• The impact of this case on ATO policy is discussed in Decision Impact Statement: Hamed and Commissioner of Taxation (Published 1 March 2010).

HAMED v FC of T

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2010] AATA 684

Mr S E Frost Senior Member

Introduction

1. Hasham Hamed (referred to in these reasons as "Hasham", or "the taxpayer") lodged income tax returns for the years ended 30 June 2001 to 30 June 2004 disclosing modest amounts of income. The Commissioner of Taxation undertook a review of the taxpayer's affairs for those years and, because the taxpayer had not lodged a return for 2005, the Commissioner included the 2005 year in the review as well.

2. In the course of the review, the Commissioner discovered a number of things, including:

• • that the taxpayer had, with others, purchased several properties in Sydney during the relevant years;
• • that the taxpayer had borrowed money to purchase those properties, the borrowings totalling about $1.2 million;
• • that significant monthly repayments (at least $6,000 per month, but more likely in excess of that) were being made on those borrowings.

3. Eventually, amended assessments for the 2001 to 2004 years, and a default assessment for 2005, were made. Administrative penalties were assessed. In broad terms, the amended assessments and the default assessment were based on deposits (many of them in cash) made to one or more bank accounts owned by the taxpayer, either in his own name or jointly with one or more members of his family.

4. The taxpayer disputed the figures arrived at by the Commissioner, and objected against the assessments. The objections were disallowed. The taxpayer has applied to the Tribunal for review of the objection decisions.

The issues

5. Simply stated, the question is whether the objection decisions should be affirmed, set aside or varied.

6. By reference to s 14ZZK of the Taxation Administration Act 1953 (the TAA), the taxpayer has the burden of proving:

• • to the extent that the "taxation decision" involved is an assessment (and this will include the amended assessments for 2001 to 2004, the default assessment for 2005, and the assessment of administrative penalties) - that the assessment is excessive (s 14ZZK(b)(i)); and
• • in any other case (that is, in relation to the decision not to remit the penalties) - that the taxation decision should not have been made or should have been made differently (s 14ZZK(b)(iii)).

Proving that an assessment is excessive

7. Almost 60 years ago the High Court explained in
George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 201, referring to authorities going back as far as 1918, that:

"… the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income…"

8. As Brennan J put it in
Federal Commissioner of Taxation v Dalco (1990) 90 ATC 4088; (1990) 168 CLR 614 at 621:

"… the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act."

9. (When both George and Dalco were decided the "burden of proof" provision was in s 190(b) of the Income Tax Assessment Act 1936 (the ITAA 1936), but it was in identical terms to the current TAA provision.)

10. In a sales tax case dealing with what are now the uniform burden of proof provisions in Part IVC of the TAA (s 14ZZK for Tribunal reviews and s 14ZZO for Federal Court appeals) - "uniform" in the sense that they apply to reviews and appeals in relation to virtually all of the taxation laws administered by the Commissioner - Hill J said in
Vale Press Pty Ltd v Commissioner of Taxation (No 2) (1994) 94 ATC 4587; (1994) 53 FCR 92 at 99, after referring to George, Dalco and also
McEvoy v Commissioner of Taxation (1950) 9 ATD 206:

"… the word "excessive" requires that the taxpayer show that the assessment made by the Commissioner exceeds some nominated figure being the taxpayer's liability."

11. His Honour noted later, at pages 99-100, that the obligation on a taxpayer to show not only in a conceptual sense that an assessment is excessive, but also the true extent to which it is excessive (by establishing the taxpayer's correct taxable income), is not confined to the case of a default assessment, that having also been the view of the Supreme Court of New South Wales in
Black v Commissioner of Taxation (1986) 86 ATC 4113.

12. What this means for the current case is that the taxpayer must prove, on the balance of probabilities, what were his "actual taxable income" and, from that, his "true tax liability" for the relevant years. If, but only if, the actual taxable income and the consequent true tax liability are less than the corresponding amounts assessed to him by the Commissioner, he will have discharged the burden placed upon him by s 14ZZK(b)(i).

Proving that a decision should not have been made, or should have been made differently

13. In
Re Sharkey and Commissioner of Taxation (2007) 95 ALD 509; 2007 ATC 2218 Senior Member Taylor SC said at [22] that the burden placed on a taxpayer is to prove that "the Commissioner's decision 'should' have been different and in that sense is not an appropriate result of the exercise of the statutory power or discretion". I respectfully agree with that statement.

The basis of the assessments - the case the taxpayer has to meet

14. In a sense, it is inaccurate to talk of a case that a taxpayer "has to meet" in review proceedings in this Tribunal, because it is the taxpayer who makes the application and who bears the burden of proving his case. But in practical terms, the areas of dispute between the parties are marked out by the taxpayer's objection, the Commissioner's decision on the objection and, ultimately, the parties' respective Statements of Facts, Issues and Contentions (SFICs). This is how a taxpayer comes to know the "case to be met", and the path by which he or she might seek to prove an assessment excessive.

15. It is necessary at this stage to set out some brief background to the developments in this case.

16. As a result of the Commissioner's review of the taxpayer's affairs, the taxpayer's taxable income was assessed as follows:

17. For the 2004 year, the taxable income figure of $170,579 included a capital gain of $7,000.

18. Around 3 March 2009 the taxpayer's solicitors (who had only recently been engaged by the taxpayer) wrote to the Commissioner, noting that the Commissioner had not, to that point, provided "particulars of which payments into bank accounts held by our client the Commissioner alleges constitute assessable income". In response to that letter, the Commissioner wrote to the taxpayer's solicitors in the following terms:

• "…
• 2. Please find enclosed particulars of the amounts included in Mr Hamed's assessable income as a result of the audit of his affairs for the years ended 30 June 2001 to 30 June 2005 inclusive.
• …
• 4. As advised in our correspondence, and noted at the telephone directions hearing before Senior Member Hunt on 3 March 2009, it is not the respondent's intention to approach the matter by reference solely to the amounts deposited in the applicant's bank accounts during the period under review, but also by reference to the [correct] assessable income derived by the applicant, from all sources, during the period under review - this would include, for example, income derived from employment.

  …

  (emphasis added - the word "correct" appears in square brackets in the original)"

19. The "particulars" enclosed with the letter comprised various lists of bank deposits, set out by income year, and differentiating between separately identified bank accounts, all of them held either by the taxpayer and his mother, or by the taxpayer and another member of his family. In each of the 2001 to 2003 income years, the deposits identified by the Commissioner totalled the figure shown in the corresponding year as the "increase" in the table in [16] above. For the 2004 year, the deposits totalled $152,868, which is equivalent to the "increase" in the table once the $7,000 capital gain is taken out of the equation.

20. On the first day of the hearing, Mr Young gave a brief outline of his client's case, in which he focused almost exclusively on those particular bank deposits, of which there are 147 in total.

21. Mr Kasep, for the Commissioner, commented about Mr Young's approach as follows:

"… there is one matter that perhaps my friend neglected, and that is the alternative basis on which - the alternative or the additional grounds on which the Commissioner maintains the amended assessments and the default assessment that may be supported. And that is during the years in issue Mr Hamed lodged, on my estimation, no fewer than seven loan applications in which he documented in quite some detail, and also produced supporting documents, his employment and also the income he was earning from that employment. And what is contained in those loan documents, as I trust the tribunal will appreciate once I am through cross-examining Mr Hamed, is that his evidence in relation to what he was doing during these years in question simply cannot be believed."

22. In response, Mr Young urged me, in reliance on the judgement of the High Court in
Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (1994) 94 ATC 4844; (1994) 181 CLR 466 (the ANZ case), to reject Mr Kasep's suggested course because the Commissioner's case had not been particularised in that way. Specifically, Mr Young referred to the following extract at page 479 of the ANZ case (footnotes omitted):

"In several decisions it has been held that the Commissioner may support the amount of the assessment on a ground not taken into account at the time the assessment was made. The Commissioner will be required to give proper notice to the taxpayer and, where appropriate, will be directed to furnish particulars."

23. Mr Kasep's response, I think, puts paid to Mr Young's complaint. That was that the matter of the loan documents, and the Commissioner's intention to rely on them and other information regarding the taxpayer's income-generating activities, were fully notified to the taxpayer by way of the Commissioner's amended SFIC dated 22 October 2009. (Mr Kasep referred to paragraph 61 and Annexure 2 to the amended SFIC although I note that paragraphs 22-39 and Annexure 1 are also relevant.) If those contentions were insufficiently particularised, then it was for the taxpayer to address that shortcoming at the time - if necessary, by seeking from the Tribunal a direction that the Commissioner provide further or better particulars. That course was not taken, and in those circumstances it is not open to the taxpayer to complain that he has somehow been surprised or prejudiced by the Commissioner's intended reliance on those matters.

24. Moreover, as it was correctly put in the Commissioner's written submissions:

• "14. There is no requirement on the part of the Commissioner to show that the assessments issued to Mr Hamed can be sustained or supported by evidence:
  Gauci v Federal Commissioner of Taxation (1975) 75 ATC 4257; (1975) 135 CLR 81, 89 (Mason J). Similarly, as Hill J observed in
  Galea v FC of T 90 ATC 5060, 5067, the Commissioner need not maintain a positive case in relation to an assessment:

  'To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. … The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by sec. 190(b) of the Act to show, that the assessment is excessive. The Commissioner's failure to establish a positive case, if that is what he sought to do, leaves the Tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case.'

• 15. It is for Mr Hamed to show that the assessments issued to him were excessive and the Commissioner is 'entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment':
  Federal Commissioner of Taxation v Dalco (1989) 168 CLR 614, 624 (Brennan J). …"

25. In any event, as will become clear, the taxpayer's affidavit (sworn in December 2009) did not confine itself to an attempted explanation of the 147 bank deposits, but dealt also with what the taxpayer claimed were his income-generating activities. In those circumstances it is somewhat ambitious for the taxpayer's counsel to assert surprise or procedural irregularity when the taxpayer's own case was based not only on an attempted dismantling of what was perceived to be the Commissioner's positive case (in relation to the 147 deposits), but also on a broader attempt to establish assessable income figures that were less than the amounts assessed, albeit higher than originally reported.

The loan applications

26. Since so much was made of the loan applications, it is convenient to start with a discussion of them.

27. During the relevant years the taxpayer purchased several properties, usually as a joint tenant with his mother, Hala. Although the purchases were all financed by loans from Westpac Bank, neither the taxpayer nor his mother was able to confirm that the various loan applications (which were produced to the Tribunal by Westpac in response to summonses issued at the request of the Commissioner) had been completed and signed by them. This is despite the fact that in her affidavit, Hala had said^[1] Ex A9, at [19] :

"I signed the paperwork to purchase [two named properties, at Bankstown and Greenacre]. For each property that I have my name on Hasham has looked after all of the paperwork. I trust him to take care of the legal side of things. He deals with the real estate agents and the solicitors. He gives me whatever documents I need to sign and I sign them."

28. Mr Young objected to the tender of those of the applications that were not already included in the documents lodged by the Commissioner under s 37 of the Administrative Appeals Tribunal Act 1975 (the T documents), the basis of his objection being, first, that the taxpayer claimed the privilege against self-incrimination. That objection could not be sustained. It seems to me that the taxpayer could successfully resist a requirement that he himself produce the document, on the basis of the claim for privilege, but once the document had been produced by a third party, an objection to its tender, based on the privilege, must fail. In addition, or in the alternative, Mr Young objected to the tender on the basis that the documents were not relevant, they were hearsay, and they were unfairly prejudicial. Those objections were noted, but rejected.

29. The loan applications contain the following information about the taxpayer's employment history:

30. It seems that documents 2 and 3 are different versions of the same loan application. Document 2 is handwritten and bears a Westpac identifier number which is identical to that borne by document 3. I infer that document 3 is Westpac's typed record (although with minor revisions) of the information provided in handwritten form to Westpac in document 2.

31. For the most part, the taxpayer refused to answer questions about the loan applications, claiming the privilege against self-incrimination. But there were some exceptions. For example, he conceded, in respect of the application numbered 1 in the above table, that the signature looked like his, but he could not remember whether he had signed the document^[8] (Transcript) TS 49.16-18 . In respect of document 2, he could not remember filling it out^[9] TS 50.29 , but he said the handwriting looked like his^[10] TS 51.32 .

32. Significantly, he also said:

• • that he had never heard of Nidal Security^[11] TS 52.18 ;
• • that he knew that AZ Painting was a business operated by his uncle, Abdul^[12] TS 53.17-18 , but he had never worked there^[13] TS 53.11 .

33. Hala, whose name is shown on all the loan applications as "Co-Applicant", was also asked questions about them. She explained that she does not read or write English or Arabic, so it was necessary to have the interpreter (who is also an accredited translator) render the documents into spoken Arabic so that Hala could answer the questions. In relation to document 1, she said that she herself did not provide any of the details to Westpac^[14] TS 283.40-43 . She thought the signature on document 2 looked like her signature^[15] TS 284.38 , but she did not have any specific memory of signing the form^[16] TS 284.44 . She said the signature on document 3 looked like her signature^[17] TS 285.45 , but she did not know if it was^[18] TS 285.45-46 . She did not recall signing the form^[19] TS 286.1-3 .

34. She explained through the interpreter that from the time Hasham turned 18, "we" (I understood her to mean she and her husband, Hasham's father) gave Hasham authority to do everything for them, and if he ever asked her to sign any forms or applications, then she would sign them^[20] TS 285.20-23 . She trusted him, "and I never say no to him"^[21] TS 285.40 .

35. When asked about Hasham's employment history, she said that she knew he had worked as a security guard, but she was unsure exactly when^[22] TS 286.45-46 . She also said that he had never worked as a painter or cement renderer^[23] TS 287.1-7 . Finally, she said that she had never heard of a business called AZ Painting Services^[24] TS 287.38-40 , and stated that "my son [would] never do anything not right or false"^[25] TS 287.29-30 ; he "always [does] the right thing"^[26] TS 287.35 ; he "doesn't lie"^[27] TS 288.34 . As will become clear, I do not agree with that assessment of her son.

36. At this point it is appropriate to mention that some of the loan applications were supported by documents which, on their face, appear to be statements as to the taxpayer's employment status. For example, there is a document on the letterhead of Nidal Security Services, undated but with a fax imprint dated 27 June 2000^[28] R1, ST12-470 , in the following terms:

"To Whom it may concern:

Hasham Hamed has been employed by Nidal's Security since 2/10/1999. Hasham [e]arns Gross $1,800.00 & $1,115.00 net per week and is still currently employed on a full time basis as a mobile patrol security officer.

Yours sincerely

[signed]

Nidal Makhlouf

Manager"

37. There is also a document dated 13 November 2001 on the letterhead of A.Z. Painting Services^[29] R1, ST12-468 which says:

"To whom it may concern,

Hasham Hamed has been employed by A.Z Painting and Cement Rendering since October 2000, and is still currently employed on a full-time basis as a Cement Renderer, Painter and Decorator.

Hasham earns $1,860.00 Gross $1,222.00 Net per week.

Yours Sincerely,

[signed]

ABDUL

General Manager"

38. A third document dated 20 November 2003 on the letterhead of SmartLook^[30] R1, ST12-426 Hair Studio says this:

"To Whom it may concern,

This letter is to confirm that Hasham Hamed has been employed with Smartlook Hair studio at a Full Time basis since 1^st August 2002 as an area Manager for our Blacktown and Bankstown Hair Salons and is still currently employed and earning $1400 per week net.

For any other queries please don't hesitate to call us on [landline phone number].

Yours Faithfully,

[signed]

Sam Mohamad

Store Owner"

39. A fourth document dated 23 July 2004 on the letterhead of "smartlook"^[31] R1, ST12-466 is in the following terms:

"To whom it may concern,

PERSONAL REFERENCE: HASHAM HAMED

This letter is to confirm that Mr Hasham Hamed is in full time employment with Smartlook Hairdressers.

Mr Hamed is currently employed as an area manager for Smartlook and that his wage is $6,066 nett per month.

For further enquiries please don't hesitate to contact Mr Sam Mohamed on [mobile phone number].

Principal of Smartlook Hairdressers

[signed]

Sam Mohamed"

40. After the taxpayer gave oral evidence about his involvement with the Smartlook salons at both Bondi Junction and Bankstown, and about his having "bought into" the hair salon business (owned by his brother-in-law) "around the 2005 year"^[32] TS 85.28-29 , I asked him some questions^[33] TS 86.23-31 :

"MR FROST: … What's your brother-in-law's name?---Samir Hamed.

Right. It's not Sam Mohammed?---No.

That's not his name?---No, no.

That's not a variation of his - is it a variation of his name that he uses?---He's got Samir Mohammed Hamed and he's got Sam Simon, which he's just recently changed his name [to]."

41. Mr Simon himself (formerly Samir Hamed) swore an affidavit in these proceedings and also gave oral evidence. Some of his oral evidence was inconsistent and confusing, but that was at least partly due to the fact that English is not his first language. (Although an interpreter was available, Mr Simon sometimes chose to answer without the interpreter's assistance.) However, there were some questions on which he was absolutely clear and unequivocal. For example, he confirmed that the landline phone number in the letter dated 20 November 2003 was the phone number for the shop at Bankstown^[34] TS 258.1-7 , and the mobile phone number in the letter dated 23 July 2004 was his^[35] TS 257.23-29 .

42. A further example of unequivocal evidence was when Mr Kasep, through the interpreter, asked the following question about the letter dated 20 November 2003, and quoted in [38] above:

"Aside from today has Mr Simon ever seen this letter before?"

43. The interpreter answered simply "No" (having interpreted the answer Mr Simon gave in Arabic), and immediately afterwards Mr Simon repeated the single word "No" in English^[36] TS 256.8-12 .

44. He also said, unequivocally, that the signature on the letter dated 23 July 2004, and quoted in [39] above, was not his^[37] TS 256.40-42; TS 257.3 , and that he did not sign that letter^[38] TS 256.44-46 .

45. Nevertheless, he said that the taxpayer had been involved in the Bondi Junction and Bankstown salons, and also in a third salon at Blacktown. In relation to the Bondi Junction salon, he said that:

• • the taxpayer "sometimes" worked full-time there^[39] TS 235.37 ;
• • "he was, like, every day with me, like for whole thing, everything … he is working our full trading hours. He is in the shop all the time we - you know"^[40] TS 235.45-47 ;
• • "He was doing all the paper[work] for me for everything, for workers; speak to companies; bring colour; if we need to speak to the management centre - to shopping centre …"^[41] TS 236.4-6 ;
• • he ordered stock for the salon, attended to any issues with the lease, and organised the wages for the workers^[42] TS 236.10-19 .

46. Unfortunately, he could not recall how much Hasham was being paid for all of these activities. He said that the salon "wasn't making money to pay him much"^[43] TS 237.32 ; it was "doing about 2000, 3000 a week"^[44] TS 238.6-7 , but because Hasham was "doing everything"^[45] TS 241.17 for him, Mr Simon had no idea how much profit, if any, was being made. When asked if Hasham kept any record of the money that was coming in as revenue or going out as expenses, he said "I don't think so"^[46] TS 244.34-41 .

47. I do not believe Mr Simon's denial of prior knowledge of the first Smartlook employment letter, and I am sceptical about his denial of having signed the second. I consider it much more likely that Mr Simon signed both letters, or at least was aware of the contents of both of them, before they were submitted to Westpac with the loan applications.

48. In relation to the loan applications and the supporting employment letters, I find that:

• • the loan applications were prepared by or on behalf of the taxpayer, and were signed by him and his mother;
• • the employment letters dealing with the taxpayer's employment with Nidal Security and AZ Painting were prepared by or under the supervision of the taxpayer, in the expectation (whether reasonably held or not - as to which I make no finding) that, if Westpac queried the accuracy of the income claims, the operators of the businesses would support the claims;
• • the taxpayer did not ever work for, or derive income from, Nidal Security or AZ Painting - in other words, the information in those employment letters is a complete fabrication, designed to satisfy Westpac that the taxpayer and his mother could afford to make the repayments;
• • the employment letters dealing with the taxpayer's employment with Smartlook were prepared by or under the supervision of the taxpayer, but with the knowledge of Mr Simon - who, nevertheless, did not know whether the income claims in them were accurate or not;
• • the Smartlook employment letters were signed in the name "Mohamed" or "Mohamad" rather than the true name, Hamed (which is, of course, identical to the surname of the borrowers), so as not to arouse suspicion at Westpac.

49. Those findings reflect poorly on the taxpayer's credit.

50. My assessment of the taxpayer's evidence is that it should be viewed with extreme caution, except in circumstances where his evidence:

• (a) is inherently plausible; or
• (b) is against his interests; or
• (c) can be corroborated by reliable documentation or by reliable oral evidence given by others.

The taxpayer's evidence about his and his wife's income and their circumstances

51. In his affidavit the taxpayer said:

• "113. I was unemployed and in receipt of Centrelink benefits during the tax years ended 30 June 2001 and 30 June 2002.
• 114. During the tax year ended 30 June 2003 I assisted my brother in law, Samir, with some of the administrative tasks involved in setting up Smart Look Hair Studio [at Bondi Junction]. I was paid a small amount for what I did as the business was not making very much money. I received about $3,900 in payment for my help at Smart Look Bondi Junction during the tax year ended 30 June 2003.
• …
• 116. I was employed during the tax year ended 30 June 2004 at Smart Look Hair Studio [at Bankstown]. I was an employee at Smart Look Bankstown during the tax year ended 30 June 2004. I earned about $15,600 from my employment at Smart Look Bankstown during the tax year ended 30 June 2004.
• …
• 118. I was employed during the tax year ended 30 June 2005 at Smart Look Hair Studio [at Blacktown]. I earned about $15,600 as an employee of Smart Look Blacktown during the tax year ended 30 June 2005.
• …
• 120. During the tax years ended 30 June 2002, 2003, 2004 and 2005 I leased [a property in Greenacre to tenants] for $250 a week. …
• 121. The following is a summary of the approximate gross amount of rent that I received leasing [the Greenacre property] during the tax years ended 30 June 2002, 2003, 2004 and 2005 …:
  • (a) in the tax year ended 30 June 2002: $9,500.00
  • (b) in the tax year ended 30 June 2003: $13,000.00
  • (c) in the tax year ended 30 June 2004: $13,000.00
  • (d) in the tax year ended 30 June 2005: $13,000.00"

52. In paragraph 123 of his affidavit he said that he received the following payments from Centrelink and the Family Assistance Office:

53. In paragraph 125 of his affidavit he said that his wife, Roze, received the following Centrelink payments:

54. Those figures, as summarised in the tables in [52] and [53] above, are based on deposits to a National Australia Bank (NAB) account in the name of the taxpayer. Although Centrelink printouts of payments made to the taxpayer and his wife were annexed to the taxpayer's affidavit, there does not seem to have been any attempt to reconcile the bank statements with the Centrelink printouts, and as a result it is not clear whether there are any discrepancies between the two records. If there is a discrepancy, then I would expect the Centrelink printouts to be more reliable.

55. What is noteworthy about the taxpayer's sworn affidavit is the language he used to describe the income he derived. He said he received "about" $3,900 in 2003, "about" $15,600 in 2004 and "about" $15,600 in 2005. (It became clear that these approximations were based on a weekly figure of $300; according to his affidavit, then, he worked 13 weeks in the 2003 year and 52 weeks in each of 2004 and 2005.) The rent figures which he said he received were described as "approximate".

56. His oral evidence^[47] TS 127-130 throws some light on the question whether those statements represent reliable indicators of his income. Despite having sworn that he worked a full year at Smartlook in the 2004 income year, he retreated from that position in his oral evidence, asserting now that he worked only for half the 2004 year at the salon, having started there, according to his memory now, halfway through the income year. (This retreat was a reaction to Mr Kasep's pointing out to him that his tax return for 2004 declared employment income of only $7,800, not $15,600.) Quite how a claimed commencement date around the end of calendar 2003 is to be reconciled with his sworn statement of having been employed for 13 weeks in the prior income year, ending on 30 June 2003, must remain a mystery.

57. At the end of this portion of his oral evidence there was this exchange^[48] TS 130.20-22 :

"MR KASEP: So, am I correct in understanding that instead of earning 15,600 it is quite possible that you actually only earned $7800 as you disclosed in your tax return?---Yes."

58. That a taxpayer can swear an affidavit in December, and then four months later in cross-examination abandon what he said and concede that it is "quite possible" that the income that he said he earned was twice what it really was, is a remarkable state of affairs. And this, in circumstances where neither the taxpayer himself (who did all the paperwork for the salons - see [45] above) nor the owner of the business seems to have kept any books or records relating to the business that might support either one of those versions, renders neither statement reliable, and both of them, frankly, unbelievable.

59. The taxpayer said that the financial arrangements within his extended family were such that, if one family member needed money and another member had money available, then money would be given (or lent) from one to the other. He used the expression "one pocket" to describe this state of affairs, and that is an expression that other family members used as well. The movement of funds within the family seems to have been a very fluid affair.

60. Sometimes, according to the taxpayer, the amounts involved were significant. He claimed that, over the years, he had lent his brother-in-law Samir (Sam) something like $150,000 or $160,000^[49] TS 111-112 . The amount was never written down anywhere; they were simply able, apparently, to keep track of it. They rarely had a dispute about how much was outstanding.

61. When he was asked how he sustained his family (which includes not only himself and his wife, but also children who were born in 2000, 2005 and 2006 - the first two of them during the relevant years) on the meagre amounts he claimed were coming into the household, the best he could offer was:

• • that they led a "very simple" lifestyle (there were ten separate references to this description, or a variation of it, in his oral evidence); and
• • that they drew down on the home loans.

62. In relation to those explanations, I note simply that the pattern of drawdowns on the loans is not consistent with funding normal, regular living expenses. Instead there were many instances of large drawdowns which seem to have been for the purpose of lending money to relatives, or repaying money said to have been previously borrowed from them.

The properties purchased by the taxpayer

63. The taxpayer's family (his mother, brothers and sister) had rented a house in Marrickville for five years until, in 1995 (that is, some five years before the income years relevant to this application), the taxpayer, his mother and one of his cousins bought it for $165,000. The taxpayer says that he contributed about $6,000 of his own money, plus between $14,000 and $18,000 that he borrowed from family, towards the purchase price and expenses associated with the purchase^[50] Ex A1, at [26] .

64. Hala (who during the relevant years existed on a State Rail pension and Centrelink benefits) and the taxpayer bought the cousin's one-percent share in the property in mid-2000^[51] Ex A1, at [70] .

65. The repayments on the loan from Westpac were about $1,300 per month^[52] Ex A1, at [72] . The taxpayer and his mother sold the Marrickville property in August 2001 for $412,500^[53] Ex A1, at [73] .

66. At about this time, the taxpayer and his mother bought a property in Greenacre for $300,000^[54] Ex A1, at [74] . They borrowed about $85,000 to purchase it^[55] TS 126.7 . Monthly repayments started at about $808 per month but by early 2004 they were about $956 per month^[56] Ex A1, at [76] . From the time of purchase until 30 June 2005, and beyond, the Greenacre property has been leased to tenants for an asserted $250 per week^[57] Ex A1, at [120] .

67. In December 2001 the taxpayer and his mother bought a home unit in Bankstown (the first Bankstown property) for $213,000^[58] Ex A1, at [83] . There were two mortgages over this property^[59] Ex A1, at [84] , with monthly repayments totalling, on average, $1,300^[60] Ex A1, at [85] . This is the property that the taxpayer says he lived in until it was sold in 2009^[61] Ex A1, at [88] .

68. In January 2004 the taxpayer and his mother bought another home unit in Bankstown (the second Bankstown property) for $290,000^[62] Ex A1, at [89] . Hala had not seen the unit before it was bought, and when she did see it, she did not like it. She did not think it would suit her and Hasham's brothers, who were going to live in it^[63] Ex A1, at [91] . They sold the unit in May 2004 for $297,000^[64] Ex A1, at [92] .

69. In that same month they bought another home unit in Bankstown (the third Bankstown property) for $295,000^[65] Ex A1, at [93] . They mortgaged the property to Westpac, with the monthly loan repayments, on average, about $1,450^[66] Ex A1, at [95] . The taxpayer says:^[67] Ex A1, at [96]

"Although I am registered on the title of [the third Bankstown property] as a joint tenant with Hala, from the day that I purchased [the unit] it was my intention for Hala, Gary and Daniel to live in [the unit]. It was my intention at the time of purchasing [the unit] for Gary to be the one that paid [the mortgage] and for him to keep the unit for himself."

70. Gary (who is now known as Mark Ayoub) and Daniel are the taxpayer's younger brothers.

71. In August 2004 the taxpayer bought, as a tenant in common in equal shares with his cousin Abrahim (also known as Bill) Hamed and Bill's wife Elene, a property in Marrickville (the second Marrickville property) for $570,000^[68] Ex A1, at [100] . Throughout the 2005 year the monthly payments on the Westpac mortgage were about $2,600^[69] Ex A1, at [102] , shared equally between Hasham and Bill^[70] Ex A3, at [9] .

72. The obvious question is, how did the taxpayer afford all of this? There is only one plausible answer on the evidence, and that is that his income was nothing like what he declared in his tax returns.

The 147 bank deposits

73. There was some discussion at the commencement of the hearing as to how I should approach my decision-making function; it was suggested that I should decide whether each individual deposit (or each category of deposit) represented income of the taxpayer or not. I have come to the view that this is the only way I can resolve the dispute between the parties. I therefore set out below the results of my analysis of the 147 deposits, followed by a summary in tabular form as to how the Commissioner's assessments should be further amended. (The identifying numbers for individual deposits are to be found in Tab 9 to Exhibit A1.)

74. I can readily conclude that some of the deposits do not represent amounts of income derived by the taxpayer. For example, there was acceptable evidence (in the form of letters from solicitors) establishing that deposit number 111, for $43,257, was the receipt of an insurance payout to the taxpayer's wife, Roze, for injuries sustained in a motor vehicle accident. Hala, too, had received an insurance settlement of about $30,000 in relation to the theft of a motor vehicle, and part of that settlement became deposit number 35.

75. Other reasonably large deposits are less convincingly explained. The taxpayer's brother, Gary (Mark), said that he was responsible for deposit number 42 for $9,200 but said "I don't recall what it was for"^[71] Ex A5, at [17] . Samir (Sam) claimed responsibility for deposit number 39 for $19,950, paid in cash to the taxpayer "to repay some of the money that he had given to me"^[72] Ex A8, at [32] - but he could not recall why Hasham had given him the money in the first place^[73] Ex A8, at [31] .

76. Many of the deposits were identified by the taxpayer as "Centrelink funds". The contention in respect of these deposits is that, from time to time but on a reasonably frequent basis, cash would be withdrawn from the NAB account (in the name of the taxpayer and his wife), where Centrelink benefits were deposited, and shortly thereafter deposited into one of the mortgage accounts. For example, the taxpayer said that deposit number 1 (for $840), identified as a deposit of "Centrelink funds", and made on 1 November 2000, came from the NAB as a cash withdrawal from that account on the same day. The documentary evidence confirms that^[74] Ex A1, Tab 30 .

77. But the same position does not hold with the next "Centrelink funds" deposit, deposit number 9. That was a deposit of $1,600 on 10 January 2001. Cash withdrawals from the NAB account around that date are $560 on the 9^th and $280 on the 10^th, but they total only $840. There was an earlier withdrawal of $850 on 27 December 2000, but surely that amount of cash - representing the entire amount of Centrelink Newstart and Family Tax Benefit payments received on that day - would have been somewhat depleted, if not completely consumed, by 10 January, two weeks later.

78. The 10 January deposit is surrounded by deposits numbered 8 and 10 (each of them for $1,600 and dated 29 December and 25 January respectively, and both of them described as "Hala Hamed - payment", but with no further explanation). Then followed deposit number 11, another "Centrelink funds" deposit (this time for $1,000) on 8 February. The NAB account shows cash withdrawals of $630 on the 6^th and $230 on the 8^th but no others close by that could make up the shortfall. To some extent the explanations are unsatisfactory.

79. In summary, for the deposits identified as "Centrelink funds", I have accepted as "not income" any amounts withdrawn from the NAB account on or shortly before the date of the deposit to the relevant loan account. Any difference between that figure and the deposit total must be treated as "income". (When these Centrelink funds were originally received into the NAB account they were unquestionably income of the taxpayer or his wife, at that point. By characterising them as "not income", I am merely accepting that the transfer from one account to another does not bear the character of income.)

80. Any deposit identified as a "Miscellaneous receipt", but with nothing more, will be treated as "income".

81. If a payment was identified as a "loan repayment", or a payment from a member of the family, but with no reliable support for the claim, it will be treated as income.

82. Any amounts identified as "Rent for [the Greenacre property]" are treated as income, although sometimes the amount received will be net of charges imposed or disbursements paid by the managing agent. This will need to be taken into account by the Commissioner when the revised assessments are made: but in any event, the amount that the Commissioner is to treat as assessable income of the taxpayer in respect of the Greenacre property is to be no less than $250 per week. His mother's one percent interest in the Greenacre property should be disregarded for this purpose.

83. Deposit number 23 for $13,500 is not income because it clearly originated as a drawdown of $15,000 from a different account.

84. I accept deposit number 37 as "not income". It represents the proceeds of the sale of household items.

85. I accept that deposits 44, 47, 50, 52 and 54 are receipts from the taxpayer's father and are not income.

86. I accept that deposits 55, 68 and 78 are payments from Sam Simon to the taxpayer of amounts received from the sale of one of the hair salons. They are repayments of amounts lent to Sam by the taxpayer and/or his father.

87. Deposit 70 is yet another insurance payment - this time to Faiz, the taxpayer's father.

88. Deposits 79, 81 and 110 are account credits which reverse direct debits, owing to insufficient funds.

89. I accept that deposit 83 is a repayment of a loan to a family member - there had been a drawdown of $20,000 earlier in the year.

90. The payments by family members towards the loan on the third Bankstown property are not income but are the result of a private family arrangement.

Summary of the deposits

91. The deposits are summarised as follows:

Conclusion

92. I am satisfied that the taxpayer's "actual taxable income" (George) and his "true tax liability" (Dalco) are lower than the amounts attributed to him in the amended assessments for the 2001 to 2004 income years and the default assessment for the 2005 year. For that reason he has discharged the burden placed on him by s 14ZZK(b)(i) of the TAA, and that remains the case even though I do not accept the alternative amounts that he has put forward.

93. In the circumstances the appropriate course is to set aside the objection decision in relation to primary tax and remit the matter for reconsideration by the Commissioner so that amended, or further amended, assessments can be made in accordance with these reasons.

Administrative penalty

94. Administrative penalty was assessed at the rate of 50% on the basis that the shortfall amounts were caused by the taxpayer's recklessness. Mr Young's submissions on behalf of the taxpayer cited the comments of the Tribunal in
Re Barakat and Commissioner of Taxation 2007 ATC 2363; [2007] AATA 1564, where Deputy President Purvis, in referring to
BRK (Bris) Pty Limited v Federal Commissioner of Taxation 2001 ATC 4111, noted that recklessness involves running what a reasonable person would regard as an unjustifiable risk that the tax returns as lodged were incorrect. The submission on behalf of the taxpayer is that he did not know that he should include rental income in his tax returns, and that his conduct in lodging the incorrect returns was a "genuine mistake".

95. The submission conveniently avoids any reference to the palpably cavalier attitude displayed by the taxpayer towards his obligation to report accurate details of his income from the Smartlook business. The taxpayer did himself no credit in the way he dealt with that issue when giving his oral evidence.

96. There is no doubt that the 50% penalty level is correct, although the quantum assessed must be reduced as a consequence of the setting aside of the objection decision in relation to the primary tax.

Decision

97. The objection decision as it relates to primary tax is set aside. The matter is remitted for reconsideration by the Commissioner so that amended or further amended assessments can be made in accordance with these reasons.

98. The objection decision as it relates to administrative penalty is also set aside, but only as to quantum. The rate of penalty will remain at 50%, but the penalty is to be calculated against the revised shortfall amount that results from the further amendment of the assessments.