SAMBA v FC of TMembers:
M Allen M
Administrative Appeals Tribunal
MEDIA NEUTRAL CITATION:
 AATA 1346
M Allen (Member)
This is an application by Mrs Deirdre Samba for review of the respondent's deemed disallowance of her objections to the amended assessments issued by the respondent for the years ended 30 June 1996, 1997 and 1998.
2. Based on the oral and documentary evidence tendered in the proceedings the following findings can be made by way of background to the proceedings.
3. Mrs Samba was married to Mr Les Samba in 1979 and there are two children of the marriage, born in 1980 and 1983. For some years prior to 1995 Mr Samba was a full-time horse trainer but had retired by 1995 and did not derive any income from horse training in the years in question in these proceedings. Throughout the relevant period Mrs Samba was employed as a receptionist.
4. In March 1997 Mrs Samba submitted her income tax return for the year ended 30 June 1996. The return disclosed salary and wages of $19,051.00 as the only income and the respondent issued an assessment for that year in April 1997 based upon a taxable income of $19,051.00. In June 1998 Mrs Samba submitted her income tax return for the year ending 30 June 1997. That return disclosed wages and salary income of $18,882.00, interest income of $1,094.00 and a net capital gain from the sale of four horses of $57,171.00. A deduction for work related car expenses of $940.00 was claimed for a total declared taxable income of $76,207.00 and in June 1998 the respondent issued an assessment for the 1997 tax year based upon a taxable income of that amount. Mrs Samba's income tax return for the year ended 30 June 1998 was submitted in January 1999 and disclosed wages and salary income of $17,846.00, interest income of $3,102.00, deductions of $3,948.00 and total capital gains of $10,060.00 - against which were offset net capital losses carried forward of $49,854.00. In February 1999 an assessment for that year was issued on the basis of a taxable income of $17,000.00.
5. In August 1997 the respondent received information from the Western Australian Turf Club (WATC) and the South Australian Thoroughbred Racing Authority (SATRA) concerning the involvement of Mr and Mrs Samba in the purchase and sale of a number of horses. The information suggested that Mr and Mrs Samba may have had access to a substantial amount of funds and may have derived profits from the sale of horses in 1996
ATC 2006and 1997. At that time Mrs Samba had lodged tax returns up to the year ended 30 June 1996 and Mr Samba had lodged tax returns up to the year ended 30 June 1995. The respondent commenced an investigation of the financial and taxation affairs of Mr and Mrs Samba in August 1997 in relation to the years ended 30 June 1996 and 1997. The investigation was subsequently expanded to include the year ended 30 June 1998. The investigation involved obtaining information from Mr and Mrs Samba as well as from a number of external sources including the National Crime Authority (NCA), horse racing authorities in Western Australia, South Australia, Victoria and New South Wales, blood stock agents in Western Australia and New South Wales, various horse trainers and agistment and stud farms in Western Australia, horse transport companies, banks, the Immigration Department, Austrac and the Department of Land Titles in South Australia.
6. The investigations carried out were concluded by March 2001 and the respondent concluded that Mr and Mrs Samba had an undisclosed source of funds amounting to $1,277,856.00 for the period 1 July 1995 to 30 June 1998 as follows:
Year Amount -------------------- 1996 $378,961.00 -------------------- 1997 $662,563.00 -------------------- 1998 $236,332.00 --------------------
7. The respondent decided to allocate one- half of the above amounts to each of Mr and Mrs Samba and on 26 April 2001 issued amended assessments for Mrs Samba for the three years covered by the investigation based upon taxable incomes of $208,531.00 for the year to 30 June 1996, $407,488.00 for the year to 30 June 1997 and $135,166.00 for the year to 30 June 1998. After taking account of the tax payable on those taxable incomes, the Medicare levy, additional tax for late returns, and understatement penalty and interest, the amounts due for payment under the amended assessments were $200,713.93 for the 1996 year, $355,353.08 for the 1997 year and $114,262.69 for the 1998 year.
8. In June 2001 Mrs Samba objected to the notices of amended assessments for the three years (T16) on the basis that:
- • she had no undisclosed source of income;
- • she had provided acceptable evidence of how she spent her time and an explanation for her possession of assets;
- • There was no legal basis for rejecting such explanations; and
- • In attributing one-half of the allegedly undisclosed source of funds to her the respondent had acted contrary to the requirements of the Income Tax Assessment Act 1936 (ITAA 1936) and Income Tax Assessment Act 1997 (ITAA 1997).
9. No decision having been made by the respondent in relation to the objection, on 29 August 2001 Mrs Samba required the respondent to make an objection decision pursuant to s 14ZYA of the Taxation Administration Act 1997 (the Administration Act) and advised that if no objection decision were made within 60 days she would proceed in accordance with s 14ZYA(3) of that Act. On 31 October 2001 an officer of the Australian Taxation Office (ATO) informed Mrs Samba's solicitor that no decision had been made on the objection and that the respondent was therefore taken to have made a decision to disallow the objection. Mrs Samba therefore applied to this Tribunal on 2 November 2001 for a review of the deemed disallowance of the objection.
10. Assessments for Mr Samba's share of the undisclosed amounts were also issued to Mr Samba at the same time as those to Mrs Samba. No objection to the assessments was made by Mr Samba and I was informed at the hearing that he has subsequently been declared bankrupt without paying the assessed amounts due.
11. The issue to be determined in these proceedings is whether the amended assessments issued in respect of the three years in question are excessive. Pursuant to s 14ZZK of the Administration Act the onus of proving on the balance of probabilities that the assessments are excessive is on Mrs Samba. In essence, this requires a determination of whether Mrs Samba had access to funds from an undisclosed source that constituted assessable income in her hands.
12. At the hearing Mrs Samba was represented by her solicitor, Mr Sceales, and the Commissioner was represented by Mr E M Corboy SC of counsel. The Tribunal received
ATC 2007into evidence the documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. The Tribunal also received into evidence a number of other documents tendered by the parties; exhibits A1 and A2 on behalf of Mrs Samba and exhibits R1 to R15 on behalf of the Commissioner. Oral evidence was given for the applicant by Mrs Marjorie Thompson and Mrs Samba and for the Commissioner by Mr Darryl Freame.
13. Before dealing with the oral evidence given at the hearing it is appropriate to outline the methodology used and conclusion of the audit conducted by the Commissioner into the tax affairs of Mr and Mrs Samba.
14. The purpose of the audit was to inquire into whether Mr and Mrs Samba had access during the audit period to a source of funds not disclosed in their tax returns and whether those funds constituted assessable income in their hands. The methodology of the audit and the report prepared subsequently in relation to it was to trace the cash expended by Mr and Mrs Samba on horses and other items in each year of the audit period and to compare those amounts with the cash and other sources of funds identified as being available to fund the expenditure. The difference represented the alleged amount of the undisclosed source of funds.
15. The result of the audit was a lengthy report, including Appendices A to J, (which showed how the allegedly undisclosed source of funds was calculated for the three years of the audit period) and Attachments A, B and C - which provided, respectively, analyses of the many cash transactions identified, the horse- related activities undertaken by Mr and Mrs Samba, and the gambling activities of Mr Samba.
16. The analyses undertaken were based on information provided by Mr and Mrs Samba or obtained from third parties. Throughout the period of the investigation Mr and Mrs Samba had the benefit of legal and accounting advice and there was considerable liaison between the officers of the Commissioner and Mr and Mrs Samba and their advisors.
17. In addition, during the period in which the audit was being undertaken Mr and Mrs Samba were interviewed by the NCA in relation to their financial affairs and their association with another person whose name was mentioned in these proceedings several times and whom I shall refer to as Mr A. The Commissioner's investigators had access to the evidence given to the NCA.
18. In relation to the cash funds expended by Mr and Mrs Samba, the investigators examined horse-related expenditure, bank accounts, property-related expenditure, loan repayments to financial institutions, motor vehicle-related expenditure, interstate and overseas travel, payments on an American Express card and ANZ Visa card, private loans, purchase of shares and paintings, general living expenses and non-agistment expenses.
19. In relation to horse-related expenditure, the investigators examined expenditure in connection with 32 horses that were registered to the names of Mr and/or Mrs Samba in the period 1 July 1995 to 30 June 1998. Of those horses, 26 were registered solely to Mrs Samba, one was registered to Mr and Mrs Samba, two were registered solely to Mr Samba and three were registered to Mrs Samba and third parties.
20. Throughout the course of the audit Mr and Mrs Samba maintained that they did not keep records of the expenditure incurred on the purchase and upkeep of the horses. They estimated the date and the amount of the purchase for each horse, but they were unable to provide estimates of the upkeep costs because they could not recall where the horses were stabled or agisted. They relied heavily on cash to pay for horse-related expenditure. The investigators prepared a separate schedule of expenses for each horse over the three year period, examining the purchase and sale transactions and estimating the maintenance expenses for the horses including agistment fees, stud and farm expenses, and trainers' fees. The report concluded that the amount of cash expended on the purchase and maintenance of horses for the period of the audit was as follows:
1996 1997 1998 ----------------------------------------- Purchase Price $223,500.00 $506,000.00 $169,000.00 ----------------------------------------- Maintenance $32,528.00 $93,461.00 $142,168.00 ----------------------------------------- TOTAL $256,028.00 $599,461.00 $311,168.00
21. In relation to identified cash funds available, the investigators considered as a source of cash funds expended cash on hand at 1 July 1995, cash proceeds from the sale of horses, cash wages received by Mrs Samba from her employment and cash withdrawals from bank accounts.
22. The investigation having identified that Mr and Mrs Samba apparently had an undisclosed source of funds of more than $1.2m in the audit period, Mr and Mrs Samba submitted to the investigators that the source of those funds was the winnings from Mr Samba's gambling on horses. In an attempt to verify this claim the investigators obtained information from Mr and Mrs Samba as well as from TAB records, bookmaker's cheques, cash deposits in bank accounts described as gambling wins, newspaper clippings of winning horses previously trained by Mr Samba, statements from bookmakers and a friend confirming Mr Samba's gambling, a record of Mr Samba's betting transactions for a period of nine months and a number of betting tickets relating to 11 horses.
23. In October 1997 the investigators suggested to Mr Samba that he maintain a record of betting for a period of six months to support the claim that he betted regularly and could derive substantial funds from gambling. That suggestion was not accepted at the time it was made but, on 31 July 2000, Mr and Mrs Samba produced to the investigators a record of what purported to be Mr Samba's betting transactions for the period 5 October 1997 to 27 June 1998. The record consisted of the date of the race meeting, the location of the race meeting, the name of the race horse, the cost of the bet, the net winnings for each race horse and the win dividend for each race horse. A record of the names of the outlets where the betting tickets were purchased was not provided.
24. The investigators identified a number of anomalies in the record. These included that the dates recorded for each betting transaction was the day after each race meeting; on a number of occasions the location of the race meeting was incorrectly recorded; on a number of occasions immigration and other records showed that Mr Samba was overseas when he was reported to have purchased betting tickets; and the record did not include all known betting transactions of Mr Samba. For these and other reasons the investigators concluded that the record provided of Mr Samba's alleged betting transactions was not an accurate account of his gambling activities. The investigators concluded that although there was some evidence Mr Samba gambled on horses there was no persuasive evidence that he derived cash winnings from gambling of the amount he claimed.
25. As noted above, the investigators concluded that Mr and Mrs Samba had an undisclosed source or sources of funds amounting to more than $1.2m over the three years of the audit. They took the view that the undisclosed source should be evenly distributed between Mr and Mrs Samba in those years because they had engaged together in a business or undertook a venture which required joint decision making in relation to:
- • the purchase of horses and in whose name the horses would be registered;
- • who should declare capital gains or losses in relation to the horses;
- • the use of funds in a joint bank account;
- • a decision to place funds in an account in Mrs Samba's name only;
- • the sale of horses (because Mrs Samba as registered owner would have had to agree to the sale);
- • the use of the funds derived from the sale of the horses; and
- • generally, the operation of joint credit cards in respect of which a majority of card payments were made with funds from an undisclosed source.
26. As a consequence of the audit and the allocation of the undisclosed funds to Mr and Mrs Samba amended assessments were raised under s 167 of the ITAA 1936. In addition, a late lodgement penalty and interest was imposed in respect of the 1996 and 1997 years
ATC 2009and tax shortfall penalties were imposed for each of the three years covered by the audit for both Mr and Mrs Samba. For reasons set out in the report it was concluded that Mr and Mrs Samba had made false and misleading statements to the Commissioner's investigators; that this amounted to intentional disregard for the purposes of s 226J of ITAA 1936; and that penalties of 75% should apply to the tax shortfall.
27. Mrs Thompson's evidence consisted of the identification and adoption of a Statutory Declaration that had annexed to it a Statement of Evidence prepared for Mrs Thompson in connection with other proceedings in this Tribunal concerning Mrs Thompson's taxation affairs. So far as I could establish, the proceedings were unrelated to the present ones except insofar as they related to taxation assessments that apparently resulted from a related investigation. It is not necessary to set out in any detail the factual matters covered in the Statement of Evidence other than to note that they concerned dealings in horses by Mrs Thompson and the involvement in those dealings of Mr Samba and Mr A. The relevance of Mrs Thompson's evidence is not immediately apparent: Mr Corboy did not cross-examine her; limited references were made to the way the horses she was involved with had been paid for in the cross-examination of Mr Freame; and neither Mr Sceales nor Mr Corboy made submissions concerning the relevance or significance of her evidence. In my opinion her evidence was not material to the issues before the Tribunal.
28. In her evidence-in-chief Mrs Samba adopted a statement (A2) which, in turn, had annexed to it a transcript of the evidence she had given to the NCA in December 1999 (which was in fact part of the T documents, T9 folios 60 to 141). By her statement Mrs Samba:
- • Clarified some minor discrepancies in the NCA transcript.
- • Confirmed her wage and salary income details.
- • Denied having any undisclosed source of income and said that throughout the audit period she had been employed as a receptionist for three days a week but was otherwise fully engaged in caring for her family and home.
- • Said that she sometimes, but not frequently, attended race meetings.
- • Said that all the assets that she had had been fully accounted for. The amount of $54,000 provided to her by her husband at the time she wanted to buy a house was a gift and represented her half share of the proceeds of the sale of a former house that she and her husband had owned jointly but which she had not received at the time of the sale of that house. The amount of $20,000 given to her in March 1996 by her husband when she purchased a new motor vehicle had been a gift.
- • Said her only interest in the horses and her only involvement with them arose when her husband asked her to complete registration papers and that she was not involved in any way in decisions made to buy, trial, race or sell the horses. In most cases the first she knew of a sale was when her husband told her and gave her a cheque to deposit. When she was asked to sign registration papers relating to a horse it was because the horse needed to be given a name with the registration authorities in order to be able to trial and race. Her involvement with the horses was more of a ``social thing'' than anything else and that it had nothing to do with any plan to acquire the horses for the purpose of sale or as part of a business venture.
- • Identified 24 horses for which she had completed Applications to Register forms as either sole or joint owner.
29. The transcript of evidence given by Mrs Samba to the NCA runs to some 80 pages. Mrs Samba was legally represented at that time. In summary, the evidence given to the NCA by Mrs Samba that appears relevant to the present proceedings includes the following:
- • A history of her husband's horse training activities.
- • The connections of Mr and Mrs Samba with Mr A and various other persons.
- • The various dealings of Mr and Mrs Samba with racing authorities in several States.
- • The banking arrangements of Mr and Mrs Samba.
- • Mrs Samba's practice of keeping business records for her husband when he was in the business of training horses.
- • Mrs Samba's limited involvement in anything to do with horses registered in her name.
- • The family's accumulation of assets over the years.
- • Mrs Samba's lack of knowledge of where her husband acquired his money.
- • That her husband invariably gave her cash to meet family expenses.
- • How Mrs Samba had financed the purchase of her house and the involvement of another person in that.
- • Mr Samba's gambling activities.
- • Mrs Samba's lack of knowledge of her husband keeping a secret store of cash. She said that she knew nothing of such a store and had never discussed such a thing with her husband - but that she had not been surprised when, at an earlier interview at her solicitor's office, her husband had told the ATO investigating officers that he had a store of about $850,000 cash. She had no knowledge of what money her husband may have had at any point in time.
- • Any knowledge that Mrs Samba may have had of a loan made by her husband to the wife of Mr A.
- • Mrs Samba's connections with a horse named Shogun Lodge (of which she was one of several registered owners) and other horses.
- • She had on occasions placed bets for her husband when asked to do so or had arranged for a friend to place bets on behalf of her husband if her husband had asked.
29. Mrs Samba was cross examined extensively about her involvement in providing information to racing authorities about her ownership of various horses and the financial arrangements between she and her husband. I will refer in some detail to aspects of this evidence later in these reasons.
30. Mr Freame is a compliance officer in the ATO. He was one of the investigating officers who conducted the investigation into the taxation affairs of Mr and Mrs Samba and one of the authors of the subsequent report that lead to the issuing of the amended assessments. His evidence in chief consisted of identifying and adopting as his evidence a statement of evidence dated 17 September 2002 (R15). In that statement Mr Freame described:
- • the methodology employed in audits of that kind,
- • how he had prepared an audit plan for the Samba investigation,
- • the sources of and how the information had been obtained in the investigation and collated,
- • the structure of the resultant report and the conclusions reached in it regarding the extent of the undisclosed source of funds, the explanation advanced by the Samba's regarding gambling as the source, and the allocation of the amounts between Mr and Mrs Samba.
31. Mr Freame was cross-examined about the conclusions reached in the report and the reasons for them, including the conclusion that Mr and Mrs Samba had been engaged in a business or venture together in relation to the horses, the way in which the horses had been paid for, how the various amounts had been estimated by the investigators, and Mrs Samba's non-involvement in gambling.
32. Although Mr Samba was not called to give oral evidence (about which I will comment later in these reasons) the transcript of the evidence he gave to the NCA was part of the evidence before me by virtue of being part of the T documents (T11) and references were made to the evidence at various points of the proceedings - in particular in Mr Sceales' cross-examination of Mr Freame. Again the transcript extends to more than 80 pages (with a further 50 pages of exhibits) and what follows is a summary only of the evidence that appears to be pertinent to the present proceedings. Extracting that evidence from the transcript has been something of a difficult task by reason of the generally vague evidence given and the many instances where Mr Samba claimed to be not able to recall specific transactions, events or people.
33. Mr Samba described his occupation as gambler, but he had been a horse trainer up until about 1991 or 1992. On occasions he purchased horses on his own behalf or on behalf of other persons. In the 1980s it had been possible to win large amounts of money
ATC 2011gambling on horses but it was no longer possible to do that.
34. Mr Samba described his memory as being ``very ordinary'' and reconstructing his affairs in order to provide information to the ATO for the investigation had been very painstakingly done over a period of time.
35. He does not bank any winnings from gambling. He does not like banks and only uses them to clear cheques - which he then converts into cash. Any cash he has he hides in a place that he considers secure and has had in excess of $500,000 hidden at times. When asked (T documents p 261) ``is there anyone else who can verify that you ever had cash hidden or stored somewhere?'' Mr Samba answered ``Well, I think [Mrs Samba] is aware that I've got money but, I mean...''. Mr Samba often carries a lot of cash on him. Mrs Samba generally writes out cheques for payments to be made by cheque, but at Mr Samba's direction.
36. Mrs Samba knows nothing about horses and is not a punter. He makes all decisions regarding horses, even if a horse is registered in his wife's name. The horses registered in Mrs Samba's name are gifted to her, but Mr Samba remains responsible for all expenses in connection with the horses. Mr Samba had not purchased any asset and put it in Mrs Samba's name without her knowing about it. In relation to a horse named Shogun Lodge, although a share in the ownership of it had been registered in his wife's name he considered it to belong to both of them. The last offer received to buy that horse had been $2.5 million.
37. After confirming that the answer given to the ATO by the solicitor acting for Mr and Mrs Samba in response to an earlier questionnaire (that Mrs Samba had loaned $35,000 to Mrs A and that Mrs A had repaid the loan) was incorrect because the true position was that Mr Samba had made the loan to Mr A, Mr Samba was asked (at T documents p 249):
``Q So it is your attitude, is it, that with a married couple it is interchangeable who owns the property or whatever?
A What's the difference?
Q Well, why is it then that your wife holds the race horses in her name? What would be the difficulty...?
A Well, I guess it is what I - the way I chose to do it. I'm sure there's very prominent trainers that register...
Q There's no particular reason for it. You say it is neither one or the other?
A I mean that it is something that is commonly done.
Q If it is in [Mrs Samba's] name It's pretty well your property anyway?
A Well, yes. That's the way it's deemed, isn't it.''
The applicant's contentions
38. The case submitted by the applicant can be summarised as follows:
- (a) Section 167 of ITAA1936 does not apply because none of the cases on which its operation is predicated are relevant in this case. The amended assessments are made pursuant to s 170(2) of ITAA1936 - which applies only if there has been an avoidance of tax. It is only through s 170(2) that the Commissioner may then move to s 167.
- (b) The applicant's only taxable income was derived as wages from her part-time employment, interest earned on bank accounts and net capital gains from the disposal of horses owned by her. She has declared and paid tax on her assessable income from those sources.
- (c) She has provided a comprehensive and acceptable explanation of the source of funds used by her to acquire assets during the audit period.
- (d) Any interests she acquired in the horses was the result of gifts made to her by her husband and the presumption of advancement applies as between Mr Samba and Mrs Samba.
- (e) At no stage did Mrs Samba carry on business as a horse-trainer, horse-owner, horse-dealer or otherwise. Alternatively, if it should be found that Mrs Samba, either alone or with her husband, carried on business in the purchase, upkeep, training, racing and sale of horses the amounts of expenditure identified in the audit report constitute allowable deductions that are allowable in full. As the alleged income is equal to that expenditure there is no remaining taxable income on which Mrs Samba would be liable to tax.
The Commissioner's contentions
39. The Commissioner contended that the applicant's case as outlined above misconceived the findings of the audit report in that it equated the undisclosed source of funds with the expenditures identified in the report - in particular the horse-related expenditure. In fact, the audit report focused on the expenditures of Mr and Mrs Samba only as a means of ascertaining whether they had access to an undisclosed source of funds and, if so, the amount of those funds. The significance of the expenditures identified in the report is that it established that an undisclosed source of funds did exist and provided a basis upon which the amount of those funds could be estimated. In other words, the expenditures identified in the report represented the items on which the undisclosed source of funds was spent. The expenditures were not the means by which the undisclosed source of funds was generated. In particular, the audit report does not conclude that the funds were generated by the horse trading activities of Mr and Mrs Samba.
40. The Commissioner contended that the approach taken by Mrs Samba is based on three further fallacies, namely:
- (a) that her income, expenditure and assets were separate from those of her husband;
- (b) that she had no connection with the undisclosed source of funds; and
- (c) for income tax purposes her affairs must be considered on an entirely separate basis from those of her husband.
Consideration of the issues
Are the assessments made under ITAA1936 s 167 or s 170?
41. Section 166 of ITAA 1936 requires the Commissioner to make an assessment of the amount of the taxable income of a person and of the tax payable thereon. Section 167(b) empowers the Commissioner to issue an assessment or amended assessment if the Commissioner is not satisfied with the returns furnished by a person. It empowers the Commissioner to make an assessment of the amount upon which, in the Commissioner's judgement, income tax ought to be levied and that amount is the taxable income of the tax payer for the purposes of s 166. An assessment made under this section may be issued as an original or an amended assessment.
42. Section 170 of ITAA1936 also provides a means by which the Commissioner may issue an amended assessment in certain circumstances. Since amendments were made to that section (and which applied from the 1989/90 year) an amendment of an assessment to increase a taxpayer's liability to tax could only occur where there has been an avoidance of tax. Generally, if the Commissioner considers the avoidance to be due to ``fraud or evasion'' the assessment can be amended at any time - but in any other case the amendment must be made within four years.
43. The investigators in the audit report (T documents p. 358) noted that the amended assessments were raised under s 167 and that s 167 is commonly used in situations of this type. However, they also referred to the four year limitation period in s 170 and noted that the amended assessment for the 1996 year was expected to be outside that period. They noted, however, that s 170(2)(a) allows the Commissioner to amend an assessment at any time where there has been an avoidance of tax which, in the Commissioner's opinion, is due to fraud or evasion. Because the investigators considered that fraud and evasion did exist, they considered that the 1996 assessments could be amended outside the four year period.
44. I have noted at para 38(a) above the applicant's contention regarding the relationship between s 167 and s 170(2). Mr Corboy for the Commissioner submitted that:
- • it was not contended on behalf of Mrs Samba that the circumstances which permit an amended assessment under s 170 do not apply if it is determined that she had access to undeclared assessable income nor that the Commissioner could not issue amended assessments for the entire audit period.
- • It follows, therefore, that the applicant has not challenged the power of the Commissioner to issue amended assessments if it is found that she had access to funds that constituted assessable income and that what is at issue in the proceedings is the correctness of the amended assessments.
- • It makes no substantive difference in the circumstances of this case whether the assessments were issued under s 167(b) or s 170(2).
45. The relationship between, and the respective requirements of, sections 167 and 170 was considered by Brennan J (as he then was) in
FC of T v Dalco 90 ATC 4088 at 4091-4092; (1989-1990) 168 CLR 614 at 621-623. That case was an example of an amended assessment made under s 167(b) - which requires the Commissioner to perform two functions: first, decide whether he is satisfied with the return furnished and, if not, form a judgement of the amount on which tax ought to be levied. His Honour said (at 90 ATC at 4092; 168 CLR at 622) that Georges case (1952) 10 ATD 65; (1952) 86 CLR 183 establishes:
``either that para (b) of sec 167 does not create a condition precedent governing the power to make an assessment or that, if it does, the fulfilment of the condition precedent is part of the due making of the assessment not going to substantive liability so that, by force of sec 177(1), the existence of the circumstances mentioned in para (b) is not open to challenge in proceedings on appeal from an assessment.''
46. Brennan J contrasted that with the position under s 170(2), citing McAndrews case (1956) 11 ATD 131; (1956) 98 CLR 263 as establishing that s 170(2) creates a condition precedent governing the power to make an amended assessment, the satisfaction of which was not protected from challenge in appeal proceedings by s 177(1). As the amount of the amended assessment would be shown to be excessive if the requirements of s 170(2) were not satisfied, s 190(b) [ie the predecessor of s 14ZZK(b) of the Administration Act] imposed on the taxpayer the burden of showing that the requirements had not been satisfied: 90 ATC at 4092; 168 CLR at 623.
47. As regards the time requirements of s 170 in relation to s 167, in
Trautwein v FC of T (No 1) (1936) 4 ATD 48; (1936) 56 CLR 63 Latham CJ observed at ATD at 64; CLR at 90 in relation to the processors of the two sections that:
``... Full effect can be given to both s 36 [ now s 167] and s 37 [now s 170] by reading then together. The result of reading them together is that the Commissioner may act at any time under s 36 in the cases mentioned in that section except that where the assessment which he issues under s 36 is an assessment which makes alterations in or additions to any existing assessment, he is subject to the time limits imposed by s 37(1)(A). The result of this construction is that s 36 is not limited to first assessments but that it may also be applied to amended assessments which are duly made under s 37, and that, so construed, it does not authorise the Commissioner to disregard the time limits provided by s 37.''
McEvoy & Ors v FC of T (1950) 9 ATD 206; (1950) 5 AITR 1 Williams J extended that reasoning to ss 167 and 170 of ITAA1936.
49. In the present case it is clear, and I find, that the Commissioner was not satisfied with the returns furnished for the relevant years and formed a judgement about the amount of income on which tax should be levied. In my opinion the amended assessments were raised under s 167(b). No issue about the four year time limit of s 170(2) arises in relation to the 1997 and 1998 years. In relation to the 1996 year the amended assessment was outside the four year period. In accordance with the views of Brennan J in Dalco, the effect of s 14ZZK of the Administration Act is to place the burden of showing that the preconditions for the exercise of the power to amend the assessment did not exist falls on the applicant - who has not argued that the preconditions will not be satisfied if Mrs Samba did have access to the undisclosed and undeclared funds and those funds constitute her assessable income. For the reasons set out later in these reasons I have concluded that did have that access and that the undisclosed funds were assessable income in her hands. In my opinion the preconditions that enable an amended assessment to be made in relation to the 1996 year are satisfied. That leaves the principal issue in the case to be the correctness of the amended assessments.
The onus of showing the assessments are excessive?
50. How a taxpayer can discharge the onus of proof that falls on him or her under s 14ZZK of the Administration Act was considered by Brennan J in Dalco (supra at ATC 4093; CLR 624), with whom Mason CJ, Deane, Dawson, Gaudron and McHugh JJ agreed, wherein his Honour said:
``The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a
ATC 2014specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. In
Gauci v FC of T 75 ATC 4257; (1975) 135 CLR 81, Mason J said at p 89, (at ATC p 4261; CLR p 89):
`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. The implication of such a requirement would be inconsistent with sec 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.'
That view, expressed in a dissenting judgement, now prevails:
Macmine Pty Ltd v FC of T 79 ATC 4133 at pp 4139, 4146, 4159; (1979) 53 ALJR 362 at pp 366, 371, 381; McCormack's case at 79 ATC pp 4121, 4123, 4132; (1979) 143 CLR at pp 303, 306, 323.''
Saffron v FC of T 94 ATC 4049; (1994) 27 ATR 596 Davies J, after referring to the above quotation of Brennan J in Dalco, went on to comment as follows (at ATC 4050 par 3):
``However, in proceedings by way of review of an objection decision, the assessment itself is not evidence of the facts upon which the assessment was based. The review authority, the Court or the Tribunal, must come to its own decision on the facts and the issues. Walsh J said in Krews case
71 ATC 4213 at 4216:-
`I have a duty to reach my own conclusions on the questions of fact which have to be decided and to give effect to those conclusions.... I must make my own decisions as to the facts.'''
52. The first sentence of Brennan J's comment was also referred to by Burchett J in
Ma v FC of T 92 ATC 4373; (1992) 23 ATR 485, a case relied on by the applicant - who referred me to the following passage of Burchett J (at ATC 4377; ATR 489):
``... if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved.''
It was argued on her behalf that the above described Mrs Samba's position.
Was there an undisclosed source of funds/ income?
53. At no time in the proceedings was it argued on behalf of Mrs Samba that the principal conclusion of the investigation report that there was a source of funds that had not been disclosed to the Commissioner was incorrect or unjustified. Equally, there was no argument that the conclusions regarding the approximate amount of those funds, based on the estimation of the difference between the amounts apparently expended and the known available funds, was incorrect. Rather, the position adopted by Mrs Samba was that the fund of money was entirely a matter concerning her husband and of no concern to her taxation affairs.
54. There having been no attack on the methodology adopted by the investigators or the conclusions reached by them concerning the amounts expended, compared with the amounts of money known to be available, I am prepared to accept the report's conclusions that a source of funds did exist to which access was had for various purposes during the audit period. It is clear that considerable sums of money were expended on horse-related matters and for other purposes and that the known income of Mr and Mrs Samba from wages and other activities (such as the sale of some horses) was in no way sufficient to meet such expenditure. I therefore find that a source of funds did exist and that in the audit period that fund of money was accessed to the extent of approximately $1.277 million as per the conclusions of the investigation report as set out in para 6 above, and that the amount was expended in the ways disclosed in the report.
What was Mrs Samba's connection with the undisclosed source of funds?
55. Having made those findings I must then address the most significant issue in the case, namely whether it has been demonstrated that there is not a sufficient connection between the funds and Mrs Samba such that it can be said that 50% of the funds derived from that source during the audit period is not assessable income in her hands in those years.
56. The first point that can be made in this context is that the evidence about the way in which Mr and Mrs Samba operated bank accounts jointly or alone, the nature of the funds deposited or withdrawn from the accounts, and the way in which they undertook various activities relating to the ownership of horses, demonstrates that the financial affairs of Mr and Mrs Samba were intertwined. I agree with Mr Corboy's submission that there is nothing surprising about such a conclusion - couples often arrange their affairs that way - and it would be unreal to approach the case on the basis suggested by Mrs Samba, namely that her affairs and those of her husband were entirely separated.
57. A second point that can be made is that throughout the ATO investigation and these proceedings the source of the funds remained undisclosed. It is clear on the evidence (and I find) that the funds did not arise from buying and selling horses, gambling winnings, racing prize money or any other activity that Mrs Samba was willing or able to give evidence about. At the same time, Mr Samba was not called to give evidence that might have cast light on the source and I consider that the evidence he gave to the NCA is of no assistance in identifying the source.
58. A third point, which is related to the previous point and concerns the credibility of the evidence given by Mrs Samba, can also be made. At the end of the proceedings I was left with the very clear view that she was not, by any means, telling the full story of the financial affairs of she and her husband. There was, in my opinion, a great deal more evidence that Mrs Samba could have given about the financial affairs of the family. That, plus the failure to call Mr Samba to give evidence about matters that he obviously would have known a great deal about and in circumstances in which his evidence might reasonably be expected to support Mrs Samba's contentions, leads me to the conclusion that I should draw inferences, where they are reasonably open, that are unfavourable to Mrs Samba's case.
59. I am supported in that view by my opinion that Mrs Samba was not, in important respects, a truthful witness. The evidence concerning her knowledge (or lack of it) about her husband's alleged large cache of cash illustrates the point. Despite Mr Samba's evidence to the NCA that she was aware of it (see  above) Mrs Samba told the NCA that she knew nothing of such a cache and had never discussed it with her husband - but that she was not surprised when he told ATO investigators that he had approximately $850,000 in cash. Notwithstanding that, her evidence-in-chief in these proceedings remained that she had not discussed the store of money with her husband, did not know how much money was involved, and if he were to die she would not know where to find it (transcript 26.11.02, p P-14).
60. For a person who was clearly very concerned about the family's financial security, as evidenced by her evidence about her desire to own a house even though her husband was not keen on the idea (transcript 27.11.02, p P-50), this is, in my opinion, a position that is hard to understand or accept. If Mr Samba's evidence is to be believed (which is by no means certain) then the cache existed and Mrs Samba knew about it prior to the NCA interviews. Even in his evidence is not to be believed, Mrs Samba knew by that time that her husband claimed that the cache existed and that she knew about it. On her own evidence she claims not to have been surprised about what her husband had to say - but that she did not discuss the issue with him and appeared to accept that if he died she would not know where to look for such a large sum of money. That evidence is not, in my opinion, credible and, because of the central nature of that issue in the case, reflects on the credibility of all Mrs Samba's evidence.
61. Although the horse-related activities were not the source of the undisclosed income, the cash expenditures during the audit period related significantly to horses and the way in which the horse activities were undertaken cast light on how Mrs Samba and her husband structured their affairs. Mrs Samba argued that she knew nothing about horses and was not connected with any expenditure on them.
ATC 2016Nevertheless, it was argued that the presumption of advancement was applicable and that the horses registered in Mrs Samba name by her husband were gifts by him to her. Mrs Samba adopted the position that she owned the horses when it was to her advantage to do so, such as asserting that she was the owner of the horses to the various horse racing authorities and in a loan application made to the Commonwealth Bank. She benefited from expenditure on the acquisition, maintenance and disposal of the horses.
62. Neither party devoted significant time to submissions for or against the applicability of the presumption of advancement. Although the registration of property in the name of a wife by a husband would give rise to such a presumption, it can be rebutted by evidence that demonstrates some contrary intention. In the present case I consider that there is sufficient evidence to rebut the presumption and to reasonably satisfy me that the fact of the registration of horses in Mrs Samba's name was not intended to result in her becoming the sole beneficial owner of those horses. I refer to the following.
63. First, in August 1997 Mrs Samba made a statutory declaration (R1) that was submitted to the WATC in the course of its inquiry into the involvement of Mr and Mrs Samba in the ownership of horses. The declaration stated that 14 nominated horses ``were purchased by my husband, Les Samba, on my behalf.'' The notion that the horses were purchased on behalf of Mrs Samba, when she maintained that she had never played any part in the decision- making about buying horses, is at odds with the contention that they were subsequently gifted to her at the time of registration with the racing authorities.
64. Second, Mr Samba gave evidence to the NCA regarding registration of horses in his wife's name as not being inconsistent with the horse remaining his property (see  above).
65. Third, in relation to the horse named Shogun Lodge, Mr Samba told the NCA that although a share in the ownership of that horse had been registered in his wife's name, he considered that share to belong to both of them - a stance that is at odds with a presumption of advancement. More significantly, in my opinion, in her evidence in these proceedings Mrs Samba provided more recent information about the ownership of that horse that demonstrated that she had never been a part owner of the horse at all. She was asked if she was ``an owner or...registered as an owner or part owner'' of Shogun Lodge and another horse. Her answer was (transcript 26.11.02, p 15):
``I was registered as a part owner of those two horses, but I have never received any moneys from the winnings or anything because in fact there was an arrangement in place... as far as I was concerned I was a part owner but in fact there was an arrangement in place between [a third person] the sole owner of Shogun Lodge, and Les Samba when the horses were originally bought Les lent [the third party] 73,000 or something and this was sort of done at the sale. I think the money was already in Les' account with [the bloodstock agency] and I believe that Les bid on the horse and it went into his - debited to his account and then - so there is an arrangement between them that my name would go down as part owner. So as far as I was concerned that is what I was until the loan was repaid, which was done at a later date. I have - my name still stayed on it because nobody seemed to bother about it, but I actually took it off myself because - well, it all came up in the NCA hearing and it became a nuisance. [The third party] would have left it just how it was but as has happened now I mean he was only ever the - he is the true owner and only has ever been.''
66. In cross-examination Mrs Samba agreed that she had signed a registration application form in respect of Shogun Lodge asserting part ownership. She was asked whether, at that time, her husband had told her that he had purchased a share of the horse or that he had lent money to someone in connection with the horse. She said that her husband had told her that he had purchased a share of the horse. As far as she was concerned she was the owner of a one-fifth or one-sixth share and that they had informed the ATO of an ownership interest in the horse in January 1999 during the investigation. She only became aware of the loan arrangement sometime after the NCA hearing in December 1999 - but, nevertheless, had not been annoyed with her husband for giving her incorrect information about the horse even though the result was that she had given sworn
ATC 2017evidence to the NCA and information to the ATO that was not correct (transcript 27.11.02, p 55-p 59).
67. On all the evidence before me I consider that the presumption of advancement contended by Mrs Samba is rebutted. The registration of horses in her name was not intended to, and nor did it, reflect gifts to her of the full ownership of the horses in question. I do not know exactly what was intended by Mr and Mrs Samba (and it may well be the case, although I make no finding to that effect, that Mr Samba did not tell his wife everything about his actions and intentions in this regard). I believe that Mrs Samba could have cast more light on the circumstances than she did and, obviously, her husband could have been called to give relevant evidence. In the circumstances I find that the horses were not gifts to Mrs Samba by her husband.
68. As noted earlier, it is clear on the evidence that Mr and Mrs Samba's financial affairs were intermingled. They operated a joint bank account, although Mrs Samba also maintained an account in her own name. Into these accounts they both made deposits (from sources such as tax returns, salary, proceeds of the sales of horses, insurance payouts when a horse died, and repayments of loans made by Mr Samba). Payments were made from the accounts in respect of both personal expenses and expenses related to the purchase and maintenance of horses. At the same time, however, considerable amounts of cash were expended on personal expenses, horse-related expenses and other items such as travel.
69. Mrs Samba benefited substantially from the use of the funds from the unknown sources in that the declared taxable income of Mr and Mrs Samba was self evidently insufficient to support the level of expenditure disclosed in the audit report. Much of the expenditure was to her benefit, including the purchase of horses in respect of which she subsequently shared in the proceeds of sale of, a substantial cash payment for the purchase of her vehicle, payments for interstate and overseas travel by her and her husband, payments on credit card jointly operated by them, the deposit on the home acquired by her, and general living expenses. Much of the expenditure was on the purchase and maintenance of horses which I consider formed part (indeed, the major part) of a joint activity between Mr and Mrs Samba. Within the time frame of the audit period Mrs Samba was able to obtain sufficient money to purchase a residence for more than $500,000 - the funds for which (except for $100,000.00 from the Commonwealth Bank) were obtained from the disposal of horses acquired during the audit period or money contributed by her husband from sources that have not been satisfactorily explained.
70. In my opinion Mrs Samba cannot say now that she knows nothing about the acquisition, training, maintenance and disposal of the horses and the application of the sale proceeds because they are matters that only concerned her husband, particularly as her husband was not called to give evidence in the proceedings and she has not given an acceptable and complete explanation of her involvement with the horses. Her claim that the horses were a social activity is not born out by the circumstances. Her evidence was that it was about 10 years since she had been to the races, she did not know which horses that she was the registered owner of had ever raced - or, if they had, when they had raced.
71. By the end of the audit period Mrs Samba and her husband had organised their affairs so that she held a substantial asset in her own name (the residence), her husband was able to declare himself bankrupt following the amended taxation assessments, and Mrs Samba was apparently able to challenge her amended assessments on the basis that she had no connection with the undisclosed source of funds from which that major asset was derived. In my opinion it can not be concluded that Mrs Samba had no connection with the undisclosed source of funds on the basis of the argument that she knew nothing about the horse related activities and expenditure. I consider that Mrs Samba cannot now distance herself from those activities and expenditure.
72. In these circumstances I agree with the contentions of the respondent that, as with the horse-related activities, the applicant was involved in a joint enterprise of some sort with her husband in respect of the activity that generated the undisclosed source of funds. I also agree with the respondent's contention that the way in which Mrs Samba and her husband used cash to meet nearly all forms of expenditure (including normal living expenses and substantial purchases) is significant in respect of how they structured their tax affairs. I
ATC 2018believe that Mr Samba's evidence to the NCA that he used cash to avoid investigation by the Commissioner (T11 at p 227 and p 253) entitles me to infer that Mrs Samba and her husband arranged their affairs so that most of the money available to them was not declared and a false impression of the financial circumstances was presented in their income tax returns. I consider that Mrs Samba knew of, participated in, and benefited from those arrangements.
73. It would have been open to Mrs Samba to attempt to dispel the inferences that arise from the intermingling of income expenses and assets with those of her husband, her connection with the source of funds as disclosed by the benefits she derived from their expenditure, the manner in which they jointly conducted enterprises such as the horse activities, and the manner in which she and her husband arranged their tax affairs. She could have tried to do this by disclosing the source of the funds and in that way might have demonstrated that she did not have any connection with or access to the funds. However, she chose not to reveal the source. It might be said that Mrs Samba simply did not know what the source was. I do not believe that to be the case - but, even if it were, it was open to Mrs Samba to call her husband to give evidence about matters that he undoubtedly knew a great deal about. Her failure to do that entitles me to infer that whatever evidence he may have given would not have assisted Mrs Samba's case, bearing in mind that Mrs Samba was legally represented in these proceedings:
Jones v Dunkel (1959) 101 CLR 298.
74. In all the circumstances I consider that Mrs Samba had a connection with, access to, and benefited from the undisclosed source of funds as identified in the investigation report. I consider these funds to be ordinary income in her hands, essentially for the reasons contended by the respondent: the funds were substantial, they were available to Mr and Mrs Samba for their daily use, they were available throughout the audit period and were apparently replenished during that period, and they were used to pay living expenses, to acquire assets and to generally meet nearly all of the expenditures of Mr and Mrs Samba.
75. Mrs Samba did not characterise the funds comprising the undisclosed source of funds as being of a nature that would indicate that they were not assessable income. She did not contend in her notice of objection or Statement of Facts and Contentions that if it was found that she did have access to an undisclosed source of funds that the funds did not constitute assessable income in her hands. Had she been prepared to identify the source of the funds she may, for example, have been able to show that they were a gift or a lottery win or some other form of non-assessable income. In this context I note that Mrs Samba did not challenge the conclusion in the investigation report that that the undisclosed funds were not gambling winnings. In my opinion, having chosen to not reveal the nature of the undisclosed funds she was not in a position to dispute that they were assessable income once it was established, as I find, that she had access to those funds.
76. Having arrived at that point, I consider that it was appropriate to conclude that the undisclosed funds should be allocated equally between Mrs Samba and her husband. There was no information before the Commissioner and there is none before me that would enable any different, more precise, analysis of the income or the allocation of it. The absence of any evidence on the point from Mr or Mrs Samba allows no different allocation. The allocation reflects the way in which they chose to conduct their affairs.
77. One final point needs to be considered, namely the contention made on behalf of Mrs Samba that the cash expenditure identified in the audit constituted deductions that should be allowed against the assessed income represented by the undisclosed source of funds. On this point I agree with the contention of the respondent that it misconceives the nature of the funds and the methodology of the audit report. The expenditures identified were not expenditures on the activity undertaken to generate the undisclosed source of funds. Rather, the expenditures show how the undisclosed source of funds were spent - not earned - and provides the means of establishing the existence of the funds and estimating their amount. Mrs Samba provided no evidence to show that the expenditures were allowable deductions - they did not relate to the income assessed against her and she did not disclose the source of that income. I find that the expenditure was not deductible by Mrs Samba.
78. Mrs Samba adduced no evidence and made no submissions to me regarding the amounts that were included in the amended
ATC 2019assessments for late payment, understatement penalty and interest. Having regard to all the evidence, and for the reasons set out above, I consider that the applicant has not discharged the onus on her of demonstrating that the amended assessments issued to her in respect of the years 1996, 1997 and 1998 were excessive. It follows that my decision is that the deemed decisions of the respondent to disallow the applicant's objections to those amended assessments are affirmed.