 'the amount of money was so large' and it was 'such a stressful and significant transaction'.

256    Mr Gould then deposed to his recollection of asking Mr Borgas to deposit the $15 million into the trust account of the solicitors acting for the Gold Trust and that he could specifically recall talking to the solicitor at the time who he identified by name. He also said that he recalled speaking with a solicitor and that the gist of what he was told was that 'we had been gazumped'. He said that he asked whether there was any legal remedy.

257    Therefore, Mr Gould's affidavit account is said to be based on his clear recollection of detail by reason of the significance of the amount and the stress associated with the transaction. Even so, on Mr Gould's own account, the loan is very unusual and lacks any of the incidents that might be expected for an alleged arms' length borrowing from an overseas funder of a very large amount of money.

258    Mr Gould was challenged in cross-examination as to the existence of a loan agreement in the case of the alleged $15 million loan by the Gold Trust. It was first put to him that the various Offshore Funders acted in the manner that he required when it came to providing funds, a proposition that Mr Gould rejected. It was then put to him that there was no written loan agreement between Chemical Trustee and the Gold Trust or Education Corporation, to which he responded:

I don't know. I mean, I'm surprised if there wasn't one. But it's - I mean, that's only - only a very minor sum in the scheme of things, but I just don't know the - that detail.

259    Then when it was put to him that it was surprising that a loan that at one stage was over $15 million had no written agreement, Mr Gould responded:

Well, because that loan was in the process of being formalised into something permanent, but, as you know from what happened, the particular transaction never proceeded and the money got paid back.

260    Having first professed that he did not know the detail, Mr Gould immediately followed up with an answer which purported to draw on a recollection about the nature of the lending to the effect that the $15 million amount was in the process of being formalised and the transaction never proceeded. However, that does not explain why it might be that the amount of $15 million was sent by Chemical Trustee to the solicitors for the Gold Trust on the basis of a telephone call by Mr Gould to Mr Borgas before there was anything formalised.

261    As to the amount of interest due to Chemical Trustee, when cross-examined, Mr Gould maintained that there 'was always a discussion with - with Peter Borgas, Hasmukh Vara, in London' and it was 'simply untrue' to say that he determined the amount of interest. The fact that Mr Gould first nominated Mr Borgas and then referred to Mr Vara is revealing. If indeed there was a discussion with someone who determined the interest rate on a very large borrowing and that such discussions 'always' occurred, you would expect Mr Gould to be able to be specific as to whether it was Mr Borgas or Mr Vara that was the person with whom he agreed the loan terms. There is no mention in Mr Gould's affidavits of Mr Vara being involved in the arrangements concerning the $15 million.

262    The above evidence was given when Mr Gould was confronted with his own account by affidavit to the effect that he determined in accordance with a practice he had described in his affidavit, the interest liability that should accrue on the debt to Chemical Trustee in the 2003 to 2014 financial years. The practice described appeared to be the same practice that he alleged when it came to determining the interest to be paid by his Australian private entities on their borrowings which were from CVC I initially and then from the Family Trust after the alleged novation of the alleged loans.

263    Pressed as to whether Mr Gould had the same authority over the affairs of the Offshore Funders and JA, Mr Gould said that whereas his Australian private entities were owned 'by and large' by the Family Trust which conferred the capacity 'to actually exercise the rights of shareholders to change directors', he had no such right in relation to the Offshore Funders. Earlier he said that he did not own or the Family Trust did not own Chemical Trustee and he did not have the capacity to change the directors.

264    These answers are revealing. Mr Gould did not maintain that Chemical Trustee and the other Offshore Funders were owned by Mr Borgas. Rather, he said that his position in relation to those companies was not the same as for his Australian private entities. He then said:

I was not a shareholder, and the shareholders - yes. I had a power of appointment in it. The shareholders basically had the capacity to remove me from that power of appointment at any time. So I never was a shareholder of or had any capacity - legal capacity, except maybe a moral capacity, with JA Investments.

265    The difference concerns the source of his capacity to influence what occurred in relation to the overseas companies compared to his Australian private entities.

266    Later in his cross-examination, Mr Gould was asked about the purpose of the $15 million being brought onshore. He said that the amount was 'brought onshore for the purpose of buying … a strip section of shops in Surfers Paradise. He was also asked about his statement in his affidavit that he was advised by the vendors that they could not proceed. He said that presumably the receiver possibly got a better offer. When pressed, he said he could not recall anything about the transaction other than the fact it did not proceed. This evidence stands in contrast to his evidence that he recalled the detail because of the amount involved and the stress of the transaction. The inconsistency was characteristic of his evidence. Detail was recalled to suit the taxpayers' claims but when other details were sought Mr Gould claimed that he could not recall. Then when asked further questions Mr Gould would provide detail to support the taxpayers' claims. It was a consistent pattern that reflected adversely on the credibility of his account. It was a pattern that was evident in his further evidence about the $15 million.

267    Mr Gould initially said that he did not recall who was the vendor of the property that was the subject of the proposed purchase using the $15 million received from Chemical Trustee. He was then taken to a settlement statement for a property in Elkhorn Avenue, Surfers Paradise. It referred to 18 November 2008 as the date of settlement and adjustment and the subject line was 'Education Corporation of Australia Pty Limited Purchase from Glennington Pty Limited'. It showed a contract price of $15,000,000.

268    Next, Mr Gould was asked if the name Glennington rang any bells to which he answered 'no'. Mr Gould was then shown an ASIC search which showed that Mr Raptis was a director of Glennington at the time. Mr Gould agreed that the person recorded was the same Mr Raptis who was involved with Mr Gould in Education Corporation, the trustee of the Gold Trust. There was then the following question and answer:

Mr Gould, are you telling me that you did not know that Glennington Proprietary Limited, its director was Jim Raptis, who was involved with the Educational Gold Trust?---No. I mean I basically - I've never heard of Glennington. I mean I may have, but I don't recall ever hearing of Glennington, you know, previously. I mean - but Jim would have 30 to 40 separate companies, so it's - I don't dispute that basically he was involved with this property. He's the one who suggested that it was a reasonable purchase from the receiver.

269    Remarkably, at this point details emerged of Mr Gould's recollection about a transaction the details of which he could not remember.

270    Then there was the following exchange:

Well, Mr Gould, are you aware that Glennington and Mr Raptis were in a dispute with the Suncorp Metway Bank?---Well, obviously someone appointed the receiver, but the ins and outs of it, I really don't know.

You don't know at all, Mr Gould?---No, I don't know at all.

271    Mr Gould was then asked about whether he was aware of a dispute between Mr Raptis and Suncorp Metway Bank as to whether the property in Elkhorn Avenue was security for other loans that were in default. He gave the answer:

I don't know. I didn't - I mean I certainly did not - I mean it's possible the Raptis people could have told me, but I have no recollection of that whatsoever.

272    There followed a very revealing question and answer:

Mr Gould, are you aware that Educational Gold entered into a contract with Glennington Proprietary Limited to buy the property, and then soon after, Suncorp Metway moved into possession and refused to honour the sale?---Yes, now that you mention that, that's possibly right, because basically, you know, maybe it was over a couple of steps, but I mean in my mind, the ultimate contract that I was dealing with was with the receiver. But yes, and no doubt you're correct, that basically that in the initial stages Glennington was involved.

273    The turnaround in Mr Gould's evidence reflected very adversely on his credit especially given the way in which his affidavit evidence about the proposed transaction in respect of the $15 million had been expressed. I do not accept that the questions triggered the recollection. I formed the view that Mr Gould feigned having just remembered further details. It was one of many memorable parts of Mr Gould's evidence where I formed the view that Mr Gould was seeking to hide matters known to him that did not suit the claim that there were deductions. When confronted with further documents, Mr Gould then sought to explain or deflect.

274    The next question and answer made plain that Mr Gould knew about the detail and could recall being involved in the dealings. They were as follows:

I'm sorry, what do you mean by in the initial stages Glennington - - -?---Well, clearly, Glennington was the proprietor - so you've told me - of this property. I don't know that as a matter of fact, but assuming that's correct. I'm not disputing that it is, but then the receiver was appointed, and I basically was involved with negotiating - I don't even know I - I just don't recall anything about any negotiations even. I think it was all handled by the solicitors with the receiver as I sit here.

275    Notice how Mr Gould started to give evidence as to how he was basically involved with negotiating the agreement to purchase the property from Glennington as proprietor, but then said 'I don't even know' and 'I just don't recall anything about negotiations even'. Then he said that it was the solicitors who handled things with the receiver. It was most unconvincing evidence.

276    Thereafter, Mr Gould was asked whether he recalled a Queensland Supreme Court proceeding that found in favour of Suncorp Metway and that was why the sale to Education Corporation did not proceed. His answer was: 'Well, now that you mention it, you - it comes to mind there was a dispute, I agree, but what actually happened, I really don't recall'.

277    Mr Gould was then taken to a case report of reasons for decision in a Queensland Supreme Court proceeding which referred to CVC Private Equity Limited being a party to proceedings about the Elkhorn Avenue property. Mr Gould accepted that he was the Chairman of Continental Venture Capital, the parent of CVC Private Equity, at the time. He suggested that the company was a party because it had a mortgage on the property. However, he claimed that it was one of 'a myriad of other transactions' and it would have been handled by the managing director of Continental Venture Capital.

278    Mr Gould was taken to the part of the case report that referred to a caveat having been lodged by CVC Private Equity over the Elkhorn Avenue property in which it claimed an interest as a mortgagee in respect of Glennington's contingent interest in the purchaser's beneficial interest under a contract of sale to Education Corporation. The case report also referred to Education Corporation being made a party to the proceedings. Mr Gould professed not to have any knowledge about those matters. I do not accept that evidence.

279    Finally, it was put to Mr Gould that the entire transaction in respect of the Elkhorn Avenue property was simply Mr Raptis seeking to try and retain control and ownership of the property. He answered 'no doubt that would be a factor in it'. That answer was forced upon Mr Gould and stands in stark contrast to his account that the loan was for an investment opportunity.

280    For those reasons, I do not accept the credibility of any aspect of Mr Gould's account concerning the $15 million.

281    The Commissioner also relied upon evidence given by Mr Gould as part of an examination in 2020 to the effect that Mr Gould entered into transactions for clients like Mr Raptis using their funds to purchase a property so that the identity of the purchaser was not revealed. Mr Gould's evidence on that occasion included accepting that in some circumstances it would be shown as a borrowing in the accounts of one of his companies. A finding was invited that the $15 million transferred to the Gold Trust from Chemical Trustee was to assist Mr Raptis as Mr Gould's client and was not a loan. I make no affirmative finding characterising what occurred. It is sufficient that I do not accept Mr Gould's account.

Mr Gould's account about the interest charged to the Gold Trust

282    In his affidavit evidence, Mr Gould produced documents which purported to be a debit interest note for interest charged by Chemical Trustee to the Gold Trust on the $15 million loan. A debit note dated 1 June 2009 was for an amount of $1,000,000. It was signed by Mr Borgas. However, the accounting for that amount in the records of Chemical Trustee and JA produced to Mr Gould did not accord with that figure. As to the calculation of interest, it was said to be based on a rate of 10%, but if that rate was applied for the duration of the loan up until the debit note then the calculation was in error.

283    Mr Gould could not explain the discrepancies. Nor could Mr Gould explain how the interest rate had been set or why such a high rate of interest had been incurred for what, on Mr Gould's account, was a property investment for which there was to be documentation. These were further aspects that cast doubt on Mr Gould's account that there was a genuine loan of $15 million.

284    There was other interest claimed as deductions by Education Corporation as trustee of the Gold Trust. They concerned an earlier alleged loan of $1,000,000 to which reference has been made. As to that loan, there was a document that indicated that it had been extended on the basis that it was interest-free for the first 12 months and thereafter interest was at 8%. Mr Gould could not explain why such an arrangement might apply to the loan when it was claimed to be arranged on an arms' length basis.

285    Mr Gould was also taken to a subsequent document that referred to the loan balance being increased to $1.5 million 'subject to adequate security being maintained at all times'. There was no reference to any such security in Mr Gould's affidavit (although there was for other alleged loans). When cross-examined, Mr Gould gave the answer that the documentation for the loan and the security had 'obviously' disappeared. I do not accept that there was any such documentation or security for the loan.

286    There was another example on the evidence of a discrepancy between what was shown as a loan in the accounts of one the Australian entities controlled by Mr Gould and the audited accounts of Chemical Trustee. It was a loan to Fennelltown that was written off in the books of Chemical Trustee in 2007 but was still accruing interest in the books of Fennelltown. Mr Gould was unable to explain the discrepancy.

287    All these matters cast real doubt upon whether the debit notes reflected the terms of genuine arms' length loans agreed as between Education Corporation as trustee for the Gold Trust and Chemical Trustee.

Alleged interest due by the Share Trust to the Family Trust in the 2006 tax year

288    The deductions claimed by the Share Trust in the relevant period included an amount of $760,000 said to be interest due by the Share Trust to the Family Trust. Mr Gould deposed that in June 2006 he determined that the interest liability on the debt said to have been owed at that time by the Share Trust to the Family Trust should be $760,000 and that he 'also thought it would be desirable' for the Family Trust to pay $760,000 to CVC II because 'my perception was that [CVC II] needed money'. He said that he decided that the Share Trust should pay $760,000 to CVC II 'at the direction' of the Family Trust so that it would not be necessary to implement two bank transactions for one payment. There is no suggestion in his evidence that the $760,000 was to be treated as the payment of interest by the Family Trust to CVC II. Rather, the payment was being made by the Family Trust to CVC II because CVC II needed the money, that is to say it was an advance by the Family Trust because CVC II needed cash.

289    Mr Gould gave further affidavit evidence about the payment. He deposed to having had a conversation with the accounting staff in respect of the 'desirability' for the Family Trust to pay $760,000 to CVC II. He said that he asked his staff for suggestions as to how the amount could be allocated. He said that he agreed with his staff on how the payment would be made. There is no reference in Mr Gould's affidavit evidence to the amount of $760,000 being paid to CVC II at the direction of the Family Trust as a payment of interest due by the Family Trust to CVC II.

290    In his oral evidence, Mr Gould said there was an advantage in transferring the $760,000 directly to CVC II because it meant there were no double taxes on the amount transferred. Mr Gould did not mention the amount being directed to be paid to CVC II to discharge an interest liability on the part of the Family Trust to CVC II.

291    It was then pointed out to Mr Gould that the Family Trust did not return the amount of $760,000 as interest income in the 2006 tax year even though, on his version of events, it had earned that income, albeit that it had directed the amount to be paid to CVC II. Mr Gould also agreed that when the amount of $760,000 was received by CVC II it was recorded as a reduction in a loan amount said to be due by the Family Trust to CVC II, but on 30 June 2006 by journal entry it was recognised as interest income earned by CVC II. It was put to Mr Gould that the amount of $760,000 was not identified as a payment of interest when it was paid into the bank account of CVC II and that it was only given that character by end of year journal entry when it was decided it would be tax effective to treat it as a payment of interest rather than a reduction of monies owed by the Family Trust to CVC II (or as an advance by the Family Trust to CVC II).

292    Mr Gould was asked to explain why the amount of $760,000 was not shown as interest when it was received into the accounts of CVC II if indeed that was its character. Mr Gould referred to the money having been misdescribed when it first came into the accounts of CVC II. However, his own account was that the monies were directed to be paid to CVC II because it needed the money.

293    The nature of these events casts doubt upon Mr Gould's account that interest was charged by the Family Trust so that it, in turn, could pay interest to the CVC entity to be used to pay interest due by the CVC entity to the Offshore Funders. If indeed that was the nature of the arrangement then there would have been no uncertainty and you would expect Mr Gould's evidence about the $760,000 to have given an account consistent with arrangements of that kind. More importantly you would expect there to be no uncertainty as to how the $760,000 was to be recorded in the accounts of the Family Trust and CVC II, namely as a payment of interest.

The alleged refinancing with Derrin Brothers

294    In his first affidavit in the appeal concerning the Gold Trust, Mr Gould explained what he said was a further restructuring of the loan arrangements between the Australian private entities of Mr Gould and Mr Leaver on the one hand and the Offshore Funders on the other hand that occurred in 2006. On Mr Gould's account the restructuring involved the following steps:

(1)    CVC III would enter into an agreement to borrow funds from Derrin Brothers with borrowing to be guaranteed by the Australian private entities of Mr Gould;

(2)    Derrin Brothers would 'transfer a substantial sum' to CVC III which in turn would transfer the sum to CVC II as a loan from CVC III to CVC II;

(3)    CVC II would use the loan funds to repay existing borrowings from Normandy Finance;

(4)    CVC II would 'repay its debt' to CVC III 'by novating its receivables' from the Australian private entities of Mr Gould and Mr Leaver; and

(5)    CVC III would then become the private banker to those Australian private entities. It would 'owe a single debt' to Derrin Brothers and it would be owed the novated debts (including the debt of the Family Trust).

295    Mr Gould produced various documents said to record the restructuring.

296    However, what Mr Gould's explanation did not disclose was that the funds that Derrin Brothers provided to CVC III that were then paid to CVC II and used to discharge the debt to Normandy Finance were sourced from Chemical Trustee and another entity, Russell Associates Limited. Further, on the day after the funds were paid by CVC II to Normandy Finance, almost identical amounts to those which had come from Chemical Trustee and Russell Associates were received by those entities from Derrin Brothers. Therefore, the whole restructuring was a 'round robin' of funds.

297    Mr Gould was cross-examined by reference to the relevant documents. After he was taken through them, there was the following exchange:

You knew that happened, didn't you?---I agree that - basically that, you know, the funding, the cash came in - - -

I'm sorry, Mr Gould, I asked - I said, 'You knew that happened, didn't you?' by which I meant these offshore transactions between the entities are shown by red boxes. I said, 'You knew that happened, didn't you?'?---Well, broadly.

Can you answer that question?---I mean, broadly. I would have been fully aware of, basically, sort of, the whole transaction was being, you know, refinanced. Of course.

No. Mr Gould, but you were aware that it was the same amount of money going around in a circle, weren't you?---I don't think so. I think basically that the money is actually, sort of - look, I just can't recall, basically, exactly what I knew 15 years ago. But it's - but certainly I was keen, that's absolutely correct, keen to physically have the money - have enough money to absolutely repay the old debt. That's absolutely true.

And it looks more realistic to an outside person if actual money is transferred and passes through the hands, doesn't it?---Well, probably you're right. But basically - I mean, you could have done it another way. But I just prefer to actually have transactions where possible, evidence by actual cash movements. And certainly my recommendation would be to actually physically ensure that there were fresh money, so to speak, which ultimately comes in from Derrin Brothers to [CVC III].

298    The sequence of answers is very revealing. It must be understood in context. At the time, Mr Gould had before him a diagrammatic depiction of the flow of funds and the entities in the red boxes were Chemical Trustee and Russell Associates. It was obvious that the diagram showed a circular flow of funds. In my view, Mr Gould immediately understood what was demonstrated by the documents. He initially agreed with what they showed. Then confronted squarely with the circular nature of the flow of funds and its obvious significance for the evidence he tried to move ground. He was then forced to agree with, in effect, the significance of the circularity and its consequences for any claim that there had been a genuine restructuring of the debt with a new financier. The involvement of Chemical Trustee as one of the intermediaries was very significant given the other findings I have made. Precisely why Mr Gould would have been making some form of recommendation about the need for 'fresh money' is somewhat obscure, but it does suggest his involvement in the way in which the 'restructuring' was effected.

299    What the circularity shows is that there was no genuine restructuring of the kind described by Mr Gould in his affidavit. His evidence on this topic culminated in the following way:

Now, why, Mr Gould, did you want to, as you put it, refinance the purported loan from Normandy Finance to [CVC II]; why did you want to do that?---Because the term had basically expired. So basically had to be refinanced or possibly by negotiation possibly rolled over.

Well, Mr Gould, I put to you - Mr Gould, I'm sorry to say this but none of that is true, Mr Gould. I put to you that you simply wanted to refresh this so that, to outside observers, it looked as though these were genuine loans that were repaid and refinanced and that was the only reason for this transaction?---I completely disagree with you. Completely disagree. It was time that, basically, the money got repaid, it was repaid and it - and exactly how it was all sourced I'm not 100 per cent certain. This may be basically substantially correct.

Mr Gould, why did you not just renegotiate a longer term on the Normandy Finance Loan then?---Because behind it there would be other - and other parties who were involved. I presently don't recall why it was important that we did that but we did it.

300    This exchange was very revealing. Mr Gould could offer no explanation for the refinancing. Once the complete picture was revealed, the whole 'restructuring' was exposed as lacking any commercial rationale.

301    Finally, when it was put to Mr Gould that there was no refinancing and the funds just went around in a circle he resorted to the following answer:

Mr Gould, the funds just went around in a circle. There were no funds that went out to original lenders, according to this - according to this evidence?---Well, I disagree with you. I think you will find that whoever - there was another commercial reason for this, but exactly what it is, now I don't know.

302    The answer was feeble. It must be remembered that it was Mr Gould who had given evidence in his affidavits to the effect that there had been a refinancing at this time and explained the need for cash to meet interest commitments to the Offshore Funders. He was the one who had explained the alleged refinancing with Derrin Brothers.

303    Mr Gould's evidence as to these dealings reflected very adversely upon the fundamental narrative given by Mr Gould concerning the alleged interest deductions.

Source of funds for Offshore Funders

304    The ultimate source of the funds provided by the Offshore Funders was entirely unclear. It was accepted that each of the Offshore Funders was controlled by JA and MH. It was not suggested that the Offshore Funders were in the business of providing finance to customers in general.

305    Mr Gould was asked about where Mr Borgas obtained the very substantial funds that came to be provided through the Offshore Funders to Mr Gould's Australian entities. Even though on Mr Gould's account they had been close friends for thirty years and he was frequently consulted about the affairs of the Offshore Funders including as to the interest they would be charged and Chemical Trustee was operated for charitable purposes for which Mr Gould took personal credit, he was unable to provide any indication at all.

306    The nature and extent of documentation produced by the taxpayers in relation to the provision of very substantial finance over many years was minimal. There were no loan application documents as between the CVC entity and the Offshore Funders and no records produced of the kind you would expect if the Offshore Funders were arms' length financiers controlled by Mr Borgas in his own interests securing the necessary funds from a source other than Mr Gould himself.

307    These deficiencies in the evidence count further against the credibility of the account by Mr Gould to the effect that the Offshore Funders were an arms' length source of funds for the taxpayers which meant that interest had to be found to generate the cash to meet interest obligations to them.

Dealings with Mr Vara

308    The documents showed that transactions on the bank accounts of Chemical Trustee and other Offshore Funders were carried out by Mr Vara and others at Lubbock Fine. Mr Gould rejected the proposition that he gave instructions to Mr Borgas (to pass on to Mr Vara) as to how those funds would be moved or that he gave those instructions himself. He then said:

It would always be Peter's instructions. I was not an officer in the company. Yes, I was influential, but I wasn't an officer of the company and so for audit purposes, Peter Borgas had to approve and authorise everything.

309    Like many such initial answers, it was revealing for the way in which it was expressed. If indeed Chemical Trustee and the other Offshore Funders were beneficially owned by Mr Borgas (as Mr Gould maintained elsewhere in his evidence) then the explanation that Mr Borgas had to provide the instructions 'for audit purposes' was odd. It suggested that Mr Gould was the source of the instructions but that they had to be passed through Mr Borgas, not because he was the person who decided things, but because that was necessary 'for audit purposes'. It was certainly not the kind of answer that would be expected if indeed Mr Borgas operated JA, MH and the Offshore Funders for his own benefit.

310    As to Mr Gould's role in relation to the Offshore Funders, in evidence was a letter concerning Derrin Brothers sent by Mr Borgas to Lubbock Fine which enclosed a signed set of accounts for the year ended 30 June 1998. The letter said that the accounts were returned 'duly signed and dated, on the strict understanding that they have been seen and approved by the Accounting Consultant'. Mr Gould agreed that the reference to the accounting consultant was a reference to himself.

311    Mr Gould had earlier given evidence in the context of questions about Chemical Trustee that he did not approve the financial statements. Confronted with the letter about the accounts of Derrin Brothers, Mr Gould gave the following evidence:

Now, if I recall correctly, last week, Mr Gould, you said that you did not approve the financial statements of Chemical Trustee?---Well, that's true. It would be occasionally - like, in this situation, Peter, for whatever reasons, wanted me to - me to see them, but - - -

It's the case, isn't it, Mr Gould, that you approved the account - financial statements every single year?---I don't think so.

You don't think so?---No. I mean, yes, on this particular occasion, for some reason, he would have want me to have a look at it to make sure there was no adverse Australian tax implications.

Well, I put it to you, Mr Gould, that you had instructed both Mr Borgas and Mr Vara that you were to approve the financial statements before they were finalised?---I disagree with that.

312    As with much of Mr Gould's evidence, there is a shift in ground. The evidence was given against the background of the earlier denial by Mr Gould of involvement in approving accounts. Mr Gould began the evidence by saying that occasionally Mr Borgas (for reasons Mr Gould did not identify) wanted him 'to see' the accounts. He gave the answer in terms of 'for whatever reasons' indicating that they are reasons known only personally to Mr Borgas. Then the proposition is put to him that he approved the accounts for every single year. He did not deny that proposition. Rather, he said 'I don't think so'. If indeed, as Mr Gould's earlier evidence suggested, it was Mr Borgas who had to approve all such things and Mr Gould had no authority to do so, then the equivocation is very odd, even allowing for the considerable passage of time. Then, Mr Gould proceeded to give evidence of an actual reason, not indicated in any of his earlier evidence, as to why Mr Borgas asked Mr Gould to look at the accounts 'on this particular occasion'. Mr Gould said: 'he would have want[ed] me to have a look at it to make sure there was no adverse Australian tax implications'. But the letter does not suggest that Mr Gould was being asked to provide some advice about tax implications. It says that the accounts were provided on the strict understanding that they had been approved by Mr Gould. For those reasons, I find all this evidence to lack credibility.

Involvement of Mr Gould in determining interest rates charged by Offshore Funders

313    Mr Gould maintained that the interest rates that were charged by the Offshore Funders were determined by Mr Borgas who would issue invoices because he had the decision-making power. However, Mr Gould also gave evidence that he had 'an involvement with' Mr Borgas and Mr Vara 'in determining those things' and that he would talk with them about what was appropriate. His account as to why that would be so when the business of the Offshore Funders was supposedly conducted for the benefit of Mr Borgas and his family was most unconvincing.

Interest amounts that were accrued

314    As has been indicated above, a difficulty with Mr Gould's evidence as to the way in which interest amounts were allegedly determined is that even though there was no general accrual of interest amounts, some of the amounts claimed as deductions were accrued. For example, in the 2007 tax year the Share Trust claimed a deduction for interest of $280,000 due to the Family Trust which was accrued. The accounts showed that the amount was only partly reduced in the following year.

315    As has been explained, on Mr Gould's account the interest amounts claimed as deductions were charged so that the Family Trust would receive the cash needed to pay to the CVC entity so it could meet its interest liability to the Offshore Funders. Obviously, that could not occur if the interest charges resulted in an accrued liability that remained unpaid.

316    It was obvious that Mr Gould could see the inconsistency between the accrual and his version of what had occurred when it came to the interest charges. He intimated that despite the interest being showed as accrued there could have been a payment made. He said that he would need to look at the bank statements to work out what had happened. Precisely why that would be so was a matter that Mr Gould could not explain. Eventually, he seemed to accept that if the Share Trust had paid the amount to the Family Trust then it would be shown in the accounts, but he maintained that it was necessary 'to see the whole package to see what actually has gone on'. His evidence in that regard was most unconvincing. It amounted to the proposition that the interest amount might have been paid in some way but would still be shown in the accounts as a liability that was accrued (and therefore not paid). Further, Mr Gould accepted that if the amount of $280,000 had not been charged to the Share Trust then it would have been in a tax payable position for the 2007 tax year.

317    Further, in the 2010 tax year the Share Trust accrued an interest obligation of $100,000. When asked about that amount, Mr Gould tried to suggest that some other payments were made out of the Share Trust to meet the interest payments. He was unable to explain why an interest charge which on his account was made in order to have the cash to enable the Family Trust to pay amounts to the CVC entity so it could meet its obligations to the Offshore Funders would be accrued. He suggested that the cash might have been provided in some other way. However, he could not provide any logical reason as to why that would occur rather than the alleged interest amount simply being paid.

318    Interest due from the Share Trust to the Family Trust was also accrued rather than paid in the 2013 tax year.

319    When pressed as to these matters Mr Gould changed his evidence about the interest charges being raised so that cash was paid to enable the interest payments to the Offshore Funders to be met. He suggested that the Share Trust, at times, did not have the capacity to pay interest for a considerable period of time, but that did not mean that it did not have the obligation to pay the interest. He maintained that the interest due by the Family Trust to the CVC entity was paid but that the interest due from his Australian entities (particularly the Share Trust) was not paid. Of course, this inconsistency reflected adversely on his overall explanation of the nature of the alleged loan arrangements.

320    Mr Gould was also asked to explain the difference between two versions of the general ledger for the Share Trust for the 2012 tax year. One included an interest amount due in the 2012 tax year to the Family Trust and the other did not. It was put to Mr Gould that the documents indicated that there had been a change to include the interest some time after the end of the 2012 tax year. Mr Gould did not accept that proposition. In giving his explanation he suggested that dates on the documents indicated that they had been obtained from the records in 2019 and 2020 respectively, that is many years after the 2012 tax year. He said: 'Yes, the financial statements weren't updated until after 30 June, that's quite true, but they must have had this interest in them'. An answer of that kind was inconsistent with his earlier evidence to the effect that all the interest amounts were determined and paid before 30 June each year because there was a need to obtain the cash so that the CVC entity could meet the obligation to pay the Offshore Funder interest that was due by 30 June in each year. It prompted a question directed to his statement that the accounts were not updated until after the end of the tax year. Before the question could be finished, Mr Gould interrupted senior counsel to give the following evidence:

Well, I never said - the financial statements were never done contemporaneously at 30 June. They were always brought to - you know, because you had to do the tax returns. So the tax returns would be lodged, you know, before, you know, sometime probably, in this particular case, 2013. So that's when the full set of accounts would have been done, but why there's a problem here with this software, I just don't know.

321    The answer given by Mr Gould might have explained why the accounts were finalised after 30 June but it did not explain why, at that time, they would not include the interest that Mr Gould said had been calculated and paid before 30 June. It prompted the following question and answer:

Mr Gould, I put it to you that the interest amount was only worked out for the purposes of finalising the financial statements for the tax return, and it was worked out just prior to the date that you had to finalise the tax return, rather than on 30 June?---Well, that could well be the case that this was done - done, sort of - I mean, no, I disagree with that. I think I would have had known what I did in May, June, each year in terms of it - in terms of this interest - in terms of - because it was such an important issue. I had to physically make sure there was enough money to pay the actual interest, but what we actually - how we fine-tuned the - Settlement Trust with interest, I'm not - I just can't be certain of what happened. I don't deny that the actual entries could have been put through after 30 June, but I just don't know.

322    It can be seen that Mr Gould began by agreeing with the proposition in the question (which was no more than a restatement of the evidence he had just given). In my assessment, he then realised the inconsistency with his whole story about the way in which interest was worked out, being a version of events that relied upon the alleged authenticity of advances from the Offshore Funders (as third parties not controlled by Mr Gould) to support the existence of genuine loans. He then changed his earlier evidence to try and accommodate his overall version. It is an inconsistency that would be most unlikely to have occurred if indeed his version of events about the overseas loans was truthful.

323    His answer led to the following further question:

Mr Gould, do you see an inconsistency in the evidence you just gave, that you had to work out the amount of interest prior to 30 June, in order to work out how much would be paid, and the evidence of all of these documents that show that the interest to the [Gould Family Trust] was accrued, not largely accrued, not paid?

324    He answered that further question in the following way:

No, I don't, because, basically, it may well be that when I was looking through the draft figures, that we would have just had to accrue some interest in the Gould Family Trust. That's quite possible, but what I don't - what I'm saying to you is, though, the actual interest that we needed to get out of these companies, I had to get out before 30 June.

325    It is an answer which makes little sense. How could an entry into the accounts for the Share Trust to accrue an amount of interest due to the Family Trust, which entry was made well after the interest was required to be paid (so as to put the Family Trust in funds to pay the CVC entity so it, in turn, could pay the Offshore Funder), be something that would assist in paying the actual interest that was needed 'before 30 June'?

326    Even after he had been taken to the entries which exposed that in the case of the alleged interest incurred by the Share Trust to the Family Trust substantial amounts were entered in the accounts as having been accrued rather than paid, Mr Gould returned to restate his evidence about the need for interest to be determined to be paid to the Family Trust (so it could pay money to the CVC entity), albeit in terms that he 'would have had to have made a decision in May/June, with interest for the [Family Trust], whether it could pay interest or not'. His earlier evidence had been to the effect that some of his Australian entities were not charged interest because they did not have the cash available. His evidence changed to say that he knew how he was going to finalise the accounts as to the accrual of interest prior to 30 June (even though there was no cash to be paid for interest). Of course, Mr Gould's insistence that all was done prior to 30 June when cash had to be found to pay interest to the Offshore Funders was part of his answer to the Commissioner's case that all was worked out much later when amounts required for deductions were identified and then allocated descriptions of interest (or management fees) which did not reflect true obligations.

327    As was often the case, when confronted with apparent inconsistencies in the logic of his evidence Mr Gould added further detail that had not been provided in his affidavit or when first cross-examined on the topic. His further answers as to what occurred in relation to the accrual of interest sought to explain how it could be the case that a decision was made by him as to what the interest would be in May or June but the amounts were not shown in the accounts until many months later. They began in the following way:

Clearly, because of the amount of money that's going out in investments and things, it had no capacity in this particular year to pay - physically pay the interest. So that - but, nevertheless, in terms of, you know, how I was going to finalise the accounts, I knew prior to 30 June. When my staff actually put the entries through, I don't know, but we knew what we were doing prior to 30 June. But I would have made a decision, quite clearly, looking at this, no interest was going to be physically, you know, paid out of the Gould Family Trust [sic, Share Trust] - it doesn't have the money to do it.

328    Notice that Mr Gould said that he 'knew' what the amounts would be and that he would have 'made a decision' about the accrual amount even though he knew that there was no capacity to pay. Of course, his earlier version had been that those who did not have the cash were not charged. After that he had suggested that the accrual amounts were determined when the tax accounts were prepared only to correct himself and say that they were decided before 30 June and put through later when the accounts were prepared. A consequence of that evidence was that there were many months from when the decision about the interest to be accrued was made and the record was made in the accounts. It meant there needed to be some form of record maintained so that could occur. Precisely why that record would not be made in the accounts was not exposed. Rather, Mr Gould gave the following evidence:

Well, normally, you would have - have each of my accountants, you know, who were doing this, we would have had an agreement, like a piece of paper, which, obviously, it's now so - it's now a decade later; they've just gone in the bin. But when they put - finally put through the journal entry - what I can't say for certain is when the journal entries, okay, were put through. What we can say, with absolute certainty, is that prior to April the following year that journal entry was made.

329    Later, his evidence was that he would have told one of his staff members the amount of interest and they would have made a note. Which, of course, is different again to there being a piece of paper about which there was 'an agreement'. He said that this occurred 'in every case'. These dealings were not referred to in his earlier evidence which had been given before the issues with accruals were exposed in cross-examination.

330    Despite the course of the above cross-examination, Mr Gould maintained that it he was very concerned about the interest being paid to the Offshore Funders and that his 'fundamental objective' was to make sure that nothing was done that would render any of the Australian entities insolvent and that it was necessary to 'sort of raise the money within the group'. He maintained that he was always talking to 'the parties responsible for the debt' (that is, the Offshore Funders).

331    I do not accept any of this evidence. It is directly inconsistent with the accounting records which show the accrual of interest obligations, a lack of any meaningful basis upon which interest was charged and the further draw-down of funds from overseas as a means of covering the so-called interest charges allegedly incurred.

332    The whole course of Mr Gould's evidence about the instances in which relevant interest amounts were shown in the accounting records as having been accrued rather than paid (being evidence which went to the heart of his account as to why interest was genuinely incurred) reflected adversely on his credit.

Interest charges funded by transfers from offshore

333    As has been explained, a significant aspect of Mr Gould's account was to the effect that interest charges were determined by 30 June each year in order to ensure that cash was available to pay the interest liability of the CVC entity to the Offshore Funders. On a number of occasions in the course of his cross-examination, Mr Gould rejected the proposition that the alleged interest amounts paid to the Offshore Funders by the CVC entity were sourced from offshore. Later in his cross-examination he was confronted with records showing the frequency with which the funds to pay the alleged interest had been sourced from drawdowns of funds from offshore. He was forced to accept that had been the case on numerous occasions. He was also forced to accept that it was done in a convoluted way.

334    The extent and frequency with which this occurred is inconsistent with Mr Gould's earlier account. The change in his evidence reflects adversely on his credibility. Further, the fact that Mr Gould was forced to accept that on many occasions the funds to pay alleged annual interest to the Offshore Funders did not come from cash within Mr Gould's Australian entities, but rather came from offshore, undermines his account as to why there were genuine loan arrangements in place.

Offshore borrowings that did not accrue interest

335    On 11 July 2005, an amount of almost $5.5 million was paid by Lubbock Fine to Melbourne Insurance Company Pty Ltd. It was shown as an amount owing to Lubbock Fine in the balance sheet for Melbourne Insurance for the 2006 tax year. When taken to the relevant documents Mr Gould accepted that from the accounting records it looked as though Lubbock Fine had provided him with a loan of $5.5 million for almost a year with no interest. Initially, he proffered the following explanation: 'who knows what the terms were of that. Maybe there was an underlying something. There's some other dimension to it as usual'. That is to say, Mr Gould's initial answer was extremely vague and it was to the effect that there was some possible explanation that he did not identify in any way for Lubbock Fine providing Melbourne Insurance with a loan of that kind.

336    It was then put to Mr Gould that what was happening was that he had instructed Lubbock Fine to give him some money and the reason no interest was paid was that it was within his power to decide that interest would not be paid. Mr Gould then gave an answer which suggested that there may not have been a loan to Melbourne Insurance. He said: 'No. There would be an agreement as to what was going on here. I think it relates to one of my clients, but leaving that aside, I don't know without the working papers'.

337    This was a most unconvincing answer, especially bearing in mind that Mr Gould began by answering on the basis that it was a loan to Melbourne Insurance but was then able to say that there would be an agreement and that he thought it related to one of his clients. Despite further questioning he provided no indication at all as to how the payment of a very large amount of money to Melbourne Insurance at that time might relate to one of his clients. He gave no explanation as to why the activities of Melbourne Insurance might have been consistent with its receipt of such a large sum from Lubbock Fine for a client without giving rise to any interest liability despite the funds being retained for the better part of a year.

338    There was no indication in the accounting records that the affairs of Melbourne Insurance were complex or that receipts of the order of $5.5 million from overseas were frequent. When it came to other overseas dealings that had occurred many years ago, such as those that occurred in relation to the superannuation funds of his clients passing through overseas companies, Mr Gould was able to give detailed evidence as to the nature of those dealings.

339    Further, when confronted with accounting records that were inconsistent with his overall account concerning the interest charges claimed as deductions, Mr Gould frequently intimated that there was some unspecified dealing that he was conducting for his client. The nature of what those dealings might be went largely unexplained. Even taking account of the passage of time, it would be expected that Mr Gould could provide some detail as to possible dealings especially when it came to such a large amount of money being received into a private company otherwise being used for Mr Gould's own purposes. I formed the view that this and other vague references to possible dealings on behalf of clients were attempts to avoid having to concede obvious conclusions to be drawn from entries in the accounting records of companies controlled by him where those conclusions were adverse to the case advanced by the taxpayers.

340    The answers given by Mr Gould concerning the $5.5 million were even more unconvincing because of what happened next in his cross-examination. Mr Gould was taken to the general ledger for Melbourne Insurance for the 2006 tax year. It showed the amount of $5.5 million being recorded in a ledger account styled 'Sundry Creditors' and showed the creditor as Lubbock Fine. Mr Gould was then taken to the balance sheet for Melbourne Insurance as at 30 June of the following year, namely 2007. It showed a current liability in amount of $5.5 million as being owed to Normandy Finance. Further, the balance sheet did not show any amount as being owed to Lubbock Fine as at 30 June 2007 (or as at 30 June 2006). Rather, the only significant liability for the previous year was an amount of $7.5 million shown as being owed to Normandy Finance.

341    The balance sheet for the previous year showed an amount of just over $5.5 million as a liability to Lubbock Fine and a liability of $2 million to Normandy Finance. Mr Gould could not explain how, in accordance with ordinary accounting practice the two balance sheets could be reconciled. Asked to explain the discrepancy between the accounting records Mr Gould proffered the possible explanation that there had been an accounting error in the records for Melbourne Insurance for the previous year.

342    Further, the accounting records showed that in the 2007 tax year the interest expense incurred by Melbourne Insurance was to CVC III whereas the major liabilities in that year were to Normandy Finance ($5.5 million) and JA ($1.4 million) with the amount of $5.5 million having come in from Lubbock Fine the previous year without resulting in any interest liability in that previous year.

343    Why Melbourne Insurance was itself incurring an interest liability in the 2007 tax year which must have related (at least to a significant extent) to the amount of $5.5 million received in the previous financial year from Lubbock Fine, supposedly on behalf of an unspecified client, was unexplained.

Tax consequences of alleged deductions

344    The Commissioner demonstrated that the deductions for alleged interest charges (and management fees) in most instances operated in a way that produced little or no taxable income for the taxpayers. To the extent that there remained a small amount of taxable income in some instances, that was consistent with Mr Gould's view that a tax return that demonstrated some income had advantages for the taxation affairs of the taxpayer.

345    Mr Gould maintained that tax planning explained why it was appropriate to push through an interest expense (or a management fee) in an amount that meant that there would be no tax liability, provided the amounts were reasonable. At one point in his evidence, Mr Gould explained the way that this tax planning was undertaken. He said:

Obviously one - in terms of tax planning, one looks at is it possible in a reasonable way to end up with a - you know, a low tax to pay, and, no doubt, the accountant, when they've done that, you know, it has been a factor in terms of saying, 'Well, how do we achieve that?' And one reasonable way is by, you know, getting some reimbursements in for the actual management - the actual sort of wages and salaries which Melbourne Corporation actually has incurred. Someone has got to pay for them, and it's just part and parcel of the way groups work.

346    Although the example given concerned management fees, it exposed what Mr Gould meant by tax planning. He did not suggest that there were existing arrangements that were in place year to year with fees and charges raised to reflect those arrangements (whether they be interest charges on loans or management fees for services). Rather, his evidence was to the effect that you looked for a reasonable way to end up with a low tax to pay. When the deductions were needed you looked for ways to achieve 'low tax to pay'. One way was to look at charging a fee for what he described as 'actual management'. Similarly, interest charges may be imposed to achieve 'low tax to pay'.

347    The evidence showed that both management fees and interest charges were not charged consistently to the taxpayers. Rather, deductions were only claimed where they were needed to produce a low or nil tax outcome after allowing for other aspects of tax law such as utilising available imputation credits. Mr Gould accepted as much.

348    Later, it was put to Mr Gould that an amount of $406,750 that was charged to Philadelphia in the 2006 tax year was 'a calculation based on how much tax deduction was wanted to be put through Philadelphia'. Mr Gould's answer was revealing. It was in the following terms:

Simply untrue because you would be limited by - you had to make whatever you did fair and reasonable. And it's fair and reasonable that Philadelphia did pay some interest. Granted, in some years Philadelphia didn't pay interest because the - it's actually, you know, investing on behalf of the entire group in buying further shares and things of that order. But in this year, we decided to actually make some charges where, you know, I agree that in total the subsidiary didn't pay any interest, but - but the principle is still the same. You're just looking at - when you look at it from a group point of view, it makes eminent sense and that's what's taking place.

349    Significantly, Mr Gould did not refute the proposition that the amount was based upon what was required as a tax deduction. Further, his answer is to the effect that there was a decision made to charge in the 2006 year even though there was no charge in other years. It is apparent that during Mr Gould's explanation for why there was no charge in other years he saw the absence of logic in his own answer. He began by saying that the reason why Philadelphia was not charged interest in other years was because it was using its cash to buy 'further shares'. Later in his answer he recognised that explanation was an empty one because the interest charged in the 2006 tax year was accrued, not paid. There is really no explanation given in the answer. Its terms cast real doubt on the evidence of Mr Gould to the effect that there was a genuine loan to which the interest charge related. This is not an instance where there is regular charging of interest by reference to an identified loan balance at a reasonable rate of interest from which it may be inferred that there is a genuine loan. Rather, considered in the context of the pattern of charging, interest is only charged when there is a tax reason for charging interest.

Fennelltown and borrowings for Mr Gould's personal residence

350    It will be recalled that Fennelltown was the trustee of the Settlement Trust (of which the Share Trust was some form of 'sub-trust').

351    Mr Gould was taken in cross-examination to the financial statements for the Share Trust for the 2001 tax year. It showed a loan by the Share Trust to Fennelltown (the trustee of the Settlement Trust) as at 30 June 2000 of $1,879,836.82. He was asked whether he knew what the loan was for. His answer was 'no'. He was pressed as to whether he had any idea what it was for and he answered 'Well, it could be relating to a property purchase, but that's - that would be a guess'. He was asked what property that could be and he answered that it could be the property in which he currently lives. He identified the address for that property as number 2 in a street in Chatswood, but said that it 'does have another little bit of property'. He was asked to explain what he meant. He then said:

Well, there was an - like, an adjacent property was purchased to number 2, which I think was 4, but there's nothing on it. It's just vacant land.

352    It then emerged that, when purchased, number 4 had a house on it which Mr Gould had demolished and now: 'It's just a garden and a large fish pond'. He then agreed that his residence was on a double block of land. He was asked when he acquired number 2 and number 4 but said that he could not recall.

353    This unconvincing sequence of answers by Mr Gould eventually extracted agreement that there had been a loan of over $1.8 million by the Share Trust to the Settlement Trust that was for domestic purposes.

354    Yet, when Mr Gould was then asked whether he could explain why a loan amount shown in the accounts of the Share Trust as a loan from Fennelltown (the trustee of the Settlement Trust) to the Share Trust could have been used to acquire the house in which he lived, Mr Gould answered: 'Well, I'm not saying it did'. He then went on to say:

Because basically it's possible Fennelltown was doing something else, but ultimately, you know, Fennelltown was used for some of my domestic purposes; that's true. But in what year and when I just don't know.

355    So, by this point Mr Gould had moved from not knowing anything about the amount, to being very coy about 'another little bit of property' that formed part of number 2, but had then gradually accepted that it was a double block with the adjoining lot having been purchased and the house demolished to form a garden. Then he resisted the proposition that the loan amount that the Share Trust owed to Fennelltown (the trustee of the Settlement Trust) as depicted in the accounts was used to purchase the house in which he lived.

356    Mr Gould was then asked what he meant by 'domestic purposes' to which he responded: 'Well the acquisition of this additional property [that is, number 4]'. It was then put to him that Fennelltown acquired number 4 to which he gave the following confused answer:

Well, I just can't - I just don't recall, but the figure - just certainly not of that number. So basically I don't - I just - you would have to actually do a very detailed search to work that out.

357    It was then put to Mr Gould that Fennelltown was used to provide the funds to purchase number 4, to demolish the house and to put in the garden and this is what he meant by 'domestic purposes'. He answered: 'Well, maybe. I mean it's - I just don't know, really. It's sort of - exactly how I - how we sorted that out at that time'. This is a strange answer because it suggests he did not himself know what he was referring to when he used the term domestic purposes. Given that it was a term that he deployed when being pressed for a response it is very odd that a few questions later he would indicate that he did not know what he meant when he used that term.

358    The entire course of this evidence from Mr Gould was very unconvincing. I formed the distinct impression that Mr Gould was seeking to keep the topic of the use of funds out of scrutiny but was forced to accept that the loan by the Share Trust to the Settlement Trust had been for domestic purposes.

359    Significantly, by journal entries at the end of the 2003 tax year, the loan came to be included with the indebtedness of a number of other Australian entities controlled by Mr Gould as debts that were due to the Family Trust. It appears that this was part of the purported restructure by which various entities within Mr Gould's private group of companies were all novated so that they were owed to the Family Trust with the Family Trust taking on the debt that was allegedly owed by those companies to CVC II. The general ledger for the Family Trust indicates that the Family Trust took on receivables from other entities. The purpose for which these borrowings were incurred was not demonstrated by the taxpayers. Together, these amounts gave rise to the debt allegedly assumed by the Family Trust to the CVC entity. On the basis of the journal entries, it is an amount that appears to include the domestic borrowing to purchase the property in Chatswood.

360    The receivable in respect of the domestic borrowing was eventually written off. Mr Gould could not account for why that occurred.

361    These matters are all inconsistent with the overarching account given by Mr Gould and reflect adversely on his credibility.

Swire Investments Limited and 'Beer'

362    In the course of his cross-examination, Mr Gould was taken to a document which showed that in 1987, Mr Borgas and his wife had been appointed as the directors of Swire Investments. Then Mr Gould was asked about his relationship with Swire Investments and he said:

I cannot recall exactly what my relationship was. But it was somehow being used for one of my clients - and friend - Mr Ian Gowrie-Smith's purposes, but precisely what now, I don't know.

363    In evidence was a companies form showing that Mr Borgas was appointed as the director of Swire Investments in May 1987. When taken to that form, Mr Gould proffered evidence to the effect that Mr Borgas was working with Mr Gowrie-Smith. When asked whether he was saying he had nothing to do with Swire Investments, Mr Gould gave the following answer:

No, no, of course I did, As you can see, I've entered into some negotiations with Swire. … In the account you showed me, a minute ago, we got Swire Investments there, so, I mean, yes, I've obviously got - I - I don't - of course I have something to do with Swire Investments.

364    It was the kind of answer that was given by Mr Gould throughout his evidence. It was a kind of non-answer that played for time, to see what was coming next. I formed the view that he was initially going to give his account of what he said was the extent of his interest (by describing the nature of the interest that he said he had in Swire Investments), but he finished with the rather strange statement that he has something to do with the company. I am reinforced in this view by the next question and answer:

What was your relationship to Swire Investments? What role did you have?---I cannot recall exactly what my relationship was. But it was somehow being used for one of my clients - and friend - Mr Ian Gowrie-Smith's purposes, but precisely what now, I don't know.

365    Mr Gould was then taken to a facsimile transmission dated 21 August 1991 addressed to Mr Gould. It was from Ms Joyce Hancock of Lubbock Fine. Mr Gould described Ms Hancock as a 'bookkeeper accountant' who worked for Lubbock Fine. Mr Gould accepted that the facsimile showed that Lubbock Fine carried out the administration of Swire Investments in the same way that they did for Chemical Trustee. Included in the transmission was a heading referring to Swire Investments and a request for Mr Gould's authorisation regarding payment of a 'final fee note'. He was asked why his authorisation was being sought. He gave the following answer:

Because the - Ian Gowrie-Smith, who was the beneficial owner of - well, not - sorry, he wasn't. Or he was - one of his trusts was. Would have authorised me to manage these sort of details. Which I did.

366    An exchange ensued about what he meant. He said he was doing it on behalf of Mr Gowrie-Smith. He then resisted the proposition that Mr Gowrie-Smith was the ultimate beneficial owner of Swire Investments. He maintained that the beneficial owner was one of Mr Gowrie-Smith's trusts, though Mr Gowrie-Smith could be said to be the owner 'in a pragmatic sense'.

367    These answers can be compared to answers that Mr Gould gave quite early on in his cross-examination. Mr Gould was asked whether the first time he used the services of Mr Borgas was for Swire Investments. His answer was to the effect that Mr Borgas 'was involved with Swire' and that 'somehow Swire was involved with Ian Gowrie-Smith'. When asked whether he could recall who the ultimate beneficial owner of Swire Investments was, Mr Gould answered: 'No, not really'.

368    Mr Gould also said that it was Mr Gowrie-Smith who dealt with Mr Borgas about matters concerning Swire Investments. Mr Gould denied that he controlled Swire Investments. He agreed that Lubbock Fine did the administration and prepared the accounts for Swire Investments in the same way that they did for Chemical Trustee.

369    Mr Gould's evidence about Swire Investments and Mr Gowrie-Smith was significant in a number of respects. First, Mr Gould began by saying he could not recall exactly what his relationship was with Swire Investments, but a few questions later, when confronted with the facsimile addressed to himself, he was able to give detail to the effect that his dealings concerning Swire Investments were undertaken in his professional capacity acting on behalf of Mr Gowrie-Smith. Second, Mr Gould denied any personal interest in Swire Investments. Third, Mr Gould did not suggest that Mr Borgas had any ownership interest in Swire Investments despite the fact that Mr Borgas and his wife were the directors of the company. Rather, his evidence was that Swire Investments was beneficially owned by Mr Gowrie-Smith.

370    Mr Gould was also taken to a further part of the facsimile that was headed 'Beer'. It recorded the balances in a number of accounts. It included the following question:

Are you moving funds in the near future or would you wish these $'s transferred?

371    Further down were headings 'Red Wine' and 'Champagne'.

372    Asked about the headings, Mr Gould said that they were just names that were used for the purpose of acquiring shares. Asked to confirm that he was saying that Beer was a name that was used for buying shares, Mr Gould described it as an account. He was then asked whether Beer was an entity and he answered: 'Probably. Probably'. When asked what entity it would have been he gave the following answer:

I would - well, I need to check my - I haven't got any records. But I would need to, sort of - you know, back then I would have known. But, presently, I'm not certain.

373    I formed the view that he was initially going to say that he would need to check his records but then realised that there would be a difficulty with an answer of that kind which suggested that he had records relating to such matters. He then shifted ground and eventually professed a lack of present knowledge (despite being able to say moments before that Beer was probably an entity). It was a most unconvincing answer.

374    There followed further cross-examination about part of the contents of the facsimile under the heading 'Beer' that said: 'The Normandy John Thomas Account has been ascribed as Swire on their confirmation'. Mr Gould initially said that he had no explanation for the statement. It was put to him that the money was beneficially owned by a particular client of Mr Gould (not Mr Gowrie-Smith). His response was that he strongly disagreed with that statement but indicated he could not say more than that. It was a strange answer because despite being unable to provide any explanation for the statement at all he was able to be emphatic that it was not beneficially held for a particular client but could not say anything more.

375    Next, Mr Gould was taken to the annual return for Swire Investments for 1993 which showed that the company secretary was M & N Secretaries Limited. He was asked who they were. He answered:

-Well, I - I'm not certain. I - I think they're an independent secretarial company that could be related to - to Lubbock Fine. I - but I'm just not certain now who M & N Secretaries are. Certainly I've seen the name before. I just - I can't be certain now.

376    I noted evident hesitation in giving the answer. I formed the view that Mr Gould was reaching for a way to answer the question that suited the taxpayers' case rather than providing a frank response. This was not the only occasion when Mr Gould's answers gave that impression. It was then put to Mr Gould that other offshore companies with which he was associated had used M & N Secretaries to provide services as a company secretary. He agreed and said: 'that's why I said I know the name, but precisely who owned M & N Secretaries then, I don't know'. So, having initially indicated that he thought they were an independent secretarial company and was not certain who they were, when confronted with a question which indicated that the questioner knew of his connection to the company, Mr Gould then gave an answer which made plain that he knew of the company and what it did. This form of exchange was characteristic of his evidence.

377    Mr Gould was then shown an entry which listed the directors of M & N Secretaries as Mr Borgas and his wife. It was put to Mr Gould that they acted on his instructions in relation to Swire Investments. He answered: 'I disagree with that. That's completely incorrect'. It is difficult to square that answer with the earlier exchange to the effect that Swire Investments was owned by a trust controlled by Mr Gowrie-Smith and Mr Gould was authorised to manage details concerned with Swire Investments. If that were so, you would expect Mr Gould to be able to give and to have given instructions to the company secretary. However, he was emphatic that the directors of the company secretary did not act on his instructions. In my view, this inconsistency in Mr Gould's evidence arose because of Mr Gould's attempt to maintain that Mr Borgas was not directed by him in any way when, in fact, Mr Gould did direct Mr Borgas as to what to do. This was because of his dogged insistence throughout his evidence that Mr Borgas conducted JA and MH in the interests of his own family. For reasons given elsewhere, that evidence lacked any credibility. The attempt to maintain that false depiction of the nature of Mr Gould's dealings with Mr Borgas produced the inconsistency when he incanted the same response even though his position was that Swire Investments was owned beneficially by Mr Gowrie-Smith (and consequently not the family interests of Mr Borgas).

378    Mr Gould was then shown the accounts for Swire Investments as at 30 June 1992 and 30 June 1993. They showed that in 1992, Swire Investments had very considerable investments and liabilities (in the order of £5 million) but by June 1993 the company had very little by way of assets and liabilities. Mr Gould was asked if he could provide an explanation. His answer was:

No, save for the fact that I - I believe this company was once involved in acquiring a substantial - like, a takeover, of some description. But, more than that, I have no recollection.

379    Next Mr Gould was taken to the accounts for Philadelphia for the 1993 tax year. They showed a non-current receivable as at year end from Swire Investments of $389,818.56. It was included under the heading 'Loans, related corporations'. So, according to those accounts, in 1993, Philadelphia was owed what Mr Gould accepted was a substantial amount of money by Swire Investments which was reported to be a corporation that was related to Philadelphia.

380    Asked to provide an explanation for the discrepancy between the accounts of the two entities (namely Swire Investments and Philadelphia), Mr Gould said that it was possible that the accounts of Swire Investments were incorrect. He otherwise offered no explanation beyond referring again to Swire Investments being involved in 'a takeover situation'. As to the reference to a takeover, it was apparent from the earlier course of his evidence that Mr Gould was referring to involvement by Swire Investments in an acquisition of another entity by way of takeover. An involvement of that kind would not explain why the accounts of Swire Investments changed radically between 1992 and 1993 and also would not explain the discrepancy between those accounts and the accounts of Philadelphia. The evidence of Mr Gould was also inconsistent with the identification of Swire Investments in the accounts of Philadelphia (which, of course, is one of Mr Gould's companies) as a corporation that was related to Philadelphia and an entity that had lent a considerable amount of money to Swire Investments.

381    Later in is cross-examination Mr Gould was taken back to his earlier oral testimony that Beer was probably an entity. He was asked whether he recalled anything further about the entity and he gave the following answer:

It - looking at, like, the other entities, that - you know, Lumbar Investments [also referred to in the facsimile from Ms Hancock to Mr Gould], they're probably UK companies, I would have thought, but - - -

382    Mr Gould also gave evidence that the references to 'Red Wine' and to 'Champagne' were probably to UK companies.

383    The topic was returned to again when Mr Gould was asked questions about the contents of an affidavit that he deposed in family law proceedings between Mr Gould and his then wife. The affidavit was deposed in February 1993 and it took the form of answers to specific questions that had been posed by lawyers acting for the wife in those proceedings. The questions referred to a statement of financial circumstances that had been sworn by Mr Gould in March the previous year.

384    Mr Gould was taken to a question which asked Mr Gould to specify various details in respect of 'the Beer Trust (formerly called the Gould Trust)'. He was asked whether that prompted his memory as to what the word 'Beer' might have meant in the facsimile from Ms Hancock of Lubbock Fine. He gave the following answer:

Not - not really, because - I mean, clearly I - I was doing something for Ian Gowrie-Smith, but I - I just - I just - what on earth we were endeavouring to do, I really don't know.

385    So, despite being taken to the affidavit in which Beer was identified as a trust that had been called the Gould Trust, Mr Gould maintained his uncertainty as to what the Gould Trust was doing. He also identified the Beer Trust as being conducted for Mr Gowrie-Smith thereby equating it with his evidence as to the character of Swire Investments.

386    Mr Gould was then taken to some of the answers that he gave in his affidavit specifying details in respect of the Beer Trust. Those answers included: 'The Beer Trust was established on February 25, 1985'; 'The settler [sic] was Cosmopolitan Trust Corporation Limited …' and 'The Trustee was Brook Security & Trust Corporation Limited …'. There was also an answer to the effect that the original appointor was believed to be Mr Gould himself. There were also answers to the effect that the only variation to the terms of the trust was to change its name to the Beer Trust. This was said to have occurred on 15 February 1987. There was an answer to the effect that the only liabilities of the trust were incurred in situations where 'the trust has acted as a trustee or nominee for a third party and in these situations the liability would only have been of a vicarious nature associated with being a trustee and not for a specific liability'.

387    In the course of these answers being brought to his attention, there was the following exchange:

Mr Gould, it was called the Gould Family Trust, Mr Gould. You were a beneficiary, weren't you, Mr Gould?---I doubt it. I think you will find that - remember, as it says over here, I just noticed, Ian Gowrie-Smith. So I had his power of attorney. I did things for him, but exactly what's going on here, I don't know.

388    At that point, Mr Gould was still connecting the Beer Trust to something to do with Mr Gowrie-Smith.

389    Mr Gould was then taken to a document that had been annexed to the questions that were being answered by him in the affidavit. It concerned the state of affairs as at 30 June 1987. Mr Gould agreed that it showed that Yale Investments Pty Limited (an Australian entity of Mr Gould) owed a very large amount to 'Swire'. Mr Gould's attention was then drawn to a note in the document which said:

Similarly, the loan to Yale should equal monies from the Beer Trust, although the loan from the Beer Trust might be slightly higher.

390    It was put to Mr Gould that the document indicated that the Beer Trust had provided funds to Swire Investments which had then provided funds to Yale Investments in Australia. That is to say, the Beer Trust was, in effect, the source of the funds that Swire Investments had advanced to Yale Investments. Mr Gould emphatically rejected that proposition. He said: 'As you saw from the previous thing you quoted [the statement in his affidavit about the liabilities of the Beer Trust] it's only ever really been a nominee for third parties'. Mr Gould then gave further evidence that the 'Gould Trust wasn't worth a cracker' and it only acted on behalf of other parties 'in terms of, I think, a takeover situation, but I just can't presently recall'. There was then the following exchange:

Mr Gould, you just said the Beer Trust wasn't worth a cracker?---Yes.

How do you know?---I think I would know if it had anything in it other than acting in my professional capacity for third parties.

Going back to - - -?---Because it never had any funds offshore is really the real reason. I mean, that's why I can be very confident about that.

391    So, by this point, Mr Gould is giving firm evidence as to the financial circumstances of the Beer Trust. He is also characterising the financial affairs of the Beer Trust as only having things in it that arise from Mr Gould acting in his professional capacity for third parties. This is a very different characterisation than he gave when the reference to Beer was first raised with Mr Gould and he sought to describe Beer as some form of entity of Mr Gowrie-Smith. At this point, Mr Gould had not been taken to any document concerning the asset position of the Beer Trust. Nevertheless, despite being quite vague about the nature of 'Beer' and its activities when first asked about it and persisting in evidence to that effect when reminded of the terms of the affidavit, by this point he is able to state emphatically that he would have known if it had anything in it other than acting for third parties and that it never had any funds offshore. The way the evidence unfolded did not suggest that some aspect of what Mr Gould was shown triggered a recollection of these matters.

392    Mr Gould was then taken back to the facsimile from Ms Hancock and there was the following exchange:

And we now know that the Beer Trust used to be called the Gould Trust?---Yes.

When you say you never had any money offshore, do you include any trusts in which you have or had an interest?---Yes. I mean, this trust was only ever used for my client purposes, and sometimes people would ask me to buy shares on their behalf and provide the funding for it and I would do that, particularly in, sort of, Australian listed public companies.

393    So, having been unable to be specific about Swire Investments and Beer when first asked, being taken to documents that showed that (a) Swire Investments had lent substantial amounts to his Australian entities; (b) there was a trust that had been the Gould Trust the name of which was changed to the Beer Trust; and (c) Mr Gould had been the appointor of that trust, led to him giving evidence about connection to Mr Gowrie-Smith and not having held funds overseas. Then Mr Gould gave emphatic evidence to the effect that Beer was used to buy shares for the purposes of his clients and providing funding to them to do so. Further, the answer was given in terms that related to Mr Gould's clients more broadly and was not confined to the activities of Mr Gowrie-Smith. Mr Gould provided further answers along the same lines.

394    It was then pointed out to Mr Gould that before he was presented with the documents his evidence was that Beer was probably an entity, but he couldn't remember anything about it and now he suddenly remembered precisely what he used the Beer Trust for, to which Mr Gould responded 'Well, yes'. He was then asked: 'Has that just come back to you from looking at these documents?'. It was a question which afforded to Mr Gould an opportunity to explain the course of his evidence. Mr Gould responded:

It has. Basically the - but it has certainly never been of any consequence to me, but it's the sort of thing I would do for my clients.

395    It was an unusual way of responding to the criticism of his evidence that was posed by the question. His justification was to say that the dealings had never been of any consequence to him. That is, to suggest he did not remember because it did not concern his personal affairs. Yet, on his own account it was a trust established with him as appointor, that was called the Gould Trust, that changed its name to the Beer Trust and provided funding for and was used to buy shares for his clients. Why such matters would be of such little consequence that he would not remember them was not elucidated by Mr Gould's explanation.

396    I do not accept that the evidence unfolded in the way it did because Mr Gould's recollection was prompted in some way by being taken to the affidavit. The sequence in which the change in evidence emerged after Mr Gould was taken to the affidavit led quickly to emphatic and specific answers about the nature of the affairs of the Beer Trust which Mr Gould had initially said was an 'account' and probably a UK company about which he had an uncertain recollection. In fact, it was a trust that had been the subject of very detailed inquiries by those acting for his former wife in the course of proceedings in the Family Court. At that time, Mr Gould had given details concerning the Beer Trust and had said that the Beer Trust only incurred liabilities when it acted as a trustee or nominee for a third party. I have reached these views taking account of the passage of a number of decades since the affidavit was deposed.

397    My assessment of these matters comes from having observed Mr Gould's capacity to recall considerable details about the structure of his business affairs even though they had occurred in the 1980s and 1990s. Mr Gould presented as a person with considerable ability to recall details of the nature of his past dealings, particularly the nature of the business structures used by him in his personal affairs and in acting for his clients. Indeed, when it came to his version of events concerning dealings with Mr Borgas and the way in which JA and MH had been established and the nature of the advice that was taken at the time, Mr Gould gave evidence in quite some detail and with considerable firmness. Mr Gould also gave detailed evidence about the nature of the arrangements by which entities such as Hua Wang Bank were established, even though those events occurred some decades ago. He also was clear in his evidence about the way in which offshore superannuation arrangements were made for his clients. He did not present as a man with any lack of mental acuity when it came to giving evidence as to historical aspects of the case that concerned the corporate structures used by him, at least where that evidence suited the taxpayers.

398    Mr Gould's recollection about the Beer Trust soon expanded further. When it was put to him that he was paid to hide people's money offshore by using entities owned on paper by offshore service providers in order to deceive others including the Australian Taxation Office he suddenly was able to provide even more detail in the form of the following answer:

No. I disagree. The fact of the matter is, I think in all these - these situations, we're looking at buying shares for various people. In - in Australian public companies that probably is true, but I'm - I'm not buying them for myself. They're being bought for third parties. For lots of reasons, if you basically - if people knew who was buying, it would affect the market price. So essentially, you need to have a nominee which buys the shares, otherwise the market price would just jump. You know, lots of people, you know, follow who purchases shares. That's what's - that's what's going on here.

399    He followed up with another long answer:

It's - you know, obviously, you've got to watch all the - you know, the stock exchange disclosure requirements and things like that, not give above 5 per cent, all those other rules. But in - but yes, absolutely, that's what you do. Because the moment, you know, you started to buy shares in a company, you know, the market - if it's, you know, BHP, let's say, is buying the share, it will immediately affect the price. So the price jumps. And that's what you don't want to happen.

400    Then even more detail in response to the following further question:

Mr Gould, have you ever had a worry or a concern when you are following the instructions of clients to buy shares through these entities, that they may have some information that is not available to the market when they are instructing you to buy these shares?---Possibly. But usually, I mean, I would just - just - just do what they requested. They themselves ultimately, the whole truth will come out in time. And if there was such a thing, you know, ASIC would get on to them. But usually these were just companies purchased for, you know - you know, takeover situations or acquiring a substantial holding in something, and due course, it then gets regularised.

401    This is a remarkable amount of detail about what was being done in relation to the Beer Trust and compares starkly with the answers initially given by Mr Gould about the reference to 'Beer' in the facsimile from Ms Hancock. The comparison reflects adversely upon the credit of Mr Gould and indicates that his account was not genuinely given.

402    Mr Gould was then taken to a separate question (numbered 16) that he answered in his affidavit. It was a question framed by reference to the contents of a letter dated 22 August 1988 on the letterhead of Wah Dak Limited addressed to Lubbock Fine with the reference line 'Swire Investments Limited'. It was signed by a person who identified himself as a director of Wah Dak. The letter said:

We hereby confirm that the unsecured loan to Swire Investments Limited as at 31st March 1988, is £1,600,000.00 sterling. We also confirm we act on behalf of the Beer Trust (T. & C. 320) via this matter of the said £1,600,000.00.

We also act on behalf of the Greek Trust (T. & C. 321) and confirm the amount of unsecured loans to Swire Investments Limited as at 31st March is £555,000.00 sterling.

403    The question posed to Mr Gould that was answered in his affidavit was as follows:

Is it the position that as at 31 March 1988, the Beer Trust had advanced £1,600,000 to Swire Investments Limited via Wah Dak Limited?

404    The answer given by Mr Gould in his affidavit was as follows:

No, the expression 'we also confirm we act on behalf of the Beer Trust (TNC320) by this matter of the said £1,600,000' has no meaning. In any event, the husband's recollection is that this 'letter' was sent to him for correction. Thereafter, the 'letter' was taken by the wife out of the rubbish bin or from a pile of scrap paper provided by the husband to be used by children of the marriage for homework, drawings, etc, on the reverse side.

(errors in quotation from letter in original)

405    He was then asked whether there was anything more that he wished to say about the letter. He answered:

Well, what more can I say? I mean, I just don't have a recollection of any of these matters in the answer to question 16. However, I mean, I do agree that I did act on behalf of a number of people who wanted to buy positions in Australian public companies.

406    In effect, Mr Gould offered nothing further concerning the letter. On its face, the answer in the affidavit is so lacking in credibility that it should not be accepted. The suggestion that the author of the letter might have required input from Mr Gould as to whether its contents were correct when those contents included confirmations being given by the author of the letter about matters that were known by that author concerning the affairs of Swire Investments and the Beer Trust is not credible. Further, it seems to be most unlikely that the author would have sent a signed letter for the purpose of it being 'corrected'. Finally, it is absurd to suggest that a letter concerned with providing confirmation as to the amount of a loan would have no meaning at all, especially when, on Mr Gould's account, it was significant enough to be sent to Mr Gould 'for correction'.

407    In the affidavit Mr Gould also provided answers to questions concerning the facsimile from Ms Hancock. The question he was asked to respond to concerned the request for authorisation from Ms Hancock and whether Mr Gould approved the payment of fees. The answer he gave in his affidavit was as follows:

What Joyce Hancock is referring to would be a request that the husband take up with the directors the approval of either Lubbock Fine's accountancy fees or secretarial fees. Accordingly, the husband's involvement was tangential as there was an ongoing dispute about accountancy fees and Mrs Joyce Hancock was requesting the husband to take the matter up with directors. The husband believed Mrs Hancock to be a bookkeeper employed by Lubbock Fine.

408    This answer may be contrasted with the account given by Mr Gould in cross-examination (as described above) where he said that things like authorising the payment were done by him on behalf of Mr Gowrie-Smith. Earlier in his evidence he said that the request was made of him by Ms Hancock because he was authorised by Mr Gowrie-Smith to manage those sorts of details which he did on Mr Gowrie-Smith's behalf as part of his 'professional relationship' with Mr Gowrie-Smith.

409    When first taken in cross-examination to the answer he had given in his affidavit Mr Gould maintained that it was 'exactly the same answer' that he had given previously in cross-examination. He then gave the following answer:

Well, yes. I see it. I mean, but now - I mean, basically looking at it, I mean, that's not a very fulsome answer. I would give a more fulsome answer and say Ian authorised me to look at some of these fee issues, but - but more than that, I can't say.

410    He was then reminded that the directors of Swire Investments were Mr and Ms Borgas and not Mr Gowrie-Smith. He then gave the following answer:

But behind the scenes, you know, he [that is Mr Gowrie-Smith] is involved, and yes, no doubt at that time I would have spoken to Peter [that is, Mr Borgas] about it. It's - I just can't recall all the circumstances of this situation 30 years ago.

411    This was a characteristic form of response when Mr Gould was confronted with a lack of coherence in his evidence or documents that were inconsistent with the account he was giving. Despite being able to give evidence of matters that occurred many years ago when they suited the case advanced for the taxpayers, when confronted with difficulties in his account he resorted to saying that he was unable to recall by reason of the passage of time. His answer to that effect at this point in his testimony may be contrasted with the account he had given, when pressed, about the activities of the Beer Trust. At the point where he resorted to saying that he was unable to recall, Mr Gould had already given evidence describing the way in which he would manage details like approving payments of the kind referred to in the facsimile from Ms Hancock. He gave that evidence without difficulty in recalling the nature of his involvement. Only when confronted with his conflicting statement in the affidavit did Mr Gould say that he was unable to recall 'the circumstances of this situation 30 years ago'.

412    Mr Gould was then taken to another part of his earlier affidavit. It addressed the following question that had been posed to Mr Gould at the time:

On page 82 of the Transcript of proceedings on 11 June 1992, you stated that 'Swire (was) basically involved in a lot of share dealings and it was very important people did not know what was really going on and so Beer along with Brandy all these - a lot of these names - are little non de plumes which were developed particularly between Joyce Hancock and myself.

Further on page 85 of the Transcript of proceedings on 11 June 1992, you stated in a reply to a question from Mr Lethbridge that 'It would be dealing in shares in U.K. public companies and I need to know what funds I have available for authorising or arranging a particular transaction'.

a)    In relation to the above transactions, specify in detail all such transactions undertaken for the period 1 July 1991 to 31 October 1991.

b)    Why was it important that people did not know what was really going on?

413    The answers given by Mr Gould did not seek to qualify the matters that had been quoted from the 'Transcript'. It said that there were no records available to Mr Gould to answer the question as all the records were kept in the United Kingdom. It referred to the use of nom de plumes to try and disguise from inquisitive third parties what was taking place because it had been discovered that people were purchasing shares based on the knowledge that certain of Mr Gould's clients were involved in purchasing stock.

414    These answers were given on the basis that the shares were being purchased in public companies in the United Kingdom. Mr Gould's evidence given in cross-examination was that the shares being purchased were in Australian public companies. These are very different activities. The discrepancy reflects upon the credibility of both accounts, namely one version in the affidavit and another in cross-examination. Neither version explains the accounting records which show that Mr Gould's own companies had dealings with Swire Investments. Further, in the course of his cross-examination Mr Gould's initial explanation for the contents of the facsimile did not refer to disguised share trading as the rationale for Swire Investments or the other names. The whole account lacked credibility.

415    These matters are not peripheral because dealings with Swire Investments were of relevance to some of the interest deductions claimed. They also demonstrate Mr Gould's willingness to go to elaborate lengths to disguise the nature and extent of his true involvement in various entities.

Hua Wang Bank and superannuation

416    Hua Wang Bank was the holder of an offshore banking licence. The application for that licence was made by Asiaciti in April 1994. The application identified the shareholders in the then proposed bank as: 'A Western Samoa International Company yet to be incorporated'. It was to be a creditor controlled company. The application proposed that if such a structure was not approved then the shareholder would be 'a British Virgin Islands company limited by guarantee'.

417    The application stated that the shareholder would act as an agent or nominee for Mr Gould. It specified proposed directors who included Mr Graeme Briggs with an address in Singapore. It stated that outside Western Samoa, Asiaciti would have day to day control and management of the banking business of Hua Wang Bank.

418    The application described the specific nature of the offshore banking business to be conducted by the bank in the following terms:

The bank will act as the financial intermediary for clients of Gould Ralph & Co and the related offshore entities of those clients. Gould Ralph & Co is a large chartered accountancy practice based in Sydney Australia and has substantial international clients.

The bank will act as the corporate treasurer for such international and Australian based clients.

419    Other information supplied in support of the application included the following:

The structure proposed in question 7 involves the use of a Western Samoa holding company for the bank. This holding company will be a creditor controlled company and not itself have any share capital. It will be controlled by bearer debentures, all of which will be held at all times by the beneficial owner of the bank as detailed at questions 9 and 10 [that is, Mr Gould]. This structure is necessary to avoid attribution of Hua Wang Bank's profits to the beneficial owner under the Australian Controlled Foreign Corporations taxation laws. Should this structure not be approved the direct shareholder in the bank will be a British Virgin Islands company limited by guarantee.

420    Hua Wang Bank was controlled by JA. Therefore, the conclusions that have already been reached in relation to the conduct of the affairs of JA apply to Hua Wang Bank. However, as will emerge, it was Mr Gould (and not Mr Borgas) who was involved in the affairs of Hua Wang Bank, particularly the dealings with Asiaciti concerning the bank. These matters provide further reason to doubt those parts of Mr Gould's evidence where he sought to characterise JA (and MH) as entities that were established for the personal benefit of Mr Borgas and his family.

421    Mr Gould initially suggested that Hua Wang Bank had been established by him for Mr Ian Gowrie-Smith. Later he described himself as Mr Gowrie-Smith's power of attorney in relation to the establishment of Hua Wang Bank. He also gave evidence that his dealings concerning Hua Wang Bank were with Mr Briggs saying that he 'worked collaboratively' with Mr Briggs. There was also evidence that when proceedings were brought by the Commissioner against Hua Wang Bank it was Mr Gould who directed the way in which the defence of those proceedings were conducted, although Mr Gould heroically but unconvincingly resisted that conclusion.

422    In evidence was a transcript of conversations between Mr Gould and Mr Borgas concerning matters relevant to the proceedings brought by the Commissioner against Hua Wang Bank. Those conversations took place during the hearing of the proceedings. Plainly, the content of the conversations was inconsistent with Mr Gould's account of their relationship as given in these proceedings. It revealed efforts by Mr Gould to coach Mr Borgas as to what he should say about the nature of the affairs of Hua Wang Bank.

423    I do not accept Mr Gould's account that he was acting as a form of 'litigation agent' for his client, Hua Wang Bank.

424    There was also evidence of Mr Gould directing the conduct of the affairs of Hua Wang Bank.

425    On the evidence, the affairs of Hua Wang Bank were controlled by Mr Gould.

426    I find that Hua Wang Bank was established at Mr Gould's instigation. It acted as a financial intermediary for clients of Gould Ralph. Mr Gould arranged for funds held in what were termed superannuation funds to be deposited into Hua Wang Bank and then for those funds to be advanced to individuals or entities associated with each superannuation fund. The accounting records of Hua Wang Bank showed a correspondence between the amounts deposited with the bank by individual superannuation funds and the amounts of loans extended by the bank to related parties. Deposits were largely equivalent to loans. Mr Gould also made those arrangements in his own personal interests.

427    In one instance, an amount of $7,968,000 was shown in the balance sheet for the Hua Wang Bank as at June 2005 as having been a loan to 'CVC Investment Nominees' (that is, CVC II) in the 'Last Year'. The same amount was shown as a liability of the bank (under the heading 'Deposits Payable') in the name of 'CVC Invest Nomi/Phillips River' for the 'Last Year'. Then as at June 2005 both amounts are shown as nil.

428    Mr Gould accepted that the record in the balance sheet was consistent with 'some sort of a purported refinancing or repayment'.

A management fee for Cheung Wah Bank

429    Mr Gould's evidence was that Cheung Wah Bank was established for trusts related to Mr Gowrie-Smith and that any involvement he had in the bank was to carry out instructions from Mr Gowrie-Smith. He was asked about matters pertaining to Cheung Wah Bank. The course of cross-examination began by Mr Gould agreeing with the proposition that it would not be unusual for the international companies Chemical Trustee, Derrin Brothers and Bywater Investments Limited to pay management fees between themselves. He was then taken to a letter on the letterhead of Derrin Bothers signed by Mr Borgas as director and sent to Mr Vara at Lubbock Fine. It was in the following terms:

Dear Hasmukh,

Re: Derrin Brothers Properties Limited

Please accept this letter as your authority to pay Cheung Wah Bank Limited a management fee of AUD 25,000 …

Should any points arise in connection with this instruction, please let me know.

430    The attention of Mr Gould was drawn to the somewhat unusual aspect of the reference line in the letter. Despite the letter being on Derrin Brothers letterhead and its contents being about an instruction to pay Cheung Wah Bank, the reference line was Derrin Brothers. Mr Gould was asked whether the terms of the reference line seemed strange to Mr Gould. He answered:

Not really, but you - I mean, that was the way Peter [Mr Borgas] did it.

431    This evidence excluded the possibility that there had been some typographical error on this occasion. Rather, it was to the effect that it was usual for Mr Borgas to include a reference line of that kind. That is a most unlikely possibility. It would mean that Mr Borgas, an experienced commercial person, who was originally from Australia and who was a solicitor in the United Kingdom, whose business it was to provide secretarial services and to act as a director of companies would express the reference line in his letters as being the name of the party sending the letter. The suggestion by Mr Gould to that effect was not trivial. In my view, it was born of that fact that the document revealed what, in fact, was occurring, namely that Mr Borgas was receiving and passing on instructions from others in a parroted way. I do not accept the evidence of Mr Gould as credible. The fact that it was given is one of very many indications throughout Mr Gould's evidence that he was seeking to maintain an account of the nature of his relationship with Mr Borgas that was not truthful.

432    It was put squarely to Mr Gould that it was possible that Mr Borgas had just adopted a little bit more of a faxed instruction from Mr Gould to Mr Borgas than was needed. He responded:

I disagree with that. I mean Peter - as - I'm not saying that Peter didn't speak to me about it. I don't know. I just can't recall. But you know, that's his letter.

433    This is a strange answer. It began with a rejection of the proposition. It then morphed into conjecture about the possibility that Mr Borgas may have spoken to Mr Gould 'about it', which I take to be the matters in the letter. Then, a statement that Mr Gould could not recall, followed by evidence that the document was the letter of Mr Borgas. None of this is responsive to the question. I formed the view that Mr Gould's failure to respond was because he could see the force of the question and had no answer to give that was consistent with his false account as to the nature of his dealings with Mr Borgas.

434    There is a further problem with the contents of the letter when it comes to the account given by Mr Gould. The letter provides for a management fee to be paid by Cheung Wah Bank to Derrin Brothers. On Mr Gould's account, Cheung Wah Bank was an emanation of Mr Gowrie-Smith and Derrin Brothers was a company controlled by Mr Borgas in his own interests.

435    In his affidavits, Mr Gould described his dealings with Cheung Wah Bank and Mr Briggs. He deposed in the following terms to a conversation that he had in October 1992:

[Mr Gould] Graeme, I would like to organise two loans from Cheung Wah Bank. I need one loan of $350,000 to Melbourne Corporation of Australia and I need another loan of $350,000 to Philadelphia Investments Ltd.

…

[Mr Briggs] That should be fine.

436    Mr Gould then deposed to having organised to create a document styled as a loan agreement between Cheung Wah Bank and Philadelphia (which he said he signed on behalf of Philadelphia) and that he organised for execution of a document to be provided by way of security to Cheung Wah Bank. He also described how the existing loans from the Commonwealth were paid out using funds from Cheung Wah Bank.

437    Mr Gould further deposed to having searched his records for the loan agreement which he had not been able to find. However, he said he remembered that it contained a provision to the following general effect:

Philadelphia Investments (the Borrower) agrees to repay the monies advanced by Cheung Wah Bank.

438    Next, Mr Gould deposed that as at February 1995 there was a debt owed by each of Philadelphia and Melbourne Corporation to Cheung Wah Bank of $350,000. The bank was also said to be owed debts by a number of the private entities of Mr Leaver and other private entities of Mr Gould. He also deposed that he understood at that time that Swire Investments was owed money by one of those Australian private entities. Mr Gould deposed that he wanted to simplify all the debt so there would be 'a single overseas debt' owed by a private banking entity for the Australian entities to Cheung Wah Bank instead of a large number of separate debts to Cheung Wah Bank and Swire Investments which 'meant there were a large number of separate interest liabilities to attend to, as well as payments of withholding tax liability'.

439    There were other matters deposed to which sought to characterise Cheung Wah Bank as an arm's length financier. Having regard to the matters raised by cross-examination, a characterisation of the dealings between Mr Gould's Australian entities and Cheung Wah Bank of that kind must be rejected. Mr Gould's attempt to present Cheung Wah Bank in that way reflected very adversely on his credibility.

The rationale advanced for the management fees claimed by the taxpayers as deductions

440    The first affidavits provided by Mr Gould in support of the appeals brought by each of the taxpayers provided very little explanation for the various management fees. In effect, the affidavits said that Mr Gould had decided that a management fee should be charged in a particular tax year for the 'role' played by one entity for another entity. There was no consistency in the fees and no explanation of the way in which the fees had been calculated. Issues arose as to the evidence given in that form. Mr Gould then provided his third affidavits in each of the proceedings. In his third affidavit in the proceedings concerning the Family Trust he described what he said was his general practice when it came to management fee expenditure.

441    He began with the following:

Technically, in my experience as an accountant, the work I performed in connection with my Australian entities were services and could have been recorded as a 'service fee', but 'management fee' was the all inclusive term that I used, so as to include a fee for when:

(a)    an entity provided security for a loan by unencumbered property being offered as security;

(b)    accountancy work was performed by my staff and me;

(c)    and the management of the relevant entities' business.

442    Mr Gould then provided an explanation for certain management fees that had been paid by the Family Trust.

443    Some further evidence was also provided in the third affidavit in the Share Trust proceedings. It referred to management fees being based on what appeared to Mr Gould to be a reasonable fee based on his own judgement and experience as a licenced fund manager.

444    All of this evidence was given in the most general and unconvincing terms. In what follows I deal with each management fee amount claimed as a deduction.

The fee charged to the Family Trust by Philadelphia in the 2004 tax year

445    The accounting records showed that in the 2004 tax year, Philadelphia charged the Family Trust a management fee of $44,000.

446    In his first affidavit, in the appeal by the Family Trust, Mr Gould described the work that he allegedly personally performed for each of his Australian private entities, including the supervision of staff in his accountancy practice. He said that he always attempted to do that work in a corporate or trust capacity. Mr Gould then referred to his own view that it was appropriate for each entity to charge a fee for work that he regarded 'the entity as having recently done for other entities within [his] group of Australian private entities'. He said that he used the term 'management fees' generically to describe the charges for this work. Mr Gould then described the fee of $44,000 charged during the 2004 tax year as being a management fee of that kind.

447    In his third affidavit in the Family Trust proceedings, Mr Gould said that the fee was charged in part as a fee for storage of records 'over several years' ($19,000) and in part as a fee for the provision of security by way of charge over properties owned by Philadelphia to secure borrowings from the Offshore Funders ($25,000). The Offshore Funders were alleged to be CVC I (in 1995) and Normandy Finance.

448    The inconsistency between these two accounts is stark. In the first affidavit Mr Gould says that the fees are for work being done by him and the staff in his accounting practice. Then in his third affidavit Mr Gould says the fee is for something entirely different. There is no explanation for the difference.

449    Mr Gould was cross-examined about the storage fee component of the alleged management fee. He agreed that the same basement area was used for storing the records of all his Australian entities as well as his accountancy practice. He agreed that there was no fee ever charged for storage to any other entity. He also accepted that the fee charged in 2004 was the only time a storage fee was alleged to have been charged to Philadelphia. Mr Gould gave no evidence as to the basis for the storage fee.

450    Mr Gould was also cross-examined about the deed of charge that was said to give rise to the security fee that formed $25,000 of the management fee allegedly due by the Family Trust to Philadelphia in 2004. Mr Gould accepted that the security to which he was referring to as having been provided to CVC I was a deed of charge provided by Philadelphia to CVC I in 1995. He also accepted that there had been no fee in respect of the provision of the deed of charge between 1995 and 2004. His explanation was that the fee was charged when it was fiscally convenient and reasonable to do so.

451    As to the security said to have been provided to Normandy Finance, Mr Gould was taken to a deed poll dated 1 December 2004, being five months after the fee was said to have been incurred. Mr Gould gave a confused and unconvincing explanation as to why the fee might have been imposed when there was no deed of charge by way of security. Further, when it was pointed out to Mr Gould that, on his account, it was the Family Trust that borrowed the money from the CVC entity and that it was the CVC entity that borrowed the money from Normandy Finance, Mr Gould was unable to explain why, in those circumstances, it was not the CVC entity that should have been charged any fee for provision of security if indeed that was the basis for the fee.

452    I do not accept Mr Gould's account as to the basis for the fee of $44,000 as being credible.

The fee charged to Philadelphia by Melbourne Corporation in the 2005 tax year

453    The accounting records showed that in the 2005 tax year, Melbourne Corporation charged a management fee of $50,000 to Philadelphia. Mr Gould's evidence was that the fee was charged for services provided by the staff of Melbourne Corporation to Philadelphia for work done on the affairs of Philadelphia (which did not have staff). It was said to be for 'organising the various share acquisitions, things like that'. However, Mr Gould was unable to explain how the fee was calculated. That is to say, he gave no evidence about any record or system that provided a basis for determining the amount of $50,000 as being an appropriate fee. He did not explain the basis for the determination of the amount or the nature and extent of the work done.

454    In his first affidavit in which he set out the basis for the case advanced by Philadelphia, Mr Gould simply said: 'In June 2005, I decided that Melbourne Corporation should charge Philadelphia Investments a fee of $50,000 as consideration for the role that Melbourne Corporation played in Philadelphia Investments' business activities'. Reference was then made to payments said to have been made by Melbourne Corporation on behalf of Philadelphia. There was no mention in the affidavit of any other services having been provided.

455    There were other problems with Mr Gould's explanation, namely:

(1)    the amount described as a management fee was actually accrued to the Family Trust and this was a matter that Mr Gould could not adequately explain;

(2)    Mr Gould equated the management fee with a form of payment to cover interest obligations of the Family Trust indicating that it was not a fee for management services at all;

(3)    over the relevant period (2001 to 2014), the only year in which a management fee was charged by Melbourne Corporation to Philadelphia was the 2005 tax year and Mr Gould could not provide any coherent explanation as to why that might be so; and

(4)    the consequence of charging a fee in the 2005 tax year was to produce an outcome of zero tax liability for each of Melbourne Corporation and Philadelphia without any payment being made, an outcome that Mr Gould, in effect, accepted was planned, the only justification for which was Mr Gould's general assertion that the fee was fair and reasonable.

The fee charged to the Family Trust by CVC II in the 2006 tax year

456    The accounting records showed that in the 2006 tax year, CVC II charged a fee of $15,000 to the Family Trust. As to that amount, Mr Gould said in his third affidavit in the appeal brought by the Family Trust that he could not recall what the fee was for. He said that as the Family Trust owed CVC II an amount that was over $13 million, 'I expect that I decided on that amount as being payable as a management fee for the provision of a borrowing facility'.

457    In cross-examination, Mr Gould was taken to entries which showed that a management fee in the same amount was charged to an entity controlled by Mr Leaver. Mr Gould could not explain why the same amount might have been charged to each of the Family Trust and Mr Leaver's entity when the records showed that the amount allegedly borrowed by Mr Leaver was different to the amount allegedly borrowed by the Family Trust from CVC II.

458    Mr Gould could not explain why the $30,000 amount that was shown as being received into CVC II for management fees in the 2006 year was offset by an amount of $20,000 described as a 'cleaning up balance'.

459    In the end, the evidence concerning the fee of $15,000 was little more than assertion. Further, as I have explained, I do not accept Mr Gould's overall account of alleged borrowing from Offshore Funders by the CVC entities. Therefore, it has not been established that there was indeed any actual borrowing by the Family Trust from CVC II. Having regard to my broader findings concerning Mr Gould's credibility I am not prepared to accept Mr Gould's suggestion that the $15,000 was some sort of facility fee for alleged borrowings by the Family Trust from CVC II.

Fees charged to the Family Trust by Melbourne Corporation in the 2006, 2007, 2008, 2009 and 2010 tax years

460    The accounting records showed that in each of the 2006, 2007, 2008, 2009 and 2010 tax years, Melbourne Corporation charged a management to the Family Trust. The fees were quite substantial but also varied, being, $235,000; $87,500; $250,000; $145,000; and $200,000 respectively. It will be recalled that Melbourne Corporation was the entity through which Mr Gould conducted his accountancy practice at that time.

461    Mr Gould's position was that the same staff, the same office, the same overheads and the same rents were incurred by Melbourne Corporation in each of the years in which services were alleged to have been provided by Melbourne Corporation to the Family Trust. His explanation for the considerable differences in amount between the years was that he had chosen not to charge the 'full quota' in each year. This was not an aspect that had been addressed in his affidavits.

462    It was pointed out to Mr Gould in cross-examination that in each year where the management fee was charged the net taxable income (and consequently the tax payable) for Melbourne Corporation was very small. It was put to Mr Gould that the level of the management fees had been established each year by reference to the financial circumstances of Melbourne Corporation so that its overall income did not result in a significant tax liability. That is to say, the management fees were calculated by reference to the ultimate taxable income that Melbourne Corporation could earn without paying anything more than a small amount of tax. Mr Gould refuted that suggestion.

463    Then in the 2011 tax year there was no management fee charged by the Family Trust to Melbourne Corporation. Mr Gould's explanation was that he had a discretion whether to charge the fee.

464    Mr Gould was then taken to the 2012 tax return for Melbourne Corporation which showed that there was no management fee in that year. He was asked why. He answered as follows:

Well, obviously, I would have made a decision that it wasn't necessary and - or, you know, desirable to do it. Yes, the expenses are still being incurred. Yes, it could have charged the management fees, but there's nothing in law which says you have to charge the management fees, or you have to do that and that, really, you know, goes back, you know, to those [High Court cases mentioned by Mr Gould].

465    Notice the initial direction of the answer. Mr Gould began by saying it wasn't necessary.

466    Having regard to the variability in the amounts charged (including nil in subsequent years) when the services provided were the same, the correspondence with a desired tax outcome and the lack of any detail as to precisely what management fees were charged for or the mechanism used to charge those fees, I am not persuaded that the Family Trust has demonstrated that the amounts claimed for management fees in the 2006 to 2010 tax years are deductible.

The fee charged to Philadelphia by the Family Trust in the 2009 tax year

467    The accounting records showed that in the 2009 tax year, the Family Trust charged a management fee of $100,000 to Philadelphia. However, the Family Trust did not record $100,000 in income received from Philadelphia in the 2009 tax year. In his first affidavit in support of the case advanced by Philadelphia, Mr Gould said simply that he had decided that the Family Trust should charge $100,000 'as a fee'. It was said to be 'as consideration for the role that the Gould Family Trust played in Philadelphia Investments' business activities'. There was no explanation of the nature of that role or the way in which the amount of $100,000 had been determined.

468    However, a different explanation had been given by Mr Gould in a letter that he sent to the Australian Taxation Office on 4 March 2016. It was in the following terms:

Philadelphia Investments paid management and consulting fee of $100,000 to Morning Star Fiduciaries Pty Limited (Morning Star) in 2009. Morning Star acted as a nominee for Philadelphia in relation to a tax deductible donation to the Aeropagus Trust on 30 July 2008. Please see attached a copy of the receipt.

469    Morning Star was another Australian entity controlled by Mr Gould. As has been mentioned, it was the sole shareholder in the trustee of the Family Trust at the relevant time.

470    Mr Gould was pressed in cross-examination about the inconsistency. He said that he would be more comfortable with what was said in the letter. There was then the following exchange:

Mr Gould, you're more comfortable with the letter you've written than the affidavit because you wrote the letter, but you didn't write the affidavit, did you?---Well, the affidavit, as I've said before, was this - was - broadly sort of prepared for me.

And - - -?---But I've adopted it.

And you didn't, therefore, sufficiently check [the paragraphs in your affidavit] to see if they were reflecting the documents?---Well, that would be correct. I would assume that those sort of mechanical things were - were correct.

So, Mr Gould, you have affirmed an affidavit which says that you decided something. It's not in any doubt. It's a very firm statement:

On or about 30 June 2009, I decided that the trustee of the Gould Family Trust should charge Philadelphia Investments the sum of $100,000 as a fee.

But now you're saying that was drafted by somebody else, you didn't look sufficiently closely at it, the fee did not go - or was not charged by the Gould Family Trust. Therefore, it follows that you affirmed something saying 'I decided' when you just didn't?---Well, we don't know that. Because you haven't - it's impossible in this context for me to sort of really look through. Let's - you know, can I just look over a bit further?

471    The exchange was one of a number that revealed that the contents of Mr Gould's affidavits were a form of reconstruction. Mr Jones had been responsible for preparing the drafts of the affidavits and he had access to the documents for Mr Gould's companies. Mr Jones used those documents to prepare drafts for Mr Gould. The affidavits were not prepared by taking an account directly from Mr Gould. It was a process that cast considerable doubt upon whether the affidavits were a record of a genuine recollection on the part of Mr Gould.

472    In any event, the cross-examination proceeded to consider the documents concerning the donation to the Aeropagus Trust. They showed that a receipt for a donation of $100,000 on 30 July 2008 had been made by Morning Star. They also recorded management fee income to Morning Star of $100,000. There were also journal entries adjusting the amounts. Although Mr Gould maintained that the intention 'from the beginning' was that Philadelphia would have the tax deduction, the fact that the entries gave the amount one character and that was subsequently adjusted by journal entry indicated otherwise. This point was firmly reinforced when Mr Gould was taken to an earlier version of the relevant ledger that had been provided to the Australian Taxation Office which did not contain the ledger adjustments that purported to record the management fee of $100,000.

473    Having regard to all of these matters, I find Mr Gould's evidence as to the alleged management fee to be entirely unconvincing.

The fee charged to the Share Trust by the Family Trust in the 2009 tax year

474    The accounting records show that in the 2009 tax year, the Share Trust paid $5,000 to the Family Trust as a management fee.

475    Mr Gould accepted that the effect of the claimed $5,000 deduction was that it reduced the net income of the Share Trust to just below zero. Pressed as to what might justify the fee of $5,000 being charged by the Family Trust, Mr Gould began with the following answer:

However, there are expenses that basically - like, the share trust does provide security for the - for the loans and things of that order, so there's a justification for doing it.

476    He then suggested that the need to 'put through some income' was the 'actual reason'. The difficulty with that suggestion is that the fee resulted in a small loss to the Share Trust. Mr Gould then returned to the proposition that the Share Trust should pay something for the service of the Family Trust making the overall borrowing from the CVC entity available.

477    Mr Gould was then confronted with the fact that during the relevant period (2001 to 2014), the $5,000 amount was the only management fee charged by the Family Trust to the Share Trust. When asked to explain why that might be so Mr Gould first offered up a tax explanation which he accepted would not explain why the fee was not charged in every year. He then suggested that it may have been overlooked or that an error was made.

478    The whole explanation was vague and unconvincing. I find that the onus of the taxpayer has not been discharged as to the claimed deduction.

Fees charged to the Family Trust by Golden Investments in the 2013 and 2014 tax years

479    The accounting records showed that in the 2013 and 2014 tax years, Golden Investments charged management fees of $5,000 and $5,500 respectively to the Family Trust.

480    The evidence as to those amounts was sparse to say the least. Mr Gould's account as to why the fees were deductible was the same general account that has been discredited in relation to all the other management fees claimed. The only specific evidence concerning the fees was:

(1)    a statement in his first affidavit in the appeal concerning the Family Trust which described them as 'management fees';

(2)    a paragraph in Mr Gould's third affidavit in the Family Trust appeal which described Golden Investments as a joint venture between the family interests of Mr Gould and Mr Leaver and then said:

We decided that the amounts referred to there were a rebate for overcharging Golden Investments in previous years, because we had intended to leave more money than we did in Golden Investments to meet ongoing costs and so that we did not render the company insolvent.

481    There is no indication as to the nature of the original charges that were said to be the subject of the 'rebate'. The statement suggests that the payment had the character of providing further capital for the affairs of Golden Investments. However, the evidence is just too obscure to possibly discharge the onus on the taxpayer to demonstrate the basis for the amount being deductible. I have made general adverse findings as to the credibility of the evidence of Mr Gould.

482    In those circumstances, I find that the taxpayer has not discharged its onus as to those two deductions.

A misplaced submission as to precision

483    In closing submissions for the taxpayers, it was submitted that they did not need to demonstrate with mathematical precision the way in which each item of expenditure (whether interest or management fees) could be traced to a particular item of income. However, the authorities relied upon were concerned with instances of informality in the case of arrangements in respect of intra-company lending or the provision of services by one entity to another within entities with common ownership. In such instances, the book entries properly maintained in accordance with the operation of a business might provide the foundation for a conclusion that the arrangements were being conducted for income producing purposes.

484    However, for reasons that have been given, the dealings recorded in the accounts were not of that kind. They were not regular amounts charged by way of fees for services or for interest in respect of borrowings that could be identified in a general way as part of the conduct of businesses. Rather they were unusual journal entries made for the most part as part of year end adjustments. They resulted in tax liabilities that would otherwise arise being reduced to nil or a minimal amount. The attempt by Mr Gould to explain them lacked any credibility.

485    For those reasons, the authorities relied upon by the taxpayers were not applicable.

The way Mr Gould's affidavits were prepared

486    In the course of Mr Gould's evidence, issues were raised with the way his affidavits had been prepared. Mr Jones explained that he had prepared drafts of the affidavits based upon the documents available to him after searching through the records of Mr Gould's Australian entities. Mr Jones then provided the drafts to counsel acting for Mr Gould. Mr Gould gave conflicting accounts of the extent to which he had reviewed the affidavits. It appeared that key aspects of those affidavits had simply been adopted by Mr Gould on the basis that Mr Jones would have been thorough in preparing them. However, significant parts of the affidavits referred to matters that could not have been known to Mr Jones. One example was the references in the affidavits to dealings with the Commonwealth Bank. There were other parts of the affidavits that purported to depose to Mr Gould's recollection of conversations that occurred decades ago and the contents of documents that were said to have existed but could no longer be located.

487    These matters cast real doubt upon the extent to which the contents of the affidavits were the genuine independent recollection of Mr Gould.

Working papers

488    As has been mentioned, at various points throughout his evidence Mr Gould referred to the need to refer to working papers that were no longer available. Some examples have been given. Characteristically, Mr Gould referred to working papers when pressed to provide an explanation of matters in the accounting records of the taxpayers and other Australian entities controlled by him that appeared to be inconsistent with his version of events. Mr Gould's references to working papers suggested that materials of that kind had existed in relation to the claimed deductions but had not been kept.

489    However, there was no evidence to support the conclusion that there had been working papers of the kind referred to by Mr Gould. In particular, there was no evidence to the effect that there were detailed notes to support the many end of year general journal entries that related to the interest charges and management fees claimed as deductible expenses by the taxpayers. There were no notations in the ledgers referring to working papers. Mr Gould gave no evidence about the existence of working papers in his affidavits. On the contrary, his version of events in the affidavits was to the effect that there had been conversations about the matters that came to be recorded by way of journal entries concerning the alleged interest and management fees.

490    Mr Jones gave evidence of the extent of his research to locate relevant documents including materials to support the accounting entries. He did not refer to any working papers or make any suggestion that there had been working papers kept as part of the records of the companies.

491    In one exchange concerned with management fees, Mr Gould maintained that the fees had been charged for services provided by Melbourne Corporation. His evidence was that overheads and other costs were incurred by Melbourne Corporation for other entities and when those entities had the capacity to pay it was considered reasonable for them to reimburse Melbourne Corporation for the benefits they had received. Mr Gould was asked whether the fees were supported by any time sheets. His first response was to suggest that there had been records of that kind and there would have been charges for work done by employees of Melbourne Corporation. When pressed as to why they had not been produced he said they would have been thrown out. He was then challenged as to whether there had ever been time sheets supporting any of the management fees charged. He then responded 'Well, not - not per se, but there would [have been] people charging accounts in our work in progress for the work they did'. However, as is explained below, there is simply no evidence to support the calculation of management fees by reference to records of that kind. On the contrary, the evidence is to the effect that lump sum amounts were charged. Nor is there any evidence to indicate the nature or extent of overheads or other services that were provided to the company charged the management fee.

492    I consider the reference to working papers to be a form of ruse resorted to by Mr Gould when confronted with entries in the accounts that were inconsistent with his overall explanation of the basis for the deductions claimed by the taxpayers.

Deficiencies in documentation

493    Remarkably, given the amounts of money involved, Mr Gould did not produce any documents relating to the procurement of the overseas funds. There were no loan applications, no business case materials to support the borrowings and no documents of the kind one might expect to be exchanged between lender and borrower over the life of significant financing. This was despite, Mr Jones, having undertaken very detailed searches of all the records maintained by Mr Gould as to his own business affairs. The one consistent feature of Mr Gould's evidence was that it was lacking in any real detail as to the ultimate source of the funds that he obtained from overseas.

COMMISSIONER'S CASE AS TO SHAM LOANS

494    The Commissioner's principal case was that there were no loans. Various aspects of the evidence were relied upon to support that submission. Significant aspects have been canvassed in dealing with the credibility of Mr Gould.

495    The case for the taxpayers was that the relevant loans that were alleged to give rise to the deductions for interest charges were oral. They were said to have been arrangements put in place by Mr Gould. For reasons already given, none of that evidence should be accepted as credible. No issue of sham is raised by that aspect of the Commissioner's case.

496    However, in certain limited respects, the Commissioner also claimed that certain documents relied upon by the taxpayers to demonstrate that there were arrangements to source funds at arms' length from the Offshore Funders that had been brought into existence to demonstrate loans (and supporting security) in respect of funds sourced from the Offshore Funders were shams, in the sense that there were no loans of the kind alleged. For example, there were documents relied upon by the taxpayers to support the alleged refinancing with Derrin Brothers that were said to be a sham.

497    Of course, those documents do not establish the existence of the alleged loans that were said to give rise to the interest charges claimed as deductions. None of those alleged loans were between a taxpayer and an Offshore Funder.

498    As to those documents, I find that sufficient doubt has been cast upon their genuineness by the successful attack upon the credibility of Mr Gould that they cannot not be relied upon by the taxpayers to establish genuine dealings in the terms that those documents might suggest. Within the overall narrative of Mr Gould's evidence, the circular movement of funds by which the 'refinancing' was effected, when coupled with the discredited attempt by Mr Gould to cast the dealing as an arms' length refinancing and considered in the context of the many other respects in which Mr Gould's account has been found to be lacking in credit, raises considerable doubt as to whether those documents were no more than a disguise for the movement of overseas funds under the control of Mr Gould.

499    Given the onus that falls upon the taxpayers, that is sufficient for present purposes for the documents relied upon by the taxpayers to support the alleged overseas loan arrangements to not be accepted at face value.

THE EVIDENCE OF MR JONES AS TO ALLEGED INCOME PRODUCING PURPOSES OF LOANS

500    For reasons I have given, Mr Gould's account to the effect that the deductions claimed by the taxpayers for interest were in respect of genuine borrowings by the taxpayers was not credible. Nor was his evidence as advanced to support the claim that the borrowed amounts were used by the taxpayers for income producing purposes. As I have explained, by reason of the significance of Mr Gould's evidence, those conclusions mean that the taxpayers have failed to discharge their onus as to the interest amounts.

501    However, as has been noted, the taxpayers also sought to rely upon analysis undertaken by Mr Jones to support their case that the relevant amounts of principal alleged to have been borrowed were used for income producing purposes. Given the findings that I have made concerning Mr Gould's evidence and the significance of those findings, it is not necessary to consider whether Mr Jones' analysis should be accepted (because it assumes that Mr Gould's account is to be accepted). Nevertheless, I will record my findings concerning Mr Jones' evidence.

502    Before doing so, I observe that, in closing submissions for the taxpayers, it was recognised that Mr Jones' attempts to trace expenditures from deposits 'sustained damage under cross-examination'. In consequence, the Court was invited to approach the issue by taking 'a broad view' as to the income to which the borrowings related. In effect, the case advanced in closing did not rest upon the analysis of Mr Jones. Rather, it sought to rely upon the records in the books of account as explained by Mr Gould and a broad brush inference that all amounts that came into the books that were recorded as loans were deployed to earn income. As I have explained, the lack of any credibility in Mr Gould's account means that the closing submissions to that effect fail at their foundation.

503    I make the following findings concerning the evidence given by Mr Jones.

504    Mr Jones was employed to assist in the preparation of affidavits for the conduct of proceedings concerning taxation assessments for entities controlled by Mr Gould including the taxpayers in these proceedings. His work was supervised by the barrister then acting for the taxpayers in these proceedings, Mr John Hyde Page. It was Mr John Hyde Page who told Mr Jones what was to be done when it came to preparation of affidavits for the proceedings.

505    Mr Jones was never an employee of any of the taxpayers and he was not involved in any of the historical events that are said to give rise to the taxation liabilities of the taxpayers for the relevant period. At the time of giving his evidence, Mr Jones was an employee of the Australian Taxation Office, having commenced that employment in January 2024.

506    Mr Jones gave evidence on affidavit of his analysis of bank statements and general ledger records for each of the taxpayers and, where relevant, other Australian entities controlled by Mr Gould. In some instances he used electronic information from computer records to create general ledgers. Mr Jones also prepared loan summaries for parties alleged to be lenders of funds, including the Offshore Funders.

507    Mr Jones undertook an analysis of the cash deposits into the bank accounts of each of the taxpayers in the relevant period and the cash expenditures that occurred in the 'aftermath' of the deposits based upon the records that he analysed. In effect, he sought to identify when funds that were alleged to be borrowings came into the bank account of the taxpayer and then identify expenditures shown in the bank records for the taxpayer in the period after that amount came into the bank account until the identified expenditures totalled or exceeded the amount that came into the bank account. It was premised on the view that an analysis of that kind might demonstrate that the amounts allegedly borrowed had been deployed to meet the expenditure in the bank account made immediately after the deposit.

508    Further analysis was undertaken (based upon evidence from Mr Gould and the accounting records) which was said to support the conclusion that the relevant expenditure amounts were incurred by the taxpayer for income producing purposes.

509    Mr Jones undertook two types of analysis. One was described as first in first out (FIFO) and the other as debits after deposits (DAD).

510    In my view, whilst no issues arise as to the credibility of Mr Jones as a witness, there were deficiencies in his approach. Those deficiencies include the following:

(1)    the FIFO and DAD approaches were very mechanical and failed to consider the affairs of the taxpayer in a holistic way to determine whether the funds that were received, in substance, might relate to some other debit that was unrelated to the cash payments that happened to be made out of the bank account immediately after the funds were received;

(2)    the FIFO analysis included the amount that was in the bank account of the taxpayer at the time of the relevant deposit (alleged to increase the loan amount) even though that amount was not part of that which had been borrowed;

(3)    the DAD approach did not include intervening credits;

(4)    a considerable part of the principal amounts that were said to form part of the loans that gave rise to the interest amounts claimed as deductions did not occur by cash funds being deposited into the bank account of the taxpayer. Those amounts were effected by reallocations and ledger adjustments. Therefore, Mr Jones' analysis fails to demonstrate anything about the way in which interest liabilities allegedly arising in respect of the part of the loan balance created by those adjustment amounts might be said to have been incurred for income producing purposes;

(5)    the total expenditure identified as a 'use' of the deposit amounts substantially exceeded the deposit amounts and, to the extent of that excess, those amounts could not be a 'use' of those deposit amounts (assuming the logic underpinning his analysis); and

(6)    the categorisation of expenditure was not supported by documents other than descriptions in the bank statements and general ledgers.

511    Some other minor errors were identified in his analysis which were not demonstrated to be of significance.

512    The Commissioner made submissions to address the way in which the Court might properly approach the quantification of the amount of deductible interest that might be established if Mr Jones' analysis was accepted. Having regard to the conclusions I have reached, it is not necessary to consider those submissions.

THE EXPERT EVIDENCE OF MR PAUL HYDE PAGE

513    Mr Paul Hyde Page is a chartered accountant. He has worked for a number of banks. At the time of preparing his reports he was a senior business analyst in the area of risk management and compliance. He was asked to assume that interest had been paid in the amounts claimed by the taxpayers in the proceedings. He was asked to calculate the average annual interest rate implicit in what were described in his instructions as 'the Loan Facilities'. He was provided with information that he was asked to assume contained the credit and debits to the Loan Facilities. He was told that the amounts of interest had been paid 'based on periodic agreements between the [relevant] lender' and the taxpayer (with some interest amounts being identified as having taken the form of capitalisation).

514    For each account identified in his instructions as a 'loan' Mr Paul Hyde Page calculated an implicit interest rate. In the case of the Gold Trust, Mr Paul Hyde Page also made a separate calculation after making some adjustments to the data that he had been provided with, where he considered the data to be inconsistent with his instructions.

515    The implicit interest rates that he determined were as follows:

(1)    for the Share Trust, 8.32%;

(2)    for the Gold Trust, where deductions were claimed for alleged interest charges by five different alleged financiers (as well as an adjusted rate);

(a)    Chemical Trustee, 7.13% (6.61% adjusted);

(b)    Family Trust, 0.49% (0.48% adjusted);

(c)    Melbourne Corporation, 1.37% (1.31% adjusted);

(d)    Morning Star, 9.30% (8.97% adjusted);

(e)    Melbourne Insurance, 6.58% (6.58% adjusted);

(3)    for Philadelphia, 5.10%;

(4)    For the Family Trust, 5.56%.

516    It can be seen that despite Mr Gould's evidence as to the way in which the alleged interest charges were set, there was a considerable divergence as to the implicit interest charges as determined by Mr Paul Hyde Page. Further, the above figures were averaged over the years in which interest was paid by the taxpayer during the relevant period. Therefore, they disguised other variations in the interest rates which the level of alleged interest charges represented (if calculated in the manner that Mr Paul Hyde Page was asked to calculate them, namely as interest rates implicit in the amounts paid having regard to assumed loan balances derived from the accounts of the taxpayers).

517    Mr Paul Hyde Page calculated the implicit interest rates by averaging the interest over periods that included years when there was no interest charge. In effect, he treated very lumpy ad hoc amounts as representing amounts paid in respect of a constant interest rate applying to the alleged loan balance over the period.

518    Some calculation errors and inconsistencies were exposed in the detail. I would not have regarded those matters as a sufficient foundation to reject his evidence. Rather, they were the types of matters for which it would be appropriate to make an adjustment if his evidence was otherwise considered to be relevant and of forensic value.

519    The fact that an implicit rate of interest might be able to be derived from the schedule of amounts shown in the accounts as interest charges when applied to the loan balances provides no support for the taxpayers' claims. The exercise undertaken by Mr Paul Hyde Page assumes that there were loans and that the payments recorded as interest charges were ad hoc payments made to reduce an accruing and unknown interest burden that applied rateably over the period of the loan balance. For reasons that have been given, there was no credible basis to support the existence of loan arrangements of that kind.

520    The evidence of Mr Paul Hyde Page therefore provided no support for the taxpayers' claims.

THE EXPERT EVIDENCE OF MR GOOD

521    Mr Russell Good had considerable experience in the banking industry having worked in corporate banking for various Australian banks in senior roles. Since March 2016 he had been working as a consultant specialising in business and debt advisory work. He prepared expert reports in each of the four proceedings. In each case he was provided with assumptions to be made about the taxpayer concerning the level of debt (with year end balances for the relevant period) and the interest paid. He was also briefed with financial statements for the taxpayer for the relevant period. He was provided with the outcome of the implicit interest rate calculation prepared by Mr Paul Hyde Page.

522    In respect of each taxpayer, Mr Good was asked to address two questions. First, whether the amount of interest charged on the debt was 'competitive with the interest rate one could expect to be charged on a similar loan (unsecured, and repayable on demand) by an arms-length lender during [the relevant period]'? If not, what sort of interest would an arms' length lender have been likely to charge on such a loan? Secondly, would it be possible for the taxpayer to obtain debt financing throughout the relevant period for the same amount of debt on an unsecured, repayable on demand, basis?

523    No issue was taken as to Mr Good's expertise.

524    Mr Good's written reports were to the effect that the interest rates the subject of the implicit interest rate calculations were favourable to the taxpayers when compared to the competitive interest rates that were available. As to each of the taxpayers, his conclusions were as follows:

(1)    as to the Share Trust, a loan at an average rate of 8.2% (noting that he also referred to a rate of 8.32%) was 'extremely favourable' and it would have been difficult to obtain the equivalent loan at a rate as attractive as that rate from an arms-length lender;

(2)    as to the Gold Trust, as to the various loans, Mr Good referred to the rates charged as 'very competitive' in the sense that they 'would not be readily available nor accepted in the market by a non-related outsider lender'. He also referred to the loan terms as 'extremely favourable';

(3)    as to Philadelphia, a loan at an average rate of 5.1% was 'extremely favourable' and it would have been difficult to obtain the equivalent loan at a rate as attractive as that rate from an arms-length lender; and

(4)    as to the Family Trust, a loan at an average rate of 5.6% was 'extremely favourable' and it would have been difficult to obtain the equivalent loan at a rate as attractive as that rate from an arms-length lender.

525    Mr Good accepted that lenders do not generally agree to interest being incurred based on periodic agreements (that is, where interest was paid in some years but not in others). He also agreed that if the implicit interest rate calculation was undertaken for each year of the alleged loan amounts then the percentage interest rates would vary dramatically. By way of example, he agreed that in the case of the Share Trust there were years where the interest would be nil and a year when the interest was more than 50%. Mr Good agreed that in his experience an arms' length lender would not agree to being paid sporadically at such varying rates.

526    Mr Good also agreed that he had not been provided with all of the information that was necessary to assess the lending parameters for the alleged loan amounts by the trust entities.

527    Mr Good also accepted that in respect of certain years for the Share Trust (2001, 2002 and 2004) and the Family Trust (2006 and 2008), given the information that was available, a lender would not have had any reasonable expectation of repayment. It was submitted for the Commissioner that those opinions supported the Commissioner's case that there was no obligation of repayment. I am not sure that is correct. There can still be a loan even though it is owed by a party that has no capacity to repay that loan.

528    In any event, the Commissioner's main submission was much more fundamental. It was to the effect that demonstrating the 'reasonableness' of an implicit rate of interest when derived from amounts claimed to be interest charges was not a basis for demonstrating that the amounts were the interest paid in respect of genuine loans. That submission must be accepted, especially when the pattern in which the claimed interest charges were alleged to have been incurred was entirely inconsistent with the existence of a genuine loan. Even more so when, as has been explained, in most years the amounts produced a sufficient deduction to result in a favourable tax outcome for the taxpayer concerned.

529    The evidence of Mr Good was of no assistance to the taxpayers in demonstrating that there were loans in respect of which interest was paid. Even if (contrary to my findings concerning the evidence of Mr Gould) the existence of those loans had been established, the evidence of Mr Good would not have established the reasonableness of the interest charged because it ignored the pattern of the payments and the fluctuations in the effective annual interest rate in the years in which the interest was charged (with no basis for any assumption that interest was carried forward from one year to another).

CARRIED FORWARD LOSSES

530    In the case of Philadelphia, the deductions claimed by the taxpayer included alleged carried forward losses said to have been incurred prior to the 2001 tax year of $290,234. There was an issue as to whether those losses were deductible in subsequent years, particularly as to claimed interest expenses in the 1999 tax year ($80,000) and the 2000 tax year ($150,000).

531    In the case of the Family Trust, the deductions claimed by the taxpayer included alleged carried forward losses said to have been incurred in the 1999 and 2000 tax years in the amounts of $37,092 and $584,130 respectively. There was an issue as to whether those losses were deductible in subsequent years. In particular, the deductibility of claimed interest expenses in the 1999 tax year ($290,000) and the 2000 tax year ($900,000) are disputed.

532    Each of Philadelphia and the Family Trust relied upon those carried forward losses as part of its case as to why the tax assessments for the relevant period were excessive.

533    For reasons that have been given, Mr Gould's narrative as to the basis for the interest claims in relation to the Australian entities under his control has not been accepted as credible. The case for the taxpayers depended on the credibility of that testimony, particularly insofar as it concerned the overseas loan arrangements that were said to give rise to the interest charges within Mr Gould's Australian entities as well as the alleged business purpose of the borrowings. Consequently, the rejection of the testimony of Mr Gould means that the interest deductions that form the foundation for the carried forward losses in issue have not been demonstrated. There is no need to go further.

534    However, I will deal briefly with relevant aspects of the specific evidence that concerned the basis for the interest deductions allegedly giving rise to the carried forward losses.

The claim to carried forward losses by Philadelphia

535    In the case of Philadelphia, Mr Gould deposed as follows:

The debt Philadelphia Investments owed to Gould Family Trust originated in an earlier debt of $580,000 that Philadelphia Investments owed to the company CVC Investment Nominees Pty Ltd and, prior to that, to CVC Fund Managers Pty Ltd, to Cheung Wah Bank and to Commonwealth Bank of Australia. As I set out below, a $580,000 receivable was novated from CVC Investment Nominees to the trustee of Gould Family Trust during 2000. Between 2001 - 2014 the debt then fluctuated between $502,749.35 and $3,704,879.23.

536    Mr Gould deposed to matters concerning the alleged original debt to the Commonwealth Bank. He was cross-examined in some detail about that account. As to the contents of the affidavit, I have already referred to aspects of the preparation of Mr Gould's affidavits that cast doubt upon their reliability. In that regard, Mr Gould explained that the part of his affidavit concerning the origins of Philadelphia's debt had been prepared by Mr Jones by tracing through the relevant bank statements and other documents. He said that he would have then read that account and would have trusted Mr Jones to set out the position accurately. In other words, despite being expressed in the first person and setting out what was expressed to be a recollection on the part of Mr Gould, it was not a first hand account at all.

537    When Mr Gould was referred to an aspect of the affidavit that could not have been constructed by Mr Jones from historical records, he then gave the following evidence:

No, but I would have told him and in - I mean, there would be, you know, correspondence, I guess, he has looked at, but certainly I would have said to him, and at some stage, basically that, you know, I certainly did ..... the Commonwealth Bank on a number of occasions. I had a close working relationship with the then manager of the Commonwealth Bank down in bottom end of Pitt Street, I think it was.

538    This answer was most unconvincing. It did not sit with Mr Gould's previous explanations as to how the affidavit had been prepared. Characteristically for Mr Gould's testimony, it also prevaricated. Consequently, it was unclear as to what Mr Gould did say to Mr Jones about the origins of the alleged loan said to have given rise to the interest deductions in the 1999 and 2000 tax years and, consequently, the carried forward losses that Philadelphia claimed in the 2001 tax year.

539    Mr Gould went on to say that he 'would absolutely adopt' what was in the affidavit, indicating that it had been prepared by Mr Jones and then adopted by Mr Gould. He later made clear that he had not looked at the underlying documents. He then changed his position to say that he had glanced at them.

540    In short, Mr Gould's affidavit evidence about the origins of the relevant borrowing was exposed as being unreliable.

541    In his oral evidence, Mr Gould maintained that he had arranged for Philadelphia to borrow monies from the Commonwealth Bank to purchase shares. He referred to documents from 1985 to 1988 concerning a borrowing by Philadelphia from the Commonwealth Bank. However, on Mr Gould's account it was not until 1992 that there was a refinancing with Cheung Wah Bank.

542    In evidence were financial statements for Philadelphia which included balance sheets showing information for the 1990 and 1991 tax years. They showed that non-current liabilities for Philadelphia as at 30 June 1990 were $230,791.28 (having been $532,363.46 the previous year). They also showed that the non-current liabilities for the previous year included a commercial bill of $403,000 which was shown as being nil as at 30 June 1991). Mr Gould accepted that on the face of those accounts there was no amount owing to the Commonwealth Bank as at 30 June 1990.

543    Mr Gould was then taken to the accounts for Philadelphia for the 1991 tax year. He did not dispute that the main liability at that time appeared to be an amount of $500,000 (described as 'Bills payable') which corresponded with an at call receivable of $500,000 being a loan to Penalton Pty Limited (one of Mr Leaver's entities). It appeared from those records that by 30 June 1992, the amount due on the commercial bill had been advanced to Penalton. The position emerged in the following question and answer:

Now, Mr Gould, we don't have the general ledgers, so we don't know what that $500,000 may have been used for. It's quite possible it may have been used to make a loan to Penalton. Isn't that the case, Mr Gould?---Well, it's possible. There would be a business purpose for it though. An investment of some description.

544    Remembering that Mr Gould's account in his affidavit was that the funds had been borrowed from the Commonwealth Bank and could then be traced through as a borrowing that was refinanced to Offshore Funders, it is difficult to believe that Mr Gould could have any confidence as to the existence of a business purpose for the funds being advanced to Penalton. The lack of any real credibility in his account was evident in his subsequent suggestion that Penalton may have taken over the loan from the Commonwealth Bank. The accounts for the 1991 tax year also referred to a loan of $270,522.02 to Southsea Investments Pty Limited (the trustee of the Family Trust at that time). The previous year that was a much smaller loan to Southsea Investments and a separate 'directors' loan to Mr Gould. However, tracing those loan amounts back through the accounts indicated that they were separate to what had been shown as the 'commercial bill' loan amount.

545    Further, the accounting records also indicated that interest was not being paid by Penalton on the $500,000 borrowing and the amount was repaid by the end of the 1993 tax year.

546    Accordingly, Mr Gould was unable to explain in any credible way how it might be that the historical borrowing from the Commonwealth Bank in the 1980s might have been refinanced in some way that continued the borrowing (and its alleged investment funding purpose) beyond 1990.

547    Thereafter, what was apparent from the accounting records was that there were dealings involving Cheung Wah Bank and Swire Investments, companies to which reference has already been made. I have not accepted Mr Gould's account about the nature of his relationship to those companies or the claims about Offshore Funders providing loans to the CVC entities. What the subsequent records show is an amount going out of Philadelphia to Swire Investments, being an amount on which no interest appeared to be paid. The accounting treatment for the amount in Philadelphia's accounts for borrowings and receivables in the following years is somewhat obscure. There is a credible reading of the accounts that was put to Mr Gould which suggests that ultimately that receivable from Swire Investments was reflected in an amount that was written off by Philadelphia and shown as a reduction in shareholders' funds some time in the 1997 tax year.

548    So, although a secured loan amount of $350,000 is shown in the accounts for Philadelphia through the mid to late 1990s as a loan due to CVC I, the accounting records suggest that those funds were actually dispersed to Swire Investments and then written off.

549    In those circumstances, there is no credible account given by Mr Gould to the effect that the loan of $350,000 was a refinancing in some way of the original borrowing from the Commonwealth Bank or that it had been subsequently borrowed for a business purpose.

550    By the 1998 tax year the Philadelphia accounts show that there was a loan of $350,000 (described in the notes as a secured loan from CVC I). In the 1999 accounts there is an expense shown of $80,000 for interest. The same amount is accrued as a current liability (unsecured) to 'Sundry creditors'. In the accounts for the 2000 tax year there is a further interest expense of $150,000 (shown on the same line as the $80,000 for the previous year). Although the interest amounts are shown as 'paid', the notes to the 2000 accounts for 'Loans, secured' depict the loan balance for CVC I as at 30 June 1999 as being $350,000 reduced to nil as at 30 June 2000. The notes also show a new loan for CVC II with a balance of $580,000.

551    It was put to Mr Gould that the balance of $580,000 was the amount of $350,000 plus the two amounts of interest expense ($80,000 plus $150,000). Having regard to the state of the accounts, it appeared to be a very reasonable proposition. It culminated in the following question and answer:

So I put it to you that, tying all of those facts together, the conclusion - I cannot see any other explanation but the $580,000 is based on the original $350,000 plus accrued interest for the years ended 30 June 1999 and 2000. Can you see any fault in that logic, Mr Gould?---Yes, because we don't know, without the working papers, precisely what has gone on. You're having to make some heroic assumptions, and you may be right, but you could equally be - could be very wrong.

552    I have already referred to Mr Gould's propensity to resort to references to 'working papers' whenever confronted with a difficulty with his own account. I do not accept that there were any 'heroic' assumptions being made. The question reflected the state of the accounts of Philadelphia for the 1999 and 2000 tax years.

553    Therefore, the relevant interest deductions said to give rise to the carried forward tax losses were amounts capitalised into the loan balance for the amount of $350,000, an amount which has not been shown to be a loan for business purposes.

554    For those further reasons, Philadelphia's claim as to the carried forward losses should not be accepted.

The claim to carried forward losses for the Family Trust

555    As has been mentioned, there were very large interest expenses claimed to have been incurred by the Family Trust in the 1999 and 2000 tax years. The position of the Commissioner was that the basis for the deductibility of the interest had not been demonstrated by the taxpayer and consequently there were not carried forward losses from those years which could be used to offset income earned in the relevant period.

556    The submission advanced for the Commissioner was that the evidence concerning the basis upon which interest was claimed in the relevant years casts doubt on the deductibility of interest claimed in earlier years. The way in which it was put in closing submissions was that 'on the very limited evidence available, if one looks back, one can't see anything that was different in the past to our exploration of the 2001 to 2014 years'.

557    The evidence given by Mr Gould concerning the overall structure of the Australian entities and the way they were said to be funded extended back before 2001. For reasons I have given, I do not accept the credibility of that account.

558    Otherwise, the only evidence concerning the interest deductions claimed by the Family Trust for the 1999 and 2000 tax years was the general ledger for the Family Trust for the 2000 tax year. It included a general journal entry on 30 June 2000 for 'Accrued Charges' of $900,000 with the notation 'Interest & profit share to C'. There was an opening balance for the same ledger account of $290,000. These are the disputed amounts. Those amounts appear as 'current liabilities' in the balance sheets for the Family Trust for the 1999 and 2000 tax years as 'Accrued charges'.

559    Therefore, on the evidence, the 'accrued charges' are not able to be identified as relating to any particular borrowing. The purpose of the borrowing is not identified. The two amounts appear to have been incurred as end of year adjustments. The only available note indicates that the $900,000 amount may relate to some form of 'profit share'.

560    Accordingly, this is not an instance where conclusions may be drawn from the accounts based upon them being maintained in the ordinary course of business in relation to a borrowing that, on the face of the accounts, has been applied to finance the business operations.

561    In those circumstances, I am not persuaded that the taxpayer has discharged the onus to demonstrate that there were carried forward losses that may be applied in the relevant period.

CAPITAL LOSSES

562    In the 2012 and 2014 tax years, the Family Trust reported capital gains of $651,856 and $2,546 respectively. The taxpayer's position was that there were prior year capital losses that could be applied to offset those capital gains. The Commissioner disputed the claim that there were prior year capital losses. In the case of the Family Trust, there was therefore an issue whether there were capital losses that could be claimed to offset capital gains in each of the 2012 and 2014 tax years.

563    For reasons that have been given, the reliability of the accounting records for the Family Trust depended upon the credibility of the account given by Mr Gould. He was the person who directed the numerous end of year adjustments evident in those accounting records. Mr Gould's evidence has not been accepted as reliable. Therefore, in the particular circumstances of the present case, the accounting records themselves are insufficient to establish the past capital losses. There being no other evidence, the taxpayer has failed to discharge the onus in respect of the capital losses.

DEEMED DIVIDENDS ISSUE

564    The deemed dividends issue arises in respect of the appeal brought by Southsea Nominees as trustee for the Family Trust. It arises because of the taxpayers' claim that Southsea Nominees as trustee for the Family Trust is entitled to franking credits of $1,232,142 with respect to a purported dividend from Leagou in the 2014 tax year. The dividend is alleged to have been paid as to $750,000 in cash and as to the balance by repayment of a loan of $2,150,000 allegedly made by Leagou to the Family Trust earlier in the 2014 tax year, specifically on 17 March 2014.

565    It is the Commissioner's position that the purported dividend was not a dividend as defined in s 6(1) of ITAA36 because Southsea Nominees as trustee for the Family Trust was not a shareholder of Leagou on 17 March 2014. Rather, by operation of s 109C(1) in Division 7A of ITAA36, the purported dividend was a deemed dividend from Leagou to the Family Trust that was an unfrankable distribution pursuant to s 202-45(g)(i) of the Income Tax Assessment Act 1997 (Cth) (ITAA97). Although the Commissioner has a discretion to disregard the operation of Division 7A that is conferred by s 109RB, it was the position of the Commissioner that there was no discretion in the present circumstances because the relevant statutory criteria expressed in s 109RB(1)(b) were not met. They required the deeming of the dividend to arise because of honest mistake or inadvertent omission. Alternatively, the Commissioner said that there was no exercise of discretion under s 109(2)(b).

566    The answer advanced by the taxpayer to the Commissioner's position was that expressed in the appeal statement. The issue was not otherwise addressed in the opening or closing submissions for the taxpayers. It was not expressly abandoned but the fact that it was not addressed indicates that it was only put in formal terms. I will address it accordingly.

567    The position advanced by Southsea Nominees as trustee for the Family Trust was that it was a shareholder of Leagou as at 17 March 2014. Alternatively, if the alleged dividend was not paid to a shareholder then it was not an unfrankable deemed dividend but had some other legal character (being either a settlement of money on the trust or a dividend to Southsea Nominees in its own corporate capacity, and not as trustee).

568    As to the alternative, the position of the Commissioner was that he disputed the claims as to the legal character of the payment but said, in any event, the legal character was not relevant. Rather, the terms of Division 7A applied irrespective of the legal character of the payment. In my view that position must be correct. The issue is not as to the legal character of the payment but rather as to whether Division 7A applied to deem the payment of the purported dividend to be a dividend to the Family Trust. In the absence of any attempt by the taxpayer to explain why, on its alternative case, the deemed dividend provisions did not apply, that aspect of the alternative must fall away.

569    Southsea Nominees as trustee for the Family Trust had also advanced a further alternative to the effect that the alleged decision by the Commissioner not to exercise the discretion conferred by s 109RB was vitiated by error because there was a failure to take into account alleged mandatory considerations expressed in s 109RB(3) in the following terms:

In making a decision [to disregard the result of applying Division 7A] (or refusing to make such a decision), the Commissioner must have regard to the following:

(a)    the circumstances that led to the mistake or omission mentioned in paragraph (1)(b);

(b)    the extent to which any of the entities mentioned in paragraph (l)(b) have taken action to try to correct the mistake or omission and if so, how quickly that action was taken;

(c)    whether this Division has operated previously in relation to any of the entities mentioned in paragraph (1)(b), and if so, the circumstances in which this occurred;

(d)    any other matters that the Commissioner considers relevant.

570    However, what was not explained by the taxpayer was the character of the alleged mistake or omission that was alleged to give rise to the discretion. Any case of that kind would depend upon the credibility of the account given by Mr Gould as to what had happened. As is explained below, Mr Gould's account was entirely lacking in credibility.

571    Therefore, it has not been established that the Commissioner's discretion was enlivened. Consequently, it is not necessary to consider the further submissions as to whether there was vitiating error demonstrated on the part of the Commissioner in failing to decide to exercise the discretion and whether a claim of that kind could be raised as part of an appeal brought under s 14ZZ of the Taxation Administration Act.

572    As has been explained, the case for Southsea Nominees as trustee for the Family Trust concerning the franking credit for the purported Leagou dividend depends upon Mr Gould's account of two matters. First, whether Southsea Nominees in its capacity as trustee of the Family Trust was a shareholder of Leagou as at 17 March 2014. Second, whether there was any honest mistake or inadvertent omission as to the circumstances which were the reason why Division 7A applied.

573    As will emerge, I find the account of Mr Gould as to these two matters to be entirely unconvincing and one which exposed Mr Gould's own past contrivances as to his financial affairs in the context of family law proceedings. In addition to demonstrating that there was, as the Commissioner contended, a deemed dividend, the following matters provide further support for the conclusions I have reached as to the lack of credibility in Mr Gould's evidence based upon those parts of his testimony that concerned the interest and management fee deductions claimed by the taxpayers.

Southsea Nominees as a shareholder in Leagou

574    As I mentioned at the outset of these reasons, Leagou was previously named CVC Investment Managers Pty Limited. In what follows I continue to refer to the company as Leagou even though at the relevant time it was named CVC Investment Managers Pty Limited. Leagou was the management company for Continental Venture Capital, a listed public company. Continental Venture Capital had no employees. All its activities were undertaken by a management team employed by Leagou. For a long period of time, Mr Gould was the Chairman of Continental Venture Capital.

575    On Mr Gould's account, Leagou was always owned equally by his own interests and the interests of Mr Leaver through the Family Trust and the John Leaver Family Trust. In giving evidence to that effect, Mr Gould also suggested in a very general way that Mr Gowrie-Smith may have had an interest in Leagou at some stage. Mr Gould explained that he could not remember whether that was the case and, in his words, in giving that evidence he was 'sort of covering myself'. It was an odd answer given the course of the rest of his evidence which referred to Leagou as controlled by each of his and Mr Leaver's family trusts with each of them having a 50% shareholding. In the course of what follows, I consider the veracity of that evidence.

576    The balance sheet for the Family Trust as at 30 June 2014 did not show the shares in Leagou as an asset of the Family Trust. When reminded that it was part of the case for the taxpayers that the Family Trust was the beneficial owner of the shares in Leagou as at 17 March 2014, Mr Gould's explanation was that there was an error in the balance sheet. It was plain that Mr Gould immediately understood the significance of the question for the part of the case that concerned the alleged dividend (and consequent franking credit).

577    Mr Gould was taken to a company search for Leagou as at 26 March 2015. It recorded the shares in Leagou held by Southsea Nominees as being 'beneficially owned'. Despite that record, Mr Gould maintained that the shares were owned by Southsea Nominees as trustee for the Family Trust.

578    On 24 February 2016, the Commissioner sent a letter to 'The Trustee' of the Family Trust concerning the finalisation of an audit of Southsea Nominees as trustee for the Family Trust for the 2012 to 2014 tax years. It referred to a change in shareholding on 6 March 2014 which showed that from that time Southsea Nominees beneficially held half the issued shares in Leagou. The letter referred to the Commissioner's view that the contentious dividend amounts said to have been declared in the 2014 tax year were assessable under Division 7A as deemed dividends that were not franked.

579    It was put to Mr Gould that having seen that letter, he decided to take action about the shares held by Southsea Nominees in Leagou. He gave a stuttering answer in response which concluded with the statement that he did not even recall the letter. I found the answer to be most unconvincing in circumstances where Mr Gould well understood from the outset of the line of questioning the relevance of the nature of the shareholding for the franking credit issue. Further, the course of the whole of his evidence was such that he displayed a keen understanding of the taxation consequences of the matters the subject of his evidence. In the context of the overall issues, the Commissioner's letter and statement about the nature of the shareholding would have been significant and memorable.

580    In his cross-examination, Mr Gould was immediately confronted with a request for correction form bearing the endorsed date of 24 March 2016, which concerned the shareholding of Southsea Nominees in Leagou. The details of the correction requested were listed in that form as:

An error was made on the original notification form. The shares were marked as being held beneficially when in fact the shares were held non-beneficially.

581    There was then the following question and answer:

And I put it to you, Mr Gould, that that document was filed in response to the letter from the Commissioner?---Well, I think there will be a reasonable assumption that, essentially, we tried to - whatever the debates about what 'beneficially' and 'non-beneficially means' we've - we've endeavoured to rectify the position and make it stated as non-beneficially held even though they're acting, actually, beneficially, sort of, for the underlying trust.

582    Mr Gould was then taken to a letter sent by him to the Australia Taxation Office dated 27 June 2016. It included the following statement:

Please find attached a copy of a file note stating that Gould Family Trust is the actual owner of Leagou Pty Limited dated 19 February 2014. Also attached is a copy of the minute of Leagou Pty Limited dated 17 March 2014 which confirms the payment of the dividend to the Gould Family Trust. It also should be appreciated that for Company Law reasons share registers are not supposed to indicate the existence of a Trust. They simply show the prima facie beneficial owner which usually would be just the name of the trustee.

583    Attached was a document headed 'File Note, Leagou Pty Limited'. It was in the following terms:

ASIC Form 484 was unable to be lodged showing the following outgoing shareholders as holding the shares non-beneficially on behalf of the Gould Family Trust and the John Leaver Family Trust as all previous Company Statements have incorrectly shown the shares being held beneficially:

•    Southsea (Aust) Limited    49,996

•    Penalton Limited    49,996

•    Wenola Pty Limited    2

•    Leaver Holdings Pty Limited    2

•    South Seas Holdings Pty Limited    2

•    Philadelphia Investments Pty Limited    2

Accordingly the Form 484 was prepared to reflect the ASIC register (shares beneficially held) to enable the lodgement to be accepted.

Vanda Gould

19/2/2014

584    The following question was then put to Mr Gould:

Now, Mr Gould, can you explain why you signed a note on 19 February 2014 saying you hadn't been able to lodge a form 484 showing a change in shareholders on 19 February 2014 to show the new shareholders holding those shares non-beneficially and yet, on 24 March 2016, it was a simple matter to file a request for correction in form 492. Why did you wait over two years to just file the request for correction?

585    Mr Gould gave the following answer:

I've got no idea.

586    It was one of very few instances in the course of a very long cross-examination where Mr Gould was unable to proffer some form of explanation, even an unconvincing one. In many instances, he provided an answer by way of conjecture as to what may have happened. The way he gave the answer revealed what I took to be discomfort at being unable to provide any explanation as well as recognition that there was no explanation.

587    Mr Gould then denied that the note had been backdated. I do not accept that denial.

588    It is significant that, at the time of the investigations by the Commissioner as part of the audit process, Mr Gould did not seek to rest his position on the basis of debate about what was meant by beneficial ownership. Instead, he sought to maintain that there had been an actual attempt, two years prior, to lodge the relevant form which had been unsuccessful and yet, subsequently, knowing that to be the position, when the issue was raised he lodged a notice of correction. There is obvious inconsistency between the effort to explain why the shares were described as being held 'beneficially' (in the form of the file note referring to the way the outgoing shareholders had been noted as holding the shares) and the lodgement of the correction form. If indeed there had been a known error at the time of the file note why was the position not corrected at that time?

589    There was a further aspect that casts doubt on the file note. The change to company details that was lodged to indicate the shareholdings in Leagou (which indicated as to each shareholder that the shares were held beneficially) was dated 6 March 2014, but the file note was dated 19 February 2014. Mr Gould was unable to provide any explanation as to why it might be that having had the alleged problem in lodging the form on 19 February 2014 (as recorded in the file note) and then having prepared the new form (which was dated 19 February 2014), it was not until weeks later that the form was lodged. These matters pointed to the file note being constructed after the event but without due regard to the timing as to the actual lodgement of the form on 6 March 2014.

590    Mr Gould was then taken to a document that he had produced as an attachment to his first affidavit in the appeal brought by Southsea Nominees as trustee for the Family Trust. It purported to be minutes of a meeting of directors of Leagou held on 19 February 2014. It recorded the following:

The directors' attention has been drawn to the fact that the company's share register does not correctly reflect that all shares held by various companies have been held in trust for the beneficial owners, namely:

•    Southsea Nominees Pty Limited ATF Gould Family Trust - 50% (50,000 shares)

•    Wenola Services Pty Limited ATF John Leaver Family Trust - 50% (50,000 shares)

RESOLVED to accept transfers from the current shareholders into the names of Southsea Nominees Pty Limited and Wenola Services Limited to rectify the situation.

591    When challenged as to whether the minutes could have been prepared after 19 February 2014, Mr Gould answered: 'No. I mean, it's possible that the meeting has been held and I haven't signed them until later, but I just have no knowledge of the subject whatsoever'. I take the initial denial to be recanted by what followed.

592    Mr Gould was then asked a much more pointed question, namely:

Is it possible that that minutes of a meeting of directors on 19 February 2014 was prepared for the purposes of your affidavit?

593    Mr Gould's answer was striking:

I don't say it's impossible because I just - I really don't know.

594    The question was asked by reference to the affidavit sworn by Mr Gould in which he gave his account of what had happened in relation to the claimed dividend that was said to give rise to the franking credit. It was odd that Mr Gould was unable to say whether the minutes were brought into existence at the time his affidavit was prepared and deposed for the purposes of the appeal brought by Southsea Nominees as trustee for the Family Trust. It was also odd that the file note and the resolution to pay the dividend were both attached to the letter sent by Mr Gould to the Australian Taxation Office on 27 June 2016, but the document now alleged to record a meeting of directors of Leagou on 19 February 2014 dealing with the ownership of the shares was not attached to that letter.

595    I do not accept that there was a directors meeting on 19 February 2014 concerning the ownership of the shares at which it was resolved for a transfer of shares to occur to rectify the registered ownership of the shares into the names of the two trustee entities as 'beneficial owners' in their trustee capacity.

596    As to the alleged dividend, the document attached to Mr Gould's letter to the Australian Taxation Office on 27 June 2016 which was said to record the resolution (on 17 March 2014) to pay the dividend was expressed in the following terms:

RESOLVED that a cash dividend of $725,000 be paid to each of the following shareholders:

•    Wenola Services Pty Limited ATF John Leaver Family Trust

•    Southsea Nominees Pty Limited ATF Gould Family Trust

FURTHER RESOLVED that the loans currently standing to the credit of both shareholders be treated as dividends. This will result in a dividend of $2,150,000 to each shareholder.

597    Therefore, on Mr Gould's version of events, in February 2014 an issue arose as to whether the share register of Leagou correctly reflected the shareholding in the company. There was a board meeting on 19 February 2014 at which it was resolved to correct the register. Also, on 19 February 2014 a file note was prepared by Mr Gould which recorded that a form had been unable to be lodged showing the shareholdings of the 'outgoing shareholders' as holding the shares non-beneficially (for the Family Trust and the John Leaver Family Trust) because previous forms had shown those outgoing shareholders as holding the shares beneficially. The form that was then lodged was dated 19 February 2014 but was not lodged until 6 March 2014. It showed the incoming shareholders (Southsea Nominees and Wenola Services Pty Limited) as holding the shares beneficially even though the importance of the distinction had been recognised and the form required the identification of whether the shares were held beneficially or not.

598    It was in that context, on Mr Gould's account, that the end of year accounts for the 2014 tax year were prepared for the Family Trust and the shares in Leagou. It will be recalled that those accounts did not show the shares as assets of the trust. Mr Gould accepted that the total equity of Leagou at the time was over $25 million. He provided a very unconvincing explanation as to why that may be so. It was first concerned with whether the value of the shareholding might be shown in the loan balances as assets. Then when that was exposed as an invalid explanation Mr Gould then gave evidence that the contributed capital of $100,000 to establish Leagou might mean that the shares were not shown in the balance sheet. All this at a time when the ownership of the shares was said to have been a matter of considerable focus in February and March 2014.

599    It was not until 2016 when the Commissioner pointed out the consequence for the alleged franking credit of Southsea Nominees being the beneficial holder of half the shares in Leagou that a correcting form was immediately lodged.

600    Accordingly, when it came to the evidence of Mr Gould based upon what occurred in 2014, which was said to support the conclusion that as at 17 March 2014, 50% of the shares in Leagou were held by Southsea Nominees as trustee for the Family Trust, there was much that was unsatisfactory about his account. In addition, as explained below, there was a very confused history concerning that shareholding.

601    Mr Gould was cross-examined about the historical record concerning the shareholdings in Leagou. He was taken back to the 1991 annual return for Leagou. The form included the following instruction: 'A member who holds shares on behalf of another person or corporation is not the beneficial owner of the shares (show "N")'. The form showed six shareholders holding a total of 100,000 shares. It showed Southsea Investments as the holder of 49,996. In response to the question in the annual return 'Is the member the beneficial owner of the shares? (Y/N)', there was the notation 'N'. There was a similar entry for Penalton also holding 49,996 shares. Penalton was the trustee of the John Leaver Family Trust at the time. Leaver Holdings Pty Ltd was shown as holding two shares and the notation for that holding was 'Y'. On Mr Gould's account, the two entities holding most of the shares were trustee entities and they were shown as 'N' (not the beneficial owner). Having regard to the evidence given by Mr Gould the only reason for the 'N' notation would be the trustee character of those two companies.

602    Mr Gould was then taken to the 1992 annual return for Leagou. It showed Southsea (Aust) Ltd as the holder of the shares that had been held by Southsea Investments with the notation 'N' as to beneficial ownership. As to whether he recalled anything about that, Mr Gould said: 'At one stage we were thinking of using another - another nominees, but that - it would be just nominees for the family trust. That's all'.

603    Mr Gould was then taken to a form providing supplementary information to the 1992 annual return for Leagou, which was said to show a change in shareholders. Whereas the 1992 annual return had given an address in Pitt Street Sydney for Southsea (Aust) Ltd, the relevant shareholding was now shown to be in the name of Southsea (Aust) Limited at an address in Jersey and the notation as to beneficial ownership was recorded as 'Y'. Asked whether he recalled anything about that, Mr Gould said:

I think you will find that what happened was we had to - because this is a very valuable company. This is part of the provision of security. They had to go into other names.

604    I note that these answers about matters in the early 1990s were offered without any complaint about how long ago the events had occurred. My assessment was that Mr Gould had a very good recollection of the way in which his affairs had been structured. I was not persuaded that he had any genuine difficulty in recalling matters that concerned the overall structure of his business dealings.

605    Mr Gould then added to his answer as follows:

Well, sometimes lenders say, 'Well, look, we will loan you money but we want to hold the security and we want to, basically, have the shares registered in a company which is more directly under our control' and that's what has happened there and so

606    After being asked about the lenders Mr Gould had been referring to Mr Gould then said: 'Well, not lenders to Leagou, necessarily, but to basically - to - to John Leaver and myself … I can't remember why but I know it relates to provision of security'. He could not say who the lenders were. He maintained that the shares were still beneficially owned by the Family Trust. When pressed, he said about the ownership passing into the hands of a Jersey company:

Yes, but they - that's right and they could, basically then have - you know, if there was - been default elsewhere sold those shares.

607    This answer and those that followed on the same topic were confused, evasive and unconvincing. Mr Gould could not explain why the security arrangement meant that the shares were shown as being held beneficially by the Jersey company (contrary to the previous returns showing the shares as not being held beneficially). He could not explain in any coherent way what the financing might have been or how it might have worked or what the role of the Jersey company may have been.

608    Mr Gould was then taken to an affidavit that he had deposed on 17 May 1993, as the respondent in Family Court proceedings. It was an affidavit as to his financial circumstances for the purposes of the resolution of a dispute as to the allocation of the property of his marriage. In particular, he was taken to the following paragraph:

This company operates as a management company and its prime activity is as business manager of Continental Venture Capital Limited. The shares in this company which were owned by Southsea Investments Pty Limited as trustee of the Gould Family Trust were sold to Southsea (Aust) Limited on 30 October 1992 for the sum of $100,000 (cost price $50,000). The shareholding of CVC Investment Managers Limited is now owned by Penalton Limited (50,000 shares) and Southsea (Aust) Limited (50,000 shares). I have no interest either directly or indirectly in Penalton Limited or Southsea (Aust) Limited. These are two Jersey companies which I believe are controlled by trusts associated with Mr Ian Gowrie-Smith …

609    Mr Gould was asked to explain how the paragraph could be squared with his evidence to the effect that the shareholding interest in Leagou had always been held by the Family Trust. He gave the following answer:

Yes, because basically, to me, I've always had that interest. Ultimately, when the debts, whatever it was, were repaid, the shares came back to the Gould Family Trust. So I - I can't explain why - the ins and outs of what happened in that date. It's 30 years ago, but …

610    He then said that the affidavit was not accurate because the shareholding was not sold but 'was basically used - provided as security'. He then said that the shares were sold as part of the security arrangements, 'but there was also an understanding that ultimately they would come back to the Gould Family Trust'. None of that was stated in the affidavit. Challenged as to whether the affidavit was truthful, Mr Gould said:

I was absolutely truthful. That would be the correct situation at that person in - at that moment in time, but I would have had the opportunity - or the ability to actually, sort of, get them back at some future point of time, but I just didn't disclose that.

611    It was a very revealing answer when it came to Mr Gould's overall credit. He was prepared to try and maintain that the statement in his affidavit was truthful whilst accepting that, on the account he was giving in the present proceedings, he did not 'disclose' the opportunity that he had the ability to 'sort of' get back the shares at some future point in time. He said he did not disclose that 'opportunity' because he didn't think it was relevant and, in his words: 'The fact of the matter was, at that moment in time, those shares were gone'.

612    Mr Gould then resorted to the following explanation as to how the affidavit and his evidence in the present proceedings could both be true:

Because, basically, this is true as it stood at this moment in time, but the fact that there was an understanding with Ian about ultimately how these shares would be dealt with is a completely different issue, and in my heart of hearts, I've always known that, you know, at all times I've always believed that these shares would come back into the Gould Family Trust.

613    When pressed as to whether he could remember how the shares 'came back' he said: 'Well, no, I don't, but it would be because of certain loans were repaid or something of that order, but exactly how that happened, I don't know'. They were loans that he could not identify.

614    Even allowing for the passage of time, I do not believe these answers given by Mr Gould. They concern the control of his interest in Continental Venture Capital, a matter at the heart of his financial affairs. In the affidavit in the Family Court proceedings he described himself as being employed by CVC Investment Managers, identifying that role as the source of his weekly income. What Mr Gould was describing was an arrangement to warehouse the shares in Leagou (then named CVC Investment Managers) whilst deposing in the Family Court proceedings that the shares in Leagou had been sold to Penalton and Southsea (Aust) Limited being Jersey companies in which Mr Gould said he had no interest and which he believed, at the time, to be controlled by trusts associated with Mr Gowrie-Smith.

615    Further, they are matters that Mr Gould knew might be raised. That is evident from his curious statement at the beginning of the passage of cross-examination concerned with the shareholding in Leagou. At that time, he suggested that Mr Gowrie-Smith may have had an interest in Leagou at some time. He said that he could not remember whether that was the case and, in his words, in giving that evidence he was covering himself. Viewed in the context of what unfolded in relation to the affidavit in the Family Court proceedings that was revealing testimony on the part of Mr Gould. I find that Mr Gould was indeed covering himself for the possibility that his past inconsistent testimony would emerge. I also find that before Mr Gould was cross-examined in the present proceedings he had thought about how the inconsistency might be explained. The veracity of Mr Gould's evidence about the alleged loan and security arrangement with Mr Gowrie-Smith is to be evaluated in that light. What Mr Gould's evidence showed was how far he was prepared to go when it came to misrepresenting the state of his financial affairs. It was evidence that reflected adversely on his overall credibility. In what followed, those conclusions were further reinforced.

616    The 1994 annual return for Leagou still showed 49,996 shares in Leagou being beneficially held by Southsea (Aust) Limited of Jersey.

617    The 1995, 1996 and 2001 annual returns for Leagou again showed 49,996 shares being beneficially held by Southsea (Aust) Limited. However, the address for the company was an address in Bridge Street Sydney associated with Mr Gould. In each case, no ACN appeared for the company.

618    The 2002 annual return showed a change. The name Southsea (Aust) Limited and the address were the same, but there also appeared an ACN for the company. An Australian company with that name and ACN had been registered on 11 February 1994 and deregistered on 4 March 1996.

619    Asked what was going on with the company, Mr Gould gave the following answer:

Well, we bought, you know, at some stage, the shares came back under the control of the - fully under the Gould Family Trust and the John Leaver Family Trust, and we incorporated or used an Australian entity, just kept the name going for other reasons. I mean, we incorporated an entity of those names, which also would be trustee for the respective trusts, and then after a year or two, we wound them up. Got rid of them.

620    He was pressed as to what had happened given that the shares were still shown as being beneficially owned. His answers were unconvincing. It was put to him that he had taken steps to morph the ownership from the Jersey entity into the Australian entity. He denied that but could not explain why the steps were taken in relation to Southsea (Aust) Limited. I find that the steps were taken to unwind the warehousing of the shares. In order for that warehousing to be effected, the beneficial ownership of the shares in Leagou had to be held by Southsea (Aust) Limited. That remained the case because there was never any dealing with those shares. There was simply the sleight of hand effected by the incorporation of the Australian entity with the same name as the Jersey entity.

621    Eventually, as has been explained, on 6 March 2014, just before the relevant dividend was declared, there was a form lodged to change the shareholdings in Leagou. It was dated 19 February 2014. It showed a decrease of 49,996 shares beneficially held by Southsea (Aust) Limited with an ACN corresponding to the company that had been deregistered in 1996. It showed a decrease in other shareholdings. It also showed an increase of 50,000 shares beneficially held by each of Southsea Nominees and Wenola Services Pty Limited.

622    So, on the evidence, shares that had been transferred beneficially to Southsea (Aust) Limited of Jersey on 30 October 1992 for $50,000 had been registered in the name of Southsea Nominees. There was no explanation forthcoming from the taxpayer as to the basis for that transfer or why it was said to be a transfer to Southsea Nominees as trustee for the Family Trust. Aside from Mr Gould's general evidence to the effect that the shares had always been held as trustee for the Family Trust, evidence which I do not accept having regard to the state of the evidence as to the warehousing arrangement, there is no basis to conclude that the shares were held as trustee.

623    The fact that Mr Gould took the steps in relation to the repatriation of the shareholding in Leagou with some deliberation finds considerable support in the following documents that were in evidence. Mr Gould sent a letter to Mr Bell of Lubbock Fine on 19 June 1992. It read:

Is it possible to get a name containing Southsea or even use another jurisdiction? The reason is that it is proposed to transfer a substantial quantity of shares from Southsea Investments Pty Limited, an Australian company, and it would be desirable to have a Southsea name so as not to upset the market.

624    On 25 June 1992, Mr Gould sent a further letter to Mr Bell with the reference 'Southsea (Jer) Limited'. It referred to the incorporation of the 'abovenamed company' and included the following:

The beneficial owner of the company will be Wah Dak Services Limited, which company is owned by the Ian Roderick Gowrie-Smith Trust which was established on July 5, 1983, in Hong Kong.

625    The evidence of the connections between Mr Gould and Wah Dak through the Beer Trust have already been addressed.

626    There was also in evidence a letter dated 12 October 2006, sent by Mr Borgas on the letterhead of an entity 'Southsea (Australia) Limited', a company registered in England, to the entity Southsea (Australia) Limited in Jersey concerning the receipt by the English entity of 4,801,141 shares in Continental Venture Capital.

627    The Jersey entity was wound up in 2006. When this was put to Mr Gould he confirmed without hesitation that this was correct. As I have previously observed, Mr Gould displayed familiarity with the overall historical structure of his entities. It was evident in answers such as the one he gave concerning the winding up of the Jersey entity. Consequently, I was unconvinced by the occasions when he suggested that he had difficulty recalling such matters by reason of the passage of time.

628    A person other than a subscriber does not become a shareholder in a company unless and until the name of the person is entered on the register: Federal Commissioner of Taxation v Patcorp Investments Ltd (1976) 140 CLR 247. The register of members of Southsea Nominees was not in evidence. It was for the taxpayers to establish the position in respect of the shareholding. Even if the register had been in evidence, having regard to the matters raised in cross-examination of Mr Gould very serious issues would have arisen as to whether it was a record that could be relied upon for its accuracy.

629    In all those circumstances, I find that Southsea Nominees has failed to discharge its onus to establish that, at the time the relevant dividend was declared, Southsea Nominees held its 50,000 shares in Leagou as trustee for the Family Trust.

COMMISSIONER'S WITHHOLDING TAX ALTERNATIVE AS TO $8,000

630    One of the interest deductions claimed is an amount of $8,000 allegedly incurred by Philadelphia to Anglo Australian Christian & Charitable Fund (UK). If it is established to be interest actually incurred then the Commissioner advances an alternative claim that the amount is not deductible because interest withholding tax was not paid.

631    Section 26-25 of the ITAA97 provides, in substance, that interest cannot be deducted if the withholding tax provisions apply and withholding tax has not been withheld and remitted.

632    The alternative claim as to the $8,000 was raised by the Commissioner by way of appeal statement. There was no evidence from Philadelphia to the effect that withholding tax was remitted. Had I not determined that the taxpayers' burden of proof had not been discharged as to each of the interest deductions then I would have upheld the alternative claim as to $8,000.

INDIVIDUAL DEDUCTIONS

633    It is convenient at this point to collect together all the deductions claimed by the taxpayers in order to be clear as to the extent of the deduction claims that have not been established by the taxpayers.

South Seas Holdings as trustee for the Share Trust: QUD 8/2020

634    The deductions claimed in QUD8/2020 are:

(1)    an amount of $297,500 said to be deductible in the 2004 tax year as interest on a loan from the Family Trust;

(2)    an amount of $760,000 said to be deductible in the 2006 tax year as interest on a loan from CVC II;

(3)    an amount of $280,000 said to be deductible in the 2007 tax year as interest on a loan from the Family Trust;

(4)    an amount of $5,000 said to be deductible in the 2009 tax year as a management fee paid to the Family Trust;

(5)    an amount of $100,000 said to be deductible in the 2010 tax year as interest on a loan from the Family Trust;

(6)    an amount of $100,000 said to be deductible in the 2011 tax year as interest on a loan from the Family Trust; and

(7)    an amount of $105,000 said to be deductible in the 2012 tax year as interest on a loan from the Family Trust.

Education Corporation as trustee for the Gold Trust: QUD 9/2020

635    The deductions claimed in QUD 9/2020 are:

(1)    an amount of $10,000 said to be deductible in the 2003 tax year as interest on a debt to Chemical Trustee;

(2)    an amount of $83,333 said to be deductible in the 2004 tax year as interest on a debt to Chemical Trustee;

(3)    an amount of $86,720 said to be deductible in the 2005 tax year as interest on a debt to Chemical Trustee;

(4)    an amount of $89,750 said to be deductible in the 2006 tax year as interest on a debt to Chemical Trustee;

(5)    an amount of $86,720 said to be deductible in the 2007 tax year as interest on a debt to Chemical Trustee;

(6)    an amount of $53,760 said to be deductible in the 2008 tax year as interest on a debt to Chemical Trustee;

(7)    an amount of $1,070,000 said to be deductible in the 2009 tax year as interest on a debt to Chemical Trustee;

(8)    an amount of $4,367 said to be deductible in the 2010 tax year as interest on a debt to Chemical Trustee;

(9)    an amount of $17,836 said to be deductible in the 2010 tax year as interest on a debt to the Family Trust;

(10)    an amount of $23,436 said to be deductible in the 2010 tax year as interest on a debt to Morning Star;

(11)    an amount of $28,838 said to be deductible in the 2010 tax year as interest on a debt to Melbourne Corporation;

(12)    an amount of $287,201 said to be deductible in the 2011 tax year as interest on a debt to Chemical Trustee;

(13)    an amount of $6,466 said to be deductible in the 2011 tax year as interest on a debt to the Family Trust;

(14)    an amount of $8,405 said to be deductible in the 2011 tax year as interest on a debt to Morning Star;

(15)    an amount of $11,381 said to be deductible in the 2011 tax year as interest on a debt to Melbourne Corporation;

(16)    an amount of $309,600 said to be deductible in the 2012 tax year as interest on a debt to Chemical Trustee;

(17)    an amount of $309,600 said to be deductible in the 2013 tax year as interest on a debt to Chemical Trustee;

(18)    an amount of $334,678 said to be deductible in the 2014 tax year as interest on a debt to Chemical Trustee; and

(19)    an amount of $80,000 said to be deductible in the 2014 tax year as interest on a debt to Melbourne Insurance.

Philadelphia: QUD 20/2020

636    The deductions claimed in QUD 20/2020 are:

(1)    interest of $80,000 said to be deductible in 1999 and interest of $150,000 said to be deductible in 2000 which are alleged to give rise to losses that could be carried forward and offset against income in subsequent years;

(2)    an amount of $50,000 said to be deductible in the 2001 tax year as interest on a debt to the Family Trust;

(3)    an amount of $50,000 said to be deductible in the 2005 tax year as a management fee payable to Melbourne Corporation;

(4)    an amount of $406,750 said to be deductible in the 2006 tax year as interest payable to CVC II (or to the Family Trust);

(5)    an amount of $900,000 said to be deductible in the 2007 tax year as interest payable to CVC II (or to the Family Trust);

(6)    an amount of $100,000 said to be deductible in the 2009 tax year as a management fee payable to the Family Trust;

(7)    an amount of $8,000 said to be deductible in the 2010 tax year as interest payable to Anglo Australian Christian & Charitable Fund (UK); and

(8)    an amount of $204,445 said to be deductible in the 2014 tax year as interest payable to the Family Trust.

Southsea Nominees as trustee for the Family Trust: QUD 326/2020

637    The deductions claimed in QUD 326/2020 are:

(1)    a loss of $37,092 is said to have been incurred in the 1999 tax year that could be carried forward and offset against income in subsequent years (particularly on the basis that interest of $290,000 was deductible in that year);

(2)    a loss of $584,130 is said to have been incurred in the 2000 tax year that could be carried forward and offset against income in subsequent years (particularly on the basis that interest of $900,000 was deductible in that year);

(3)    an amount of $1,600,000 said to be deductible in the 2001 tax year as interest payable to CVC II;

(4)    an amount of $1,390,000 said to be deductible in the 2002 tax year as interest payable to CVC II;

(5)    an amount of $570,000 said to be deductible in the 2003 tax year as interest payable to CVC II;

(6)    an amount of $613,650 said to be deductible in the 2004 tax year as interest payable to CVC II;

(7)    an amount of $44,000 said to be deductible in the 2004 tax year as a management fee payable to Philadelphia;

(8)    an amount of $10,000 said to be deductible in the 2005 tax year as interest payable to the Share Trust;

(9)    an amount of $55,000 said to be deductible in the 2006 tax year as interest payable to CVC II;

(10)    an amount of $15,000 said to be deductible in the 2006 tax year as a management fee payable to CVC II;

(11)    an amount of $235,000 said to be deductible in the 2006 tax year as a management fee payable to Melbourne Corporation;

(12)    an amount of $131,400 said to be deductible in the 2007 tax year as interest payable to CVC II;

(13)    an amount of $87,500 said to be deductible in the 2007 tax year as a management fee payable to Melbourne Corporation;

(14)    an amount of $1,617,000 said to be deductible in the 2008 tax year as interest payable to CVC III;

(15)    an amount of $250,000 said to be deductible in the 2008 tax year as a management fee payable to Melbourne Corporation;

(16)    an amount of $1,596,500 said to be deductible in the 2009 tax year as interest payable to CVC III;

(17)    an amount of $145,000 said to be deductible in the 2009 tax year as a management fee payable to Melbourne Corporation;

(18)    an amount of $1,062,000 said to be deductible in the 2010 tax year as interest payable to CVC III;

(19)    an amount of $200,000 said to be deductible in the 2010 tax year as a management fee payable to Melbourne Corporation;

(20)    an amount of $1,015,500 said to be deductible in the 2011 tax year as interest payable to CVC III;

(21)    an amount of $1,054,500 said to be deductible in the 2012 tax year as interest payable to CVC III;

(22)    an amount of $904,000 said to be deductible in the 2013 tax year as interest payable to CVC III;

(23)    an amount of $5,000 said to be deductible in the 2013 tax year as a management fee payable to Golden Investments;

(24)    an amount of $825,000 said to be deductible in the 2014 tax year as interest payable to CVC III; and

(25)    an amount of $5,500 said to be deductible in the 2014 tax year as a management fee payable to Golden Investments.

Conclusion as to claimed deductions

638    For reasons that have been given, the taxpayers have failed to demonstrate that any of the amounts were deductible. The assessments were issued on the basis that each of the amounts were not deductible. It follows that the taxpayers have failed in their appeals insofar as they relied upon claims as to the deductibility of the above amounts.

AGREEMENT AS TO INCOME

639    In reaching conclusions as to the taxation payable, the Commissioner removed certain claimed income amounts where the party earning the disputed interest or management fees was an entity controlled by Mr Gould. In some cases that entity was one of the taxpayers. The income amounts that were not allowed across all entities totalled $3,566,211. The parties reached agreement as to the approach to be adopted concerning these amounts for the purposes of these proceedings. First, for income amounts that relate to deductions the subject of these proceedings, they are to be included or excluded according to whether the deductions are upheld (they total $922,756). Second, for income amounts where corresponding claims for deductions have been resolved in other proceedings, they are to be included or excluded according to that resolution (they total $2,484,566).

640    There was also a third category of case which concerned amounts where the claimed deduction was in respect of interest or management fees in the current proceedings and the amount resulted in income for entities controlled by Mr Gould that were neither one of the four taxpayers in the current proceedings nor the subject of other proceedings. The Commissioner proposed that those amounts would be removed from assessments for those third parties if the Commissioner was successful in opposing the appeals in respect of the relevant deductions. They totalled $158,889. There is no need for the Court to reach any conclusion as to that proposal which relates to entities that are not party to these proceedings and are not the subject of other proceedings. I note for the record that the position of the Commissioner as to those amounts if the appeals were successful in respects that affected the relevant amounts was that those amounts would be taken to be assessable income in the hands of the third parties.

FRAUD OR EVASION

641    Section 170 of the ITAA36 provides for circumstances in which the Commissioner may amend assessments. In the ordinary course, there are time limits on how far back the Commissioner can go in amending assessments. However, s 170 includes provision for the Commissioner to 'amend an assessment at any time if he or she is of the opinion that there has been fraud or evasion'. Many of the assessments the subject of the taxpayers' appeals were amended assessments issued by the Commissioner on the basis of an opinion that there had been fraud or evasion by the taxpayers.

642    The relevant opinions were formed by the Commissioner when the relevant assessments were issued. They were each expressed in a formal 'fraud or evasion opinion' as follows:

(1)    for the Share Trust, an opinion dated 23 April 2015 in respect of assessments issued for the 2004 to 2011 tax years;

(2)    for the Gold Trust, an opinion dated 15 May 2015 in respect of assessments for the 2003 to 2011 tax years;

(3)    for Philadelphia, an opinion dated 21 April 2015 in respect of assessments for the 2001 to 2011 tax years; and

(4)    for the Family Trust, an opinion dated 25 May 2015 in respect of assessments for the 2001 to 2004, 2007, 2008 and 2011 tax years.

643    For each taxpayer, there were audits conducted. The outcomes of the audits were notified to the taxpayers with reasons for decision. In each case, those reasons referred to the opinion that had been formed concerning fraud or evasion. They were as follows:

(1)    for the Share Trust, reasons for decision enclosed with a letter dated 12 May 2015 (paras 89-90);

(2)    for the Gold Trust, reasons for decision enclosed with a letter dated 20 May 2015 (paras 318-319);

(3)    for Philadelphia, reasons for decision enclosed with a letter dated 27 April 2015 (paras 158-159); and

(4)    for the Family Trust, reasons for decision enclosed with a letter dated 29 May 2015 (paras 340-341).

644    Assessments were then issued. They included the standard notification that the taxpayer may lodge an objection. Each of the taxpayers lodged objections to the assessments.

645    The reasons for decision in respect of each objection addressed the issue of fraud or evasion.

Share Trust

646    In the case of the Share Trust, the reasons on the objection considered whether the amended assessments that had been issued for the 2004 to 2011 tax years were made within the limits of s 170 of the ITAA36. With respect to this issue, the reasons began by stating: 'For each of the relevant years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion'. The reasons then went on to consider the concepts of fraud or evasion and set out findings as to the circumstances of the taxpayer. The relevant section of the reasons concluded with the following summary (paras 157-174):

For each of the relevant years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion. There was a blameworthy act or omission on behalf of the trustee for the Share Trust or its tax agent, which at the very least, amounts to evasion.

As the Commissioner has formed an opinion of fraud or evasion, the Commissioner may issue original or amended assessments to the trustee of the Share Trust for the relevant years, at any time.

The amended assessments have issued within time.

Where a trust tax return shows no trustee tax liability (whether under sections 98, 99 or 99A of the [ITAA36], the ATO does not, as a matter of course, issue any Nil assessments to the trustee to reflect the position as returned.

Strictly, this means that time does not begin to run for a period of review (in respect of the assessments and the Commissioner has an unlimited period within which to review and assess the trustee's tax position.

Law Administration Practice Statement PSLA 2015/2 Trustee assessments explains the Commissioner's administrative practices of limiting the time in which the ATO will raise an original income tax assessment for a trustee. Paragraph 2 provides that generally the Commissioner will not issue an original assessment to the trustee more than four years after the relevant trust tax return was lodged.

However, paragraph 3 of PS LA 2015/2 outlines a number of circumstances where paragraph 2 does not apply. Relevantly, these circumstances include where the Commissioner is of the opinion that there has been fraud or evasion.

Under the Commissioner's administrative practice, he would have been out of time to issue Trustee assessments to you for the financial years ended 30 June 2004 to 30 June 2012 if he was not of the opinion that there was fraud or evasion.

The Commissioner formed an opinion on 23 April 2015 that there had been an avoidance of tax in the years ended 30 June 2004 to 30 June 2011 and therefore was following his practice statement in issuing the Trustee notices of assessment for the years ended 30 June 2006 to 30 June 2011.

As a result he was also authorised to issue the amended notices of assessment to the beneficiary for the years ended 30 June 2004 and 30 June 2005 under section 170 of the [ITAA36]. The Commissioner was within time to amend the beneficiary assessment for the financial years ended 30 June 2012.

647    It appears that the reasons for decision did not record the formation of the requisite opinion as to fraud or evasion. Rather, the reasons considered whether there was a basis for the opinion to be formed and concluded that there was a proper basis. However, ultimately, that was the opinion that had been formed by the Commissioner (and which was the subject of the formal fraud or evasion opinion that was identified as the source of the statutory power to issue the assessments to the extent that they were outside the usual periods within which assessments might be issued).

Gold Trust

648    In the case of the Gold Trust, the reasons on the objection considered whether the assessments were issued within the time prescribed by s 170. That aspect of the reasons began:

The Commissioner may amend an assessment at any time if the Commissioner is of the opinion an avoidance of tax was due to fraud or evasion.

For each of the relevant years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion.

649    The reasons then dealt with the legal principles and the circumstances of the taxpayer. The section of the reasons concluded with a summary as follows:

For each of the relevant years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion. There was a blameworthy act or omission on behalf of you as trustee for the Educational Gold Trust or your agent, which at the very least, amounts to evasion.

As the Commissioner has formed an opinion of fraud or evasion, the Commissioner may issue original or amended assessments to you for the relevant years, at any time.

650    Again, the relevant opinion was not formed in the reasons for decision on the objection. Rather those reasons referred to the fact that the opinion had been formed, considered the circumstances and concluded that as the opinion had been formed the Commissioner may issue the assessments.

Philadelphia

651    In the case of Philadelphia, the reasons on the objection considered whether the amended assessments were made within the limits of the relevant statutory provisions (that is, s 170 and s 171A of the ITAA36). That section of the reasons began by describing the relevant provisions and then stating (paras 208-209):

The Commissioner may amend an assessment at any time if the Commissioner is of the opinion an avoidance of tax was due to fraud or evasion.

For each of the 2001 to 2011 income years, the Commissioner has formed the opinion there was an avoidance of income tax due to fraud or evasion.

652    The reasons then dealt with the legal principles and set out the arguments advanced by the taxpayer. Under the heading 'in your case' the reasons began by referring to the fact that at audit, the Commissioner had formed an opinion of fraud or evasion for the 2001 to 2011 tax years (para 223).

653    The reasons then addressed the circumstances of the taxpayer and concluded (paras 235-237):

The above facts and evidence established that the tax shortfalls exist in the 2001 to 2014 income years were the result of a blameworthy act on your part. The Commissioner affirms the fraud and evasion opinion under review. Accordingly, our fraud and evasion opinion stands. From this, it follows that the Commissioner has no time limit to amend your 2001 to 2011 tax assessments as the Commissioner has formed the opinion there is an evasion.

For the 2012 to 2014 income years the Commissioner may amend an assessment within four years after the day on which the Commissioner give you notice of the assessments as you are neither an individual nor a small business entity. The Commissioner consider[s] you are not a small business entity as defined by section 328-10 of the [ITAA97], because your passive income activities (rent, interest, trust distributions and dividends from share investments) do not constitute the carrying on of business.

Even if you are considered to be carrying on a business, your aggregated turnover exceeds $2 million. As you are part of a large group of entities associated with Mr Gould, your aggregated turnover which includes the turnovers of all of the entities connected with you is significantly more than $2 million.

654    It appears that the approach taken in the reasons on the Philadelphia objection was different to that for the reasons on the Share Trust and Gold Trust objections. In the Philadelphia objection, the Commissioner's delegate purported to 'affirm' the fraud or evasion opinion.

Family Trust

655    Finally, in the case of the Family Trust, the reasons for decision on the objection considered whether the assessments issued within time, which included a section on 'fraud or evasion'. It set out the relevant test (para 264) and relevant law (paras 265-268). Then under the heading 'Application to the Gould Family Trust' it set out contentions advanced by the Family Trust including: 'There was no fraud or evasion, nor were any of the other preconditions satisfied in order to issue the assessments'.

656    Reasons were then expressed as to why the Commissioner did not accept the contentions raised by the Family Trust. Those reasons began (para 270):

The Commissioner does not accept the Gould Family Trust's contentions above. It is considered that there was fraud and/or evasion in claiming deductions for management and consultancy fees, interest and prior year losses in circumstances where…

657    There followed a list of circumstances and other reasons supporting the Commissioner's opinion. The reasons then summarised the matters that had been considered by the Commissioner in forming the opinion that there had been fraud or evasion (para 272).

658    The section concluded with the following under the heading 'Summary' (paras 274-275):

The Commissioner maintains his opinion that there was fraud and/or evasion in the years ended 30 June 2001 to 30 June 2004, 30 June 2007 and 30 June 2008. As such the Commissioner was able to issue assessments for these years at any time.

The Commissioner was within time to issue an assessment for the year ended 30 June 2011 and accordingly did not turn his mind to the question of Fraud or Evasion.

659    Therefore, as was the case in relation to the Philadelphia objection, the reasons for decision on the Family Trust objection also contained a statement that confirmed the Commissioner's original opinion that there was fraud or evasion.

The submissions

660    I have set out these matters in some detail because the position of the Commissioner on the appeals was to rely upon the original opinions, not upon any opinions that might be taken to have been expressed in the reasons on the objections. The opening submissions for the taxpayers focussed upon the matters expressed in the reasons for objection.

661    In closing submissions for the taxpayers, the case concerning fraud or evasion was put by reference to the reasoning in Fitzroy Services Pty Ltd v Commissioner of Taxation [2013] FCA 471 (Edmonds J). In that case, the assessment had been issued on the basis of the fraud or evasion provision in s 170 of the ITAA36. On that occasion, the case for the Commissioner in relation to fraud or evasion was put in the following terms (as quoted at [51]):

The facts before the Commissioner as confirmed by the evidence before the Court will support the conclusion that the applicant has not shown that the Commissioner's opinion was unreasonable, or legally erroneous.

662    Edmonds J quoted relevant parts of the reasons on the objection (at [52]). They included the following:

During the audit it was determined that there was evidence of evasion based on the factors described in paragraphs 33 to 36 above. It is considered that there was sufficient basis for the Commissioner to form this opinion and the Commissioner was therefore able to amend your assessment for the 2004-05 financial year at any time.

663    It appears that one of the contentions for the taxpayer on the objection was to the effect that it did not engage in fraud or evasion. As to that contention, the quoted passage from the reasons on objection included the following:

In your objection you contend that you have not engaged in fraud or evasion. However, you have not provided any evidence or information in your objection to establish that evasion did not occur.

664    Therefore, the reasons for decision on the objection did not appear to contain the expression of the Commissioner's opinion for the purposes of s 170 of the ITAA36. Rather, that opinion was formed during the audit and the conclusion reached on the objection was that there was a sufficient basis for the formation of that opinion.

665    Edmonds J then reasoned that '[i]n the absence of further elaboration, [there was] no alternative but to assume that' the matters stated in the reasons on the objection 'alone found[ed] the basis of the Commissioner's opinion' (at [53]). On the basis of his Honour's own conclusions in the case that the matters referred to in the reasons on the objection had been demonstrated by the taxpayer, Edmonds J concluded that the Commissioner's opinion as to fraud or evasion was 'flawed and infected with legal error' and 'the Commissioner had no power to issue the amended assessment': at [54].

Conclusion

666    The submission advanced for the taxpayers in the present proceedings was to the effect that if the taxpayers' contentions as to the deductions were upheld then, applying the reasoning in Fitzroy Services it must be concluded that the opinions formed by the Commissioner were infected with legal error as there was no basis for the opinions. For reasons I have given, the taxpayers' contentions have been rejected. It follows that their case as to fraud or evasion must also be rejected.

667    Ultimately, other claims made in the appeal statements to the effect that there had been a form of unreasonableness or other kind of legal error in the formation of the relevant opinions were obscurely expressed. In the result, they were not pressed and need not be addressed.

668    However, having regard to the way in which the case for the taxpayers was mounted, namely that the relevant opinions were expressed in the reasons on the objections, I should not be taken to accept that such an approach was open for the following reasons.

669    It is first necessary to return to the nature of an appeal under s 14ZZ of the Taxation Administration Act. Amongst other things, s 14ZZ provides for an appeal to this Court against an objection decision. The 'assessment, determination, notice or decision against which a taxation objection may be, or has been, made' is a 'taxation decision': s 14ZQ. A taxpayer bringing an appeal under s 14ZZ against an objection decision in respect of a 'taxation decision' has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been: s 14ZZO(b)(i).

670    As we explained in Bosanac v Commissioner of Taxation [2019] FCAFC 116; (2019) 267 FCR 169 at [47]:

Although s 14ZZ provides for an 'appeal', it confers an original jurisdiction to determine a review claim 'against the decision' by the Commissioner on an objection. The Court is to determine the claim on the evidence presented to it in accordance with its usual practice and procedure for applications in its original jurisdiction. The onus is on the appellant to prove that the assessment the subject of the objection decision was excessive or otherwise incorrect and what the assessment should have been. As stated by Dowsett J in Weyers v Commissioner of Taxation [2006] FCA 818 at [146], '[t]he Commissioner need not justify the decision, save in response to an appropriate attack upon it'. The grounds that may be relied upon are confined to those raised before the Commissioner in the objection, unless the court otherwise orders. So, the evidence that may be led to discharge the onus is likewise confined. It is a matter for the parties whether they stipulate the correctness of factual matters before the Commissioner. However, in the absence of such matters being agreed or such matters being presented as evidence of the truth of those matters without objection, it is for the appellant to provide the necessary evidence on the hearing before the court on the 'appeal'. The court does not simply receive the record before the Commissioner on the objection and make its decision on that basis. Nor does it consider whether there has been error demonstrated in the decision by the Commissioner. Even less so does it consider whether an amended assessment issued after the objection decision is correct.

671    Therefore, on an appeal under s 14ZZ, the taxpayer must establish the facts upon which the taxation liability depends (or must agree those facts with the Commissioner for the purposes of the appeal): Zappia v Commissioner of Taxation [2017] FCAFC 185 at [3] (Pagone J, Robertson and Bromwich JJ agreeing). The Court will then determine the relevant law concerning the applicable taxing provisions and apply that law to the facts as established on the appeal.

672    However, complexities arise where any taxation liability depends upon the formation of a subjective state of mind by the Commissioner. There are many different ways in which liability to taxation may depend upon the formation of an opinion or a state of satisfaction or some other view by the Commissioner. In such cases, an issue arises as to the extent to which a taxpayer can contend on an appeal against an objection decision that the opinion or state of satisfaction was wrongly formed or invite the Court to reach a conclusion as to the taxation payable on the basis that some different opinion or state of satisfaction should have been reached.

673    In Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353, the taxpayer brought an appeal to the High Court (of a kind provided for in the income tax legislation applicable at the time). The appeal concerned an assessment based upon the application of a provision that did not allow a loss to be an allowable deduction unless a particular specified circumstance had been established to the satisfaction of the Commissioner: at 354-355.

674    In deciding the appeal, Dixon J began the analysis by observing that it was for the Commissioner to be satisfied that the particular specified circumstance had been established. As to the extent to which the Commissioner's decision in forming that opinion was examinable, his Honour said (at 360):

[The Commissioner's] decision, it is true, is not unexaminable. If he does not address himself to the question which the sub-section formulates, if his conclusion is affected by some mistake of law, if he takes some extraneous reason into consideration or excludes from consideration some factor which should affect his determination, on any of these grounds his conclusion is liable to review.

675    A description of the nature of the appeal in those terms resonates with modern notions of jurisdictional error. It confines the extent to which a taxpayer can challenge the relevant state of mind on the appeal.

676    In Avon Downs the taxing provision itself operated on the basis of the state of satisfaction of the Commissioner as to whether particular circumstances existed. The loss was only deductible if the Commissioner had formed the required state of satisfaction. It was a taxing provision that operated by reference to the subjective views of the Commissioner, lawfully formed.

677    Care must be taken in simply extrapolating the approach in Avon Downs as if it applied in a general way to any issue raised by a taxpayer in an appeal pursuant to s 14ZZ concerning the formation of a subjective view by the Commissioner. The issue in the present case is about an opinion that had to be formed in order for the Commissioner to have the statutory authority to issue an assessment. Once that power was enlivened, the liability to taxation was then determined by the application of the taxing provisions to the circumstances of the taxpayer. That is to say, in the present case, the relevant opinion did not form part of the operation of the taxing provision. However, it did affect the liability to taxation.

678    In Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 132 CLR 535, the High Court applied (or appeared to recognise the applicability) of the views of Dixon J in Avon Downs in a case concerned with the same taxing provisions: at 541 (Barwick CJ), 574-575 (Gibbs J), 576, 578 (Stephen J). There is a reference in the reasoning of Barwick CJ to the significance of the Commissioner's state of satisfaction at the time of assessment and to the possibility of the Court treating the Commissioner as not having been satisfied if it is shown that on the material before the Commissioner at the time of assessment the Commissioner could not have been so satisfied.

679    The approach in Kolotex treats the requisite state of satisfaction at the time of assessment as one of the matters in issue at the time of the appeal to the Court. It appears that on the appeal the facts that bear upon whether the Commissioner might properly be satisfied are only relevant to the extent that they may call into question whether the state of satisfaction was formed according to law.

680    In Brambles Holdings Ltd v Federal Commissioner of Taxation (1977) 138 CLR 467, Gibbs J said (at 476):

The extent of the powers of the Court in cases where the allowance of a deduction from assessable income has depended upon the Commissioner being satisfied of certain matters has been considered in such cases as Avon Downs Pty. Ltd v. Federal Commissioner of Taxation [1949] HCA 26; (1949) 78 CLR 353 and Kolotex Hosiery (Australia) Pty. Ltd. v. Federal Commissioner of Taxation [1975] HCA 5; (1975) 132 CLR 535. Under s. 16T the position is different - the requisite satisfaction is a condition of a disallowance of a rebate, and not of the allowance of a deduction. It may be that the powers of the Court are wider in an appeal involving s. 16T than in cases such as Avon Downs and Kolotex, but for present purposes it is not necessary to decide whether that is so.

(footnotes omitted)

681    It is an observation that indicates the importance of considering the nature and role of the statutory provision that invokes a subjective state of mind on the part of the Commissioner for the alleged taxation liability.

682    The reasoning in Kolotex and its consequences received detailed consideration by Derrington J in Commissioner of Taxation v Addy [2020] FCAFC 135; (2020) 280 FCR 46. His Honour concluded at [167] (see also, [181]) that:

On the face of the reasons given by the majority in Kolotex, no discernible principle emerges that where a provision relevant to an assessment is conditioned upon the Commissioner's state of mind, the court may substitute its own opinion or state of satisfaction where it has detected error in the Commissioner's.

683    In separate reasons, Steward J addressed the taxpayer's proposition that 'in a Pt IVC tax appeal a Court, once satisfied of the presence of error in the attainment by the Commissioner of his state of satisfaction, can decide for itself whether or not the Commissioner should on the evidence before the Court be so satisfied'. His Honour concluded that the proposition was not correct: at [312].

684    All of which is to expose the importance of clear conceptual analysis of provisions that operate by reference to the Commissioner's state of mind when it comes to appeals under s 14ZZ.

685    I note that there was a successful appeal but not as to the above aspects of the reasoning: Addy v Commissioner of Taxation [2021] HCA 34; (2021) 273 CLR 613.

686    Section 14ZZ is confined to an appeal in respect of the taxation decision the subject of the objection decision. It does not empower the Court to substitute its own view for a subjective state of mind of the Commissioner on which the operation of a taxing provision depends. Further, as the circumstances in the present case expose, issues may arise as to whether the subjective state of mind has been formed outside the scope of that process. Issues may also arise as to whether the subjective state of mind that provided the basis for the assessment has been replaced by a subjective state of mind formed in the course of the objection decision.

687    If the operation of a relevant taxing provision depends upon the Commissioner's subjective state of mind, then, on an appeal under s 14ZZ, the taxpayer is confined to demonstrating a defect of the kind described in Avon Downs (which appears to include any kind of defect that would amount to jurisdictional error). If such an error is demonstrated then it appears that the Court may reach a conclusion as to whether the taxpayer has discharged the onus to show that the assessment is excessive or otherwise incorrect and what the assessment should have been on the basis that the subjective state of mind has not been validly formed. Whether that may be the consequence will depend upon the nature of the provision.

688    Otherwise, any attack upon the validity of the formation of the opinion with taxation consequences (but not by operation of a relevant taxing provision) must be raised by judicial review proceedings with separate relief being sought.

689    Finally, as to some of the assessments, the Commissioner advanced an alternative case that they were the original assessments or were issued within the usual four year time period and therefore it was not necessary for there to be fraud or evasion in order for there to be power to issue the assessments. No issue was raised by the taxpayers as to the factual basis for that claim. Given the conclusion I have reached on the issue of fraud or evasion it is not necessary to consider the alternative claim but I make the following findings as to matters that were not put in issue by the taxpayers:

(1)    as to the Share Trust, all the assessments were original assessments;

(2)    as to the Gold Trust, save for the assessment for the 2003 tax year, all the assessments were original assessments; and

(3)    as to the Family Trust, all the assessments were original assessments.

PENALTIES

690    The submissions as to penalties advanced for the taxpayers assumed that the conclusion had been reached (contrary to the main case for the taxpayers) that the deductions claimed were not allowable. In those circumstances, no submission was advanced for the taxpayers to the effect that there were no false or misleading statements as to material particulars. Rather, the submissions for the taxpayers as to penalties accepted that there was a shortfall amount and focussed upon the amount of the penalty that was appropriate in all the circumstances.

691    In the case of the Share Trust and the Gold Trust the relevant income was assessed to a beneficiary. Even so, penalties were imposed by the Commissioner upon the trusts because the relevant provisions deem the trustee to have the same shortfall amount as was caused in the hands of the beneficiary: see s 284-30 of Schedule 1 to the Taxation Administration Act.

692    The base penalty amount is worked out according to the provisions of the table in s 284-90(1) of Schedule 1 to the Taxation Administration Act (noting that a slightly different version of the provision applied from 9 June 2010). Where the shortfall amount, or part of the amount, resulted from intentional disregard of a taxation law, the base penalty amount is 75%. Where the shortfall amount, or part of the amount, resulted from recklessness, the base penalty amount is 50%.

693    The submission for the taxpayers was that the appropriate penalty amount was 50%. The Commissioner contended that 75% was apposite.

694    As to uplift penalty amounts, there was no dispute about the 20% uplift applying in second and subsequent years where there was also a shortfall amount. It is established that the uplift provisions apply even where the notices of assessment in respect of second and subsequent years issue on the same day as the notice of assessment for the first year: Bosanac at [147-[149].

695    In order for there to be intentional disregard there must be actual knowledge that the statements being made are false. There must be an understanding of the tax liability and a deliberate choice to ignore the law. These matters may be established by direct evidence or inference: Weyers v Commissioner of Taxation [2006] FCA 818.

696    The submission advanced for the taxpayers concerned the state of knowledge and awareness of Mr Gould. No issue was taken about whether Mr Gould was the relevant guiding mind for the purposes of the application of the penalty provisions. Nor was there any attempt to distinguish between the circumstances applicable to different taxpayers or at different times. Nor was any point taken as to whether the liability of the taxpayers was on the basis that Mr Gould controlled the entities or was their tax agent. Rather, what was put was that great care was to be taken not to base a finding of intentional disregard upon a lack of documentation or infelicity in the documentation.

697    What was contended in closing submissions for the taxpayers was that a lack of reasonable care or an idiosyncratic view as to what may amount to an allowable deduction was not enough to support a finding of intentional disregard. Further, it was said that Mr Gould took advice on matters when he thought it appropriate to do so and discussed deductions with his staff.

698    Reliance was placed upon the reasoning of Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971, a case which also concerned a company controlled by Mr Gould. As to Mr Gould's evidence in that case, his Honour said at [23]-[24]:

My mind has truly fluctuated as to whether Mr Gould's evidence about management fee, interest and other deduction claims was actively dishonest or just the result of his closing his eyes to the obvious and operating on a belief held at the time when particular deductions claimed, and still held, that he could equate deduction pretence with reality …

A tempering consideration in relation to a conclusion of dishonesty or fraud in relation to Mr Gould is that he is not by training or experience a lawyer. He is, however, a well-qualified and experienced chartered accountant and, as I have already indicated, displayed a good knowledge of the taxation consequences of particular transactions.

699    Justice Logan was not persuaded that Mr Gould was 'actively dishonest', having expressed his conclusion as to that aspect in the following way (at [26]):

I was left with the strong and distinct impression that, for all of his knowledge and experience, he had convinced himself that it was possible, in relation to entities which he controlled and by an act of will on his part, to designate, after the end of an income year, that those entities had been in a particular relationship, and incurred particular liabilities in particular amounts, during that income year. That act of will then seemed to have been carried over into entries in general ledgers. I am not persuaded that he was actively dishonest. However, given his knowledge and experience and understanding of tax consequences of particular expenditures, I am quite sure, even allowing for the strictures of s 140(2) of the Evidence Act, that, again and again, he has closed his eyes to the obvious to the point of wilful blindness.

700    I refer to these matters not because they bear upon the findings that should be made in the present case based upon the evidence received (and the conclusions I have reached about the evidence of Mr Gould), but because they place in context the conclusions reached by Logan J as to penalties in the passages relied upon by the taxpayers in the present case.

701    As to penalties, Logan J reasoned at [472] as follows:

The conclusion which I have reached concerning an absence of active dishonesty by Mr Gould precludes, in my view, a finding of intentional disregard for penalty purposes. In some circumstances in relation to criminal liability, wilful blindness can supply the requisite element of knowledge. However, the text of item 1 in the table in s 284-90(1) of sch 1 to the TAA is against a like conclusion in relation to penalty and suggests that there must be an actual intention, not an equivalent of one.

702    Further, his Honour found at [475]:

In my view, Mr Gould was at least grossly indifferent as to whether expenditures claimed by the AA Trust as deductions were truly incurred or incurred in the amounts claimed. A reasonable person in his position would have seen there was a real risk that the deductions claimed were not allowable to the AA Trust under a taxation law. Fiscally, his conduct was, objectively, outrageous, much more than just a failure to take reasonable care …

703    His Honour ultimately found that the appropriate characterisation of Mr Gould's conduct in that case was that it was reckless and that the appropriate penalty rate was 50%. On that basis, the taxpayer succeeded in proving that the penalty assessments of 75% were excessive.

704    On the basis of the above reasoning in Anglo American it was contended for the taxpayers that findings of wilful blindness, gross indifference or conduct that was objectively outrageous would not sustain a finding of intentional disregard. Implicitly, the submission recognised that findings of that character were open having regard to the evidence given by Mr Gould. That implicit recognition (though not a concession) was appropriate in my view because I would characterise the findings I have made concerning the many respects in which Mr Gould's account was not credible as sustaining general findings to that effect. In any event, the contentions for the taxpayers as to penalty accepted that there had been recklessness. Therefore, it is not necessary to consider precisely what may be required to sustain a conclusion of recklessness.

705    Otherwise, the submissions for the taxpayers were to the effect that it was not open to find that there had been the 'active dishonesty' determined by Logan J to be necessary in order to find intentional disregard. The submission approached the matter on the basis that the issue in relation to penalties was whether the Court could itself make an affirmative finding of dishonesty. That does appear to be the approach that was adopted by his Honour in Anglo American. It appears to reflect the way in which that case was argued.

706    In the present case, the submissions for the Commissioner emphasised the significance of the onus when it came to penalties. The submission advanced orally in closing was that the taxpayers 'have not discharged their burden of showing that there was no intentional disregard of taxation law by the respective applicant or by its agent'. In my view, it is correct to approach the issue of penalties on the basis that the taxpayer must prove the facts on which the penalties are to be based. The appeal concerns the assessments. The amount of the assessments includes penalties. In order to discharge the onus imposed by s 14ZZO of the Taxation Administration Act, the taxpayers must establish that the assessments are excessive. In the present case, those assessments are based upon the shortfall amounts and penalties at 75% (plus the 20% uplift for all successive years). Having failed as to the shortfall amounts, they must establish the factual and legal basis for the Court to conclude affirmatively that a 75% penalty is not to be applied. To do that, the taxpayers must establish that there was no intentional disregard of taxation law by the taxpayers (relevantly by Mr Gould as the guiding mind).

707    The taxpayers seek to demonstrate an absence of intentional disregard by Mr Gould's account. In effect, they argue that Mr Gould's account about how he formed the view that the deductions could be made must be accepted as credible or possibly that a conclusion of that kind should be drawn from the accounts themselves. For reasons I have already given, the nature of the accounting records, particularly the extensive use of year accounting adjustments and the irregularity of entries that are said to support the deductions are such that they do not support any inference about the basis for the adjustments without some support or explanation. Mr Gould is the only possible source of that explanation.

708    The findings I have made demonstrate that Mr Gould's account was so inconsistent and so lacking in credibility that it could not sustain a finding that the taxpayers, by Mr Gould, did not deliberately ignore the law. In many respects, the cross-examination of Mr Gould exposed what was a less than complete and frank account of the relevant aspects of the accounting affairs of the taxpayers and the other entities controlled by Mr Gould. At certain points, evasiveness gave way to explanation which itself lacked credibility. Some aspects of Mr Gould's account, for example his evidence concerning 'Beer' and the contents of his affidavit in the Family Court proceedings, were exposed as being so flawed that it appeared that Mr Gould was being deliberate in his failure to give a truthful account.

709    For reasons that have been given, Mr Gould's evidence as a whole was entirely lacking in credibility, including as to those aspects which might disavow intentional disregard of the taxation law. Mr Gould was confronted with many documents that were inconsistent with his account but persisted with explanations that lacked any credibility. Evidence of that kind could not rise to discharge the onus on the taxpayers to demonstrate that Mr Gould did not intentionally disregard the taxation law.

710    I do not go so far as to find affirmatively that the Commissioner has demonstrated active dishonesty by Mr Gould. In closing submissions, the Commissioner advanced a submission to the effect that the Court should be satisfied that each of the taxpayers had actual knowledge of the falsity of the statements made in their income tax returns as to the claiming of deductions and the returning of income. A case of that kind would depend upon a finding as to that state of mind on the part of Mr Gould. However, a case in those terms was not put to Mr Gould. Nor was it supported by detailed references to the evidence that might support such a finding.

711    There was a suggestion in very general terms to the effect that all of the overseas funds were under the control of Mr Gould. It was also put in very general terms that the accounting entries were made at the direction of Mr Gould and did not reflect the actual circumstances. Certain specific aspects of Mr Gould's account were challenged as untrue. On one occasion, it was put to Mr Gould that he was paid to hide people's money offshore to deceive others including the Australian Taxation Office. It was also put to Mr Gould that when it came to the Offshore Funders they were under his control and he could direct them as to what they charged for interest and as to when the funds they provided had to be repaid.

712    However, no specific case was put to Mr Gould that there had been dishonesty on his part or intentional disregard of the taxation law when it came to the relevant deductions. For example, it was not suggested that he knew that the deductions claimed were not allowable. Mr Gould gave confused, illogical and inconsistent evidence about the basis for those deductions. He also failed to articulate with any coherence the basis for the alleged interest liabilities or management fees. As I have explained, in certain respects his evidence appeared to be deliberately misleading as to the extent of what it disclosed. These are all reasons why his account cannot be accepted. These are also reasons why, viewed objectively, his conduct was reckless. However, having regard to the way in which the case was run, it is not open to the Court to make an affirmative finding of intentional disregard.

713    Further, in my view, the limited matters pointed to by the Commissioner in closing submissions to support an affirmative finding, though substantially reflected in the findings made in these reasons, are not sufficient to support an affirmative finding of dishonesty. The submissions were put on the basis that it could be found that Mr Gould (a) knew that the amounts were not deductible if they were not management fees or interest; (b) knew that they were not management fees or interest; and (c) claimed deductions for those amounts anyway. Propositions in those terms were not put to Mr Gould.

714    I accept that Mr Gould as a tax accountant of many years' standing who gave the explanations for deductibility that he gave in his evidence knew that the amounts were not deductible if they were not truly amounts for management fees or interest. The real issue is whether there was a basis to find that he knew subjectively that they were not of that character and, consequently, that he was the mind by which the taxpayers intentionally disregarded the taxation law. Such a finding must be made with due regard to its seriousness. The rejection of the credibility of the elaborate and inconsistent narrative that Mr Gould gave as to why he thought the various amounts were deductible is not sufficient. Nor are the particular aspects of his account that I have found to be unsatisfactory, being matters that were not concerned with the deductions themselves. This is not a case where an inference can be drawn from the failure to provide any explanation as to why the amounts were thought to be deductible.

715    For those reasons, I find that the taxpayers failed to discharge their onus of demonstrating that there was no basis for the 75% penalties and consequently the appeals as to penalties must fail.

716    The above reasoning does not result in the imposition of penalties at the 75% level without an affirmative finding. The nature of the present appeals must be placed in context. The basis upon which the Commissioner has found there to be an intentional disregard of the taxation law has been stated. It was set out in the decisions on the objections which provided the foundation for the assessments the subject of the present appeals. As an exercise of statutory power to make the findings necessary to support the quantum of the assessments that related to penalty amounts, there was no challenge to their validity. Therefore, as the taxpayers have not discharged their onus on their appeal insofar as it concerns the penalty amounts, the assessments must stand insofar as the amounts include penalties. They do so on the basis of the findings by the Commissioner in the valid exercise of statutory power to make those findings.

REMISSION

717    The Commissioner exercised his discretion not to remit the penalties. It was accepted that, by reason of the nature of the decision as to remission, the taxpayers had to demonstrate an error of law. Submissions were not advanced as to the nature of the error alleged. The Commissioner submitted, in effect, that remission involved the exercise of an administrative discretion that was entrusted to the Commissioner and no power was conferred by s 14ZZ to exercise that discretion. The Commissioner also submitted that there was no 'appellable error'.

718    In the absence of any substantive articulation of the basis upon which the Court might intervene on the question of remission, I conclude that the taxpayers have failed as to that aspect of their appeals.

FAMILY COURT PROCEEDINGS

719    These reasons refer to certain parts of the contents of an affidavit deposed by Mr Gould in Family Court proceedings that occurred many years ago. Those parts are confined to Mr Gould's own explanation of aspects of his financial circumstances at the time. These reasons do not refer to any other aspect of those Family Court proceedings.

720    Part XIVB of the Family Law Act 1975 (Cth) contains provisions which make it an offence to communicate an 'account' of proceedings brought under the Family Law Act if the account identifies parties or other people involved in the proceedings: see s 114Q. The provision does not apply if the communication is in accordance with a direction of, or otherwise approved by, 'a court': s 144Q(2). The term 'court' is defined in the legislation 'in relation to any proceedings' to mean, in effect, those courts with jurisdiction in family law proceedings and proceedings concerned with child support payments. Regard only to those provisions suggests that the reference to 'a court' in relation to the publication of an account of proceedings under the legislation means 'a court' as defined. In terms of purpose, a confined meaning of that kind would ensure that any orders that might be made allowing an account of proceedings brought under the Family Law Act are supervised by courts with a proper understanding of the nature of those proceedings and the basis for the offence provision.

721    However, s 114S lists a number of categories of communications that are not a communication to the public for the purposes of s 114Q. They include:

(b)    a communication of a pleading, transcript of evidence, or other document for use in connection with any of the following proceedings, to a person concerned in those proceedings:

(i)    proceedings in a court;

(ii)    proceedings before an officer of a court investigating or dealing with a matter in accordance with this Act, the regulations or the applicable Rules of Court;

(iii)    proceedings in a tribunal established by or under a law of the Commonwealth or of a State or Territory;

722    The term 'tribunal' is not defined in the legislation. Its inclusion in the above exclusion suggests that the documents referred to in the provision might be disclosed to 'a person concerned in' any tribunal proceedings. It would seem to be odd if that would be the case for any tribunal but not for any court. It would also appear to be unnecessary to provide for such an exception in relation to the conduct of proceedings in 'a court' as defined. Therefore, at least in the case of the exception provided for by s 114Q, 'court' must refer to any court. On that approach, there is an exception for the provision of Mr Gould's affidavit to the Commissioner, a person concerned in the present proceedings.

723    However, there remains an issue as to whether the terms of that exception indicate that the word 'court' was also intended to have a broader meaning in s 114Q(2) such that this Court could approve the communication of an 'account'. There is some support for such an interpretation: The Queen v Howe (1978) 19 SASR 303 at 308-309. Nevertheless, I will proceed on the basis that s 114Q(2) does not confer jurisdiction on this Court to direct or approve the communication of an account of family law proceedings.

724    On the basis I have just outlined, it may be accepted that this Court has no jurisdiction to make an order authorising a person to communicate to the public an account of any part of family law proceedings. However, the offence provision does not apply to the Court. Its terms could not limit the discharge of the Court's constitutional responsibility to provide reasons for decision. Even so, the fact that an account would otherwise come within the terms of s 114Q may be a persuasive reason why the Court would make a non-publication order or otherwise anonymise proceedings: CFB18 v Reader Lawyers & Mediators [2018] FCA 611 at [1]-[4]; and APC v Mr B (No 2) [2024] NSWSC 1608 at [367]-[371] (Schmidt AJ).

725    References to 'proceedings' in Part XIVB includes part of proceedings: s 114P.

726    An 'account' is a narrative, description, retelling, or recital of such proceedings: Hinchcliffe v Commissioner of Police of the Australian Federal Police [2001] FCA 1747; (2001) 118 FCR 308 at [53] (Kenny J).

727    In these reasons, I have made no reference to any aspect of the Family Court proceedings other than the relevant parts of the affidavit previously deposed by Mr Gould. As I have mentioned, those aspects are confined to Mr Gould's own financial circumstances. Otherwise, they do not deal with any matters personal to Mr Gould or any other person. They concern matters of direct relevance to the contents of affidavits that Mr Gould himself has deposed in support of the appeal proceedings brought by the taxpayers each of whom are emanations of Mr Gould. They relate to matters that occurred decades ago.

728    I raised the possible relevance of Part XIVB in the course of the hearing. I afforded the parties an opportunity to put on submissions as to the legal principles. No party sought any form of order.

729    In all the circumstances, in order to provide reasons for decision in these proceedings it is necessary to refer to aspects of the matters deposed by Mr Gould in his affidavit in the Family Court proceedings. The issue that arises is whether, in light of Part XIVB it is appropriate for this Court to limit the publication of references to the contents of the affidavit in these reasons. I am not persuaded that the circumstances of the present case justify the making of any form of non-publication order or some form of anonymisation of the proceedings.

CONCLUSION

730    For reasons that have been given, the appeals by each of the taxpayers must be dismissed. Given that the Commissioner has been successful on all issues, I am presently of the view that there should be a costs order in favour of the Commissioner. In the circumstances, I will make that order but as the question of costs was not specifically addressed by the parties in their submissions, I will reserve liberty to apply to vary the order as to costs.

Associate:

Dated:    25 July 2025