FEDERAL COURT OF AUSTRALIA

Hadzic v Commissioner of Taxation [2026] FCA 930

ORDERS

THE COURT ORDERS THAT:

1.    The applicant have leave to file an amended notice of appeal in the form of the amended notice at page 1932 of Part C of the Appeal Book.

2.    Such notice of appeal be filed within seven (7) days of the date of these orders.

3.    The appeal be dismissed.

4.    The applicant pay the respondent’s costs of the proceeding, as agreed or taxed.

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

REASONS FOR JUDGMENT

GOODMAN J:

A.    INTRODUCTION

1    This proceeding involves an “appeal” under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) from orders made by a senior member of the Administrative Appeals Tribunal affirming, relevantly, decisions of the respondent Commissioner to disallow objections made by the applicant, Mr Hadzic, against notices of assessment issued to him by the Commissioner with respect to the 2017 financial year.

2    The Tribunal published its reasons for affirming the Commissioner’s decisions, as TBLX and ZSCM and Commissioner of Taxation (Taxation) [2023] AATA 2059 (Tribunal’s Decision, or T).

3    Mr Hadzic’s notice of appeal sets out ten questions supported by 12 grounds. I have decided to grant leave to Mr Hadzic to file an amended notice of appeal, raising an eleventh question, which is whether “the Senior Member who constituted the Tribunal was affected by apprehended bias against the applicant in her determination of the application for review?”.

4    For the reasons set out below, the appeal must be dismissed.

B.    BACKGROUND

5    By reason of the matters raised in the various questions raised in the notice of appeal, including contentions of a failure to afford procedural fairness, it is necessary to set out in some detail the history of this matter prior to and during the course of the hearing. The events described below are principally taken from the Tribunal’s Decision; from affidavit evidence concerning the course of the Tribunal hearing; or from the transcript of the Tribunal hearing.

B.1    General background

6    Mr Hadzic is a licensed electrician (T[10]). During the 2017 financial year, he was employed by Futureproof Electrical Pty Ltd.

7    Mr Tristan Waters was, at all relevant times, a director of Waters Company Constructions Pty Ltd which was in the residential home construction business (T[106]).

8    In or around 2014, Waters Company constructed a residential home in Canberra (referred to by the Tribunal as the Property). A family, referred to by the Tribunal as the “M Family” purchased the Property in April 2015 (T[107]).

9    “Mrs M” of the M Family provided a statutory declaration on behalf of Mr Hadzic which was unchallenged and in which she gave evidence that: (1) shortly after taking possession of the Property the M Family discovered that there were many problems with the Property; (2) the Property “was the worst built house in history”; and (3) an independent building surveyor, Mr Tony Gray was engaged to conduct a detailed assessment of the Property (T[108]).

10    In June 2016, Mr Gray set out the extensive defects and repairs required to the Property in a building report. Mr Gray reported that the rectification works would be very costly and time-consuming (T[109]).

11    In or around mid-2016 the M Family complained to Mr Waters about the significant number of defects in the Property (T[110]).

12    On 14 September 2016, Barrallier Street Holdings Pty Ltd (Company) was incorporated, Mr Hadzic became a director and an equal shareholder with Mr Waters in the Company. On the same day, a trust, known as the Barrallier Street Holdings Trust, was established as a unit trust (T[119]).

13    The Company was the trustee of the Trust. Mr Hadzic and Mr Waters were unit holders in the Trust. The Trust Deed provided that unit holders would receive the distribution of income from the Trust in proportion to their unit holdings (T[120]).

14    Mr Hadzic negotiated a purchase price of $2,400,000 with the M Family and the Property was purchased by the Company. Settlement was due on 24 March 2017 (T[121]).

15    Between 31 March 2017 and 5 April 2017, four payments of $100,000 and one payment of $95,000 were transferred from Mr Waters’s wife to the Trust’s bank account for the benefit of Mr Hadzic. The transfers, which total $495,000, were noted in Mr Hadzic’s account as “TW” (T[146]). I will refer to those deposits as the $495,000 deposits. Whether the $495,000 deposits were income of Mr Hadzic was a central issue before the Tribunal.

16    In early August 2018, the Company went into liquidation (T[14]) and Mr Frank Lo Pilato and Mr Jonathan Colbran, from RSM Australia Partners, were appointed as liquidators of the Company (T[14] and [15]).

17    In September 2018, and pursuant to s 57(1) of the Federal Court of Australia Act 1976 (Cth), Mr Lo Pilato and Mr Colbran were appointed as joint and several receivers and managers, without security, of the property, assets and undertaking of the Trust (T[16]).

18    In January 2019, Mr Waters was extradited back to Australia in relation to drug importation charges (T[148]).

19    In September 2019, Mr Lo Pilato and Mr Colbran were appointed as the liquidators of Waters Company (T[150]).

B.2    The Commissioner’s proceeding and the Subpoena Submission

20    On 29 March 2018, the Commissioner commenced a proceeding in this Court against Mr Waters for unpaid income tax assessments and penalties in the amount of $4,839,860.73 (Commissioner’s proceeding). As part of that proceeding, the Commissioner sought a freezing order against the Property, and assets of Mr Waters, to secure the taxation debt owed by Mr Waters. The Company was named as a sixth respondent to the Commissioner’s proceeding. The Commissioner sought a declaration that the Company held the Property on a resulting trust for Mr Waters to the extent that Mr Waters contributed $495,000 to the purchase price of the Property in accordance with Mr Waters’s unit holding in the Trust (T[147]).

21    Around 24 August 2018, and as part of the Commissioner’s proceeding, Mr Hadzic was served with a subpoena to produce documents (T[64]).

22    On 5 September 2018, Mr Hadzic produced documents in answer to the subpoena. One of the documents was dated 5 September 2018 and titled “Submission of Mr Hadzic” (Subpoena Submission). The Subpoena Submission was in the form of an unsigned statement of Mr Hadzic. It commences “I [Mr Hadzic]…am prepared to say on oath” and provides that it “is my response to the Subpoena” (T[64]).

B.3    The audit and the notices of assessment

23    In 2018 the Australian Taxation Office conducted a covert audit of the financial affairs of Mr Hadzic and the Trust for the 2017 financial year. At that time neither Mr Hadzic nor the Trust had lodged income taxation returns for that year (T[1]).

24    On 25 June 2018, the Commissioner notified Mr Hadzic and the Trust of the audit and its outcome (T[2]).

25    Following the audit, the Commissioner issued a notice of default assessment to Mr Hadzic for the 2017 financial year (Hadzic NOA) (T[3]).

26    The Commissioner also issued a notice of assessment of penalty to Mr Hadzic, pursuant to s 284-75 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) for failing to provide an income tax return, in the amount of $294,910.45 (Hadzic Penalty Assessment) (T[5]).

B.4    Objection, objection decisions and the filing of an application for review of the objection decisions

27    On 17 May 2019, Mr Hadzic lodged an objection to the Hadzic NOA and Hadzic Penalty Assessment (T[17]).

28    On 28 January 2021, the Commissioner disallowed:

(1)    the objection against the Hadzic NOA in part (Hadzic NOA Decision); and

(2)    the objection against the Hadzic Penalty Assessment in full (Hadzic Penalty Decision) (T[19]).

29    Amended notices of assessment were then issued to reflect the Hadzic NOA Decision and Hadzic Penalty Decision (T[22]).

30    On 26 March 2021, Mr Hadzic filed an application for a review of the Hadzic NOA Decision and the Hadzic Penalty Decision by the Tribunal (T[23]).

B.5    The District Court proceeding

31    In August 2021, Mrs Waters commenced a proceeding in the District Court of New South Wales (District Court proceeding) against, among others, the Company and Mr Hadzic, claiming she had lent $495,000 to Mr Hadzic, through deposits made into the Trust’s account, which Mrs Waters claimed Mr Hadzic had agreed to repay within six months; and which remained unpaid (T[151]).

B.6    The Tribunal hearing

32    I turn now to the hearing before the Tribunal. That hearing took place over the course of five days. As foreshadowed, it is necessary to set out in some detail the events of that hearing.

B.6.1    Day 1 of the hearing

33    On the first day of the hearing, counsel for Mr Hadzic opened and then called Mr Hadzic to give evidence. An affidavit of Mr Hadzic which referred to the Subpoena Submission was read; and the Subpoena Submission was tendered (T[65]).

34    Mr Hadzic was then cross-examined. During that cross-examination he was asked about the Subpoena Submission (T[66]).

35    Part way through the cross-examination, counsel for Mr Hadzic took an objection on the basis that the Subpoena Submission may have been subject to a Harman v Secretary of State for the Home Department [1983] 1 AC 280 undertaking (T[66] to [69]).

36    Counsel for Mr Hadzic expressed concern that the Subpoena Submission had been filed in the Commissioner’s proceeding and indicated that he was unsure of the provenance of the Subpoena Submission (T[69]).

37    The Tribunal adjourned the hearing overnight to allow the parties time to make inquiries and to consider their positions (T[70]).

B.6.2    Day 2 of the hearing

38    On the resumption of the hearing on the following day, the parties informed the Tribunal that it was not known whether the Subpoena Submission had been read or referred to in open court in a way that disclosed its contents (T[71] and [72]).

39    Counsel for the Commissioner then applied for an adjournment so as to have the opportunity to seek leave of this Court to refer to the Subpoena Submission before the Tribunal (T[73]). Counsel for Mr Hadzic opposed the adjournment, submitting that cross-examination of the other witnesses could proceed (T[74]).

40    The Tribunal decided that cross-examination of Mr Hadzic on the Subpoena Submission could not continue until such time as the Harman undertaking issue had been determined and, taking a cautious approach, that the preferable course was to discontinue any further cross-examination until such time as leave to rely upon the Subpoena Submission had been granted (T[75]).

41    The Tribunal then made directions for the Commissioner to file with this Court and serve on Mr Hadzic any application for release from any Harman undertaking in relation to the Subpoena Submission, or to inform the Tribunal that no such application was being made (T[77]).

42    Subsequently the parties determined – through enquiries with Mr Hadzic’s solicitor, Mr Sebastian Musso, who had assisted Mr Hadzic in relation to the subpoena – that the Subpoena Submission had not been lodged with this Court (T[79]). The parties accepted that the Subpoena Submission was not subject to a Harman undertaking as it had not been filed or tendered in this Court (T[80]).

B.6.3    Day 3 of the hearing and the recordings during adjournments

43    The hearing resumed some weeks later (T[78]). At the resumed hearing, counsel for Mr Hadzic contended that the Commissioner could not refer to or cross-examine Mr Hadzic on the Subpoena Submission on a different ground, namely that the Subpoena Submission was subject to legal professional privilege (T[81]).

44    In support of the claim of legal professional privilege, counsel for Mr Hadzic tendered statements made by:

(1)    Mr Hadzic;

(2)    Mr Hadzic’s father, Mr Edward Hadzic (Mr Hadzic Snr);

(3)    Mr Musso, who as noted above, had acted on behalf of Mr Hadzic in relation to the subpoena; and

(4)    Mr Hadzic’s then current solicitor, Dr Terence Dwyer (T[82]).

45    These additional statements addressed how the Subpoena Submission came into being, whether it was in fact an unsigned statement of Mr Hadzic, and whether any legal professional privilege that attached to the Subpoena Submission had been waived (T[82]).

46    Following some cross-examination of Mr Hadzic and Mr Hadzic Snr on that application, the Tribunal adjourned to allow counsel for the parties to prepare to address the Tribunal on the issue of privilege. During that adjournment, the Tribunal’s audio recording equipment continued to record. That recording is relevant to Mr Hadzic’s application to amend his notice of appeal to include question 11 and to question 11 itself, and a transcript of it is set out at F.3.1 below.

47    Upon the resumption of the hearing, Counsel for the respective parties made submissions on the privilege issue.

48    The senior member then took an adjournment for five minutes. During that adjournment, the Tribunal’s audio recording equipment again continued to record. That recording is also relevant to Mr Hadzic’s application to amend his notice of appeal to include question 11 and to question 11 itself, and a transcript of it is set out at F.3.2 below.

49    Upon the resumption of the hearing, the cross-examination of Mr Hadzic continued. That cross-examination and his re-examination took the remainder of that day. During that afternoon there was a short adjournment, during which the Tribunal’s recording equipment again continued to record. Again, that recording is relevant to Mr Hadzic’s application to amend his notice of appeal to include question 11 and to question 11 itself. A transcript of that recording is set out at F.3.3 below.

B.6.4    Day 4 of the hearing

50    The hearing resumed on the following day. Evidence was taken from:

(1)    Ms Magenta Byrne, the wife of Mr Hadzic;

(2)    Mr Frank Lo Pilato, one of the joint liquidators of the Company;

(3)    Mr Hadzic Snr;

(4)    Mr Simon Oliver, the accountant who established the Company and the Trust;

(5)    Mr David Muir, senior accountant at Freewater Accountants, Mr Hadzic’s then current accountants;

(6)    Ms Marlene Adams, senior accountant at Freewater Accountants; and

(7)    Ms Olivia Ooi, accountant at Freewater Accountants.

51    Each of these witnesses provided written evidence and was cross-examined.

52    Counsel for Mr Hadzic then sought to rely upon a further statutory declaration made by Dr Dwyer. Counsel for the Commissioner objected to the entirety of that statutory declaration.

53    The Commissioner called no witnesses (T[55]).

B.6.5    Day 5 of the hearing

54    On the fifth and final day of the hearing the Tribunal heard closing submissions.

55    The parties agreed that the Tribunal would reserve its decision on whether the legal professional privilege claim was sustainable until the handing down of its final decision (T[83]).

C.    THE TRIBUNAL’S DECISION

56    I turn now to the Tribunal’s decision. Again, in view of the breadth of the challenges to that decision, it is necessary to set it out in some detail.

C.1    Introduction

57    After setting out some of the procedural history, the Tribunal noted at T[7] in so far as is presently relevant that:

(1)    the matter before it involved assessments of certain deposits in Mr Hadzic’s bank accounts and whether they constituted income of Mr Hadzic;

(2)    to overcome the assessments, Mr Hadzic was required to establish, on the balance of probabilities, that the deposits in question were not properly classified as income, and therefore not assessable; and

(3)    Mr Hadzic sought to do this in several ways, including by contending that the deposit amounts were loans, or reimbursements for expenditure incurred on another’s behalf.

58    The Tribunal then noted that the largest group of deposits under consideration was the $495,000 deposits and that Mr Hadzic contended that those deposits were a loan (T[8]).

59    The Tribunal provided the following summary of other deposits (T[9]):

    Total: $514,921.19

(bold emphasis in original)

C.2    Background

60    The Tribunal then set out the background to the dispute, including some of the matters set out in B. above (T[10] to [23]).

C.3    Issues for the Tribunal

61    The Tribunal next identified the issues it had to determine.

62    Relevantly, the Tribunal noted that:

(1)    it was common ground that it had jurisdiction to review the Hadzic NOA Decision and the Hadzic Penalty Decision pursuant to s 25 of the AAT Act and Part IVC of the TAA (T[24]);

(2)    the parties also agreed that the issue for determination by the Tribunal was whether Mr Hadzic had discharged the burden of proof that the amended notice of assessment issued was excessive by showing what the taxable income should have been. This involved considering the nature of the $495,000 deposits and the other deposits (T[25]); and

(3)    the Tribunal also had to consider whether the administrative penalty was incorrectly imposed and if so, whether the penalty should be remitted (T[26]).

C.4    Legislative background

63    The Tribunal then described the statutory framework in which its decision was to be made. As to the amended notice of assessment, the Tribunal noted that:

(1)    pursuant to s 166 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), the Commissioner must make an assessment of the taxable income of a person, the tax payable thereon, and any tax offset refunds, from income taxation returns and/or from any other information in the Commissioner's possession (T[33]); and

(2)    s 167(a) of the ITAA 1936 provides that where a person makes a default in furnishing an income taxation return, the Commissioner may make an assessment of the amount upon which income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of s 166 (T[34]).

64    The Tribunal also noted the terms of s 175A(1) of the ITAA 1936 which enabled a taxpayer dissatisfied with an assessment to object against the assessment in the manner set out in Part IVC of the TAA (T[35]).

65    The Tribunal then addressed at T[36] to [48] the question of the burden of proof upon a taxpayer and the issues that may arise where a taxpayer lacks documentary proof. At T[49], the Tribunal stated:

The issue in the current matter is does the limited contemporaneous evidence support a finding that there was a loan or does it tell against it? Is the evidence that is available consistent?

66    The approach taken by the Tribunal with respect to proof is the subject of appeal ground 8 and the Tribunal’s reasoning is described at G.1 below.

C.5    Process of hearing

67    Under the heading “Process of hearing” the Tribunal addressed various issues which it described as “preliminary”, including relevantly to this appeal:

(1)    “Respondent’s Conduct”, which concerned various complaints on behalf of Mr Hadzic about the conduct of the Commissioner as to the issuance of the notices of assessment, and as to the objection process. The Tribunal noted at T[61]:

In terms of allegations concerning the [Commissioner’s] conduct, this hearing was not the venue to air these matters. The Tribunal has no jurisdiction in relation to them and they have no bearing on the outcome of the matter.

(This conclusion is relevant to question 4 on the appeal and is considered at I.5 below.); and

(2)    “Whether certain evidence admissible”. This issue concerned the claim of legal professional privilege over the Subpoena Submission. The Tribunal addressed this issue at T[63] to [95] and concluded at T[95] that it was unnecessary for it to determine whether the Subpoena Submission was the subject of legal professional privilege or whether such privilege had been waived because of its lack of probative value (T[94] to [95]). The Tribunal’s reasoning to that conclusion is described at H.1 below as part of question 9.

C.6    The $495,000 deposits

68    The Tribunal then turned to the $495,000 deposits.

69    After a detailed analysis at T[96] to [197], the Tribunal concluded at T[198] that it was not satisfied that those deposits were a loan to Mr Hadzic.

70    The Tribunal’s reasoning on this issue is relevant to the first four questions and the eighth question stated in the notice of appeal and is described at I.1 below. Nevertheless, it is convenient to set out at this stage the Tribunal’s reasoning at T[186] to [198]:

186.    We are not dealing with a deceased witness here, but with a witness, [Mr Waters], who is “unavailable” due to his circumstances. The manager of [Waters Company] could have been called to provide some contemporaneous evidence of discussions. The Tribunal has only been told that he was afraid to give evidence. An application for him to give evidence via a pseudonym could have been made and he could also have been summoned to appear to explain his fear to the Tribunal. There is no written note from him explaining the basis for his purported refusal to given evidence

187.    The most persuasive evidence of the existence of a loan is a written loan agreement. If that does not exist, other written communications between the parties to the loan (such as email correspondence or text messages) can be supportive of the existence of a loan. Here there is no loan agreement, no other written confirmation that a loan agreement was entered into, and no corroborative evidence of the alleged oral arrangement.

188.    There is no corroborating evidence of the purported loan arrangements. The evidence before the Tribunal lacks sufficient particularity.

189.    Critically, [Mr Hadzic] could not remember when the loan agreement was reached. [Mr Hadzic] said, “I’m not sure”. The (sic) he said he thought it was after he established what he could borrow from Liberty. The Application for the loan from Liberty was made on 21 March 2017, well after the share and units were purportedly transferred, and well after agreeing to purchase the Property from the M Family.

190.    Further aspects which do not lend themselves to a finding of a loan arrangement are:

190.1    [Mr Hadzic] referred to the loan as a “contribution”;

190.2    the loan was not secured in any way;

190.3    there was no explanation as to why interest was not payable;

190.4    there was no explanation for when repayments needed to be made;

190.5    there were no particulars of the logistics of how expenses were going to be shared between the parties. With [Mr Waters] overseas, how was this to be done? Was [Mr Hadzic] going to incur the expense and then bill [Mr Waters] for 50%? Or was the arrangement that an amount was to be paid by both parties into the Trust’s account in advance?

191.    No evidence that any of these issues, which the Tribunal would expect would have been the subject of discussions between the parties, were discussed.

192.    The discussions between [Mr Hadzic], [Mr Waters], and the general manager of [Waters Company], which allegedly let (sic) up to the loan arrangement” are not particularised – merely summarised. The general manager of [Waters Company] did not give evidence.

193.    The “loan arrangement” lacks credibility. There is a lack of commercial reality about the purported loan transaction. The following exchange took place during the hearing:

And the deal is that you take over the entire project?

---Yes. Not just take - you - the - not only do I take over the entire project but I would need to seek more funding because it went from a $2.4 million split 50/50, 1.2 each; to all of a sudden I now have to buy a $2.4 million property.

Well, you don’t have to buy it, do you, sir?

---I’d already given undertakings to Lee, Trudy and my wife that that’s in fact what we were going to do. I saw this as an opportunity to take a project that had significant problems, rectify them in my own time, and flip the property for profit. That’s what we do in my industry, sir.

But at this point in time there’s absolutely no risk to you, is there?

---In regards to what? There’s - - -

In regards to this property?

---This was a golden opportunity for me to have made a good profit on flipping this property.

There was plenty of risk to [Mr Waters]. You say that - - -?

---There was tonnes of risk to [Mr Waters].

Indeed, in July he was so concerned about his building licence that he flew you to Dubai?

---Yes, he was concerned about not only his building licence but his - the finance around it and all of his other projects.

Yes, and then in September, in the middle of September you say that you enter into a joint venture agreement with him. Correct?

---We began the process, yes.

Then a few weeks later - - -?

---Four weeks - four to six weeks later. I got cold feet. I couldn’t get in touch with him. I had to deal solely through [general manager of Waters Company].. The alarm bells were ringing, sir. It’s a very large venture on my part for someone that I can’t get in constant contact with and I now have to deal with a third party who’s [general manager of Waters Company]..

Yes, but I put it to you that there is no reason that [Mr Waters] would be indifferent to this project at this stage. He’s the one with the risk?

---What do you mean by indifferent?

Well, you say that you can’t get in contact with him, he won’t make contributions?

---Yes, I do.

I put it to you that all the risk at this point in time before 20 October, all the risk is with [Mr Waters]?

---Well, my risk is losing out on making a - quite a decent profit on flipping a home.

194.    Why would [Mr Waters] pull-out of the joint venture agreement given that he was apparently concerned about losing his license? There is no adequate explanation for this. It is contrary to the reasons given for entering the [joint venture] arrangement in the first place.

195.    It is also not explained why someone that [Mr Hadzic] had known for 13 years, [Mr Waters], was going to enter into a [joint venture] with respect to an expensive project one minutes and the next was suddenly unavailable, having purported difficulties. There was also no explanation surrounding [Mr Waters] refusing to communicate directly with [Mr Hadzic]. The Tribunal finds this implausible.

196.    The proposed loan, and circumstances leading up to it, is inherently implausible and lacks the necessary commercial feasibility.

197.    The conduct of the parties indicates that neither [Mr Waters], nor the general manager of [Waters Company], requested any repayments, and no repayments of interest or otherwise were made. Since the Property has been sold, there was no evidence from [Mr Hadzic] that once the funds are released from escrow he would be transferring the entire “profit” to [Mr Hadzic].

198.    The Tribunal is not satisfied on the balance of probabilities that the $495,000 deposits were a loan.

(italic and bold emphasis in original; footnotes omitted. I note that the second reference in T[197] to Mr Hadzic appears to be an error. It appears that it was intended to be a reference to Mr Waters.)

C.7    The other deposits

71    The Tribunal then turned to consider the other deposits. These deposits were considered by reference to 12 issues.

C.7.1    The Freewater Accountants’ evidence

72    Before considering those issues, the Tribunal provided a summary of the evidence given by Mr Hadzic’s then current accountants from Freewater Accountants – Mr Muir, Ms Adams and Ms Ooi (T[200] to [224]). The Tribunal determined that their evidence had little, if any, probative value. The Tribunal’s reasoning to this conclusion is relevant to question 7 and is discussed at K.1 below.

73    Having set out the above views as to the evidence of the three accountants, the Tribunal turned to the 12 identified issues.

C.7.2    Issue 1 – Wages from the employer

74    The first issue concerned the deposits totalling $150,548.

75    The Tribunal discussed this issue at T[225] to [237]. It was not satisfied that these deposits were not income received by Mr Hadzic.

76    That conclusion is the subject of questions 5 and 6 and the Tribunal’s reasoning is set out at J.1 below as part of the consideration of those questions.

C.7.3    Remaining deposits

77    The Tribunal then addressed the remaining deposits, under the following headings:

(1)    Issue 2 – Reimbursements of expenses from the employer - $68,293.58;

(2)    Issue 3 – Sales of second-hand equipment - $50,000.00;

(3)    Issue 4 – Loans from the employer - $42,000.00;

(4)    Issue 5 – Deposit of sale of Weston property;

(5)    Issue 6 – Other income;

(6)    Issue 7 – Bank interest income;

(7)    Issue 8 – Reimbursement of expenses;

(8)    Issue 9 – Loans from Mr Hadzic Snr;

(9)    Issue 10 – Loans - $75,250.00;

(10)    Issue 11 – Credit card payments - $3,951.46; and

(11)    Issue 12 – Kennards hire and return.

78    Issues 6 and 7 were conceded by Mr Hadzic. Issues 9 and 12 were conceded by the Commissioner.

79    As to the remaining issues – 2, 3, 4, 5, 8, 10 and 11 – the Tribunal was not satisfied that the amounts deposited were not income of Mr Hadzic. The Tribunal’s treatment of those issues is the subject of question 7 is discussed at K.1 below.

C.8    Conclusion as to the Hadzic NOA Decision

80    After dealing briefly with deductions, the Tribunal expressed the following conclusions at T[313] to [315]:

313.    The Tribunal finds [Mr Hadzic] has not discharged the burden of proof that the [Mr Hadzic] amended NOA was excessive.

314.    [Mr Hadzic’s] evidence lacked particularity, and at times his evidence was inconsistent. The lack of particularity was not explained. There was very limited evidence of attempts made to reconstruct his records or obtain substitute documents and no evidence of any precautions taken to prevent the loss of his business records.

315.    [Mr Hadzic] has failed to discharge his onus of proof.

C.9    Hadzic Penalty Decision

81    The Tribunal then turned to consider the Hadzic Penalty Decision. It did so at T[316] to [330] and decided to affirm that decision. Its reasons for doing so are discussed as part of question 10 at L.1 below.

C.10    Decision

82    Finally, the Tribunal affirmed the Hadzic NOA Decision and the Hadzic Penalty Decision and dismissed the applications before it.

D.    OVERVIEW OF THE APPEAL AND RELEVANT PRINCIPLES

83    As noted above, Mr Hadzic has brought this “appeal” under s 44 of the AAT Act. Properly characterised, it is an application for judicial review of the lawfulness of the Tribunal’s decision: Wills v Chief Executive Officer of the Australian Skills Quality Authority [2022] FCAFC 10; (2022) 289 FCR 175 at 178 [7] (Perry J; Griffiths and Logan JJ agreeing); Equality Australia Ltd v Commissioner of the Australian Charities and Not-for-profits Commission [2024] FCAFC 115; (2024) 305 FCR 189 at 191 [6] (Wheelahan, Hespe and Kennett JJ); Manikantan v Secretary, Department of Employment and Workplace Relations [2024] FCAFC 116 at [39] (Collier, Raper and Shariff JJ).

84    This Court’s jurisdiction depends upon the existence of a question or questions of law and the ambit of the appeal is limited to the determination of such a question or questions: Brown v The Repatriation Commission [1985] FCA 236; (1985) 7 FCR 302 at 304 (Bowen CJ, Fisher and Lockhart JJ); Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; (2015) 233 FCR 315 at 348 to 349 [85] (Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ).

85    Some of the questions posed by Mr Hadzic in his notice of appeal (and amended notice of appeal) involve the construction of the Tribunal’s Decision.

86    It is trite that the Tribunal’s Decision is to be read fairly as a whole, and not construed minutely and finely with an eye keenly attuned to the perception of error: see, e.g., Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 456; (1993) 43 FCR 280 at 287 (Neaves, French and Cooper JJ); Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 271 to 272 (Brennan CJ, Toohey, McHugh and Gummow JJ); Plaintiff M1/2021 v Minister for Home Affairs [2022] HCA 17; (2022) 275 CLR 582 at 604 to 605 [38] (Kiefel CJ, Keane, Gordon and Steward JJ); Plaintiff S22/2025 v Minister for Immigration and Multicultural Affairs [2025] HCA 36; (2025) 425 ALR 79 at 85 [16] (Gageler, Edelman and Jagot JJ).

87    As the Full Court of this Court (Perry, Sarah C Derrington and Abraham JJ) explained in RCLN v Minister for Immigration and Citizenship [2025] FCAFC 113 at [27]:

The starting point in considering the grounds of appeal is, as the Minister submitted, that the Tribunal’s reasons must be read fairly and as a whole: Plaintiff M64/2015 v Minister for Immigration and Border Protection [2015] HCA 50; (2015) 258 CLR 173 at [59]–[60]. Thus, it is well established that the reasons of an administrative decision-maker “are not to be construed minutely and finely with an eye keenly attuned to the perception of error”: Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 271–2 (Brennan CJ, Toohey, McHugh and Gummow JJ (quoting with approval Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287)). As such, “a commonsense and realistic approach should be taken to understanding the reasons as a whole to see what it was that the Tribunal was saying”: Fang Wang v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCA 1044 at [14]–[15] (Allsop J (as his Honour then was)).

(italic emphasis in original)

88    As the Full Court in Pozzolanic Enterprises also explained at 287 by reference to earlier authority: “The Court will not be concerned with looseness in the language of the Tribunal nor with unhappy phrasing of the Tribunal’s thoughts”.

89    In construing the Tribunal’s Decision in the context of a contention that it failed to consider a particular matter, the oft-cited observations of the Full Court of this Court (French J (as his Honour then was), Sackville and Hely JJ) in Applicant WAEE v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 184; (2003) 236 FCR 593, at 604 to 605 ([45] to [47]) are to be borne in mind:

45.    … The critical question which ordinarily will have to be addressed in applying this criterion is whether the applicant has a well-founded fear of persecution for one of the Convention reasons. If the Tribunal fails to consider a contention that the applicant fears persecution for a particular reason which, if accepted, would justify concluding that the applicant has satisfied the relevant criterion, and if that contention is supported by probative material, the Tribunal will have failed in the discharge of its duty, imposed by s 414, to conduct a review of the decision. This is a matter of substance, not a matter of the form of the Tribunal’s published reasons for decision.

46.    It is plainly not necessary for the Tribunal to refer to every piece of evidence and every contention made by an applicant in its written reasons. It may be that some evidence is irrelevant to the criteria and some contentions misconceived. Moreover, there is a distinction between the Tribunal failing to advert to evidence which, if accepted, might have led it to make a different finding of fact (cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at [87]-[97]) and a failure by the Tribunal to address a contention which, if accepted, might establish that the applicant had a well-founded fear of persecution for a Convention reason. The Tribunal is not a court. It is an administrative body operating in an environment which requires the expeditious determination of a high volume of applications. Each of the applications it decides is, of course, of great importance. Some of its decisions may literally be life and death decisions for the applicant. Nevertheless, it is an administrative body and not a court and its reasons are not to be scrutinised “with an eye keenly attuned to error”. Nor is it necessarily required to provide reasons of the kind that might be expected of a court of law.

47.    The inference that the Tribunal has failed to consider an issue may be drawn from its failure to expressly deal with that issue in its reasons. But that is an inference not too readily to be drawn where the reasons are otherwise comprehensive and the issue has at least been identified at some point. It may be that it is unnecessary to make a finding on a particular matter because it is subsumed in findings of greater generality or because there is a factual premise upon which a contention rests which has been rejected. Where however there is an issue raised by the evidence advanced on behalf of an applicant and contentions made by the applicant and that issue, if resolved one way, would be dispositive of the Tribunal’s review of the delegate’s decision, a failure to deal with it in the published reasons may raise a strong inference that it has been overlooked.

(italic emphasis in original; bold emphasis added)

90    See also DKY22 v Minister for Immigration, Citizenship and Multicultural Affairs [2024] FCAFC 24; (2024) 302 FCR 25 at 36 to 37 ([35] to [37]) (Sarah C Derrington, Goodman and Raper JJ).

E.    APPLICATION TO AMEND THE NOTICE OF APPEAL

91    Before considering the questions raised in the notice of appeal it is necessary to address the application on behalf of Mr Hadzic to amend that notice.

92    At the hearing of the appeal, counsel for Mr Hadzic moved on an interlocutory application to amend the notice of appeal in several ways. Proposed changes to questions 7 (and ground 8) and question 8 (and grounds 9 and 10) were uncontroversial and will be allowed. However, a proposed amendment by way of the addition of a proposed question 11 and ground 13 was controversial. The proposed new question and ground are as follows:

Question 11:

Whether the Senior Member who constituted the Tribunal was affected by apprehended bias against the applicant in her determination of the application for review?

Ground 13:

The Senior Member who constituted the Tribunal was affected by apprehended bias against the applicant in her determination of the application for review.

93    In support of the application to amend the notice of appeal so as to include question 11 and ground 13, counsel for Mr Hadzic relied upon affidavits of Dr Dwyer, Mr Hadzic’s solicitor at the time of the hearing before the Tribunal, affirmed 18 July 2024 and 19 August 2024. Relevantly, that evidence included an audio recording of events during each of the three adjournments on the third day of the Tribunal hearing and a transcript of that recording.

94    It was agreed that the question whether Mr Hadzic should have leave to advance question 11 (and if leave were to be given, question 11 itself) should be determined as part of these reasons, with the benefit of further submissions to be filed on behalf of the Commissioner and Mr Hadzic as to whether leave should be granted.

95    Those submissions were subsequently filed.

96    The Commissioner’s principal ground of opposition to the application to amend so as to include question 11 was his contention that the Court should not receive the recordings and the transcripts into evidence.

97    The Commissioner submitted that the recording and the transcript ought not be admitted into evidence because the conduct of the senior member recorded was not conduct capable of giving rise to a reasonable apprehension of bias, because it was conduct that was “out of court, if not in chambers, discussions between the decision-maker and a member of her staff”.

98    In support of his submission, the Commissioner relied upon the decision of Handley JA in Wentworth v Rogers [2000] NSWCA 368. In that case, Ms Wentworth sought to persuade his Honour to recuse himself from cases in which she was involved. The application was supported by an affidavit made by a former Associate of the New South Wales Court of Appeal in which she deposed to overhearing private conversations between Judges of that Court, including his Honour, in which derogatory remarks were made against Ms Wentworth.

99    His Honour reasoned as follows:

5    The legal questions raised by the tender of this affidavit have not, to my knowledge, received judicial consideration in any jurisdiction with which I am in any way familiar. In particular there is no authority dealing directly with the admissibility of evidence of this nature.

6     Evidence dealing with any aspect of a Judge’s decision-making process has been held to be inadmissible. See Herijanto v Refugee Tribunal [No 2] (2000) 74 ALJR 703, 704. In Zanatta v McCleary [1976] 1 NSWLR 230 this Court declined to receive affidavit evidence from a barrister and a solicitor who deposed to a conversation with a trial Judge after he had given judgment, which was said to show that he acted in grounds which had not been proved in evidence before him. The Court held that the evidence was inadmissible principally for reasons of public policy. Samuels JA said at 239 that a Judge of a Court of Record cannot be compelled to testify to the considerations which led him to his decision, or to the manner in which he has exercised his judicial powers.

7    He continued:

“… if, as I think, the Judge of a Court of Record is not compellable to testify to the considerations which led him to his decision, and if, indeed, his own evidence is not to be received upon such matters … I cannot see that they can be proved by evidence of his statements out of Court. It is … the subject matter of the evidence which is objectionable rather than the mode of proof … such evidence is not admissible, if its purpose is to show the process of reasoning or the factors taken into account in coming to the decision”.

8    In Kaycliff Pty Limited v Australian Broadcasting Tribunal (1989) 90 ALR 310 statements by the husband of the Chairperson of the Tribunal were relied upon in support of an application that she should disqualify herself. The Full Court of the Federal Court said at 320-1:

“Although we have found no authority directly bearing on the point, it appears to us that statements made outside and without the authority of a court or a tribunal by persons who are not its members cannot, in general, disqualify it from proceeding … we think there are dangers in accepting the doctrine that statements of that kind can prejudice the right or effect the duty of a Judge or Tribunal member to sit”

9    The conclusion to be drawn from those cases is supported by authorities dealing with disqualification for bias. The High Court has repeatedly said that the test for ostensible or apprehended bias depends on the perception of “a reasonable and intelligent lay observer” or of a “fair-minded observer” (emphasis supplied). See Vakauta v Kelly (1989) 167 CLR 568, 573, 584, 585 and Webb v The Queen (1994) 181 CLR 41, 47, 51, 52. The test is to be applied to the conduct of the Judge in court or otherwise in public. The test is not that of the reasonable and intelligent lay eavesdropper or the fair-minded eavesdropper. As Deane J said in Webb v The Queen (above) at 73:

“The material objective facts include, of course, any published statement … of a person concerned” (emphasis supplied).

10    The material objective facts must also, in my view, include any other public conduct of the judicial officer. The affidavit in question deals essentially with matters which occurred in private and for the reasons given the affidavit is not admissible. It will be Marked for Identification “2” and left with the papers.

11     This application is made in proceedings to review an earlier decision of Fitzgerald JA and myself refusing leave to appeal from an interlocutory decision dealing with a question of costs. The question involves the construction of two orders of this Court in the light of the relevant surrounding circumstances. The Court, which is exercising appellate jurisdiction, is not called upon to decide any question of credit, or to exercise any broad discretion.

12     In these circumstances I decline to disqualify myself.

(italic and underline emphasis in original)

100    I am unpersuaded that Wentworth v Rogers provides a basis to reject the evidence of the audio recording or the transcript. It is distinguishable from the present case in several respects:

(1)    the affidavit in the present case relevantly proves the audio recording and the transcript of that audio recording. There cannot be – and there is not – any contest as to whether the conduct the subject of the application occurred; and

(2)    as a result, the public policy considerations identified in Zanatta v McCleary [1976] 1 NSWLR 230 (at 234) do not arise because the subject matter of the evidence is not in dispute.

101    Further, the evidence is plainly relevant, within the meaning of s 55 of the Evidence Act 1995 (Cth) and as such is admissible unless the Evidence Act otherwise provides: s 56. I was not directed to any provision of the Evidence Act that provided otherwise.

102    In regard to relevance, the fact that the communication occurred outside of the hearing room and not in the presence of all of the parties is of little moment. Communications occurring in Chambers have been the subject of applications for disqualification on the basis of apprehended bias. In Maules Creek Coal Pty Ltd v Environment Protection Authority [2023] NSWCCA 275; (2023) 112 NSWLR 507, a five member bench of the New South Wales Court of Criminal Appeal considered an appeal from an application where the conduct involved was a conversation between the trial judge and a visitor to her chambers. In Khamiss v Director of Public Prosecutions (NSW) (No 2) [2025] NSWCA 193; (2025) 118 NSWLR 112, the New South Wales Court of Appeal considered whether a Magistrate of the Local Court of New South Wales made a jurisdictional error when she had a private conversation with the prosecutor in chambers during an adjournment taken in the course of the cross-examination of the accused.

103    Thus, I am satisfied that the audio recording and the transcript are admissible.

104    I have decided that leave should be granted, essentially because of the importance of the issue raised; and the absence of any substantial prejudice to the Commissioner, particularly in circumstances where any prejudice caused by the lateness of the amendment application has been overcome by allowing the filing of further submissions.

F.    QUESTION 11

F.1    Introduction

105    I turn now to consider question 11.

106    It is appropriate to consider that question before considering any of the other questions because it goes to the validity and acceptability of the Tribunal’s Decision and thus, logically, must be determined first: Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2006] HCA 55; (2006) 229 CLR 577 at 611 to 612 [117] (Kirby and Crennan JJ); Drummond v Canberra Institute of Technology (No 3) [2022] FCAFC 169; (2022) 294 FCR 346 at 354 [40] (Rangiah, Charlesworth and Banks-Smith JJ); and Jorgensen v Fair Work Ombudsman [2019] FCAFC 113; (2019) 271 FCR 461 at 483 to 484 [93] (Greenwood, Reeves and Wigney JJ).

107    For ease of reference, question 11 is reproduced below:

Whether the Senior Member who constituted the Tribunal was affected by apprehended bias against the applicant in her determination of the application for review?

F.2    Relevant principles

108    The issue of apprehended bias is one that goes to jurisdiction: see QYFM v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2023] HCA 15; (2023) 279 CLR 148 at 159 to 160 ([26] to [27]) (Kiefel CJ and Gageler J); 179 [92] (Gordon J); 188 [121] (Edelman J); and 249 [311] (Jagot J).

109    The test to be applied is whether a fair-minded lay observer might reasonably apprehend that the decision-maker might not bring an impartial mind to the resolution of the question the decision-maker is required to decide: Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 at 344 to 345 [6] (Gleeson CJ, McHugh, Gummow and Hayne JJ); Charisteas v Charisteas [2021] HCA 29; (2021) 273 CLR 289 at 296 to 297 [11] (Kiefel CJ, Gageler, Keane, Gordon and Gleeson JJ); QYFM at 163 [37] (Kiefel CJ and Gageler J); and SunshineLoans Pty Ltd v Australian Securities and Investments Commission [2026] HCA 8; (2026) 100 ALJR 489 at 502 [59] (Gordon J) and 510 [104] (Edelman J).

110    In Ebner, their Honours said at 345 [7]:

The apprehension of bias principle may be thought to find its justification in the importance of the basic principle, that the tribunal be independent and impartial. So important is the principle that even the appearance of departure from it is prohibited lest the integrity of the judicial system be undermined. There are, however, some other aspects of the apprehension of bias principle which should be recognised. Deciding whether a judicial officer (or juror) might not bring an impartial mind to the resolution of a question that has not been determined requires no prediction about how the judge or juror will in fact approach the matter. The question is one of possibility (real and not remote), not probability. Similarly, if the matter has already been decided, the test is one which requires no conclusion about what factors actually influenced the outcome. No attempt need be made to inquire into the actual thought processes of the judge or juror.

(italic emphasis in original)

111    The application of the test entails:

(1)    identification of the factor which it is said might lead a decision-maker to resolve the question other than on its legal and factual merits;

(2)    articulation of the logical connection between that factor and the apprehended deviation from deciding that question on its merits; and

(3)    an assessment of the reasonableness of that apprehension from the perspective of a fair-minded lay observer,

see: Ebner at 345 [8], Charisteas at 296 to 297 [11]; QYFM at 163 [38] (Kiefel CJ and Gageler J), 171 [67] (Gordon J); Director of Public Prosecutions v Smith [2024] HCA 32; (2024) 419 ALR 212 at 234 [92] (Gageler CJ, Gleeson, Jagot and Beech-Jones JJ) and Sunshine Loans at 493 [1] (Gageler CJ and Gleeson J), 502 [60] (Gordon J), 510 [105] (Edelman J), [126] (Steward J), 514 [130] (Jagot J) and 522 to 523 [173] (Beech-Jones J).

112    Where, as in the present case, the apprehension of bias is contended to be based upon prejudgment by the decision-maker, the following observations of Gleeson CJ and Gummow J explained in Minister for Immigration and Multicultural Affairs v Jia Legeng [2001] HCA 17; (2001) 205 CLR 507 at 531 to 532 ([71] to [72]) are pertinent:

71    … Decision-makers, including judicial decision-makers, some­times approach their task with a tendency of mind, or predisposition, sometimes one that has been publicly expressed, without being accused or suspected of bias. The question is not whether a decision­maker's mind is blank; it is whether it is open to persuasion. The fact that, in the case of judges, it may be easier to persuade one judge of a proposition than it is to persuade another does not mean that either of them is affected by bias.

72    The test which was applied both by French J and by the Full Court was orthodox. It accords with the decisions of this Court in Laws v Australian Broadcasting Tribunal and Johnson v Johnson. The state of mind described as bias in the form of prejudgment is one so committed to a conclusion already formed as to be incapable of alteration, whatever evidence or arguments may be presented. Natural justice does not require the absence of any predisposition or inclination for or against an argument or conclusion. This preliminary argument should be rejected.

(footnotes omitted)

F.3    Consideration

113    I turn now to the three excerpts of the audio recording and transcript upon which Mr Hadzic relies. It was common ground that the speakers other than the senior member in each of the excerpts were Tribunal staff who assisted the senior member.

F.3.1    First Excerpt

114    The first excerpt is:

SENIOR MEMBER: So, can you again check whether it’s been sent in to the Tribunal?

MALE SPEAKER 1: Sure, of course. I thought it had been forwarded to you or sent in an email on - I could have sworn that I had but if I didn’t then it’s one of those cases where no one in this case has sent in anything until--

SENIOR MEMBER: No. What I have is the submissions and hearing plan.

MALE SPEAKER 1: Yes ... (Not transcribable) .. the authorities .. (not transcribable) .. Sorry. Okay. All right.

MALE SPEAKER 2: .. (Not transcribable) .. the Commissioner’s .. (not transcribable) ..

SENIOR MEMBER: Thank you.

MALE SPEAKER 2: They put the wrong reference in. They put ZCCM and TBLZ.

MALE SPEAKER 1: Okay, rather than TBLX.

MALE SPEAKER 2: TBLX.

SENIOR MEMBER: Oh my God.

MALE SPEAKER 1: This is so vexing. Right.

MALE SPEAKER 2: I’ll send it to you now.

SENIOR MEMBER: Right. Thank you.

MALE SPEAKER 1: Yes, please do, Ben. I was going to say you’d want this on Tracks but it’s probably the same one.

SENIOR MEMBER: That doesn’t explain why the applicant didn’t get it however.

MALE SPEAKER 1: Yes.

FEMALE SPEAKER: As soon as you left they asked for different .. (not transcribable) ..

SENIOR MEMBER: Yeah, they did.

FEMALE SPEAKER: That’s okay .. (not transcribable) .. - that’s all right. I acted real cool. I even zoomed in nicely.

MALE SPEAKER 2: They sent it to - they sent it from Mr Gillfer to Mr Dwyer - -

SENIOR MEMBER: Oh.

MALE SPEAKER 2: ---who sent it directly to Bevan cc so they should have it.

FEMALE SPEAKER: I think I got lost somewhere around 10.21. There’s so many documents. I’ve not seen one this complex.

SENIOR MEMBER: Some of mine - most of mine have five to ten thousand pages and stuff.

MALE SPEAKER 1: It’s a lot.

SENIOR MEMBER: It’s a lot and that’s why I need help.

FEMALE SPEAKER: I’m trying to understand, so the tax issue because he submitted an assessable amount larger than what the ATO did.

SENIOR MEMBER: No. They’re trying to say that he didn’t, that a certain amount of money that he got was income(?) .. (not transcribable) .. declared. He’s saying it’s low. That’s the primary issue.

FEMALE SPEAKER: Oh .

SENIOR MEMBER: Yeah. So, he objected to the -the Commissioner then does an amended assessment whereby they change the assessment to include that.

FEMALE SPEAKER: Was that the $42,000 loan?

SENIOR MEMBER: Sorry?

FEMALE SPEAKER: Was that the $40,000 loan or-

SENIOR MEMBER: No, the second one.

MALE SPEAKER 2: He’d be lucky if it was 40.

MALE SPEAKER 1: Mm.

SENIOR MEMBER: .. (Not transcribable) .. pay it by now and get me out of this thing.

FEMALE SPEAKER: Yeah.

SENIOR MEMBER: I mean, as his lawyers said the legal fees are racking up and up and up.

MALE SPEAKER 2: Yeah. He’s already 40 grand on bills at least.

SENIOR MEMBER: Anyway, and then of course there’s penalties and interest.

FEMALE SPEAKER: Was this lend(?) for the purchase of the Mogo property.

SENIOR MEMBER: .. (Not transcribable) ..

FEMALE SPEAKER: I did spend a bit of time in Mogo, it’s a lovely place. I was trying to explain to Nick I’m lucky it’s wanky.

MALE SPEAKER 2: So, Nick for your purposes these authorities are characterised .. (not transcribable) .. for now.

SENIOR MEMBER: He renovated it and it sold .. (not transcribable) .. That person’s currently in gaol, he is a big druggie, bikie.

FEMALE SPEAKER: Oh okay.

SENIOR MEMBER: That’s who loaned the money.

FEMALE SPEAKER: Right. That’s interesting actually.

SENIOR MEMBER: Or didn’t loan the money (?) - now, there’s a subsequent proceeding in the District Court where the bikie’s wife is suing him saying she lent those--

FEMALE SPEAKER: Okay.

SENIOR MEMBER: --not the bikie. They’re all - those things going on at the same time but he says he was brought in to do a whole lot of renovations on the house. Originally, they were going to do it as a joint venture and then for various reasons the bikie pulled out but he wanted to keep going but he didn’t have quite enough cash to get the deposit to buy off these people so he - this is what he says - so he loaned him 495,000 - whatever it is - in order to complete the purchase. So, he’s saying it’s a loan and the Tax Office says no, it’s not.

FEMALE SPEAKER: How did the Tax Office characterise it?

SENIOR MEMBER: Well, that’s the source of contention. They say it’s income for services rendered by him to the bikie

FEMALE SPEAKER: Okay.

SENIOR MEMBER: Or it’s just something else but the thing about tax is the onus of proof reverses. So, it’s not for the Commissioner to prove, yeah.

FEMALE SPEAKER: So, tax lawyers really enjoy it, yes.

SENIOR MEMBER: It’s pretty complicated and there’s a lot of moving parts and as I say, the first time we all had to run away and so now they’re claiming privilege over the statement.

FEMALE SPEAKER: Which statement was it?

SENIOR MEMBER: There’s a statement in the documents of Damien that Damien is saying it’s not his statement and that’s why his father is saying, “I wrote the statement not Damien.”

FEMALE SPEAKER: Oh.

SENIOR MEMBER: So, it all goes to whether or not privilege – legal professional privilege can be claimed and/or whether or not because it has been provided to the Tribunal, provided to the Commissioner and so on, whether or not privilege existed, whether it’s been waived.

FEMALE SPEAKER: So, there’s two issues in there.

SENIOR MEMBER: Yes, so basically, I want to hear - I’m hearing from them on those points first and then I’m going to adjourn because I’ve got to decide whether I can continue with the hearing or do I need to decide the legal professional privilege point before I can do that.

FEMALE SPEAKER: And has any of the amount of the loan been paid in the nature of a loan or has it been--

SENIOR MEMBER: Well, this is part of the--

FEMALE SPEAKER: Pardon?

SENIOR MEMBER: There’s no written agreement.

FEMALE SPEAKER: There’s no written agreement.

SENIOR MEMBER: So that’s part of the whole--

FEMALE SPEAKER: But there’s no transactions that he could use - use to demonstrate if it was a loan?

SENIOR MEMBER: He was repaying it or-

FEMALE SPEAKER: Yeah.

SENIOR MEMBER: I don’t think so, so we’ll see.

FEMALE SPEAKER: You know what I’m getting at, I want the bikie to write it off as a bad debt from prison, I’d assume.

SENIOR MEMBER: Well, he’s not in prison. See, the thing is it’s his wife that’s saying it’s her. It’s all very .. (not transcribable) ..

FEMALE SPEAKER: So, the bikie is not disputing, he agrees with his wife?

SENIOR MEMBER: Well, the bikie’s in gaol so he’s got other problems. So, its his wife that’s sued in the District Court.

FEMALE SPEAKER: And he doesn’t need to complete tax returns from --

SENIOR MEMBER: The bikie has also had a taxation matter through the Tribunal, .. (not transcribable) .. did last week so there’s things running in parallel.

FEMALE SPEAKER: Once you’re in prison for an indictable offence you still complete tax returns every year?

SENIOR MEMBER: I’m not sure actually. I would have thought no if you’re not earning any income.

FEMALE SPEAKER: Yeah. I think my understanding was once it’s the five years like the serious ones, five years or more, you don’t complete tax returns.

SENIOR MEMBER: Yes, that’s probably right because you could still be earning money from other investments or other - yeah. Okay, are we ready?

115    Counsel for Mr Hadzic made submissions that the following passages of the first excerpt gave rise to a reasonable apprehension of bias.

116    The first passage is as follows:

SENIOR MEMBER: Or didn’t loan the money(?)- now, there’s a subsequent proceeding in the District Court where the bikie’s wife is suing him saying she lent those--

FEMALE SPEAKER: Okay.

SENIOR MEMBER: --not the bikie. They’re all -those things going on at the same time but he says he was brought in to do a whole lot of renovations on the house. Originally, they were going to do it as a joint venture and then for various reasons the bikie pulled out but he wanted to keep going but he didn’t have quite enough cash to get the deposit to buy off these people so he -this is what he says - so he loaned him 495,000-whatever it is - in order to complete the purchase. So, he’s saying it’s a loan and the Tax Office says no, it’s not.

FEMALE SPEAKER: How did the Tax Office characterise it?

SENIOR MEMBER: Well, that’s the source of contention. They say it’s income for services rendered by him to the bikie

FEMALE SPEAKER: Okay.

SENIOR MEMBER: Or it’s just something else but the thing about tax is the onus of proof reverses. So, it’s not for the Commissioner to prove, yeah.

FEMALE SPEAKER: So, tax lawyers really enjoy it, yes.

SENIOR MEMBER: It’s pretty complicated and there’s a lot of moving parts and as I say, the first time we all had to run away and so now they’re claiming privilege over the statement.

FEMALE SPEAKER: Which statement was it?

SENIOR MEMBER: There’s a statement in the documents of Damien that Damien is saying it’s not his statement and that’s why his father is saying, “I wrote the statement not Damien.”

FEMALE SPEAKER: Oh.

SENIOR MEMBER: So, it all goes to whether or not privilege – legal professional privilege can be claimed and/or whether or not because it has been provided to the Tribunal, provided to the Commissioner and so on, whether or not privilege existed, whether it’s been waived.

FEMALE SPEAKER: So, there’s two issues in there.

SENIOR MEMBER: Yes, so basically, I want to hear - I’m hearing from them on those points first and then I’m going to adjourn because I’ve got to decide whether I can continue with the hearing or do I need to decide the legal professional privilege point before I can do that.

FEMALE SPEAKER: And has any of the amount of the loan been paid in the nature of a loan or has it been--

SENIOR MEMBER: Well, this is part of the--

FEMALE SPEAKER: Pardon?

SENIOR MEMBER: There’s no written agreement.

FEMALE SPEAKER: There’s no written agreement.

SENIOR MEMBER: So that’s part of the whole--

FEMALE SPEAKER: But there’s no transactions that he could use - use to demonstrate if it was a loan?

SENIOR MEMBER: He was repaying it or--

FEMALE SPEAKER: Yeah.

SENIOR MEMBER: I don’t think so, so we’ll see.

FEMALE SPEAKER: You know what I’m getting at, I want the bikie to write it off as a bad debt from prison, I’d assume.

SENIOR MEMBER: Well, he’s not in prison. See, the thing is it’s his wife that’s saying it’s her. It’s all very .. (not transcribable) ..

FEMALE SPEAKER: So, the bikie is not disputing, he agrees with his wife?

SENIOR MEMBER: Well, the bikie’s in gaol so he’s got other problems. So, its his wife that’s sued in the District Court.

117    Counsel for Mr Hadzic made several submissions concerning this passage and the $495,000 deposits: (1) there “seems to be a fair bit of credence given to the status of the $495,000 as a loan in those observations”; and (2) “there’s a recognition that the loan is being sued for in the District Court, and the rationale for the loan seems to be accepted … [t]hat’s contrary to the rejection of it in the reasons as not satisfying the relevant onus of proof”. Counsel also submitted that this exchange demonstrates an acceptance that the advance of $495,000 was a loan by reference to District Court evidence; and that the Commissioner’s case was that it was income for services rendered and that the fair-minded lay observer might well conclude that the senior member pre-judged the character of the $495,000 deposits against Mr Hadzic.

118    Counsel for Mr Hadzic also submitted that the reference in the above passage to the “wife” suing on the loan in the District Court appeared to be an acceptance that there was objective evidence that the $495,000 deposits were a loan, but this was not reflected in the Tribunal’s Decision.

119    Taken in isolation and at their highest for the purposes of Mr Hadzic’s application, some of the comments in the above passage could be taken as expressing a view consistent with the case advanced on behalf of Mr Hadzic that the $495,000 deposits were a loan. In my view, the better interpretation of the conversation is that the senior member was seeking to explain to the staff member what the issues in the case before her were and in doing so she recounted the case as propounded by Mr Hadzic rather than expressing any view that she held as to the outcome of the case.

120    In any event, a reasonable apprehension of bias of a decision-maker against a particular party is not established by evidence of an expression of a view by a decision-maker during the course of the hearing. A fortiori when, assuming that the senior member did express a view held by her that the $495,000 deposits were a loan, the views expressed by the senior member were favourable to Mr Hadzic.

121    Further, and again assuming that the senior member did hold a view of the kind contended, it is not unusual for decision-makers to have preliminary views, even strong views, on the subject matter of the case before them. There is no logical connection between the expression of such views and any apprehended deviation by the decision-maker from the course of deciding the case on its merits unless the views expressed can be regarded as so firmly entrenched that the mind of the decision-maker is not open to persuasion: see Legeng at 531 to 532 ([71] to [72]).

122    There is nothing in the passage relied upon which suggests that the views expressed by the senior member were not open to change.

123    Finally, I do not accept the submission that a fair-minded lay observer might conclude that the senior member pre-judged the character of the $495,000 deposits against Mr Hadzic. There is no evidence to support that submission in the passage set out above or in the first excerpt more generally.

124    The second passage relied upon by counsel for Mr Hadzic comprises the following statement:

SENIOR MEMBER: … the thing about tax is the onus of proof reverses. So, it’s not for the Commissioner to prove.

125    Counsel for Mr Hadzic submitted that this statement seemed “to be almost an excuse for not accepting the taxpayer’s case because the onus of proof is highlighted as being something that is difficult to satisfy”. He also submitted that it showed that the senior member considered that “Mr Hadzic bears the onus of proving not only that it was a loan but also of disproving that it is income for services rendered, contrary to the recitals of principles on onus of proof in [T[36]-[49]]” (italic emphasis in counsel’s submissions).

126    I am not persuaded that this statement is capable of supporting a conclusion of a reasonable apprehension of bias. There is no reason to regard it as being anything other than a statement of the orthodox position that once the Commissioner has made an assessment, the Commissioner does not bear an onus of proving the correctness of the assessment; and that the onus is upon the taxpayer to prove the assessment is excessive.

127    There is no sound basis for construing the statement in the manner suggested by counsel for Mr Hadzic, much less for concluding that it is evidence capable of establishing a reasonable apprehension of bias.

128    The third passage relied upon by counsel for Mr Hadzic is as follows:

SENIOR MEMBER: It’s pretty complicated and there’s a lot of moving parts and as I say, the first time we all had to run away and so now they’re claiming privilege over the statement.

FEMALE SPEAKER: Which statement was it?

SENIOR MEMBER: There’s a statement in the documents of Damien that Damien is saying it’s not his statement and that’s why his father is saying, “I wrote the statement not Damien.”

FEMALE SPEAKER: Oh.

SENIOR MEMBER: So, it all goes to whether or not privilege – legal professional privilege can be claimed and/or whether or not because it has been provided to the Tribunal, provided to the Commissioner and so on, whether or not privilege existed, whether it’s been waived.

FEMALE SPEAKER: So, there’s two issues in there.

SENIOR MEMBER: Yes, so basically, I want to hear - I’m hearing from them on those points first and then I’m going to adjourn because I’ve got to decide whether I can continue with the hearing or do I need to decide the legal professional privilege point before I can do that.

129    Counsel for Mr Hadzic submitted that the fair-minded lay observer might conclude that the senior member decided that she was obliged to determine the privilege question because she had concluded that it squarely affected her decision about the character of the $495,000 deposits; whereas in the Tribunal’s Decision she found it unnecessary to decide the privilege question at all.

130    I do not accept that submission for the following reasons.

131    First, the starting point of the submission is the proposition that the senior member decided that she was obliged to determine the privilege question. The passage set out above does not support that proposition.

132    Secondly, if I am mistaken as to the first point, an apprehension of bias is not established by the fact that the senior member at one point considered herself to be obliged to determine the privilege question but on further reflection before deciding the case came to a different view. The logical connection between a view of the senior member that she was obliged to determine the privilege question, and any apprehended deviation by the senior member from the course of deciding the case on its merits, has not been explained and no such connection is apparent.

133    The fourth passage relied upon by counsel for Mr Hadzic is as follows:

FEMALE SPEAKER: And has any of the amount of the loan been paid in the nature of a loan or has it been--

SENIOR MEMBER: Well, this is part of the--

FEMALE SPEAKER: Pardon?

SENIOR MEMBER: There’s no written agreement.

FEMALE SPEAKER: There’s no written agreement.

SENIOR MEMBER: So that’s part of the whole--

FEMALE SPEAKER: But there’s no transactions that he could use - use to demonstrate if it was a loan?

SENIOR MEMBER: He was repaying it or--

FEMALE SPEAKER: Yeah.

SENIOR MEMBER: I don’t think so, so we’ll see.

FEMALE SPEAKER: You know what I’m getting at, I want the bikie to write it off as a bad debt from prison, I’d assume.

SENIOR MEMBER: Well, he’s not in prison. See, the thing is it’s his wife that’s saying it’s her. It’s all very .. (not transcribable) ..

FEMALE SPEAKER: So, the bikie is not disputing, he agrees with his wife?

SENIOR MEMBER: Well, the bikie’s in gaol so he’s got other problems. So, its his wife that’s sued in the District Court.

134    Counsel for Mr Hadzic submitted that the fair-minded observer might recognise this passage as understated reasoning as to why the $495,000 deposits were not a loan; and that might give rise to the possibility of a reasonable apprehension of bias if these factors were not raised by the senior member in argument as relevant factors to be explained by counsel for Mr Hadzic on onus of proof of the loan, knowing that the senior member did not raise them at all.

135    I do not accept that submission for the following reasons.

136    First, understated reasoning provides no basis for a conclusion of apprehended bias.

137    Secondly, if the submission were to be treated as a submission that the senior member had formed the view that the $495,000 deposits were not a loan, that submission would not be supported by the evidence in the above passage. As is plain from the above passage and the first excerpt generally, the senior member was explaining to the staff member the issues to be determined and some of the evidence and the positions taken by the parties. There is no evidence from which to conclude that the senior member had formed the view that the $495,000 deposits were not a loan.

138    Thirdly, if contrary to the above the senior member had formed such a view, there is no basis for a conclusion that the senior member had pre-judged this issue and that her mind was not open to persuasion.

F.3.2    Second Excerpt

139    I turn now to the second excerpt.

140    The second excerpt is:

SPEAKER: .. (Not transcribable) ..

SENIOR MEMBER: The one you sent me was .. (not transcribable) ..

MALE SPEAKER 1: The structure - the structure I assume was the same. This is the updated one so they’re just talking shit(?).

SENIOR MEMBER: I’m kidding.

MALE SPEAKER 1: No, I’m hundred percent. I’m hundred percent.

SENIOR MEMBER: So, he’s lying.

SPEAKER 1: Well, he’s just - he’s just saying--

SENIOR MEMBER: I want to - I want to correct him. If he hasn’t - if he hasn’t sent through an updated thing I’ll correct him on the record.

MALE SPEAKER 1: It’s so messy.

SENIOR MEMBER: It is messy.

MALE SPEAKER 1: Sorry, I mean as in like the-

SENIOR MEMBER: I know the Commissioner is not going to be happy but I just - I just - how can we throw all this away again, do you know what I mean?

MALE SPEAKER 1: Yeah, no, totally. I- I don’t-

SENIOR MEMBER: That’s why - that’s why I said--

MALE SPEAKER 1: --how do people proceed in this Tribunal and not .. (not transcribable) ..

SENIOR MEMBER: That’s what I said, these are all the issues I have to decide .. (not transcribable) .. So, the idea that I’m going to do that this afternoon, you’ve gotta be kidding.

MALE SPEAKER 1: Well, I thought- I thought it was funny the applicant counsel who was emphasising the amount of money.[name of taxpayer deleted] was in here in October 2020 on a $10 million matter. It was dismissed or whatever. That was a tax matter.

SENIOR MEMBER: Yes. As I said, this is one of the smaller matters that I have.

MALE SPEAKER 1: Mm-hmm.

SENIOR MEMBER: Do you know what I mean, like when he was talking about it being--

MALE SPEAKER 1: Yeah, totally.

SENIOR MEMBER: He’s just trying to advocate.

MALE SPEAKER 1: Yeah, totally.

SENIOR MEMBER: The other thing too is it’s all a bluff, do you know what I mean, like I have a matter at the moment where the man’s name is [name of taxpayer deleted]

…

SENIOR MEMBER: Anyway, he earns millions and millions of dollars and we’re fighting over just like four million which is just tax on interest. This is how rich these people are.

MALE SPEAKER 1: I was going to say, how much money do you need, eh. Authorities, blah blah blah. Blah blah blah. Here we go. Here we go, Senior Member. They sent it to the Sydney Registry who marked it to Jeremy who-

SENIOR MEMBER: .. (Not transcribable) .. upload it?

MALE SPEAKER 1: No, it wasn’t uploaded. This was sent yesterday at 2.30. I was - I should say I was getting a physical at SmartClinics(?) at that time so I apologise.

SENIOR MEMBER: That’s okay.

MALE SPEAKER 1: I was going to make up more excuses. Yeah, absolutely.

SENIOR MEMBER: All right.

MALE SPEAKER 1: Do you want Mr Hadzic so I guess he wasn’t affirmed prior to his evidence-in-chief which went for 14 minutes. Do you want to do the affirmation for him before cross-examination?

SENIOR MEMBER: He’s in cross-examination already.

MALE SPEAKER 1: Well, no, I just meant add the evidence-in-chief part. In my experience It’s like if you just point out to them that when they do that they were under obligations, etcetera.

SENIOR MEMBER: I think we already did. His lawyer already reminded him so yeah, over the last case.

MALE SPEAKER 1: Okay.

SENIOR MEMBER: It’s always good to remind people. I’ll be two seconds.

141    Counsel for Mr Hadzic submitted that the following passages in the second excerpt gave rise to a reasonable apprehension of bias.

142    The first passage relied upon by counsel for Mr Hadzic is as follows:

MALE SPEAKER 1: The structure - the structure I assume was the same. This is the updated one so they’re just talking shit(?).

SENIOR MEMBER: I’m kidding.

MALE SPEAKER 1: No, I’m hundred percent. I’m hundred percent.

SENIOR MEMBER: So, he’s lying.

SPEAKER 1: Well, he’s just- he’s just saying--

SENIOR MEMBER: I want to - I want to correct him. If he hasn’t- if he hasn’t sent through an updated thing I’ll correct him on the record.

…

MALE SPEAKER 1: Mm-hmm.

SENIOR MEMBER: Do you know what I mean, like when he was talking about it being--

MALE SPEAKER 1: Yeah, totally.

SENIOR MEMBER: He’s just trying to advocate.

MALE SPEAKER 1: Yeah, totally.

SENIOR MEMBER: The other thing too is it’s all a bluff, do you know what I mean, like I have a matter at the moment where the man’s name is ...

…

SENIOR MEMBER: Anyway, he earns millions and millions of dollars and we’re fighting over just like four million which is just tax on interest. This is how rich these people are.

MALE SPEAKER 1: I was going to say, how much money do you need, eh. Authorities, blah blah blah. Blah blah blah. Here we go. Here we go, Senior Member. They sent it to the Sydney Registry who marked it to Jeremy who-

SENIOR MEMBER: .. (Not transcribable) .. upload it?

MALE SPEAKER 1: No, it wasn’t uploaded. This was sent yesterday at 2.30. I was - I should say I was getting a physical at SmartClinics(?) at that time so I apologise.

SENIOR MEMBER: That’s okay.

MALE SPEAKER 1: I was going to make up more excuses. Yeah, absolutely.

SENIOR MEMBER: All right.

MALE SPEAKER 1: Do you want Mr Hadzic so I guess he wasn’t affirmed prior to his evidence-in-chief which went for 14 minutes. Do you want to do the affirmation for him before cross-examination?

SENIOR MEMBER: He’s in cross-examination already.

143    Counsel for Mr Hadzic submitted that:

(1)    the discussion about structure seemed to be a discussion about the structure of a joint venture (which I take to be related to a joint venture as between Mr Hadzic and Mr Waters);

(2)    following that discussion about the structure, the senior member made an observation that Mr Hadzic was lying about the change in the arrangements whereby he acquired the interest of Mr Waters;

(3)    the senior member proposed to correct Mr Hadzic but that never happened;

(4)    the fair-minded lay observer (who it is submitted, according to the tests enunciated in QYFM, is assumed to know all the facts of the case and the Tribunal’s Decision), would have an obvious concern that none of these concerns expressed by the senior member was reflected either in the transcript of the evidence and submissions before her or in the Tribunal’s Decision, thereby leaving the fair-minded lay observer to conclude that there is a possible reasonable apprehension that the senior member was biased against Mr Hadzic’s counsel, and hence a possible reasonable apprehension that she is biased against Mr Hadzic (italic emphasis in counsel’s submissions).

144    I do not accept the submission that the above passage establishes a reasonable apprehension of bias, for the following reasons.

145    First, it is far from clear that the senior member suggested that any person was lying. Although the transcript records the statement “So, he’s lying”, the audio recording suggests that the senior member was asking a question of a staff member rather than making a positive assertion that any person was lying. The tone of voice of a statement set out in a transcript can be important in cases of ambiguity and in this case is discernible from the audio recording (cf. SZRUI v Minister for Immigration, Multicultural Affairs and Citizenship [2013] FCAFC 80 at [89] (Flick J, Allsop CJ and Robertson J agreeing). In the present case the intonation suggests that the senior member was asking the staff member whether they were suggesting that another person was lying.

146    Secondly, it is not clear that the subject of this question (or statement) was Mr Hadzic. The statements made prior to and following the statement “So, he’s lying” suggest that the subject of the question (or statement) was a person who had provided, or was to provide, an “updated thing” to the Tribunal. It seems unlikely that Mr Hadzic (as opposed to a legal representative of one or more of the parties) was such a person.

147    The submission that Mr Hadzic was the subject of this question (or statement) because the reference to “structure” was a reference to a joint venture structure involving Mr Hadzic finds no support in the second excerpt. Nor was the Court directed to any other evidence that would make good this submission. Further, the object of the discussion appears to be a “thing” that was provided or was to be provided to the Tribunal.

148    In this regard, the transcript immediately prior to the adjournment in which the second excerpt was recorded included:

SENIOR MEMBER: Yes. Yes, I have a copy of the proposed hearing plan. I did notice, in today’s - and I’ll come back to how we proceed. In the proposed plan, there was also a Mr Lo Pilato.

MR BEVAN: Yes, he’s the second taxpayer.

SENIOR MEMBER: All right. So I’ll just - - -

MR BEVAN: I appear for (indistinct) - - -

SENIOR MEMBER: The proposed hearing plan I’ve got is still dated

1 February, 2 February, 3 February. I presume it’s - have I got the right one?

MR ARNOLD: No, no.

MR BEVAN: No, no, we sent an updated one yesterday with today’s date on it.

SENIOR MEMBER: Okay, I haven’t got that. We’ll have a look for that now.

MR BEVAN: I think I’ve got - - -

149    There is no basis to infer that Mr Hadzic had provided or was to provide that “thing” to the Tribunal.

150    Thirdly, it follows that the statement by the senior member: “I want to correct him. If he hasn’t -if he hasn’t sent through an updated thing I’ll correct him on the record”, cannot sensibly be treated as a statement that the senior member proposed to correct Mr Hadzic.

151    Fourthly, the absence of such a “correction” in the transcript of events following this adjournment is of no moment, as:

(1)    the statement by the senior member set out in the previous paragraph was conditional upon the failure of “him” to have sent through an “updated thing” and it has not been established that there was such a failure;

(2)    the passage extracted above records, shortly after the statements concerning the sending through of an “updated thing”: (a) “I want to correct him. If he hasn’t – if he hasn’t sent through an updated thing I’ll correct him on the record”; and (b) statements by a staff member: (i) “Here we go, Senior Member. They sent it to the Sydney Registry who marked it to Jeremy who …” and (ii) “No it wasn’t uploaded. This was yesterday at 2.30…”, which suggests that there had been compliance and that correction was unnecessary;

(3)    the transcript records that the senior member shortly after resumption noted that: “I do have your updated hearing timeline now before me”; and

(4)    in any event, there is no reason to believe that any proposed “correction” was to be directed at Mr Hadzic or his counsel or solicitor. Indeed, assuming that the reference to an “updated thing” is a reference to something that one of the parties or their representatives was to provide to the Tribunal (perhaps the updated hearing timetable), there is nothing in the above passage which suggests that it was to be provided by Mr Hadzic or his counsel or solicitor, as opposed to the Commissioner or his counsel or solicitor.

152    The second passage relied upon by counsel for Mr Hadzic is as follows:

SENIOR MEMBER: I know the Commissioner is not going to be happy but I just - I just - how can we throw all this away again, do you know what I mean?

153    It is convenient to consider this statement when considering the third excerpt ([159] below).

154    The third passage relied upon by counsel for Mr Hadzic comprises the following statement:

SENIOR MEMBER: Yes. As I said, this is one of the smaller matters that I have.

155    Counsel for Mr Hadzic submitted that the senior member was suggesting that the proceeding would require less effort than larger matters. How this was capable of establishing a reasonable apprehension of bias was not explained and it need not be considered further.

F.3.3    Third Excerpt

156    I turn now to the third excerpt.

157    The third excerpt is:

SENIOR MEMBER: .. (Not transcribable) .. day two?

MALE SPEAKER 1: No, just for the first day. I can have a look at Tracks to see-

SENIOR MEMBER: See if anyone - if they did get it. Day two was discussion about what to do about whether there was a Harman(?) undertaking but I’m just interested to see whether they have - I will probably make some reference to it in my decision.

MALE SPEAKER 1: We can certainly request it.

MALE SPEAKER 2: No, I don’t want to request.

SENIOR MEMBER: We don’t have it. Because there was no evidence I won’t-

MALE SPEAKER 1: Yes, they mustn’t-it mustn’t have--

SENIOR MEMBER: They mustn’t have bothered to request it then.

MALE SPEAKER 1: No.

SENIOR MEMBER: Okay.

MALE SPEAKER 1: I mean, that should be -transcript should have been pre-hearing. It’s a bit of a dog’s breakfast .. (not transcribable) .. did this one – it doesn’t matter. Yeah. The ATO is putting out for a few roles and stuff like that.

SENIOR MEMBER: Are they?

MALE SPEAKER 1: Yeah. There’s a few.

SENIOR MEMBER: It’d be a pretty good job.

MALE SPEAKER 1: Yeah.

SENIOR MEMBER: I mean, you’ve got to get on board, you know, but to be fair, it’s quite a neutral organisation and by that I mean it doesn’t matter who you are if they think you’re a tax .. (not transcribable) .. So, in that sense, you know, they go for everybody and there’s a lot of movement within the organisation, do you know what I mean? You can be in the dispute resolution team or you can be in the tax interpretation team. A friend of mine’s in that, he’s quite senior up in that.

MALE SPEAKER 1: Mm

SENIOR MEMBER: Yeah.

MALE SPEAKER 1: It always strikes me in the federal jurisdiction even though it’s delegated jurisdictions there’s so much like ambiguity and strange evidence. Maybe I’m just jaded from family law relaxed rules of evidence but yeah, it’s an interesting one.

SENIOR MEMBER: It is an interesting jurisdiction in that sense and the reversal of onus. I mean-

MALE SPEAKER 1: Yeah.

SENIOR MEMBER: --we’re definitely not on-

MALE SPEAKER 1: Absolutely not.

SENIOR MEMBER: -or recording.

MALE SPEAKER 1: No, no. We’re on privacy mode so nothing records.

SENIOR MEMBER: I see it time and time and time again where the Commissioner will ask a question. “Well, I don’t know, you’ll have to ask my solicitor.” No, they don’t actually.

MALE SPEAKER 1: That’s a response if you want to give that response.

SENIOR MEMBER: Of course it is but it’s not helpful and the thing is, I’m not - it’s the taxpayer that doesn’t get it but .. (not transcribable) .. they don’t get it either. They don’t understand how you should put statements in and that’s why a lot of these people ·are in a situation .. (not transcribable) .. unable to resolve. So, the Commissioner is going to make a point of saying you didn’t declare what attempts you made. He might have made them but they’re not in the evidence.

MALE SPEAKER 1: No.

SENIOR MEMBER: It’s on the solicitors to have dealt with that issue.

MALE SPEAKER 1: Mm.

SENIOR MEMBER: So, it’s not good, I can tell you what now .. (not transcribable) ..

…

158    Counsel for Mr Hadzic relied upon the following passage from the third excerpt:

SENIOR MEMBER: I see it time and time and time again where the Commissioner will ask a question. “Well, I don’t know, you’ll have to ask my solicitor.” No, they don’t actually.

MALE SPEAKER 1: That’s a response if you want to give that response.

SENIOR MEMBER: Of course it is but it’s not helpful and the thing is, I’m not - it’s the taxpayer that doesn’t get it but .. (not transcribable) .. they don’t get it either. They don’t understand how you should put statements in and that’s why a lot of these people ·are in a situation .. (not transcribable) .. unable to resolve. So, the Commissioner is going to make a point of saying you didn’t declare what attempts you made. He might have made them but they’re not in the evidence.

MALE SPEAKER 1: No.

SENIOR MEMBER: It’s on the solicitors to have dealt with that issue.

MALE SPEAKER 1: Mm.

SENIOR MEMBER: So, it’s not good, I can tell you what now .. (not transcribable) ..

159    Counsel for Mr Hadzic submitted that:

(1)    having previously stated that “I know that the Commissioner is not going to be happy” (i.e. as part of the second excerpt – see [152] above) “which must demonstrate apprehended bias against [Mr Hadzic], the senior member … then levels her criticism about onus of proof at all taxpayers’ solicitors in tax cases generally, resulting in her conclusion that “it’s not good” (counsel’s italic emphasis);

(2)    this has a flow on effect for Mr Hadzic because his solicitor, Dr Dwyer, is within this category of solicitors;

(3)    the fair-minded lay observer might reasonably conclude that a member of the Tribunal so transfixed upon the likely unhappy attitude of the Commissioner in his response to the particular tax appeal then before her, or to tax appeals generally, is possibly incapable of bringing a truly impartial mind to bear, whilst standing in the shoes of the Commissioner for the purposes of Part IVC of the TAA, upon the questions arising in respect of Mr Hadzic’s tax appeal; and

(4)    the fair-minded lay observer would, in all likelihood, conclude that there is a distinct possibility that the senior member, in the exercise of her own statutory functions to review the objection decision and the assessment of Mr Hadzic’s liability for income tax, perceived herself to be somehow bound by the state of mind of the Commissioner when he issued his assessments and made objection decisions, having regard to the deference to the Commissioner expressed by the senior member in these comments, which must demonstrate the distinct possibility of her apprehended bias to the prejudice of Mr Hadzic.

160    Counsel for Mr Hadzic also submitted that this passage “appears to be criticism of what I assume is Mr Hadzic – it could be another witness – about the witness answering in words to the effect ‘You will have to ask my solicitor’. Now, nowhere in the transcript have any of these witnesses given that response”.

161    I do not accept these submissions for the following reasons.

162    First, no explanation as to the contended logical connection between the statement that “I know that the Commissioner is not going to be happy” and an apprehension of deviation by the senior member from determining the case on its merits has been provided. It is far from self-evident. Further:

(1)    it is not clear from the second excerpt what it was that the senior member foreshadowed that the Commissioner would not be happy about. In particular, it is not clear what the senior member perceived was going to be thrown away again; and

(2)    one available interpretation is that the senior member was contemplating a step adverse to the Commissioner. It is unlikely that the senior member would have anticipated that the Commissioner would have been displeased with a step favourable to him. Thus, such an interpretation would be directly contrary to the proposition that there was apprehension that she was biased in favour of the Commissioner and against Mr Hadzic.

163    Secondly, the discussion between the senior member and her staff member in this passage was a general discussion concerning tax litigation with which she had dealt in which taxpayers had answered questions with a statement to the effect: “Well, I don’t know, you’ll have to ask my solicitor”. There is no logical basis to conclude that the senior member had in mind Dr Dwyer or Mr Hadzic particularly when it is common ground that the transcript does not record an answer in the case before the senior member from any witness (including Mr Hadzic) to the effect of the answer identified by the senior member.

164    Thirdly, the above passage provides no basis for a conclusion that the senior member was “so transfixed upon the likely unhappy attitude of the Commissioner…”, or that she was “incapable of bringing a truly impartial mind to bear” upon the case before her. Similarly, there is no basis for a conclusion that there was a distinct possibility that the senior member in some way perceived herself to be bound by the Commissioner’s state of mind when he issued the assessments and made objection decisions.

165    For the foregoing reasons the appeal, in so far as it is based upon question 11, must be dismissed.

166    I turn now to the remaining questions. I will deal with these questions out of numerical order and instead first address questions 8 and 9 which, if upheld, would have the broadest impact upon the Tribunal’s decision.

G.    QUESTION 8 – RELEVANCE AND APPLICATION OF AUTHORITIES CONCERNING THE BURDEN OF PROOF

167    As noted above, the Tribunal at T[36] to [48] discussed a series of authorities concerning the burden of proof.

G.1    The Tribunal’s reasoning

168    The Tribunal commenced by noting that, by reason of s 14ZZK(b)(i) of the TAA, Mr Hadzic bore the burden of proving that each assessment was excessive or otherwise incorrect and what that assessment should have been (T[36]). The Tribunal then recorded that:

(1)    the reason for this, as was explained by Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 at [115], is that “the Commissioner, unlike a participant, is a stranger to transactions forming the taxable facts” (T[36]);

(2)    the High Court in The Commissioner of Taxation for the Commonwealth of Australia v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 624 explained that where the Commissioner and taxpayer have not agreed on the assessment (T[37]):

… the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment … unless the [taxpayer] shows by evidence that the assessment is incorrect, [the default assessment] will prevail. ;

(3)    in Trautwein v The Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 at 88 Latham CJ found that as a general rule (T[38]):

…the taxpayer must… show, not only negatively that the assessment is wrong, but also positively what correction should be made in order to make it right or more nearly right. ; and

(4)    the Commissioner is under no obligation to tender evidence in support of its assessments. As Mason J explained in Gauci v The Commissioner of Taxation of the Commonwealth of Australia [1975] HCA 54; (1975) 135 CLR 81 at 89 (T[39]):

The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.

169    Further to the discussion of burden of proof and under the sub-heading “Practical Burden – Lack of Documentation”, the Tribunal noted that Mr Hadzic had little in the way of corroborating evidence and that counsel for Mr Hadzic had explained that there were only a small number of contemporaneous business records because most of them were destroyed in bushfires in 2019 (T[40]).

170    The Tribunal then referred (at T[41] to [45]) to the following authorities as providing guidance and highlighting the difficulties faced by taxpayers in such circumstances.

171    First, Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation [1991] FCA 276; (1991) 22 ATR 148, in which as the Tribunal noted “Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records”:

31. A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1978-9) 143 CLR 284 at 302 per Gibbs J.

(Tribunal’s bold emphasis)

172    Secondly, Federal Commissioner of Taxation v Cassaniti [2018] FCAFC 212; (2018) 266 FCR 385 (Steward J; Greenwood and Logan JJ agreeing), in which the Full Court of this Court considered the issue of burden of proof and how a court or tribunal should determine whether that burden of proof has been discharged.

173    The Tribunal noted that one of the submissions made by the Commissioner in Cassaniti was that the taxpayer’s evidence “was insufficient” because she had failed to call any witnesses to corroborate her claims and that Steward J:

(1)    found (at 409 [88]) that:

Contending that evidence was “insufficient” in the face of three sworn affidavits of [the Commissioner], together with the exhibits attached thereto, and her answers in cross examination, may suggest that a taxpayer bears a special burden of proof. However, other than the necessity to scrutinise evidence given by the taxpayer him or herself with care, no such special burden exists. ;

(2)    then set out five propositions which his Honour derived from Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1; (1983) 70 FLR 447:

[88]    …

(1)    first, where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end. As Hunt J said in Allied Pastoral:

…if the plaintiff succeeds… in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries…

(2)    secondly, for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position;

(3)    fourthly, there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated;

(4)    fifthly, the tribunal of fact is free to accept the evidence of the taxpayer alone if it finds the taxpayer to be truthful;

(5)    finally, it would usually be prudent to corroborate the evidence of a taxpayer. It is also prudent to adduce contemporaneous objective evidence. But prudence should not be confused with the requirements of the law.

(bold and italic emphasis in original)

174    Thirdly, Bosanac v Commissioner of Taxation [2018] FCA 946, in which Stewart J highlighted the difficulty a taxpayer will have in demonstrating excessiveness without records, or a reconstruction of those records. His Honour said at [9]:

The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. Where a taxpayer fails to retain records which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness. This was the very problem which the applicant faced here.

175    The Tribunal then opined that even if there are no records available, the evidence provided orally still has to be scrutinised, citing Cassaniti at 409 [88] (T[46]).

176    The Tribunal next considered the decision of Logan J in Anglo-American and noted (at T[47] and [48]) that:

(1)    the issue of substantiation and proof of purported loans arose in that case;

(2)    there were some similarities with the matter before the Tribunal with respect to the paucity of contemporaneous and corroborating evidence;

(3)    Anglo American was concerned, among other things, with whether a taxpayer failed to establish on the balance of probabilities that purported loans were made. It was the responsibility of the taxpayer to demonstrate on the balance of probabilities that there was a loan; and

(4)    the evidence before Logan J was oral and affidavit evidence of the taxpayer. In some instances, there were no substantiating loan documents. There were also inconsistencies in the evidence given and the taxpayer’s recollection. Although Logan J noted (at [123]) that the “absence of a document”, such as a loan agreement, “evidencing, in this instance a legal relationship occasioning the indebtedness claimed … is not fatal”, it does become problematic in circumstances where there are inconsistencies in the evidence which does exist.

177    As previously noted, the Tribunal then identified the issue requiring determination as: “… does the limited contemporaneous evidence support a finding that there was a loan or does it tell against it? Is the evidence that is available consistent?”.

G.2    Question 8 and grounds 9 and 10

178    Question 8 is:

Whether the Tribunal erred when it cited authorities on onus of proof having no present application or ignored facts found by the Tribunal or evidence which warranted finding missing facts and thereby found that various deposits of money received by the applicant constituted assessable income derived by him during the 2017 income year because there were no available contemporaneous business records to establish their character as reimbursements of business expenses incurred by the applicant or as receipts for other non-assessable purposes notwithstanding the agreed fact that most of the available contemporaneous accounting records had been destroyed in a catastrophic fire which destroyed the applicant’s home on 31 December 2019?

179    The ninth and tenth grounds of appeal are:

9.    The Tribunal erred by citing authorities on onus of proof having no present application or ignoring facts found by the Tribunal or evidence which warranted finding missing facts and thereby not accepting the following uncontradicted evidence in respect of its findings on the applicant’s derivation of his 2017-income year assessable income:

(a)    that the accountants’ evidence about the applicant’s 2017-year income did rely on their first-hand review of the contemporaneous 2017-income year accounting records which were available to them during their retainer from the applicant;

(b)    that those contemporaneous accounting records had been returned to the applicant at the end of their retainer for safe-keeping as his own records; and

(c)    that those 2017-year accounting records had been destroyed in a catastrophic bushfire which destroyed the applicant’s home on 31 December 2019.

10.    The Tribunal erred when it cited authorities on onus of proof having no present application or ignored facts found by the Tribunal or evidence which warranted finding missing facts and thereby found that various deposits of money received by the applicant constituted assessable income derived by him during the 2017 income year because there were no available contemporaneous business records to establish their character as reimbursements of business expenses incurred by the applicant or as receipts for other non-assessable purposes notwithstanding the agreed fact that most of the available 2017-year contemporaneous accounting records had been destroyed in a catastrophic fire which destroyed the applicant’s home on 31 December 2019.

G.3    Consideration

180    In his written submissions, counsel for Mr Hadzic submitted that:

The relevant errors for Question 8 and Grounds 9 and 10 are, firstly, citing authorities on onus of proof in tax appeals having facts which have no application to the facts of this case, whether those facts are as found by the Tribunal or as not found because the Tribunal has ignored evidence which warranted making the necessary missing facts.

The second error in this Question and Grounds is a failure to understand the content of the applicable principles and to apply the correct content of those principles to the facts of this case, whether the facts are as found by the Tribunal or not found because the Tribunal ignored evidence which warranted finding the necessary missing facts.

181    As to the first contended error, counsel for Mr Hadzic submitted that the Tribunal erred in placing reliance upon Imperial Bottleshops because that case was distinguishable on the basis that the taxpayer in that case did not keep records, whereas in the present case Mr Hadzic did keep records, but those records were destroyed in a bushfire.

182    I accept that the facts of the present case differ from those in Imperial Bottleshops. However, that does not render irrelevant the observations of Justice Hill in that case. The basal fact is that records of the taxpayer do not exist as at the time of the hearing (regardless of the reason for the absence of those records). The difficulties identified by his Honour remain the same in either scenario.

183    This was also the basis on which the Tribunal applied Imperial Bottleshops. As noted earlier, when referring to that case, the Tribunal identified it as a case “in which Hill J pointed out the difficulties a taxpayer has when they do not have substantiating records”. That is, the cause of the absence of records is irrelevant – the difficulties exist in any event. Thus, I do not accept the submission that the Tribunal erred in placing reliance upon Imperial Bottleshops.

184    No submissions were made as to why the remaining authorities discussed by the Tribunal were irrelevant. Those authorities were plainly relevant to the task undertaken by the Tribunal and the Tribunal did not err in relying upon them. Of course those authorities concerned different factual scenarios, but this does not affect the force of the principles there set out.

185    As to the second contended error, counsel for Mr Hadzic made a number of submissions concerning the application of the principles identified by the Tribunal to its fact-finding process. Those submissions are encapsulated in the following paragraph of counsel’s written submissions in reply as follows:

In circumstances where the available business records that survived the bushfire were tendered … where the remaining records are not available for a reason that is an agreed fact and where no adverse credit finding was made against Mr Hadzic, it is an error of law to reject that body of evidence by simply applying the principle in Re Imperial: it could not apply if records of income and expenses were by maintained Mr Hadzic and his accountants.

186    I do not accept these submissions for the following reasons.

187    First, the implicit proposition that an adverse credit finding against Mr Hadzic was necessary cannot be accepted.

188    Contrary to the submissions made on behalf of Mr Hadzic, it is not a necessary condition to the non-acceptance of a witness’s evidence that the Tribunal have made an explicit assessment of the witness’s credit. As Justice Kenny stated in Nguyen v Federal Commissioner of Taxation [2018] FCA 1420; (2018) 265 FCR 355 at 399 [168], the Tribunal is not required to make an explicit “credit assessment” of each witness in order to determine whether an applicant has discharged the onus of proof under s 14ZZK(b)(i) of the TAA.

189    The evidence of a witness may not be accepted for reasons unrelated to credit. Indeed, it is sound practice that evidence be evaluated not by reference to the decision-maker’s views as to whether the witness is honest, but instead following an evaluation of that evidence both within itself (e.g., for plausibility and internal consistency) and against other evidence.

190    In the present case, the approach taken by the Tribunal was orthodox. The Tribunal set out in some detail its reasons for not accepting the evidence of Mr Hadzic, including:

(1)    the Tribunal’s view as to unsatisfactory and unrealistic nature of some of the evidence given by Mr Hadzic (e.g., T[127], [129], [131], [138], [141] to [143], [164] to [167] and [190];

(2)    the Tribunal’s view that the apparent logic of events was weighed against the acceptance of Mr Hadzic’s evidence. For example, with respect to Mr Hadzic’s assertion that the $495,000 deposits were a loan:

(a)    the absence of any evidence of the terms of repayment or of the fact of repayment (T[190], [197]), or of the discussion of these matters (T[191]);

(b)    the absence of security for the loan (T[190]), or of the discussion of this matter (T[191]);

(c)    the lack of commercial reality and inherent implausibility of the purported loan transaction (T[193] to [197]);

(3)    an unexplained lack of particularity in his evidence (T[314]);

(4)    some of the evidence that he gave was inconsistent (T[314]);

(5)    the absence of many contemporaneous documents (T[40], [186] and [202]); and

(6)    the absence of corroboration of the evidence of Mr Hadzic from any person able to give first-hand evidence, including, with respect to the claim that the $495,000 deposits were a loan, Mr Waters and the former manager of Waters Company (T[186], [192]).

191    Secondly, the Tribunal did not reject the evidence by a simple application of Imperial Bottleshops (which I take to be a submission that the taxpayer failed because of an absence of contemporaneous evidence). As noted above, the Tribunal posed the following questions: “… does the limited contemporaneous evidence support a finding that there was a loan or does it tell against it? Is the evidence that is available consistent?”. The Tribunal’s analysis addressed those questions in detail and with nuance. The approach taken by the Tribunal in posing those questions and in assessing the evidence before it was well-open to it and does not bespeak error.

192    The appeal, insofar as it is based upon question 8, must be dismissed.

H.    QUESTION 9 – THE SUBPOENA SUBMISSION AND LEGAL PROFESSIONAL PRIVILEGE

193    I turn now to question 9, which concerns the Tribunal’s treatment of the issue of legal professional privilege over the Subpoena Submission, and the related question of waiver.

H.1    The Tribunal’s reasoning

194    After setting out (at T[63] to [83]) the history of the Subpoena Submission (see B.2 above), the Tribunal addressed the issue of whether that document was covered by legal professional privilege as follows:

84.    The issue concerns whether the [Subpoena Submission] is subject to legal professional privilege and, if it is, whether that privilege has been waived.

85.    Dr Dwyer, solicitor for [Mr Hadzic] in this proceeding, states that the insertion of the document into the Tribunal Bundle was “inadvertent and under a mistaken belief that it had been produced to the Federal Court”.

86.    The [Subpoena Submission] is purportedly an explanatory document to be read in conjunction with documents prepared in answer to the Subpoena.

87.    The [Subpoena Submission] was not filed in the Federal Court, although was made available to [the Commissioner] in the course of the preparation for this proceeding.

88.    For legal professional privilege to apply to a document, it must have been produced for the dominant purpose of obtaining legal advice or using it as an aid in the conduct of litigation. The document was prepared for the purpose of the Federal Court Proceeding, If it attracts litigation privilege. (sic)

89.    Litigation privilege is a category of legal professional privilege intended to protect and facilitate the litigation process.

90.    [The Commissioner] accepted, for the purposes of responding to the legal professional privilege claim, that the [Subpoena Submission] was likely a communication to which privilege attaches.

91.    The difficulty in determining whether legal professional privilege has been waived arises as a result of a number of different factors. First, [Mr Hadzic] essentially has abandoned the document, or rather, has not adopted it. In a statement filed addressing this issue he says as far as he was aware the [Subpoena Submission] was prepared by his father on his behalf because he was unable to provide instructions to a solicitor at the time. He says he did not read, approve or sign the witness statement and that it does not contain a completely full or precise account of the events and transactions referred to therein. He also says he did not discuss the terms of the [Subpoena Submission] with his father.

92.    [The Commissioner] contended that privilege had been waived.

93.    [Mr Hadzic] says he never approved the [Subpoena Submission]. [Mr Hadzic Snr] says the statement was not prepared with [Mr Hadzic’s] instructions. [Mr Hadzic Snr] states “I drafted [the document] alone without prior consultation with [Mr Hadzic]”. The [Subpoena Submission] was not produced at the request of [Mr Hadzic’s] lawyer.

94.    It was unnecessary for the Tribunal to refer to [Subpoena Submission] or to the evidence that was given in cross-examination regarding [Subpoena Submission] in coming to the correct and preferable decision.

95.    In these circumstances the Tribunal has determined it is unnecessary for it to determine whether the [Subpoena Submission] is a subject of legal professional privilege, and whether that privilege has been waived. The Tribunal is concerned about its lack of probative value.

(italic emphasis in original; footnotes omitted)

H.2    Question 9 and ground 11

195    Question 9 is:

Whether the Tribunal erred (at TD [95]) when it found that it was unnecessary to determine, firstly, the applicant’s verified claim of legal professional privilege over the applicant’s “Subpoena Submission” documents (as defined in TB [64]), and, secondly, the respondent’s claim that any such privilege has been waived by the applicant, on the ground that the Tribunal is [only] concerned about the lack of probative value of the Subpoena Submission documents, to which the Tribunal impliedly had regard in its decision-making where the documents were found by the Tribunal to be probative?

196    Ground 11 is:

The Tribunal erred (at TD [95]) when it found that it was unnecessary to determine, firstly, the applicant's claim of legal professional privilege over the applicant's "Subpoena Submission" documents (as defined in TB [64]), and, secondly, the respondent's claim that any such privilege has been waived by the applicant, on the ground that the Tribunal is [only] concerned about the lack of probative value of the Subpoena Submission documents, to which the Tribunal impliedly had regard in making its decision wherever the Tribunal found the documents to be probative.

H.3    Consideration

197    This ground involves the interpretation or construction of aspects of the Tribunal’s decision, and in particular T[84] to [95], which are set out at [194] above.

198    The approach to be taken in construing the reasons of an administrative decision-maker, such as the Tribunal, is described at [86] to [90] above. Fairly read, T[84] to [95] disclose that the Tribunal:

(1)    noted that the Commissioner accepted that the Subpoena Submission was likely a communication to which legal professional privilege attached;

(2)    accepted the evidence of Mr Hadzic and Mr Hadzic Snr that the Subpoena Submission was:

(a)    prepared by Mr Hadzic Snr;

(b)    not read, approved or signed by Mr Hadzic;

(c)    not the subject of discussion or communication between Mr Hadzic and Mr Hadzic Snr;

(d)    not prepared with Mr Hadzic’s instructions;

(3)    decided that, as a result, the Subpoena Submission (and the cross-examination related to it) lacked sufficient probative value to be taken into account by the Tribunal in reaching the correct and preferable decision; and

(4)    decided that, it was therefore unnecessary to determine the questions whether: (a) legal professional privilege applied; and (b) if so, it had been waived.

199    I will refer to the Subpoena Submission and the cross-examination related to it as the impugned evidence.

200    Counsel for Mr Hadzic made various submissions in support of this question.

201    Counsel submitted that there was no basis upon which to find that the impugned evidence was not probative; and that the impugned evidence must have been probative because there was a claim for legal professional privilege and a counter-claim of waiver.

202    I do not accept this submission. There is no necessary relationship between the probative value of evidence on the one hand and the existence of a claim of privilege over it on the other.

203    Further, in the present case, the lack of probative value became apparent during the argument concerning the claim of legal professional privilege, when, as the Tribunal accepted, the evidence of Mr Hadzic and Mr Hadzic Snr was that Mr Hadzic was not involved in the preparation of the Subpoena Submission.

204    Counsel for Mr Hadzic also submitted that the Tribunal erred because it was required to determine the privilege and waiver questions and it failed to do so. I do not accept this submission. Further, no authority was cited for the proposition that any claim for privilege must be determined, regardless of the utility of doing so.

205    The conclusion that it was unnecessary to determine these questions once the impugned evidence was found to lack sufficient probative value to be taken into account is, with respect, obvious, when the possible outcomes of such a determination were either:

(1)    the impugned evidence was (and remained) protected by legal professional privilege and thus would not be taken into account; or

(2)    the impugned evidence was not (or was no longer by dint of waiver) protected by legal professional privilege, with the result that it could be taken into account, but would not be taken into account because it lacked sufficient probative value.

206    As the outcome would have been the same – i.e. the impugned evidence would not have been taken into account – it was unnecessary for the Tribunal to determine the privilege and waiver questions.

207    Counsel for Mr Hadzic also submitted that the Tribunal took the impugned evidence into account despite its finding that the impugned evidence was not probative.

208    The notion that the Tribunal took the impugned evidence into account is expressed in various ways:

(1)    question 9 and ground 11 assert that “the Tribunal impliedly had regard” to the impugned evidence: (a) “in its decision-making where the documents were found by the Tribunal to be probative” (question 9); or (b) in making its decision wherever the Tribunal found the documents to be probative (ground 11);

(2)    the written submissions on behalf of Mr Hadzic refer to:

(a)    there being “no way of knowing what weight the Tribunal gave this material [the Subpoena Submission] in rejecting the evidence of Mr Hadzic on onus of proof grounds”;

(b)    the Tribunal having “made no positive decision not to refer to evidence elicited in cross-examination about [the Subpoena Submission]”;

(3)    in oral submissions, counsel for Mr Hadzic submitted:

(a)    “… when you look at the reasons here, there’s nothing to suggest that [the Subpoena Submission] was excluded”;

(b)    

And then, when we get to the conclusory findings, that’s 94 and the 95, it was unnecessary for the tribunal to refer to the subpoena submission or to the evidence that was given in cross-examination regarding the subpoena submission in coming to the correct and preferable decision. Well, that doesn’t say, “I hadn’t had regard to it,” that just says it’s unnecessary. ; and

(4)    in submissions filed after the hearing of the appeal counsel for Mr Hadzic submitted that “there is a distinct possibility that the privileged documents were indeed relied upon without disclosure to determine the character of the $495,000 advance, despite the finding in the [Tribunal’s Decision] that there was no need to determine privilege because the privileged documents lacked probity as to the character of $495,000 advance”.

209    That notion finds no support on any fair construction of the Tribunal’s Decision, for the following reasons.

210    First, the Tribunal stated that it was unnecessary to refer to the impugned evidence. I see no reason to call into question this statement. It follows that the Tribunal did not have regard to the impugned evidence for the purposes of making its determination.

211    Secondly, and relatedly, counsel for Mr Hadzic has not pointed to any part of the Tribunal’s Decision from which it ought be inferred that the Tribunal did take such evidence into account.

212    Counsel for Mr Hadzic also placed reliance upon a statement made by the senior member during the course of argument concerning privilege and waiver:

I suppose the other question I have is practically how do we proceed from here to what other documents are in this book that you are now saying should not have gone into the Tribunal Book ...

and submitted that the Tribunal was obliged to answer this question and erred in law in failing to do so.

213    This proposition forms no part of the question of law posed by question 9. In any event, it is incorrect. There is no obligation upon a Tribunal to answer every question that a member of that Tribunal poses during the course of argument. Such a proposition need only be stated to be rejected.

214    For the reasons set out above the appeal, in so far as it relates to question 9 must be dismissed.

I.    QUESTIONS 1 TO 4 – THE $495,000 DEPOSITS

215    I turn next to the questions which relate to the Tribunal’s conclusion at T[198] that it was not satisfied that the $495,000 deposits were made as a loan.

I.1    The Tribunal’s reasoning

216    The Tribunal summarised the issue to be determined as follows:

96.    [The Commissioner], through its NOAs, contends that the $495,000 deposits are properly characterised as income.

97.    To demonstrate that the NOA are excessive, [Mr Hadzic] says the $495,000 were not income but were loans.

98.    To determine whether an amount has the character of income, the Full Federal Court in Richard Walter Pty Ltd v Commissioner of Taxation [1996] FCA 454; 67 FCR 243 held that:

…it is necessary to look at that amount and determine its character in the hands of the taxpayer.

99.    The amount of $495,000 was deposited into the Trust’s bank account by [Mrs Waters], as set out in Annexure B. This is not in dispute.

100.    The question is whether this was a loan or income.

217    The Tribunal then considered, at some length, the evidence relevant to the issue of whether the $495,000 deposits were a loan or income in the hands of Mr Hadzic.

218    It started with the following summary of undisputed facts:

101.    [Mr Hadzic] is a licenced electrician.

102.    During the 2017 year, [Mr Hadzic] was employed by his employer. Previously, and herein referred to as “the employer” as an electrical contractor.

103.    The employer was deregistered on 21 August 2019 after going into liquidation in June 2018.

104.    During the 2017 financial year:

104.1.    [Mr Hadzic] had four bank accounts;

104.2.    [Mr Hadzic] received the deposits set out in Annexure A into his bank accounts;

104.3.    The Company operated the Trust’s bank account;

104.4.    Deposits were made into the Trust’s bank accounts from [Mr Waters’s] wife and the employer (see Annexure B);

104.5.    Amounts were transferred from the Trust bank account to the employer (see Annexure B).

105.    The Company’s bank account was closed on 24 November 2017.

106.    [Mr Waters], who is not a party to this proceeding, was, at all relevant times, a director of [Waters Company] which was in the residential home construction business.

107.    In or around 2014 [Waters Company] constructed a residential home in Canberra (referred to as the “Property”). A family, hereinafter referred to as the “M Family” purchased the Property for $2,400,000 in April 2015.

108.    “Mrs M” of the M Family provided a statutory declaration on behalf of [Mr Hadzic] which was unchallenged. Mrs M’s evidence is that:

108.1.    shortly after taking possession of the Property the M Family discovered that there were many problems with the home. For example, the height of a balcony was not built to code, the pool had not been approved, the underfloor heating did not work, there were many issues with external drainages, and so on;

108.2.    the Property “was the worst built house in history”;

108.3.    an independent building surveyor, Mr Tony Gray was engaged to conduct a detailed assessment of the Property.

109.    In June 2016 Mr Gray set out the extensive defects and repairs required to the Property in a building report. Mr Gray reported that the rectification works would be ‘very costly’ and ‘time-consuming’.

110.    In or around mid-2016 the M Family, complained to [Mr Waters] about the significant number of defects in the Property.

111.    Mrs M says:

111.1.    at first [Mr Waters] would send workers to fix various issues, including [Mr Hadzic], but they came to a point where [Mr Waters] said he was not paying for any more rectification works;

111.2.    [Mr Hadzic] spent months and months fixing things before [Mr Waters] refused to assist any further;

111.3.    the M Family told [Mr Waters] that if he did not buy the Property back they would take him to Court;

111.4.    [Mr Hadzic] said to Mrs M words to the effect of “I am thinking of selling my house and buying this house from you and living in it while I fix it”;

111.5.    Mrs M told [Mr Hadzic] words to the effect of “You are crazy, that is the dumbest thing you could do, do not get involved”.

111.6.    the sale was initially meant to occur in October 2016;

111.7.    the Property was sold to the Company in April 2017;

111.8.    her understanding was that [Mr Hadzic] was to purchase the property with [Mr Waters];

111.9.    [Mr Hadzic] moved in as a tenant and paid rent until settlement.

112.    The basis of Mrs M’s understanding of arrangements between [Mr Hadzic], [Mr Waters] and the Company is not explained. She has no direct knowledge of the arrangements.

(italic and bold emphasis in original; footnotes omitted)

219    The Tribunal then turned to Mr Hadzic’s evidence and noted that in a written statement, Mr Hadzic stated that:

(1)    he had known Mr Waters for 13 years;

(2)    the Company and Trust were set up solely to purchase the Property;

(3)    his arrangements with respect to the purchase of the Property with Mr Waters were verbal and undocumented;

(4)    the liquidator of the Trust had accepted the deposits were loans to Mr Hadzic to fund the Trust to purchase the Property;

(5)    the money from Mr Waters’s wife was not paid to him for services rendered; and

(6)    the Trust conducted no income producing activity (T[113]).

220    The Tribunal then set out the following extract from Mr Hadzic’s second statement (T[114]):

4.    It is therefore absurd that the ATO has included a loan to me from [Mr Waters] as income of the Trust. That loan money of $495,000 was paid in instalments (all marked “TW”), directly at my request, into the bank account of the Trust. I wanted that done as the sole director of the trustee, since it was urgently needed to meet settlement of the purchase. The moneys came from the account of [Mrs Waters]. I do not know whether the transfers were actually made by [Mr Waters] or [Mrs Waters] but the payments were certainly not made in return for anything the Trust had done for either of them. The $495,000 was simply a borrowing by me personally from [Mr Waters] who had been unable to contribute as fully to the projects as first intended but made this loan to me instead. There was no interest on the loan since we had had dealings on projects over the years and this was being done as much as a favour to help him keep his builder’s licence as much as anything else.

5.    It is even more disgusting that the ATO has counted this amount of $495,000 as income of the Trust when the same ATO on 29 March 2018 sought, obtained, and now maintains in place a freezing order from the Federal Court over the house and the proceeds of its sale by claiming to the Court that the $495,000 represents equity in house held by the Trust on resulting trust for [Mrs Waters]. That amount was, as I have explained, a loan from [Mrs Waters] to me and the ATO is just completely wrong as well as contradicting itself as to what the $495,000 represents.

221    The Tribunal noted (at T[115]) Mr Hadzic’s evidence that:

(1)    his proposal was to move into the Property and to live there while carrying out the “major undertaking”;

(2)    at this time he was working full-time with Futureproof earning approximately $240,000; and

(3)    he did the rectification work in his private time.

222    Under the heading “The Joint Venture Proposal” the Tribunal then noted Mr Hadzic’s evidence that:

(1)    Mr Waters asked him if he would project manage the rectification work at the Property;

(2)    at the time Mr Waters made this request he was in Dubai. Mr Waters had been out of Australia since May 2016. Mr Waters arranged for Mr Hadzic to travel to Dubai in July 2016 to discuss his proposal for the Property;

(3)    Mr Waters told Mr Hadzic that he was concerned about losing his builder’s licence because of the M Family’s complaints;

(4)    Mr Hadzic and Mr Waters determined that the best way to protect Mr Waters’s building licence was to buy the Property back from the M Family and to rectify the Property. The rectification work “was likely to be a major undertaking carrying considerable costs”. During cross-examination Mr Hadzic agreed that initially Mr Waters wanted to engage Mr Hadzic as a contractor;

(5)    Mr Hadzic agreed to enter into a joint venture with Mr Waters. The intention was that the joint venture would offer to buy the Property, Mr Hadzic and Mr Waters would rectify the house at shared expense, and they would then sell the Property equally sharing in the profits; and

(6)    as a result of discussions with Mr Waters, Waters Company’s accountants and the general manager of Waters Company, it was agreed that the joint venture would be operated by a company acting as a trustee of a unit trust. (The Tribunal noted that the contents of these discussions were not particularised and it was not known who contributed to the cost of establishing the Company and the Trust (T[116] to [118])).

223    The Tribunal then recorded, under the heading “Incorporation of Company/Establishment of Trust”, that:

(1)    on 14 September 2016, the Company was incorporated, Mr Hadzic became a director and an equal shareholder with Mr Waters in the Company, and the Trust was established as a unit trust on the same day the Company was incorporated (T[119]);

(2)    the Company was the trustee of the Trust. Mr Hadzic and Mr Waters were unit holders in the Trust. The Trust Deed provided that unit holders would receive the distribution of income from the Trust in proportion to their unit holdings (T[120]); and

(3)    Mr Hadzic negotiated a purchase price of $2,400,000 with the M Family. The Property was purchased by the Company. Settlement was due on 24 March 2017 (T[121]).

224    The next events were described by the Tribunal under the heading “Cracks Emerge”.

225    The Tribunal recorded that:

(1)    Mr Hadzic gave evidence that initially he was meant to move into the Property as a tenant of the M Family just while finances were settled. However, within a matter of weeks of coming to the original joint venture arrangement, Mr Waters was having difficulty contributing his share of the purchase price (T[122]);

(2)    what the difficulty was or the particulars of it, or how this difficulty was communicated to Mr Hadzic was not explained to the Tribunal (T[123]);

(3)    despite this difficulty at the beginning of the proposed joint venture, Mr Hadzic acted as if the joint venture would continue (T[124]);

(4)    Mr Hadzic ended up residing in the Property as a tenant of the M Family from 9 December 2016 to 7 May 2017 (T[124]);

(5)    Mr Hadzic continued with the settlement of the Property purchase, which was pushed out until May 2017. Mr Hadzic says the Company purchased the Property on trust for the Trust (T[124]);

(6)    Mr Hadzic arranged for his family home to be sold (although this did not occur until after settlement of the Property) in July 2017 in order to assist with the purchase of the Property (T[125]); and

(7)    Mr Waters was not contributing to the rectification costs and share of the mortgage cost. The rectification works were more extensive than Mr Hadzic had originally anticipated (T[126]). (The Tribunal noted that Mr Hadzic provided no evidence of what rectification works or costs he had already spent on the Property at this time, and the more extensive works were not particularised (T[126]).)

226    The Tribunal then expressed the following views:

127.    [Mr Hadzic’s] miscalculation of the extent of rectification works required is surprising given that he had already been working on the Property for months, (as deposed by Mrs M). It would be expected that he know the extent of the rectification works given the following:

127.1.    He had read Mr Gray’s report which described the rectification works as “enormous and costly”;

127.2.    the issue was so significant he was flown all the way to Dubai to discuss how to help [Mr Waters] with the problem;

127.3.    the ramifications were so significant for [Mr Waters] that [Mr Hadzic] proposed a [joint venture], which involved incorporating and establishing a company and trust, to solve the issue.

127.4.    Mr Hadzic acknowledged at the hearing that he had been aware of problems since August 2016 and that he had seen Mr Gray’s report.

(italic emphasis in original; footnote omitted)

227    Under the heading “The New Arrangement” the Tribunal recorded that Mr Hadzic gave evidence that as a result of Mr Waters’s financial difficulties, a new arrangement was agreed.

228    The Tribunal set out the following extract from Mr Hadzic’s written evidence (T[128]):

30.    As a result of the difficulties I was having getting [Mr Waters] to contribute to the costs of rectification and funding for his share of the ongoing costs and in maintaining the mortgage, I felt that [Mr Waters’s] financial difficulties were placing this project at serious risk. I therefore sought and gained his verbal agreement that I be the only shareholder in both the [Company] and [Trust] … and that I work towards rectification.

31.    [Mr Waters] agreed to give up any holdings or claims to the [Company] and [Trust] and to assist the best he could with an interest free loan to enable the completion of the project. I sent the required forms regarding the trust and company to [Mr Waters] for his signature 20 October 2016.

32.    I had not received the signed forms back by late December 2016. After discussing it with [Mr Waters] on a number of occasions, [Mr Waters] advised that [Waters Company’s] General Manager … was to meet with him in Dubai, late December 2016 or January 2017 and he would send the signed forms back with ...

33.    On his return to Australia, I met with … and he gave me an envelope that contained a copy of the signed “Transfer Form for Non-Market Transactions” for both the Trust and the Company.

229    The Tribunal noted that these “difficulties”, and how Mr Hadzic became aware of them, were not particularised in any of the evidence given by Mr Hadzic (T[129]). The Tribunal then recorded Mr Hadzic’s evidence that despite the difficulties, he and Mr Waters agreed that Mr Hadzic would be sole shareholder and unit-holder and that he would complete all the Property’s rectification work on his own (T[129]).

230    The Tribunal noted that it had not been informed how this “verbal” arrangement came about given that Mr Hadzic said he was unable to contact Mr Hadzic; and that if the new arrangement was negotiated and agreed via Waters Company’s general manager, this was not particularised or explained in any detail in the evidence before the Tribunal.

231    The Tribunal then asked rhetorically (T[129]):

If, as [Mr Hadzic] declared, he agreed to enter the [joint venture] so that the M Family would not sue [Mr Waters], why did he continue with the purchase of a significantly defective property when [Mr Waters] was no longer interested? Why was [Mr Waters] suddenly not interested in losing his business licence? This is not explained. The communications, whether they be oral, text messages, social media messages or emails, between [Mr Waters], [Mr Hadzic] and/or [Waters Company’s] general manager are not before the Tribunal. Nor is there any explanation for why that evidence is not before the Tribunal.

232    Under the heading “Implementing the New Arrangement”, the Tribunal recorded that during cross-examination Mr Hadzic said that: (1) he sent share and unit transfer forms to Mr Waters; he could not recall if he sent emails to Mr Waters; and (2) (later) the forms were sent by post (T[130]).

233    The Tribunal then set out the following extract from the cross-examination of Mr Hadzic:

And you say that you sent the required forms regarding the trusts and the company to [Mr Waters] for his signature - 20 October?

---Yes.

And that email is not in evidence is it?

---It wasn’t by email. I believe it was posted.

And that letter’s not in evidence is it?

---I think it may be - I think it might be in my chronology. Signed share transfers [Mr Hadzic] 2-7 I believe it is. You would have to talk to the lawyers about that, sir.

Well, no. You’ve just said that you sent him a letter?

---No, no, no. He was given documentation. I handed over documentation to [Waters Company’s general manager] to take … to Dubai. [Waters Company’s general manager] went to Dubai to deal with a whole bunch of other business stuff and he was told that I needed that letter straight away. I needed those documents signed.

No. Just if I could direct you back to the last sentence of 31.

I sent the required forms regarding the trust and company to [Mr Waters] for his signature on 20 October 2016.

?

---Yes, I did.

By letter you say?

---I can’t recall whether it was by letter. I’m pretty sure it was handed to [Mr Waters Company general manager] to take. But it wasn’t elected.

I am asking you about on 20 October 2016 your evidence that you sent these forms to [Mr Waters]?

---Yes. They were sent for his signature. Yes.

By letter or by email by you?

---I don’t recall. It’s 20 October 2016.

And that email isn’t in evidence or that letter isn’t in evidence?

---I don’t believe it was an email. I am - I handed the documents to [Mr Waters Company general manager] to take to [Mr Waters]. That’s my recollection.

And you had Simon Oliver create those documents for you?

---Yes. I believe so.

And that request to Mr Oliver isn’t in evidence is it?

---It was in person - sorry, what do you mean in evidence? Like is there - what are you asking, sorry, sir?

Well, these forms weren’t created by you, were they?

---No, of course no.

No. So you had to get someone to create them for you?

---Yes.

But the details of that aren’t in evidence are they?

---They don’t appear to be. No.

And I put it to you it’s because those emails or correspondence disclose arrangements that you haven’t disclosed in your evidence here?

---I completely disagree with that.

(bold emphasis in original)

234    The Tribunal then expressed the view that: “[Mr Hadzic’s] evidence regarding when the ‘Transfer Documents’ were returned to [Mr Hadzic] was confusing, vague or inconsistent evidence”. (T[131]).

235    The Tribunal next referred to the following passage of the cross-examination of Mr Hadzic:

And so by December of 2016 you haven’t received the forms back from [Mr Waters]?

---No. They travelled with [Mr Waters Company general manager] to Dubai and I don’t believe [Mr Waters Company general manager] returned from Dubai until early January 2017 with the forms - - -

Yes, but - - -?

---Sorry?

by late 2016 you hadn’t received the forms back?

---No.

So you had no written agreement from [Mr Waters] that he was transferring control to you?

---Everything I did with [Mr Waters] was verbal gentlemen’s agreements. That’s how the building industry works, sir.

No. We’re talking about the written agreements you sent to him for his signature?

---Yes.

You hadn’t received these back by December 2016, had you?

---I don’t believe so. I think I have received them in January.

…

And so when you sent the forms to [Mr Waters] on 20 October 2016?

---They were sent - they were sent to the [Mr Waters Company] office which was run by [Mr Waters Company general manager],…….

But that’s not in evidence is it, sir?

---I’m not following your line of questioning, sorry. You’re asking me to give specifics on exactly what I did. I have told you that the documents were given to [Mr Waters Company general manager] and he took them to Dubai and brought them back with him. At this point I had very little to do with [Mr Waters]. I was dealing primarily with [general manager of Mr Waters Company].

You say at 31:

I sent the required forms regarding the trust and company to [Mr Waters] for his signature of 20 October 2016.

?

---Yes.

You don’t say there that you sent them to [Mr Waters Company]. Do you?

---But I don’t say - but I don’t say I didn’t either.

No. But you don’t say that you do, do you sir?

---Where are you asking me where I sent the documents, sorry? I’m getting a little bit - - -

Your evidence is that you sent the required forms regarding the trust and company to [Mr Waters] for his signature?

---Yes.

On 20 October 2016?

---Yes.

And your evidence now is they were sent to [Mr Waters Company general manager] to [Mr Waters Company] for [Mr Waters]?

---No. I am saying I don’t recall. You asked me if I emailed them or if I phone called them or if I sent them with [Mr Waters Company general manager]. I am saying I don’t recall. What I said - - -

But you - - -?

---was [Mr Waters Company general manager] returned them to me in early January.

After the letters and the correspondence were sent on 20 October 2016 you followed up with [Mr Waters]?

---I followed up constantly with [Mr Waters Company general manager] as [Mr Waters] was uncontactable.

The man that was going to provide the loans to you?

---Yes. Everything was spoken to through [Mr Waters Company general manager].

(bold emphasis in original)

236    The Tribunal next noted:

(1)    the evidence of Mr Oliver, who had established the Company and Trust, that on 20 June 2017 at 9:56pm he emailed the share and unit transfer forms to Mr Hadzic and requested he have Mr Waters execute them and return them in order to reflect the change in shareholding (T[132]);

(2)    that Mr Hadzic agreed this was when Mr Oliver emailed the transfer documents (T[132]);

(3)    the transfer form purports to reflect a transfer of 100 units from Mr Waters to Mr Hadzic on 21 October 2016 (T[133]);

(4)    the transfer form for the transfer of shares was purportedly signed by Mr Waters on 20 June 2017 being the same date that Mr Oliver says he sent the forms to Mr Hadzic (T[133]);

(5)    that at the hearing Mr Oliver told the Tribunal he had populated the transfer forms with the relevant details including the execution date (T[133]);

(6)    the email exchange between Mr Oliver and Mr Hadzic indicated that Mr Hadzic responded to Mr Oliver’s email on the same day it was received at 10:48pm and that the share transfer form executed by both Mr Hadzic and Mr Waters has a typed date of 20 June 2017, which the Tribunal considered supported an inference that Mr Waters signed the share transfer form on the date it was received by Mr Hadzic, on 20 June 2017 (T[134]);

(7)    when this was put to Mr Hadzic he said, “I have no idea when he signed it”;

(8)    Mr Oliver’s evidence contradicted Mr Hadzic’s evidence as to when he says he gave the documents. Mr Oliver says he did not transfer them to Mr Hadzic until eight months after Mr Hadzic says he gave them to Mr Waters (T[135]);

(9)    Mr Oliver’s second statutory declaration reiterated a lot of what was said in the initial statement but with more direct/confirmatory language. For example, in the first statement Mr Oliver said: “it was not clear whether the intention was to retain or resell the [Property]”. In the second statement he said: “I was told [the purpose of the Trust] was to purchase the [Property] for [Mr Hadzic] to live in and fix any faults” (T[136]);

(10)    there was no information regarding who informed Mr Oliver of this or corrected his lack of understanding in his initial statement (T[136]); and

(11)    in his second statement Mr Oliver provided new information that mortgage and rates in relation to the property were paid by Mr Hadzic as were repairs and that there was no documentation provided therefore it was not included in the account preparation (T[136]).

237    Under the heading “Why did [Mr Hadzic] continue with the purchase”, the Tribunal set out the following passage of Mr Hadzic’s cross-examination:

When the person that is going to make loan funding available to you becomes totally unavailable you don’t decide to pull out of the project?

---No. I had no reason. I have been dealing with the man for many years. I watched him build many beautiful homes. I believe that he was a man of his word at that point. Yes.

Well, he’s reneged on his promises as of 20 October hasn’t he?

---He had - it’s not that he’s reneged. It’s I have no longer felt comfortable doing this project with him. I wanted to do it on my own.

Because he - you felt because he couldn’t make funding available?

---I felt that he couldn’t make $1.2 million which was the half price of the 2.4 available. Yes. I’d also - I was watching things in his company that were of concern to me. I wanted - it wasn’t about the money. It was I didn’t want to have - I wanted to do it on my own and do it properly. I wanted to make a profit for my family.

Well, I put it to you that you would have been sending multiple - I withdraw that. I put it to you that you would have been having multiple communications with [Mr Waters] at this time?

---I was attempting to and running into messages being passed through [Mr Waters Company general manager].

And you don’t give any evidence of that at 31, do you?

---No. I don’t at 31, sir.

(bold emphasis in original)

238    The Tribunal then: (1) noted that Mr Hadzic did not elaborate on what things he was watching in Waters Company that were causing him concern; and (2) expressed the view that there was also no satisfactory explanation from Mr Hadzic as to why, when he had such concerns, he would borrow money from Mr Waters (T[138]).

239    The Tribunal recorded that Mr Hadzic denied having any direct communications with Mr Waters (T[139]).

240    The Tribunal also recorded that it was put to Mr Hadzic that the only reason he would be willing to continue with the project was because there were some other arrangements with Mr Waters which he had not described; and that Mr Hadzic said that he “completely disagreed with that” (T[140]).

241    The Tribunal then expressed the following views at T[141] to [143]:

141.    It seems extremely risky financially to continue with the offer to the M Family, sell your family home, move in to the Property and be paying rent, when [Mr Hadzic] had not received executed Transfer Forms nor any money from [Mr Waters]. It begs the question whether some other sort of arrangement was in place in which [Mr Hadzic] was confident of payment. In [Mr Hadzic’s] own words, he was in “knee deep” by this time. The first deposit of the “loan” from [Mrs Waters] was not made until 31 March 2017.

142.    Since at least 14 September 2017 [Mr Hadzic] has been the sole director and shareholder of the Company and sole unit holder of the Trust.

143.    Despite [Mr Waters] not contributing financially (as per the original terms of the [joint venture]), [Mr Hadzic] told the Tribunal he wanted to continue with the project and that he had given undertakings to the M Family that he would do so. Mrs M’s evidence did not make any mention of undertakings or that she would have required [Mr Hadzic] to continue with the purchase. In fact, Mrs M’s evidence was that she told him not to get involved. There is no mention of any “undertaking” having been given in any of [Mr Hadzic] written statements. No explanation was given for why he needed to continue utilising the trust and company structure given that the [joint venture] was not proceeding either.

(italic emphasis in original; footnotes omitted)

242    Against the above background, the Tribunal turned to address Mr Hadzic’s contention that the $495,000 deposits were provided by Mr Waters as a loan.

243    Under the heading “Loan from [Mr Waters]”, the Tribunal recorded Mr Hadzic’s evidence that:

(1)    despite withdrawing from the joint venture, Mr Hadzic said that Mr Waters agreed to assist Mr Hadzic by giving him an interest free loan (T[144]); and

(2)    Mr Waters agreed on or about 17 February 2017 to provide Mr Hadzic with an interest free loan for $495,000 (T[145]).

244    The Tribunal then recorded that:

(1)    between 31 March 2017 to 5 April 2017 four payments of $100,000 and one payment of $95,000 were transferred from Mr Waters’s wife to the Trust’s bank account; and

(2)    the transfers were noted in Mr Hadzic’s account as “TW” (T[146]).

245    After noting (T[147] to [150]):

(1)    the commencement of the Commissioner’s proceeding in 2018 and the relief sought in that proceeding against Mr Waters and the Company;

(2)    that Mr Waters had been extradited to Australia in January 2019;

(3)    the Commissioner’s agreement to the Property being sold and the sale of the Property in October 2018 for $2,650,000 (with the proceeds held in escrow); and

(4)    the appointment of the liquidators to Waters Company,

the Tribunal noted that in August 2021 Mrs Waters commenced the District Court proceeding, claiming that she lent $495,000 to Mr Hadzic, through deposits made into the Trust’s account, which Mr Hadzic agreed to repay within six months, and which remained unpaid (T[151]).

246    The Tribunal then addressed the evidence of various witnesses.

247    As to the evidence of Ms Byrne, Mr Hadzic’s wife, the Tribunal:

(1)    recorded her evidence that:

(a)    she was aware of a loan arrangement between Mr Hadzic and Mr Waters; and

(b)    to the best of her knowledge the loan arrangement was between Mr Hadzic and Mr Waters, not Mr Waters’s wife (T[153]); and

(2)    then expressed the view that Ms Byrne had no direct knowledge of any of the relevant matters; her evidence was based upon what Mr Hadzic told her; and her evidence was of little probative value (T[154]).

248    As to the evidence of Mr Oliver, the Tribunal noted that Mr Oliver had known Mr Hadzic for approximately 11 years and had provided accountancy services to him between 2015 and 2018 (T[155]) and that, at the hearing, Mr Oliver confirmed that he attended to the formation of the Trust, prepared financial statements, and taxation returns up to 2019 (T[156]).

249    The Tribunal then recorded (T[157] to [161]) that Mr Oliver’s evidence was that:

(1)    he was engaged by Mr Hadzic to assist with establishing the Company and the Trust to purchase the Property;

(2)    he was told that the Company and Trust were set up solely to purchase the Property;

(3)    it was not clear whether the intention was to retain or resell the Property;

(4)    the Company and the Trust engaged in no other activities;

(5)    as far as Mr Oliver could observe, the only moneys coming in were capital injections to effect the purchase of the Property;

(6)    only a small amount of bank interest was earned by the Trust in the 2017 year;

(7)    he was not advised until May 2017 to prepare documentation for the resignation of Mr Waters as a director and shareholder of the Company and to transfer Mr Waters’s units in the Trust;

(8)    he thought Mr Waters had contacted him to advise that he was selling the units and no longer participating in the transaction but that he could not recall whether this was via email or telephone. He later said he was “pretty sure - look, I can’t swear hundred percent but I’m pretty sure I got the instructions from [Mr Waters] to resign himself as the director and transfer the shares and units to [Mr Hadzic]”;

(9)    he had populated the share transfer form and unit trust transfer form and added the “asserted typed date”; and

(10)    he was not privy to any discussions between Mr Hadzic and Mr Waters (T[160] to [161]).

250    The Tribunal then set out the following passage from the cross-examination of Mr Oliver concerning the $495,000 deposits (T[162]):

Insofar as the objection related to the assessment of the 495,000 that was provided by [Mrs Waters] to [the Trust], did you prepare the objection based on your own first-hand knowledge of that transaction, or did you rely on what ZSCM told you?

---I prepared it based on the bank statements that I’d been provided by ZSCM and it clearly showed a deposit from [Mrs Waters]. The other query I had was the deposit money that was paid, I think five or 10 per cent deposit for the [Property]. I believed that came from [Mr Waters’] legal advisers trust account, but I didn’t have an answer from anyone in relation to that. I was aware that - that [Mr Hadzic] was selling his - I think he had two properties in Weston Creek, and I think he’d sold one and the other one was being sold. It was my understanding that he didn’t have a spare $140,000 or whatever it was to pay that deposit, so I presumed that was paid by [Mr Waters]. I reflected that money plus the 495 from [Mrs Waters], as a loan to- from them to [the Trust]. That was the original draft of the accounts, which I believe to be correct. I had some contact with [Mr Waters] in another matter. I’ve been his accountant for a long time with a short break but I was advised by, I think [Mr Hadzic’s father] was present with ZSCM, and I was advised to change those accounts, that that was actually a loan made by [Mrs Waters] to [Mr Hadzic], which differed from what my understanding of the transaction was, but I was being instructed by ZSCM.

So would it be correct to say that you had your own knowledge of the transaction based on the original instructions from [Mr Waters] at the time you acted on the transaction, that that was then qualified by later instructions you received from ZSCM as the liquidator of the corporate trustee?

---Yes

(bold emphasis in original)

251    The references in the above passage to “ZSCM” appear to be a reference to Mr Lo Pilato.

252    The Tribunal noted that Mr Oliver previously advised the Commissioner of his knowledge and understanding of the Trust’s activities on 5 September 2019 (T[163]).

253    The Tribunal then expressed the following views:

164.    [Mr Waters] was having financial difficulties and uncontactable one week, and a matter of weeks later is sufficiently contactable to offer [Mr Hadzic] an interest free loan of $495,000. This is left unexplained. There are no details provided as to why no interest would be payable or when the loan would be repaid. If it did not have to be repaid it could not be a loan. So, what is it?

165.    As mentioned earlier, there was confusing evidence regarding the Transfer Forms. First [Mr Hadzic] said he posted the documents then he said he gave them to the general manager of [Waters Company] who was flying to Dubai to meet [Mr Waters]. There is also no evidence this flight had occurred. This evidence is also inconsistent with Mr Oliver’s evidence that he emailed documents to [Mr Hadzic] and that this was done much later than October 2016.

254    The Tribunal next referred to Mr Hadzic’s evidence that he “flipped” properties in his “spare time” and noted that there was no evidence that he had sold any property in the previous few years other than his family home; and that there was no evidence of Mr Hadzic “flipping” properties (T[166]).

255    The Tribunal then expressed the following views (at T[167]) (as written):

It is difficult to accept that this property was a “flippable” property. The M Family purchased the house for $2.4 million. That price was paid on the basis the property was in good condition. Given that there was extensive rectification works, and therefore expenses to be incurred in bringing the property up to good condition how could it be that this was a good investment for the purposes of making a profit? One can only assume that the value of the property once rectified of its defects would still only be $2.4 million. Give the purchase price [Mr Hadzic] paid for the Property, it was highly unlikely that any profit would be made. In fact it was more probable that [Mr Hadzic] would incur a loss. It was a commercially unrealistic proposition. Why would [Mr Hadzic] agree to a [joint venture] arrangement relation to this Property, and more importantly why would he continue with the purchase once [Mr Waters] no longer wish to proceed and after he had lost all “faith in [Mr Waters’s] ability to 50/50 this joint venture”? There appears to be no commercial benefit to doing so.

(italic emphasis in original; footnote omitted)

256    The Tribunal next set out the following exchange from the cross-examination of Mr Hadzic (at T[168]):

So this isn’t a property that’s been purchased in a dilapidated state for a lesser amount is it?

---The [M Family] wanted back what they had spent on it. And I believe that the purchase price of $2.4 million was a fair enough price despite the damage on the property because it was something that I am used to repairing these things. I do this day-in, day-out. I flip houses. But you see I’m not - - -

But your evidence is that it’s going to - sorry, you go - - -?

---My evidence is that it’s going to cost considerable time and money?

Yes?

---Yes. And at that point - yes, absolutely.

So there is very limited prospects of you making a profit on this property is what I want to put to you?

---Well, then I put to you you don’t know what flipping houses is about, sir. You purchase a property at the current market value. You spend a year or two doing the works yourself. You invest some money into it and I would put it to you that that (audio malfunction).

…

The purchase property was quite high but I felt that it was fair to [the M Family] and I was expecting the project to take potentially two years for me to bring up to par.

During that two years I’m not paying for my own labour. I am just paying for materials. The materials aren’t particularly expensive when you’re in the trades. It’s the labour that’s expensive. So I am able to - I genuinely believe 10 that the time that I would be able to flip that property over a two-year period from somewhere between 3.2 and $3.4 million by the time I had completed the works netting me possibly a million dollar profit.

Well, it wouldn’t be a million dollar profit. You purchased it for 2.4. If you have to spend $400,000 to bring it up to speed?

---I don’t know that I do have to spend $400,000 to bring it up to speed.

257    The Tribunal noted (at T[169]) that the Property was ultimately sold for “$2.6” (which appears to be a reference to “$2.6 million”).

258    The Tribunal next turned to the evidence of Mr Hadzic Snr.

259    The Tribunal noted (at T[171]) Mr Hadzic Snr’s evidence that:

(1)    Mr Hadzic told him that the Property was a “fix and flip” proposal to help another builder whose licence was under threat;

(2)    the Trust never generated income and only received loans or capital;

(3)    the former general manager of Waters Company told him in April 2018 that he:

(a)    was aware of the verbal agreement arrangement in place between Mr Hadzic and Mr Waters over their working relationship;

(b)    was aware of work undertaken on the properties as listed by Mr Hadzic in his Excel spreadsheet;

(c)    walked through the work sites as Mr Hadzic undertook rectifications in his arrangement with Mr Waters; and

(d)    collected some paperwork for Mr Hadzic from Mr Waters when he was on a business trip to Dubai in January 2017 which included the signed ASIC form endorsing the purchase of all of the shares and unit holdings from Mr Waters by Mr Hadzic.

260    The Tribunal then expressed the following view (at T[172]):

[Mr Hadzic Snr’s] evidence is of little probative value. His evidence is solely based on what he has been told by [Mr Hadzic] or the former general manager of [Waters Company] who has not given any evidence before the Tribunal. [Mr Hadzic Snr] says the general manager of [Waters Company] will not give oral evidence because his wife was threatened by people he believes were member of a motorcycle gang that he should not say anything about [Mr Waters]. The general manager of [Waters Company] may have told [Mr Hadzic’s] father that, but there is nothing to corroborate that his wife was threatened.

261    The Tribunal next turned to the evidence of Mr Lo Pilato, the liquidator of the Company. The Tribunal recorded Mr Lo Pilato’s evidence was that:

(1)    he had been “advised at numerous junctures that the $495,000 was a loan” from Mr Waters to Mr Hadzic. Mr Lo Pilato did not disclose in his statutory declaration where this advice came from, but in any event this is not information of which he has direct knowledge. At the hearing Mr Lo Pilato acknowledged that he had not seen any records that disclosed the loan arrangement between Mr Hadzic and Mr Waters;

(2)    the Trust’s financial statements were prepared on the basis that the $495,000 deposits were a loan;

(3)    as liquidator of the Company he had not discovered any distribution of income held by the Company to Mr Hadzic or any other person. Mr Lo Pilato declared that the Trust’s business records did not evidence any invoices rendered to, or monies received from any person for work done, or goods or services supplied to a person in respect of the use of the Property or for its deployment as a business asset. He went on to say there are no records evidencing that the Company, as trustee of the Trust, was engaged in any activity of remediation of the Property; and

(4)    he had “no knowledge” of the arrangements and no access to any records “which evidence arrangements for the loans”. (T[173] to [176])

262    Having set out the evidence and the Tribunal’s views concerning that evidence, the Tribunal set out its reasoning under the heading “Conclusion”.

263    The Tribunal commenced by stating (at T[177] to [180]):

177.    The fact that money is transferred from one party to another does not, absent an obligation to repay the money, classify the transaction as a loan.

178.    There needs to be some objective indicia that a loan exists – such as confirmation of the period of the loan, what interest in (sic) payable and some kind of documentation in the form of an agreement or similar to validate the loan. For example, if there are no formal documents, one would expect email or text exchanges may have occurred between the parties, particularly parties that had known one another for some time.

179.    The incorporation of the Trust and Company was undertaken through an accountant. To not have documented the loan therefore seems contrary to that behaviour. Why was the loan not documented in a similar way to the Trust?

180.    In a recent Victorian decision of Collins v Dart [2022] VCC 1932 the Court had to determine whether a payment was a loan or gift. The Court had to grapple with this in circumstances where one of the parties was deceased and there was limited written evidence of the transaction. As here there was an absence of relevant contemporaneous written material. The Court noted (at [24]) that the absence of contemporaneous written material made it “harder to assess the truth of evidence given about alleged conversations”. The Court noted that it is not a case of simply accepting the evidence of the only witness available. Cosgrave J said:

[25]…Issues of credit assume particular significance when the live witness cannot be contradicted in the usual way. As a result, courts look for corroboration of oral evidence.

(italic emphasis in original; footnotes omitted)

264    The Tribunal then set out a series of authorities relevant to the fact finding process (at T[181] to [184]):

181.    In Moore v Aubusson [2020] NSWSC 1466 Ward CJ in Equity explained that in relation to the weight that should be given to various forms of evidence in situations such as the one here:

[109] As to the assessment of the conflicting evidence, as the defendant notes, there must be “an actual persuasion of the occurrence of any conversation propounded by a claimant” (the defendant referring to John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94], per Hammerschlag J; and to the summary by Black J of the principles to which a Court should have regard in assessing the affidavit and oral evidence as set out in In the matter of Hillsea Pty Limited [2019] NSWSC 1152 at [16]- [22]). It is noted that these principles include the well-known observation by McLelland CJ in Eq as to the fallibility of human memory over the passage of time in Watson v Foxman (1995) 49 NSWLR 315 (Watson v Foxman) at 319; and that weight should be accorded so far as possible to “contemporary materials, objectively established facts and the apparent logic of events”.

182.    In Re Hillsea Pty Ltd [2019] NSWSC 1152 Black J noted (at [16]) one should have regard to “the fallibility of human memory” when assessing affidavit and oral evidence. Black J quoted from Watson v Foxman (1995) 49 NSWLR 315 (at 319), where McLelland CJ in Eq observed that:

“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

183.    In Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 (at 129), Gleeson CJ, Gummow and Kirby JJ observed that:

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

184.    In relation to contracts formed orally, Hammerschlag J said, in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]-[96]:

… the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences …

…

[The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding.”

(bold, italic and underline emphasis in original; footnotes omitted)

265    The Tribunal then reasoned at (T[185]) that: (1) the question whether, on the objective facts, an arrangement is inherently probable is a matter that should be emphasised in circumstances such as these where there is undocumented oral evidence, citing Effem Foods Pty Ltd (t/as Uncle Ben’s of Australia) v Lake Cumbeline Pty Ltd [1999] HCA 15; (1999) 161 ALR 599 at 603 [15] (Gleeson CJ, Gaudron, Kirby and Hayne JJ); and (2) it is also reasonable to take into account what a party stands to win or lose, citing Helton v Allen [1940] HCA 20; (1940) 63 CLR 691 at 712 (Dixon, Evatt and McTiernan JJ).

266    The Tribunal then reasoned at T[186] to [198] in the manner set out at [70] above.

I.2    The first question and the first ground of appeal

267    I turn now to the first question.

268    Question 1 is:

Whether, in reaching its conclusion (at TD [199]) that the Tribunal was not satisfied that the $495,000 in deposits into the bank account of the trustee of the Barrallier Holdings Unit Trust (“Trust”) were made as a loan to the trustee of the Trust (“the $495,000 conclusion”), the Tribunal erred by not giving full faith and credit to a proceeding of a Court of a State, within the meaning of s. 118 of the Commonwealth Constitution, and in particular, erred by not giving due recognition to the agreed position of all the parties in proceeding no. 2021/247537 in the District Court of New South Wales (“the District Court proceeding”) that those $495,000 in deposits were made as a loan advance?

(bold and italic emphasis in original)

269    The first ground of appeal is in relevantly identical terms.

270    The reference in that question and the first ground of appeal to paragraph [199] of the Tribunal’s decision should be a reference to paragraph [198] of that decision.

271    Section 118 of the Constitution provides:

118.     Recognition of laws & c. of States.

Full faith and credit shall be given, throughout the Commonwealth, to the laws, the public Acts and records, and the judicial proceedings of every State.

(bold emphasis in original)

272    Counsel for Mr Hadzic submitted, in summary, that:

(1)    Mr Hadzic’s position was that:

(a)    the Tribunal was required to take the facts as they existed between Mr Hadzic and Mrs Waters;

(b)    Mr Hadzic and Mrs Waters had agreed that the $495,000 deposits were a loan to Mr Hadzic (albeit they disagreed as to who the lender was, with Mr Hadzic contending that it was Mr Waters rather than Mrs Waters);

(c)    thus, the Tribunal erred in failing to admit evidence of that agreement and in not acting upon it; and

(2)    Mr Hadzic did not contend that the District Court had made a determination in the District Court proceeding (and he acknowledged that such a determination had not been made).

273    In support of the argument described at [272(1)], counsel for Mr Hadzic called in aid the decisions of the High Court of Australia in Executor Trustee and Agency Company of South Australia Limited v The Deputy Federal Commissioner of Taxes (South Australia) [1939] HCA 35; (1939) 62 CLR 545 and Commissioner of Taxation of the Commonwealth of Australia v Thomas [2018] HCA 31; (2018) 264 CLR 382, and in particular the following passage from the judgment of the plurality (Kiefel CJ, Bell, Keane, Nettle, Gordon and Edelman JJ) in Thomas at 408 [55] to [56]:

55.    It follows that Executor Trustee is not authority for the proposition that the Commissioner, or a court under Pt IVC, should determine the application of the taxing acts otherwise than according to law. “When the revenue authorities come to impose a tax in relation to such rights [defined by order of the court], they must … take them as they in fact actually exist between the parties” (emphasis added). But directions made under the equivalent of s 96 of the Trusts Act do not bind the Commissioner in the application of the taxation laws.

56.    The Full Court of the Federal Court was wrong to conclude that it was bound by Executor Trustee to hold that the directions in the State Proceedings determined conclusively, against the Commissioner, the application of Div 207 to the franked distributions.

(italic emphasis in original; bold emphasis added; citations omitted)

274    Counsel for Mr Hadzic placed particular reliance upon the passage which is in bold text in the above extract, and which is taken from the following passage of the reasons for judgment of Latham CJ in Executor Trustee and Agency Company at 562 to 563:

The case would not be the same when the question was one of ownership of property which did not consist solely of rights enforce­able against a person such as a trustee. A and B may litigate about the ownership of a horse. The court may order B to return the horse to A on the ground that A and not B is the owner of the horse. But C ,may, independently of any dealings with A, challenge A’s ownership, and he would not be affected in any way by the decision in the case of A versus B. In such a case C would not be bound by the previous decision because he was neither a party to it nor privy to any party in interest. The Commissioner of Taxation who takes moneys from a taxpayer as a contribution to the revenue cannot be described as a privy in estate to the taxpayer where rights have been determined in a proceeding to which the commissioner was not a party. But when, in duly constituted proceedings before a competent court, the rights of a cestui que trust against a trustee and the corresponding duty of the trustee towards the cestui que trust have been defined, there is no means whereby those rights can be otherwise defined, because each party is conclusively bound by the order of the court. If the right in question is a right of the cestui que trust to receive money, such as income, from the trustee, the order necessarily and in the nature of the case finally determines, so far as it goes, the nature and extent of the right of the cestui que trust. When the revenue authorities come to impose a tax in relation to such rights, they must, in my opinion, take them as they in fact actually exist between the parties. Thus, although the commissioner cannot be said to be “bound” by the order of the Supreme Court as res judicata or in any other way, he has no option but to assess the trustee or the cestuis que trust upon the basis of their duties and rights as declared by the order.

(italic emphasis in original; bold emphasis added)

275    However, the passages set out above from Thomas and Executor Trustee and Agency Company highlight the flaw in the submission on behalf of Mr Hadzic. As those passages make plain, if the rights between parties have been determined by a prior ruling of a court, then the Commissioner (and the Tribunal standing in the shoes of the Commissioner) must abide the Court’s determination of such rights.

276    The present case, in contrast, involved no prior determination by a court of rights as between Mr Hadzic and Mrs Waters. At its highest, there was an assertion by each of them in the District Court proceeding that the $495,000 deposits were a loan to Mr Hadzic. Absent a prior determination by a court, the Tribunal was not required to treat those assertions as binding upon it.

277    For the reasons set out above, nothing in the Tribunal’s approach amounted to a failure to comply with s 118 of the Constitution.

278    Thus the appeal, in so far as it is based upon question 1, must be dismissed.

I.3    The second question and the second ground of appeal

279    I turn now to the second question.

280    Question 2 is:

Whether, in reaching the $495,000 conclusion, the Tribunal erred by ignoring various agreed facts and its own antecedent findings of fact about the purpose of the Trust, the agreed nature of the Trust property and the activities undertaken by the trustee of the Trust and also the Commissioner’s concession that the only property of the Trust was a residential home which was occupied by the applicant as his family’s principal place of residence but which had never been let out to derive rental income by the trustee?

281    The second ground of appeal is expressed in relevantly identical terms.

282    The “$495,000 conclusion” referred to in question 2 is defined in question 1 as the Tribunal’s conclusion that it was not satisfied that the $495,000 deposits were made as a loan. The Tribunal’s detailed reasoning to that conclusion is set out at I.1 above.

283    Question 2 seeks to impugn that conclusion on the basis of a contention that the Tribunal ignored various facts. In his written submissions, counsel for Mr Hadzic identified the following matters (being, it was submitted, facts as found by the Tribunal, or findings available to the Tribunal on the evidence):

(1)    the Company purchased the Property for $1.5 million on 21 March 2017 upon trust;

(2)    the Company purchased the Property for the sole benefit of Mr Hadzic to provide him with a home and it was not rented out before that purpose was fulfilled;

(3)    Mr Hadzic was the sole, or the principal, unit-holder in the Trust at all times;

(4)    Mrs Waters deposited $495,000 into the Company’s account by 5 deposit slips recording that they were advanced to “Barrallier Street HO as Deposit TW”; and

(5)    Mrs Waters was suing for recovery of her advance of the $495,000 as a loan.

284    Counsel for Mr Hadzic also submitted that the Tribunal made no finding as to any consideration (such as payment for services rendered or for a sale of goods or land or as rental) moving from the Trust to Mr and Mrs Waters to support the conclusion that the $495,000 was income; and the Tribunal found on the sole basis that the onus of proof that it was a loan has not been satisfied.

285    As framed, question 2 is in substance an invitation to engage in an impermissible merits review of the Tribunal’s decision. The Tribunal was not obliged to act upon or to accept any particular facts or items of evidence, such that the mere “ignoring” of such facts and evidence cannot give rise to an error of law.

286    In his written submissions in reply, counsel for Mr Hadzic submitted that the matters listed at [283] and [284] above “necessarily lead to the inescapable conclusion that the advance of $495,000 was a loan, at best, or could not qualify at all as assessable income, at worst”. This is also an invitation to engage impermissibly in merits review, save to the extent that it might be regarded as a submission that the conclusion reached by the Tribunal involved an error of law because the Tribunal’s decision was legally unreasonable in that it involved illogicality or irrationality.

287    Neither question 2 nor ground 2 raises any question of legal unreasonableness, and this is sufficient to dispose of this question.

288    In any event, I am not satisfied that the Tribunal’s conclusion that it was not satisfied that the $495,000 deposits were made as a loan involved legal unreasonableness. My reasons in this regard may be shortly stated.

289    First, legal unreasonableness is not readily established. In Djokovic v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2022] FCAFC 3; (2022) 289 FCR 21 at 27 to 28 ([33] to [35]), Allsop CJ, Besanko and O’Callaghan JJ explained:

33    The characterisation of a decision (or a state of satisfaction) as legally unreasonable because of illogicality or irrationality is not easily made: Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at [11], [52], and [135]; Minister for Home Affairs v DUA16 (2020) 95 ALJR 54; 385 ALR 212 at [26]; SZMDS 240 CLR 611 at [130]-[135]; CQG15 v Minister for Immigration and Border Protection (2016) 253 FCR 496 at [60]; and Acting Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v CWY20 (2021) 288 FCR 565 at [142].

34    The task in assessing illogicality is not an exercise in logical dialectic. “Not every lapse of logic will give rise to jurisdictional error. A Court should be slow, although not unwilling, to interfere in an appropriate case”: SZDMS 240 CLR 611 at [130]. It is the ascertainment, through understanding the approach of the decision-maker and characterising the reasoning process, of whether the decision (or state of satisfaction) is so lacking a rational or logical foundation that the decision (or relevant state of satisfaction) was one that no rational or logical decision-maker could reach, such that it was not a decision (or state of satisfaction) contemplated by the provision in question. Some lack of logic present in reasoning may only explain why a mistake of fact had been made which can be seen to be an error made within jurisdiction. As the Chief Justice said in Stretton at [11], the evaluation of whether a decision was made within lawful boundaries is not definitional, but one of characterisation and whether the decision was sufficiently lacking in rational foundation, having regard to the terms, scope and purpose of the statutory source of power, that it cannot be said to be within the range of possible lawful outcomes.

35    Ultimately, the question is whether the satisfaction of the relevant state of affairs or matter was irrational, illogical or not based on findings or inferences of fact supported by logical grounds: Minister for Immigration and Multicultural and Indigenous Affairs v SGLB (2004) 78 ALJR 992; 207 ALR 12 at [38]; Re Minister for Immigration and Multicultural Affairs; Ex parte Applicant S20/2002 (2003) 77 ALJR 1165; 198 ALR 59 at [52] and [173], such that it cannot be said to be possible for the conclusion to be made or the satisfaction reached logically or rationally on the available material. It will then satisfy the characterisation of unjust, arbitrary or capricious.

(bold emphasis added; italic emphasis in original)

290    Similarly, in Plaintiff M87/2023 v Minister for Immigration, Citizenship and Multicultural Affairs [2024] HCASJ 42; (2024) 99 ALJR 387 at 392 [27], Steward J explained:

It is unnecessary to repeat the jurisprudence in this area. The contention that a finding is unreasonable or irrational is not made out by disagreeing with the merits of a finding; even strong disagreement is insufficient. It is also not made out by mistaken reasoning. It requires the presence of irrational or illogical reasoning or processes or outcomes. Irrational or illogical reasoning is not poor or very poor reasoning; it is reasoning which does not – in any way – make sense; it is reasoning which completely offends logical thinking. The same applies to unreasonable or irrational outcomes. Such reasoning or outcomes arise on only the rarest of occasions.

(bold emphasis added)

291    Secondly, a conclusion of non-satisfaction that the $495,000 deposits were made as a loan was well-open to the Tribunal (and the submission that the matters set out at [283] and [284] above “necessarily led” to an “inescapable conclusion” that the $495,000 deposits were a loan to Mr Hadzic must be rejected) for the reasons set out in I.1, including:

(1)    the Tribunal’s identification of orthodox principles relevant to fact-finding (T[181] to [184]);

(2)    the Tribunal’s conclusions as to various features of the evidence which weighed against a conclusion that the $495,000 deposits were made as a loan, including:

(a)    the absence of any contemporaneous document which suggested that such a loan was in place (T[188]);

(b)    the Tribunal’s view as to unsatisfactory and unrealistic nature of some of the evidence given by Mr Hadzic (e.g., T[127], [129], [131], [138], [141] to [143], [164] to [167] and [190]). In this regard, I note that counsel for Mr Hadzic submitted that there was no express finding as to Mr Hadzic’s credit. However, it is clear from the Tribunal’s Decision, and in particular from the passages referred to in the previous sentence, that the Tribunal did not accept a number of aspects of Mr Hadzic’s evidence. It was not necessary for the Tribunal to go beyond the statements that it made and to include an express statement that it did not believe Mr Hadzic;

(c)    the Tribunal’s view that the apparent logic of events was against the existence of such a loan including:

(i)    the absence of any evidence of the terms of repayment or of the fact of repayment (T[190], [197]), or of the discussion of these matters (T[191]);

(ii)    the absence of security for the loan (T[190]), or of the discussion of this matter (T[191]);

(iii)    the lack of commercial reality and inherent implausibility of the purported loan transaction (T[193] to [197]); and

(d)    the absence of corroboration of the evidence of Mr Hadzic from any person able to give first-hand evidence on this issue, including Mr Waters and the former manager of Waters Company (T[188] and [192]).

292    Of course, the weight to be attributed to particular aspects of the evidence was a matter for the Tribunal alone to determine: see, e.g., Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26; (2013) 296 ALR 307 at 345 to 346 [119] (Jagot J; Nicholas J agreeing).

293    It follows that there is no basis for a finding that the Tribunal’s decision was affected by illogicality or irrationality.

294    Counsel for Mr Hadzic also submitted that it was not open to the Tribunal to conclude that the $495,000 deposits were income of Mr Hadzic. He sought to prove this by references to passages of Professor Ross Parsons’s treatise Income Taxation in Australia (The Law Book Company Limited, 1985) and by arguing that the $495,000 deposits did not fall within any of the categories of income identified by Professor Parsons.

295    This submission is misconceived. The Tribunal did not purport to find that the $495,000 deposits were income of Mr Hadzic. Rather, in a statutory context in which the Commissioner had made the Hadzic NOA, the $495,000 deposits were to be treated as income of Mr Hadzic unless Mr Hadzic was able to prove the contrary to the satisfaction of the Tribunal by establishing that the Hadzic NOA was excessive and what the assessment ought to have been: see s 14ZZK(b)(i) of the TAA and T[25] and [36] to [39]. The only basis upon which Mr Hadzic contended that the $495,000 deposits ought not be characterised as income of Mr Hadzic was that those deposits were a loan. He failed to establish that contention. The Tribunal was not required to consider whether the $495,000 deposits were income on another basis, and it did not purport to do so.

296    Thus the appeal, in so far as it is based upon question 2, must be dismissed.

I.4    The third question and the third ground of appeal

297    I turn now to the third question.

298    Question 3 is:

Whether, in reaching the $495,000 conclusion, the Tribunal erred by wrongly applying to the agreed facts and its own antecedent findings of fact the legal principles on the characterisation of a receipt of money as a loan which it had incorrectly recited?

299    The third ground of appeal is expressed in relevantly identical terms.

300    The argument as framed in the submissions made in chief on behalf Mr Hadzic is as follows:

(1)    the Tribunal asked itself the correct question when at T[100], it stated: “The question is whether this was a loan or income”;

(2)    the Tribunal did not address this question, but instead at T[180] to [196] addressed the question of whether a receipt of money ought be characterised as a loan or a gift, an irrelevant question; and

(3)    by failing to address the question in (1), the Tribunal erred.

301    I do not accept this argument, for the following reasons.

302    First, the Tribunal’s Decision is to be read as a whole, and is not to be construed minutely and finely with an eye keenly attuned to the perception of error; and the Court is not concerned with unhappy phrasing or loose language: see [86] above. When this is done, it is clear that the Tribunal chose to address, and did address, the question of whether Mr Hadzic had discharged the onus upon him under s 14ZZK(b)(i) of the TAA of establishing that the NOA was excessive and what the correct assessment ought to have been, by the means that he had chosen, namely by contending that the $495,000 deposits were a loan (I.1 above). Further, the Tribunal clearly operated on the basis that those deposits were income unless proven otherwise.

303    It follows that the Tribunal’s expression: “The question is whether this was a loan or income”, fairly read, was not positing a choice between proof by Mr Hadzic of a loan on the one hand and proof by the Commissioner of income on the other. Rather, the sole question was whether Mr Hadzic had discharged his onus by proving that the $495,000 deposits were a loan. If he could prove that there was a loan then those deposits were not income; and if he could not prove that there was a loan, then the $495,000 deposits were income, by dint of the Hadzic NOA and s 14ZZK(b) of the TAA.

304    Secondly, within the Tribunal’s recitation of authorities at T[180] to [196], there is no authority that touches upon the question of characterisation, for taxation purposes, of a receipt of monies as a loan as opposed to a gift. In Collins v Dart [2022] VCC 1932, to which the Tribunal referred at T[180], Judge Cosgrove of the County Court of Victoria addressed an action brought by Mr Collins qua executor of the estate of his stepfather to recover funds advanced by the deceased to Mr Dart. Mr Collins contended that the advance was a loan and thus repayable. Mr Dart contended that it was a gift and thus not repayable.

305    Moreover, the Tribunal did not rely upon Collins v Dart for any reason related to the correct characterisation of a receipt of money for taxation purposes, and instead relied upon it – as is clear from T[180] – as an authority relevant to the evaluation of evidence in circumstances where only one party to an arrangement did not give evidence and there was an absence of relevant contemporaneous material.

306    The submissions made on behalf of Mr Hadzic in reply also reiterated Mr Hadzic’s submission that the Tribunal – if it rejected Mr Hadzic’s case that the $495,000 deposits were a loan – was not at liberty to uphold the Hadzic NOA and instead was required to consider generally whether those deposits were properly characterised as income. For the reasons set out above this submission cannot be accepted.

307    The submissions made on behalf of Mr Hadzic with respect to question 3 also involved some reiteration of the challenge in question 2 to the manner in which the Tribunal reached its conclusion that it was not satisfied that the $495,000 deposits were a loan. These submissions have been addressed above in answer to question 2.

308    Thus the appeal, in so far as it is based upon question 3, must be dismissed.

I.5    The fourth question and the fourth ground of appeal

309    I turn now to the fourth question. That question is:

Whether, in reaching the $495,000 conclusion, the Tribunal erred by failing to determine on the merits the applicant’s contentions as follows:

(1)    that the assessment of those deposits as assessable income of the applicant constituted conscious maladministration by the Commissioner; and

(2)    that the Commissioner’s defence of his assessment of those deposits constituted an abuse of process founded upon inconsistent judgments,

on the ground that the Commissioner had obtained, contemporaneously with his issue of the assessment of the $495,000 in deposits as the assessable income of the Trust, freezing orders and consequential relief against the Trust property in proceeding no. NSD466 of 2018 in this Court, upon the ground, and based upon sworn evidence of one of his officers, that the $495,000 in deposits constituted valuable consideration for the acquisition of a beneficial interest in the Trust property by the plaintiff in the District Court proceeding which was available to pay her own outstanding taxation liabilities?

310    The fourth ground of appeal is expressed in relevantly identical terms.

311    The fourth question is framed as a failure by the Tribunal to determine on their merits contentions made by Mr Hadzic before the Tribunal that the Commissioner had engaged in:

(1)    conscious maladministration, by assessing Mr Hadzic to taxation upon the $495,000 deposits; and

(2)    an abuse of process in defending that assessment

, for the reasons set out in the chausette to that question.

312    Relevant to this question are the views expressed by the Tribunal at T[59] to [62] (as written):

59.    A large portion of the [Mr Hadzic’s] oral and written submissions was spent complaining about the [Commissioner’s] conduct in relation to the issuance of the default assessment and throughout the objection process. In particular, [Mr Hadzic] complained about the [Commissioner] having issued alternative assessments.

60.    The [Commissioner] denies any wrongdoing,

61.    In terms of allegations concerning the [Commissioner’s] conduct, this hearing was not the venue to air these matters. The Tribunal has no jurisdiction in relation to them and they have no bearing on the outcome of the matter.

62.    In terms of alternative assessments, there are numerous authorities which establish there is no bar to the [Commissioner] assessing two parties with respect to the same income. This proposition was most recently endorsed in by the Full Federal Court in Hyder v Commissioner of Taxation [2023] FCAFC 29, at [58]. This may happen in circumstances where the [Commissioner] is uncertain as to which taxpayer is liable, It is up to the taxpayer to demonstrate whether it is liable or not and whether the assessment is excessive.

(italic emphasis in original)

313    As is plain, the Tribunal did not ignore the contentions advanced on behalf of Mr Hadzic as to the Commissioner’s conduct. Rather, it decided that it had no jurisdiction to deal with them.

314    The written submissions in chief advanced by counsel on behalf of Mr Hadzic stated that the Tribunal ignored the contentions, but did not assert that the Tribunal’s conclusion that it lacked jurisdiction was an error.

315    The written submissions of the Commissioner asserted that:

(1)    contrary to the submissions advanced on behalf of Mr Hadzic, counsel for Mr Hadzic had not asked the Tribunal to make a determination on the merits of his contentions as to conscious maladministration and abuse of process; and

(2)    the Tribunal’s jurisdiction was limited to reviewing the reviewable objection decisions before it and as such the Tribunal could not determine whether the Commissioner had engaged in conscious maladministration or an abuse of process, citing Re Confidential and Commissioner of Taxation [2014] AATA 952; (2014) 100 ATR 176 at 190 [42].

316    In his written submissions in reply and in his oral submissions, counsel for Mr Hadzic took a different course. Rather than framing the fourth question as a failure to determine the contentions on their merits, he submitted that:

(1)    Mr Hadzic had not been expecting a decision from the Tribunal on conscious maladministration or abuse of process, because this was beyond the Tribunal’s jurisdiction;

(2)    Mr Hadzic was not asking the Tribunal to determine any case of conscious maladministration, and instead was asking the Tribunal to have regard to sworn testimony on behalf of the Commissioner in the Commissioner’s proceeding that the $495,000 deposits were a capital receipt which justified freezing orders against the Company and the Property, which evidence, it was submitted, contradicted the validity of the Hadzic NOA; and

(3)    the Tribunal erred in not considering such evidence, which he described as a “relevant consideration”.

317    This shift away from question 4 as framed is sufficient reason to dismiss the appeal to the extent that it is based upon that question.

318    In any event, and for the following reasons, I am not persuaded that the Tribunal erred by not having regard to the evidence in the Commissioner’s proceeding.

319    It is an error of law for a Tribunal to fail to take into account a matter that it was bound to take into account: Minister for Aboriginal Affairs v Peko-Wallsend Limited [1986] HCA 40; (1986) 162 CLR 24 at 39 to 40 (Mason J); and Lo v Chief Commissioner of State Revenue [2013] NSWCA 180; (2013) 85 NSWLR 86 at 89 [9] (Basten JA; Beazley P agreeing).

320    The matters that a decision-maker is bound to take into account are determined by construction of the relevant statute. If these are not stated expressly, they are to be determined by implication from the subject-matter, scope and purpose of the relevant statute: Peko-Wallsend at 39 to 40; Lo at 89 [9] (Basten JA) and 97 ([50] to [51]) (MacFarlan JA).

321    The Tribunal was not required in the present case – either by express statement or by implication – to take into account the events in the Commissioner’s proceeding.

322    It might be accepted that such evidence may have been a “relevant consideration” in the sense of it being germane to the issues to be decided by the Tribunal. However, as it was not a “relevant consideration” in the sense that it was a mandatory consideration, there could be no error of law in not having had regard to it: see e.g., Lo at 89 [9]. Rather, to adopt the expression used by Basten JA in Lo, it was a permissible consideration which the Tribunal may weigh or disregard without committing an error of law.

323    Finally, it is clear from T[147] that the Tribunal understood that as part of the Commissioner’s proceeding the Commissioner was contending that the Company held the Property on a resulting trust for Mr Waters to the extent that Mr Waters had contributed $495,000 to the purchase price of the Property.

324    For the reasons set out above the appeal, in so far as it is based upon question 4, must be dismissed.

J.     QUESTIONS 5 AND 6 – THE DEPOSITS TOTALLING $150,548

325    I turn now to the fifth and sixth questions, which concern the deposits totalling $150,548 from Mr Hadzic’s employer.

J.1    The Tribunal’s reasoning

326    The Tribunal commenced its discussion of this issue by noting that wages form part of a taxpayer’s assessable income and are generally declared in the income year in which the payment is received: s 6-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) (T[225]).

327    The Tribunal then noted that:

(1)    Mr Hadzic contended that his wages for the 2017 year from his employment as an electrician with Futureproof were $242,057 (T[226]);

(2)    a review of Mr Hadzic’s bank accounts indicated that he received $150,548 from Futureproof. The entries are described in Mr Hadzic’s bank accounts as “Fpe”, “Fpe wage” or “Fpe anl” (T[227]);

(3)    Mr Hadzic maintained in his discussions with the ATO and in his statements he was not provided with any payslips from Futureproof (T[228]);

(4)    on 16 February 2023, Mr Hadzic filed a further statutory declaration in which he stated that it had been drawn to his attention that the payment advice summaries had not been included in the Tribunal Book. The annexed payslips indicate that they were created on 8 October 2019 (T[228]);

(5)    at the hearing Mr Lo Pilato could not recall if he provided payroll information to Mr Hadzic and said he does not know who holds the employer’s records (T[228]);

(6)    Mr Hadzic provided the Commissioner with a PAYG summary for the 2017 year, dated 1 August 2017, which provided that Futureproof paid Mr Hadzic $242,057 and withheld $92,795 in tax (T[229]); and

(7)    there is no record of this PAYG summary having been lodged with the ATO by the employer (T[230]).

328    The Tribunal then noted the submission on behalf of Mr Hadzic that, pursuant to ss 6-10, 12-35 and 18-15 of Schedule 1 of the TAA, the Commissioner has a duty to give credit to an employee on the production of a PAYG certificate issued by an employer (T[231]).

329    Sections 6-10, 12-35 and 18-15 of Schedule 1 to the TAA provided:

6-10     How the amounts collected are dealt with

You are entitled to credits for the amounts of your income that are collected under the PAYG system. The credits are applied under Division 3 of Part IIB against your tax debts, and any excess is refunded to you.

12-35     Payment to employee

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

18-15     Tax credit for recipient of withholding payments

(1)    An entity is entitled to a credit equal to the total of the *amounts withheld from *withholding payments made to the entity during an income year if an assessment has been made of the income tax payable, or an assessment has been made that no income tax is payable, by the entity for the income year.

(2)    To the extent that the entitlement to a credit is in respect of an *amount withheld from a *withholding payment to which paragraph 16-155(2)(aa) applies, the entitlement is treated as arising for the income year preceding the income year in which the withholding payment is made.

(bold emphasis in original)

330    After setting out those provisions, the Tribunal responded to that submission (at T[232]):

The TAA sets out the obligations on an employer to withhold payments which in turn are passed on as credits to employees. Just because the obligation exists does not mean that the employer has complied with it. An employer’s obligation is not only to withhold payments, but also to pass the withheld amounts on to the Commissioner. This was not done in this case. [The Commissioner] has confirmed that no withholding amounts were paid to it by the employer during the 2017 Year. Even accepting the payslips were accurate and contemporaneously prepared, there is no evidence about this.

(footnote omitted)

331    The Tribunal also noted the submission on behalf of the Commissioner that there was no reviewable objection decision which could found a review in the Tribunal under Part IVC of the TAA in respect of the PAYG withholding credits; and the Commissioner’s reliance upon Price v Commissioner of Taxation [2019] FCA 543 in support thereof (T[233]).

332    The Tribunal then addressed Price. It identified that the issue in that case was whether, by virtue of s 18-15(1) of Schedule 1 to the TAA, Mr Price was entitled to a tax credit against his liability to income tax for amounts said to be withheld from salary or wages paid to him (T[233]).

333    The Tribunal noted that Mr Price brought that proceeding under s 39B of the Judiciary Act 1903 (Cth) seeking a declaration to the effect that he was entitled to tax credits; and that the reason that a proceeding could not have been brought under Part IVC of the TAA was explained by Justice Thawley as being that: (1) the relevant tax credits were not part of the process of assessment and were therefore not a “particular” of the assessment which could be the subject of an objection; and (2) there was no other mechanism to object, with the consequence that there was no reviewable objection decision which could found a review in the Tribunal or “appeal” to this Court under Part IVC.

334    The Tribunal then reasoned at T[234] to [237]:

234.    Although Price is relevant to jurisdiction, it is also instructive of requirement for substantiating evidence of tax withholdings. Mr Price was employed as a truck driver. He was never given a pay slip or PAYG summary from his employer. The only documents he had were his bank statements. There was only one PAYG statement which purported to relate to some of the years in question. The PAYG statement was undated. There was no evidence at the ATO of any withholding payments having been made. Thawley J reiterated that it was Mr Price who bore the onus of establishing that amounts were in fact withheld. The Court was not satisfied, on the basis of this evidence, that tax was withheld. Thawley J stated that he came to this conclusion because, among other reasons (at [60]):

234.1    there were no tax records to support a finding that tax had been withheld; and

234.2    there was an absence of any other contemporaneous record evidencing that any amount had been withheld.

235.    It is not an answer to say as Mr Hadzic submits that “it is the Commissioner’s job to ensure that employers withhold the right amount of tax and remit such PAYG tax instalment collected to his office”. A failure by [the Commissioner] to have ensured same here does not make the income un-assessable or the tax unpayable.

236.    As in Price, there are no tax records to support a finding that tax had been withheld. In those circumstances the Tribunal cannot make a finding that that tax was withheld.

237.    Further, as explained in Price, the complaint of Mr Hadzic that [the Commissioner] failed to give credit for the $92,795 is not a matter which can be determined by the Tribunal.

(italic emphasis in original; bold emphasis added; footnotes omitted)

J.2    Questions 5 and 6 and grounds 5 to 7

335    Questions 5 and 6 are:

5.    Whether the Tribunal erred (at TD [238]) when it found that the applicant was not entitled to a credit for PAYG income tax instalments totalling $92,795 (which were the subject of a signed year-end PAYG tax summary issued by the applicant’s employer evidencing their deduction from his salary as an employee in the 2017 income year), upon the proper interpretation of s. 18-15(1) of Schedule 1 to the TAA53, because there are no tax records to support a finding that any tax was withheld by the employer, so that no finding could be made by the Tribunal that the tax was withheld in order to give credit for it to the applicant in the determination of his application for review?

6.    Whether, firstly, the Tribunal erred (at TD [239]) when it found that, even if a finding could have been made that the tax the subject of the year-end PAYG tax summary issued by the applicant’s employer in the 2017 income year had indeed been withheld (contrary to TD [238]), the Tribunal lacks the jurisdiction to determine that issue on the authority of Price v FCT [2019] FCA 543 (“Price”), and, if no such error was made in following Price, secondly, this Court should decline to follow Price in determining this appeal by finding that credit for the PAYG should have been given by the Tribunal?

(bold and italic emphasis in original)

336    The fifth, sixth and seventh grounds of appeal are:

5.    The Tribunal erred (at TD [238]) when it found that the applicant was not entitled to any credit for his PAYG income tax instalments totalling $92,795 because there are no available tax records to support a finding that any tax was ever withheld by the employer, so that no finding could be made that the tax was indeed withheld in order to give credit for it to the applicant in the determination of his application for review?

6.    The Tribunal erred (at TD [239]) when it found that, even if a finding could have been made that the tax stated in the year-end PAYG tax summary issued by the applicant’s employer in the 2017 income year had indeed been withheld, it lacks the jurisdiction to determine that issue on the authority of Price v FCT [2019) FCA 543 (“Price”).

7.    Alternatively, if no such error of law was made in following Price, this Court should decline to follow Price in its determination of this appeal by finding that credit for the PAYG in the 2017 income year should have been given by the Tribunal.

(bold and italic emphasis in original)

337    The references in those questions and grounds to paragraphs [238] and [239] of the Tribunal’s decision should be references to paragraphs [236] and [237] of that decision respectively.

J.3    Consideration

338    It was common ground that questions 5 and 6 raise two questions, namely:

(1)    whether the Tribunal erred in finding it lacked the jurisdiction to determine whether the Commissioner failed to give a credit for an entitlement arising from PAYG of $92,795; and

(2)    assuming that the Tribunal did have jurisdiction, whether it erred in finding that Mr Hadzic was not entitled to any credit for the PAYG withheld by his then employer.

339    I consider the jurisdiction question first.

340    As is plain from the Tribunal’s Decision, the Tribunal formed the view that it lacked jurisdiction to determine Mr Hadzic’s entitlement to PAYG credits for the reasons explained by Justice Thawley in Price.

341    Price, as noted above, involved an application under s 39B of the Judiciary Act. Thus, as counsel for Mr Hadzic submitted, Justice Thawley’s references to the Tribunal’s want of jurisdiction concerning entitlements to PAYG credits are obiter dicta.

342    Nevertheless, his Honour’s reasons for judgment provide valuable guidance and, with respect, are plainly correct.

343    At [2], his Honour stated:

It was not contended that these proceedings could have been brought under Part IVC of the Taxation Administration Act 1953 (Cth). If they could have been, that would have been a discretionary reason to refuse relief under s 39B: Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 at [10]. These proceedings could not be brought under Part IVC because, as is explained below, the relevant tax credits are not part of the process of assessment and are therefore not a “particular” of the assessment which could be the subject of an objection. There is no other mechanism to object, with the consequence that there is no reviewable objection decision which could found a review in the Administrative Appeals Tribunal or “appeal” to this Court under Part IVC.

(italic emphasis in original; bold emphasis added)

344    At [6] to [20], Justice Thawley discussed in some detail the PAYG regime which, as his Honour noted at [6], replaced the former PAYE regime from 1 July 2000.

345    At [21] to [24], his Honour explained:

21    Withholding under the PAYG regime, like deductions under the PAYE regime, do not form part of the process of assessment: Federal Commissioner of Taxation v Ryan (1998) 82 FCR 345 at 363-4 (Merkel J, with whom Burchett and French JJ agreed); Constantinidis v Federal Commissioner of Taxation (2004) 55 ATR 348 at [72] (Hill J); David Cassaniti at [174] and [175] (Edmonds J).

22    The credit to which an entity is “entitled” under s 18-15(1) arises only “if an assessment has been made of the income tax payable, or … that no income tax is payable”. The entitlement to a credit by reason of s 18-15(1) only arises once the assessment is made: Cumins v Deputy Commissioner of Taxation (2007) 68 ATR 39 at [20] (French, Tamberlin and Stone JJ).

23    A reference to the amount of a credit or to a nil credit or to the fact that there had been an adjustment to credits might appear in the notice of assessment (and did in the notices of assessment in this case), but such references are not a “particular” of the assessment. Rather, they are a particular of the statement of account between the taxpayer and the Commissioner: Ryan at 363-4; David Cassaniti at [175].

24    The production of a notice of assessment as contemplated by s 350-10(1) of Schedule 1 (formerly s 177(1) of the Income Tax Assessment Act 1997) does not conclusively prove the amount of the credit appearing in the notice of assessment (in this case an adjustment of claimed credits to nil credits). In recovery proceedings, a taxpayer would be at liberty to prove that his employer withheld amounts and that he was entitled to a credit under s 18-15(1) and the production by the Commissioner of a notice of assessment in such proceedings would not be a barrier: Perdikaris at [21]; David Cassaniti at [175].

(bold and italic emphasis in original)

346    It is worthwhile to set out the views expressed in some of the authorities referred to by his Honour in the above passage.

347    In Commissioner of Taxation v Ryan [1998] FCA 320; (1998) 82 FCR 345, Merkel J stated at 363 to 364:

As the fixing of the taxable income and the tax payable thereon are two essential ingredients of an assessment made under s 166 the amendment of these ingredients will constitute an amendment of the assessment in a "particular" for the purposes of s 170(3). Such an amendment may be contrasted with an amendment of an amount included in the notice of assessment as a credit for a group certificate or provisional tax which might be an amendment of a particular of the notice but is not an amendment of a particular of the assessment: see Webb v Commissioner of Taxation (No 2) at 400-401; Prestige Motors v Commissioner of Taxation (1993) 47 FCR 138 at 145; Commissioner of Taxation v Clyne (1982) 60 FLR 45 and Commonwealth v Opiel (1986) 18 ATR 374; 86 ATC 5013. In essence these cases decide that details such as provisional tax and other amounts standing to the credit of a taxpayer, which are relevant to calculating the taxpayer's liability to pay the tax assessed on the taxable income, are particulars of the statement of account between the taxpayer and the Commissioner but are not particulars of the assessment for the purposes of the Act and, in particular, s 170.

(italic emphasis in original; bold emphasis added)

348    In Constantinidis v Federal Commissioner of Taxation [2004] FCA 397; (2004) 55 ATR 348, Hill J explained at 363 [72]:

Relevantly PAYE tax is not part of the tax assessment process as such. The Commissioner was obliged to make an assessment under s 166 or 167 of the ITAA 1936. An assessment in its defined sense means, relevantly, ‘‘the ascertainment of … the amount of taxable income … and of the tax payable on that taxable income …’’. The tax which is deducted and paid to the Commissioner forms an integer in determining the amount ultimately payable to the Commissioner for the year of income but not an integer of the assessment itself. Section 223 is concerned with determining what the tax assessed would be and what thus is payable by the taxpayer under the assessment, not that amount after credit is given for the PAYE tax withheld.

(bold emphasis added)

349    In Cassaniti v Federal Commissioner of Taxation [2010] FCA 641; (2010) 186 FCR 480 at 512 to 513 ([175] to [176]), Edmonds J stated:

174    Both parties accepted that withholding under the PAYG regime, like deductions under the PAYE regime, did not form part of the assessment process: see Constantinidis v Federal Commissioner of Taxation (2004) 55 ATR 348 at [72] per Hill J. On the back of this common ground, the taxpayer submitted that the Commissioner was not entitled, and does not have the power, to assess the taxpayer (the year of income ended 30 June 2004), or amend the assessment (the years of income ended 30 June 2002 and 2003) of the taxpayer, so as to disallow the credit provided for by s 18-15(1). The credit is not part of the process of assessment, so the argument went, and accordingly is not a matter that the Commissioner may allow or disallow in undertaking that task. Reference was made to what Merkel J (with whom Burchett and French JJ agreed) said in Federal Commissioner of Taxation v Ryan (1998) 82 FCR 345 at 363-364:

As the fixing of the taxable income and the tax payable thereon are two essential ingredients of an assessment made under s 166 the amendment of these particulars will constitute an amendment of the assessment in a “particular” for the purposes of s 170(3). Such an amendment may be contrasted with an amendment of an amount included in the notice of assessment as a credit for a group certificate or provisional tax which might be an amendment of a particular of the notice but is not an amendment of a particular of the assessment: see Webb v Commissioner of Taxation (No 2) at 400-401; Prestige Motors v Commissioner of Taxation (1993) 47 FCR 45 at 145; Commissioner of Taxation v Clyne (1982) 60 FLR 45 and Commonwealth v Opiel (1986) 18 ATR 374; 86 ATC 5013. In essence these cases decide that details such as provisional tax and other amounts standing to the credit of the taxpayer, which are relevant to calculating the taxpayer’s liability to pay the tax assessed on the taxable income, are particulars of the statement of account between the taxpayer and the Commissioner but are not particulars of the assessment for the purposes of the Act and, in particular, s 170.

175    With respect, again the submission is misconceived. It can be accepted that a credit for PAYG withholding which appears on a notice of assessment arises only by reason of the operation of s 18-15(1), and not as part of the assessment process. The credit is not a particular of the assessment; rather, as Merkel J said in Ryan, it is a particular of the statement of account between the taxpayer and the Commissioner. It is a particular which is not protected by the privative provisions of s 177(1) of the ITAA 36; in other words, the production of the notice of assessment is not conclusive evidence that the amount of the credit is correct; and if a person can show that the total of the “amounts withheld from withholding payments” made to the person during an income year is greater than the amount (if any) of the credit for PAYG withholding shown on the notice of assessment for that year, then the person will be entitled to a credit for the greater amount and nothing contained in the notice of assessment will prevent that outcome. This, in my view, is a complete answer to the taxpayer’s submission in relation to the 2004 year. In relation to the two earlier years, while the issue of the notices of amended assessment for the years of income ended 30 June 2002 and 2003 did not complete a process of amendment of the taxpayer’s assessments for those years, because the only adjustment in each of those years was on account of the reversal of the PAYG withholding credit included in the original notices of assessment, it does not follow that the issue of the notices was beyond power; all it means is that, contrary to what they purport to be, they are not notices of amended assessment to which objection may be made, but rather notices of restatement of account between the taxpayer and the Commissioner. More importantly, for present purposes, there were assessments in each of the relevant years of income so as to satisfy the para (a) condition of s 18-15(1) and so activate the taxpayer’s entitlement to any credit for PAYG withholding, but only to the extent provided for therein, namely, “the total of the amounts withheld from withholding payments made to the [taxpayer]”.

(italic emphasis in original; bold emphasis added)

350    In Cumins v Deputy Commissioner of Taxation [2007] FCAFC 207; (2007) 68 ATR 39 at 44 [20], French, Tamberlin and Stone JJ explained:

…The date of the accrual to Mr Cumins of credit in respect of PAYG deductions was to be assessed by reference to s 18-15 of Sch 1 to the TAA. There was no reason not to give effect to that statutory provision. Mr Cumins only became entitled to the credit once the assessment was made for the tax year in respect of which the PAYG deductions were made. ...

(bold emphasis added)

351    In his written submissions, counsel for Mr Hadzic accepted that the propositions of law stated in Price were correct.

352    Counsel for Mr Hadzic also submitted that the Tribunal erred in finding that it did not have jurisdiction because, unlike Price, there were issues before the Tribunal in respect of which it clearly had jurisdiction. I do not accept this submission. The presence of jurisdiction with respect to one issue does not confer jurisdiction with respect to issues in respect of which there has been no conferral of jurisdiction by statute. To borrow an expression, there is no “accrued jurisdiction” in the Tribunal.

353    In his oral submissions, counsel for Mr Hadzic contended that the authorities relied upon by Justice Thawley in Price were not applicable to the present case by reason of an amendment made to s 166 of the ITAA 1936 by the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (Cth) (Amending Act) (s 3 and Schedule 5, item 14). Following that amendment – which changed s 166 so as to, inter alia, add subsection (c) – s 166 read:

166     Assessment

From the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources, the Commissioner must make an assessment of:

(a)     the amount of the taxable income (or that there is no taxable income) of any taxpayer; and

(b)     the amount of the tax payable thereon (or that no tax is payable); and

(c)     the total of the taxpayer’s tax offset refunds (or that the taxpayer can get no such refunds).

354    Counsel for Mr Hadzic submitted that the PAYG credits are “tax offset refunds” within the meaning s 166(c) of the ITAA 1936.

355    As counsel for the Commissioner pointed out, this submission does not withstand scrutiny when regard is had to the meaning of the expression “tax offset refund”. In particular:

(1)    “tax offset refund” is defined in s 995-1(1) of the ITAA 1997 as follows:

tax offset refund, of yours for an income year, means a refund you can get as mentioned in item 40 of the table in subsection 63-10(1) (refundable tax offsets) for the income year.

(bold and italic emphasis in original) ;

(2)    item 40 of the table in s 63-10(1) of the ITAA 1997 identifies a “Tax offset that is subject to the refundable tax offset rules (see Division 67)”;

(3)    Division 67 provides refundable tax offset rules. By dint of s 67-20, that Division applies only to tax offsets that are subject to the refundable tax rules; and such offsets are identified in Division 67; and

(4)    I was not directed to any provision that provided that PAYG credits are a tax offset that is subject to the refundable offset rules and none is apparent.

356    It follows that the amendments introduced by the Amending Act had no effect upon the conclusions reached in the cases described by Justice Thawley in Price.

357    Thus, the Tribunal lacked jurisdiction to determine the issue as to PAYG credits; and it was correct to take that position.

358    In those circumstances, there is no utility in addressing the question whether, assuming the Tribunal had jurisdiction, it erred in finding that Mr Hadzic was not entitled to any credit for PAYG withheld by his then employer.

359    For the reasons set out above the appeal, in so far as it is based upon grounds 5 and 6, must be dismissed.

K.    QUESTION 7 – REJECTION OF EVIDENCE

360    I turn now to the seventh question, which concerns the Tribunal’s reasoning with respect to the remaining deposits discussed at C.7 above.

K.1    The Tribunal’s reasoning

361    As noted at [72] above, the Tribunal first considered the evidence of the three accountants from Freewater Accountants and held that very little weight could be placed upon their evidence. It then considered the individual “issues”.

362    The Tribunal’s reasoning with respect to the evidence of the accountants was as follows.

363    At T[202], the Tribunal stated (as written):

There evidence is summarised below. The Tribunal finds the Freewater accountants’ evidence to have little, if any, probative value. None of these witnesses were engaged by [Mr Hadzic] during, prior to or immediately after the 2017 Year. Freewater Accountants were not engaged until April 2019. None of the witnesses were able to give contemporaneous evidence. The evidence submitted lacked sufficient particularity.

364    As to Mr Muir, the Tribunal observed (at T[203] to [212]):

(1)    Mr Muir, a senior accountant, was engaged by Mr Hadzic on 30 April 2019 to provide advice and assist with the preparation of outstanding tax returns including the 2017 year;

(2)    Mr Muir assigned Ms Adams and Ms Ooi to undertake qualitative research, preparation and validation functions associated with preparing the income taxation return and audit response;

(3)    Mr Muir declared that “we have been careful to check the basis of answers supplied to the ATO on behalf of [Mr Hadzic] against source documents, including [Mr Hadzic’s] business records which were supplied to us as we needed them… I can further state that the team ensured they tested the accuracy of all claims regarding the source of the bank deposits that the ATO classified as unexplained revenue, with [Mr Hadzic’s] explanations being supported by descriptions of loans on deposit slip and/or third-party confirmation”;

(4)    Mr Muir did not particularise in his statement the questions asked of Mr Hadzic, or the answers supplied;

(5)    Mr Muir described the documents provided to him by Mr Hadzic as including:

(a)    the notice of default assessment;

(b)    the ATO’s reasons for decision;

(c)    Mr Hadzic’s declaration;

(d)    Mr Hadzic’s bank accounts;

(e)    the Trust’s tax return;

(f)    information provided by the liquidators of Futureproof;

(6)    the only “source” document in that list is Mr Hadzic’s bank accounts. In the Commissioner’s “Guidelines to accessing professional accounting advisers' papers” the Commissioner sets out that source documents would include:

2.1 …papers prepared in connection with the conception, implementation and formal recording of a transaction or arrangement and which explain the setting, context and purpose of the transaction or arrangement. These documents are source documents because, in effect, they explain the basis and form part of the fabric of the transaction or arrangement.

Documents and papers of this nature can be an integral part of the process leading up to a transaction or an arrangement or to the recording of a transaction or an arrangement in the formal books of account or the tax return.

Traditional accounting records such as ledgers, journals, working papers for financial statements (including consolidated financial statements), profit and loss accounts, balance sheets are obvious source documents. ;

(7)    other source documents include tax working papers which have been used for assembling and compiling information necessary to complete an income tax return;

(8)    Mr Muir did not particularise nor explain:

(a)    what aspects of Mr Hadzic’s declaration were relied upon. Although at the hearing Mr Muir acknowledged that Mr Hadzic’s original instructions that the $101,000 deposit was from the sale of the Weston Property were incorrect and that that amount should have been included as income received from the employer;

(b)    the “third-party confirmation” he received from the employer’s liquidators;

(c)    how the accuracy of the claims were tested;

(9)    this material was not before the Tribunal;

(10)    Mr Muir was not Mr Hadzic’s accountant during the 2017 year and was not able to give contemporaneous evidence; and

(11)    for the above reasons, very little weight could be given to Mr Muir’s evidence.

365    As to Ms Ooi, the Tribunal observed at T[213] to [218] that:

(1)    she was part of the team engaged by Mr Hadzic to prepare his outstanding tax returns and to respond to the ATO audit and was the primary accountant responsible for the conduct of Mr Hadzic’s affairs;

(2)    her evidence was that:

(a)    she met regularly with Mr Muir and Ms Adams and:

I have been confident that Freewater’s endeavours were and based on documentary evidence (including source documents as required) and undertaken to ensure [Mr Hadzic’s] tax returns and answers to ATO queries were accurate and complete. ;

(b)    the accuracy of all claims by Mr Hadzic was tested by the Freewater accountant team and that Mr Hadzic was frequently asked for documents or explanations regarding the source of the bank deposits under question by the ATO as unexplained revenue;

(c)    Mr Hadzic’s explanations were tested against the business records, and they found no concealed income; and

(d)    she also received instructions from Mr Hadzic Snr.

366    The Tribunal noted that:

(1)    the particulars of the instructions provided, the answers given, the business records provided, and how the answers were tested against the business records, were not set out in Ms Ooi’s statement;

(2)    Ms Ooi was not Mr Hadzic’s accountant during the 2017 year and was not able to give contemporaneous evidence; and

(3)    for the above reasons, very little weight could be given to Ms Ooi’s evidence.

367    As to Ms Adams, the Tribunal observed (at T[219] to [224]) that:

(1)    she was part of the team engaged by Mr Hadzic to prepare his outstanding tax returns and to respond to the ATO audit;

(2)    her evidence was that:

… The team ensured that we tested the accuracy of all claims regarding the source of the bank deposits which the ATO sought categorised as unexplained revenue, as sought [Mr Hadzic’s] explanations which were checked against tangible evidence.

however, the particulars of the instructions provided, the answers given, the business records provided, and how the answers were tested against the business records, were not set out in Ms Adams’s statement;

(3)    she acknowledged that Mr Hadzic’s original instructions that a $101,000 deposit was from the sale of a house had been incorrect and should have been included as income received from the employer;

(4)    she was not Mr Hadzic’s accountant during the 2017 year and was not able to give contemporaneous evidence; and

(5)    for the above reasons, very little weight could be given to Ms Adams’s evidence.

368    The Tribunal then addressed the particular “issues” (see C.7.3 above).

369    On this “appeal”, counsel for Mr Hadzic addressed only Issue 2 and submitted that the submissions with respect to that issue were equally applicable to the remaining issues.

370    Hence, only the Tribunal’s treatment of Issue 2 is addressed below.

371    That issue concerned deposits totalling $68,293.58.

372    The Tribunal commenced its examination of that issue by noting that a review of Mr Hadzic’s bank accounts indicated that he received $68,293.58 from Futureproof for the 2017 year. The entries are described in Mr Hadzic’s bank accounts as “Fpe materials” (T[238]).

373    The Tribunal noted (at T[239] to [240]) Mr Hadzic’s evidence that:

(1)    these deposits were not income but were repayments or reimbursements from Futureproof for expenses which Mr Hadzic had incurred on its behalf;

(2)    the expenses were for electrical and other items required to perform his role for Futureproof;

(3)    he incurred these expenses to keep Futureproof viable; and

(4)    on other occasions when he had done this, Futureproof had always repaid him.

374    The Tribunal noted that:

(1)    there was also no particularity or evidence about Futureproof’s financial viability (T[241]);

(2)    Mr Hadzic relied upon screenshots from the employer’s MYOB file which he had obtained from its administrator (T[242]); and

(3)    Mr Hadzic said that his accountant also relied upon this MYOB file information to prepare his income taxation return and “the liquidator has confirmed this understanding” (T[243]).

375    The Tribunal then reasoned as follows:

244.    In Anglo American, Logan J was taken to accounting entries purporting to demonstrate proof of the existence of a loan. Logan J found that:

[187] These accounting entries offer some evidence, inferentially, of the claimed loan: Richard Walter, at 247, per Hill J. However, they offer no evidence as to the terms of the loan, including whether any interest was payable in respect of the loan and, if so, on what basis. Further, they are not, on the balance of probabilities, conclusive as to the existence of the claimed loan.

245.    Similarly, here, MYOB entries, are not conclusive evidence. The description in the entries themselves, are not automatically inputted, they have to be populated by someone. The evidence merely tells us that someone made these entries. It is not proof of the contents described therein. The Tribunal has no knowledge of when the MYOB entries were made or who made them.

246.    There is no other corroborating material. [Mr Hadzic] says he lost all his business records in the NSW fires in December 2019. This is not disputed by [the Commissioner]. However, as [the Commissioner] notes, what business records existed have not been identified. The Tribunal does not know where those records were maintained. There is no evidence of what records have been sought from third parties with relevant knowledge/information.

247.    There is no evidence of any attempt by [Mr Hadzic] to reconstruct these records. There is no evidence of any attempt to summons relevant records from the bank or the employer over the course of the last two years.

248.    There has been no attempt by [Mr Hadzic] to identify what the purchased materials were or for which project/job site they were purchased. [Mr Hadzic] says the director of the employer denied him access to his records. There is no particularity or detail – When? Where? Why? How? No evidence of any other attempts to obtain these records is before the Tribunal. Evidence that he was denied access to records is inconsistent with the fact that on the last day of hearing the payslips were tendered and had apparently been obtained from [Futureproof’s] liquidator. No information or explanation from [Futureproof’s] liquidator was before the Tribunal. [Mr Hadzic] could have requested the Tribunal issue summons to relevant parties to obtain records. No such request was ever made.

249.    [Mr Hadzic] could have attempted to collate:-

•    Business records – even if not complete

•    Particulars of or statements from clients or persons who were aware of the Applicant’s activities

•    Accounting records

•    Calendar entries (electronic or otherwise) to show jobs undertaken

•    Text messages

•    Client names

•    Addresses of worksites

•    Particulars of the materials purportedly purchased.

250.    No explanation of any attempts made by [Mr Hadzic] to reconstruct these events was provided.

251.    In the circumstances the Tribunal is not satisfied on the balance of probability that these deposits were reimbursements for expenses. This amount therefore remains as part of [Mr Hadzic’s] assessable income.

(italic emphasis in original)

K.2    Question 7 and ground 8

376    I turn now to question 7 and ground 8.

377    Question 7 is:

Whether the Tribunal erred by rejecting objective evidence in determining issues 2-12 in its Decision at pars 240-314 or otherwise by giving no weight or little weight to the evidence of the three public accountants called as witnesses for the applicant on the grounds, firstly, that they had not been retained by the applicant during the 2017 income year, and, secondly, that they were unable to give any contemporaneous evidence about the applicant’s 2017-year taxation affairs, notwithstanding their uncontradicted evidence:

(1)    that their evidence about the applicant’s 2017-year income did indeed rely upon their first-hand review of the contemporaneous 2017-income year accounting records which were available to them during their retainer from the applicant;

(2)    that those contemporaneous accounting records had been returned to the applicant at the end of their retainer for safe-keeping as his own records; and

(3)    that those 2017-year accounting records had been destroyed in a catastrophic bushfire which destroyed the applicant’s home on 31 December 2019?

378    The eighth ground of appeal is:

The Tribunal erred by rejecting objective evidence in determining issues 2-12 in its Decision at pars 240-314 or otherwise by giving either no weight or little weight to the evidence of the three public accountants called as witnesses for the applicant (“accountants’ evidence”) on the grounds, firstly, that they had not been retained by the applicant during the 2017 income year, and, secondly, that they were, therefore, unable to give any contemporaneous evidence about the applicant’s 2017-year taxation affairs.

(italic and bold emphasis added)

379    The references in that question and the eighth ground to paragraphs [240] to [314] of the Tribunal’s decision should be references to paragraphs [238] to [312] of that decision.

K.3    Consideration

380    Counsel for Mr Hadzic made a series of submissions criticising the approach taken by the Tribunal in its assessment of Issue 2. Properly analysed those submissions express dissatisfaction with the manner in which the Tribunal weighed the evidence before it on that issue; and the submissions invite the Court to engage in impermissible merits review.

381    The approach taken by the Tribunal in weighing the evidence before it was well-open to it. No suggestion was made in the question nor in submissions that the Tribunal’s approach amounted to legal unreasonableness. Nor could such a suggestion have properly been made.

382    For completeness, I note that had I found error with respect to Issue 2, I would not have accepted that such error applied to the remaining issues. It would have been necessary to consider those issues individually.

383    For the reasons set out above the appeal, in so far as it is based upon question 7, must be dismissed.

L.    QUESTION 10 – PENALTY TAX

384    I turn now to the tenth question, which concerns penalty tax.

L.1    The Tribunal’s reasoning

385    At T[26], in the course of setting out the issues for determination, the Tribunal stated:

The Tribunal also has to consider whether the administrative penalty was incorrectly imposed and if so, whether the penalty should be remitted.

386    The Tribunal addressed the question of penalty tax at T[316] to [330]. At T[316] to [323], the Tribunal described the legislative framework as follows:

316.    Administrative penalties can be imposed pursuant to s 284–75(3) of Schedule 1 to the TAA in the following circumstances:

284-75 Liability to penalty

(3)    You are liable to an administrative penalty if:

(a)    you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

(b)    that document is necessary for the Commissioner to determine a * tax- related liability (other than one arising under the * Excise Acts) of yours accurately; and

(c)    the Commissioner determines the tax-related liability without the assistance of that document.

Note:    You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C.

317.    The base administrative penalty is 75% of the relevant tax related liability. The base penalty is increased by 20% if the taxpayer “took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount, or the false or misleading nature of a statement, in relation to which the base penalty amount was calculated”.

318.    Pursuant to s 298–20 of Schedule 1 of the TAA the Commissioner has the power to remit all, or part of the penalty amount calculated.

319.    The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice Statement Law Administration PSLA 2014/4 (“PS 2014/4”) explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) of the TAA and how that penalty is assessed including any remission.

320.    Pursuant to paragraph 27 of PS 2014/4 a relevant matter for the remission of a penalty includes “a major objective of the penalty regime is to promote a consistent treatment by reference to specified rates of penalty” and that this objective could be compromised if penalties are omitted without just cause or as a matter of course.

321.    Paragraph 28 of PS 2014/14 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:

•    an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, their obligation

•    an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge

•    the amount of penalty imposed by law causes an unjust result

•    there were credits available to offset the amount of the tax-related liability payable, or

•    there was extraordinary cooperation during an examination.

322.    The Commissioner has also issued a ruling, Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted (“TR 94/7”). TR94/7 provides relevantly:

The discretion to remit penalty otherwise attracted under a shortfall section should be exercised in only those exceptional cases where, having regard to all of the circumstances, the application of a particular shortfall section and/or the rate of penalty prescribed under that section would provide a clearly unreasonable or unjust result.

Consideration

323.    Section 286-75(1A) of Schedule 1 to the TAA 53 provides:

(1A)     However, you are not liable to an administrative penalty under subsection (1) if:

(a)    you engage a *registered tax agent or BAS agent; and

(b)    you give the registered tax agent or BAS agent all relevant taxation information to enable the agent to give a return, notice, statement or other document to the Commissioner in the *approved form by a particular day; and

(c)    the registered tax agent or BAS agent does not give the return, notice, statement or other document to the Commissioner in the approved form by that day; and

(d)    the failure to give the return, notice, statement or other document to the Commissioner did not result from:

(i)    intentional disregard by the registered tax agent or BAS agent of a *taxation law; or

(ii)    recklessness by the agent as to the operation of a taxation law.

(1B)     If you wish to rely on subsection (1A), you bear an evidential burden in relation to paragraph (1A)(b).

(italic and bold emphasis in original; footnotes omitted)

387    The Tribunal then reasoned as follows (at T[324] to [330]):

324.    The penalty notice states that [Mr Hadzic] was in breach of providing a document namely his income tax return for the 2017 Year before 21 November 2017. However, [Mr Hadzic] submits that he was not required to lodge his return for the 2017 year until 31 May 2018 because he had a registered accountant. [The Commissioner] accepts the latest possible date for any taxpayer to lodge its returns in the 2017 income year was 31 May 2018.

325.    Even if [Mr Hadzic] had engaged a registered tax agent, he still had not lodged his [income taxation return] by 31 May 2018. [Mr Hadzic’s] accountant submitted an [income taxation return] for the 2017 Year on 29 October 2019. The NOAs were administered after 31 May 2018.

326.    [Mr Hadzic], in his evidence, did not seek to rely on the engagement of a tax agent, as an excuse. He referred to his failure to lodge on time as being unintentional, and due to his being distracted by the Federal Court Proceedings. He also raised the fact that at the time it was due his accountant had moved, and he had to engage a new firm to prepare his [income taxation return], lodge his objections and so on.

327.    The Tribunal finds the penalty was appropriately imposed.

328.    Should it be remitted in whole or part having regard to the taxpayer’s particular circumstances?

329.    [Mr Hadzic] has not made any submissions in this regard.

330.    As a result, the Tribunal affirms the [Hadzic Penalty Decision].

(footnotes omitted)

L2.    Question 10 and ground 12

388    Question 10 is:

Whether the Tribunal erred (at TD [331]-[332]) when it concluded that the applicant did not make any submissions on the imposition and remission of penalty tax so that the Tribunal had no alternative than to affirm the decision on penalties notwithstanding, firstly, that the applicant directed specific submissions on penalties in paras 68-76 of his written submissions on the review dated 28 February 2023 and, secondly, that he had made an independent submission that penalty tax could not be imposed for late lodgement of a return in circumstances in which the ATO Portal for lodgement of tax documents was closed to the applicant on the date on which the audit into his tax affairs had commenced, which was a date before the due date for the lodgement of his return for the 2017 income year, and that such a return was instead lodged by email?

389    The twelfth ground of appeal is expressed in relevantly identical terms.

390    The reference in question 10 and ground 12 to paragraphs [331] and [332] of the Tribunal’s decision should be references to paragraphs [329] and [330] respectively.

L.3    Consideration

391    The Tribunal’s Decision indicates that it recognised that there were two questions involved: (1) was penalty tax appropriately imposed (imposition question); and (2) if so, should it be remitted in whole or in part pursuant to the discretion conferred by s 298-20 of Schedule 1 to the TAA (remission question): T[26]; [316] to [329]. As Justice Kenny stated in Nguyen at 402 [180]:

… there is a distinction, recognised by those familiar with the applicable taxation legislation, between the imposition of penalty (under an imposition of penalty provision) and the remission of penalty under s 298-20 of Sch 1 to the Administration Act after a relevant penalty has been imposed.

392    The essence of question 10 is a contention that the Tribunal erred in concluding that Mr Hadzic made no submissions concerning the imposition question or the remission question.

393    The contention that the Tribunal concluded that Mr Hadzic made no submissions on the imposition question is untenable. The Tribunal made no such finding – its conclusion at T[329] related only to the remission question. Further, the Tribunal addressed submissions made by Mr Hadzic on the imposition question at T[324] to [326] and concluded at T[327] that the penalty had been appropriately imposed.

394    I turn now to the contention that the Tribunal erred in concluding that Mr Hadzic made no submissions on the remission question.

395    As is plain from T[329] to [330], the Tribunal stated that Mr Hadzic made no submissions on the remission question. Thus, the question becomes whether or not he made such submissions, which the Tribunal ignored.

396    The submissions which Mr Hadzic says he made and which were ignored are set out in paragraphs [68] to [76] of the closing written submissions lodged with the Tribunal on behalf of Mr Hadzic. However, those submissions addressed the imposition question and not the remission question.

397    This point was made in the closing written submissions lodged with the Tribunal on behalf of the Commissioner which stated, at paragraph [41] on the topic of the remission question:

The question then becomes, should the Commissioner exercise his discretion to remit penalties in whole or in part under section 298-20 of the TAA 1953. The relevant question to be determined when exercising the discretion to remit is: whether the Commissioner is satisfied, having regard to the taxpayer’s particular circumstances, that it is appropriate to remit the penalty in whole or in part: see Sanctuary Lakes Pty Ltd v FC of T. The applicants do not appear to have advanced a position with respect to the basis on which the decision not to remit was incorrect.

(italic emphasis in original; bold emphasis added)

398    It follows that the Tribunal’s view, expressed at T[329] to [330], that Mr Hadzic made no submissions on the remission question, was a view that was well-open to the Tribunal. I am not persuaded that the Tribunal erred by failing to address submissions advanced on behalf of Mr Hadzic on that question.

399    For the above reasons the appeal, in so far as it is based upon question 10, must be dismissed.

M.    CONCLUSION

400    For the foregoing reasons, the appeal must be dismissed. There appears to be no reason why costs should not follow the event. I will make orders accordingly.

Associate:

Dated:    17 July 2026