WRAY-MCCANN v FC of T
Members:SE Frost DP
Tribunal:
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
[2013] AATA 196
SE Frost (Deputy President)
INTRODUCTION
1. These applications cover nine income years, being the income years 1996 to 2004 inclusive.
2. When the applications were lodged with the Tribunal in 2008, there were more than a dozen distinct areas of dispute between the parties. Over time, Mr Wray-McCann has identified additional areas of dissatisfaction with the Commissioner's handling of matters arising from an audit of his tax affairs. He gave voice to that dissatisfaction by lodging a further eleven applications with the Tribunal in 2011 and 2012.
3. Some of those later applications were eventually withdrawn; in some cases the issues raised in them were subsumed into the current applications. One of the later applications was dismissed as not attracting the Tribunal's jurisdiction:
Wray-McCann and Commissioner of Taxation [2012] AATA 598.
4. Nevertheless, the dispute between Mr Wray-McCann and the Commissioner had become complex and unwieldy. It was clear that to take the entire dispute to hearing would have consumed a significant amount of time and resources, not only on the part of the parties but of the Tribunal as well. The parties were encouraged to try to resolve their dispute, or at least narrow it, through conciliation. They agreed to do that.
5. With the assistance of a Tribunal member as conciliator, the parties were able to resolve all but three of the issues in dispute between them.
6. In the circumstances, that is an excellent outcome, and a powerful reminder of the
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benefits that alternative dispute resolution (ADR) processes can provide to parties in dispute. Not only did the parties experience the satisfaction of resolving most of the elements of the dispute on their own terms (and so avoiding the need for a third party to impose a resolution on them); they also benefited from the fact that the hearing lasted only a fraction of the time it would otherwise have required.THE THREE OUTSTANDING ISSUES
7. The three issues that the parties could not agree on are:
- • what amounts transferred overseas by Mr Wray-McCann should be included in his assessable income;
- • what furniture removal expenses incurred in the 2002 income year are deductible to Mr Wray-McCann; and
- • what level of penalty, if any, can and should be imposed.
8. In respect of each of those issues, Mr Wray-McCann has failed to satisfy me that the position taken by the Commissioner should be disturbed. The objection decisions, to the extent that they relate to these issues, will therefore be affirmed.
DRAMATIS PERSONAE
9. There are three characters who need to be introduced into the narrative at this point.
10. The first is Edmond Overlay. Although he does not exist, he is a very important participant in the story that is about to unfold. His is the name used by Mr Wray-McCann to disguise his own identity when he was transferring money overseas.
11. The second is an employee of the Australian Taxation Office (ATO), an auditor by the name of Abdo Dirani. Mr Dirani is the auditor who was assigned the task of investigating the use, by Edmond Overlay, of Vanuatu as a tax haven. He explained that he was asked by his superiors, in what was once called the Tax Haven Taskforce, to profile the transactions that Edmond Overlay undertook, identify the relevant taxpayer, and "take it from there".[1]
12. The third additional character in this drama is the solicitor representing the Commissioner in these proceedings, Jill Gatland, of the ATO's Legal Services Branch. She became an unwitting participant in the unfolding events when Mr Wray-McCann fabricated documents which placed her at the centre of non-existent transactions with non-existent entities. The circumstances are fleshed out in [27] and [28] of these reasons.
ISSUE 1 - OVERSEAS TRANSFERS
13. In about 1991, Mr Wray-McCann (who will be referred to in the remainder of these reasons as the taxpayer) obtained advice from a Mr Geoffrey Gee, a solicitor operating out of Vanuatu and claiming to be an expert in the taxation law of both Australia and Vanuatu. The advice included advice about the advantages of establishing a trust in Vanuatu. On the taxpayer's instructions, Mr Gee established the Ulster Trust, a discretionary trust, with Mr Gee as the trustee. The taxpayer is the sole named beneficiary of the trust.
14. At around the time of the creation of the Ulster Trust, the taxpayer was appointed as the attorney of the trustee of the trust. As the primary beneficiary and having a power of attorney from the trustee of the Ulster Trust, the taxpayer was the ultimate controller of the trust.
15. The taxpayer opened a Vanuatu bank account in the name of the Ulster Trust with the Banque d'Hawaii in Vanuatu. The taxpayer was the signatory for that account and the only person who operated the account.
16. The taxpayer admits to having sent 38 amounts totalling $371,430[2]
17. Each of the amounts was an amount of cash transferred by the taxpayer through a branch of the Commonwealth Bank (CBA) using the name "Edmond Overlay" as the sender. The taxpayer has admitted that Edmond Overlay was a pseudonym which he used when he forwarded money to the Ulster Trust. He has also admitted that the use of a false name was accompanied by the use of a false address.[3]
18. He claims that he did this to avoid being mistakenly identified as a drug dealer.[4]
19.
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He denies that his activities had anything to do with an attempt to conceal the amount of his assessable income.[5]20. The taxpayer acknowledges that the cash amounts he sent to Vanuatu were derived from cash sales of a juice business that he conducted in Australia with his business associate. He also acknowledges that the cash that he sent to Vanuatu was generated from cash sales of the business which were not banked.[6]
21. He acknowledges that the transfers were made from many different branches of the CBA. Counsel for the Commissioner put to him that, during the period between 24 May 2001 and 5 March 2002 (a period of nine and a half months), he made transfers to Vanuatu from the Double Bay branch four times, the Paddington branch five times, the Beaconsfield branch twice, the Surry Hills branch three times and the Mascot, Martin Place and Bondi Junction branches once each. In response he said, "That sounds correct."[7]
22. The reason that he gave for using multiple branches of the CBA, rather than just one branch, was[8]
I was delivering orange juice. Our main customers were all in a city within a radius of about, say, eight, nine, 10 kilometres of where our factory was in Botany. Paddington - well, I also lived in Paddington, but we had dozens of customers in Bondi Junction. Dozens of customers in Beaconsfield and so on. That's why I was always over the place like a blow-fly.
23. None of the 38 admitted transfers of cash, totalling $371,430, were included as income in the taxpayer's tax returns for 1996 to 2002 and 2004.
24. The Commissioner says, but the taxpayer denies, that the taxpayer made an additional 56 transfers of cash to Vanuatu, totalling $425,470, during the relevant period. These 56 transfers, like the admitted 38, are contained in a document[9]
25. The reasoning that underpins his lack of confidence in the report starts with page ST11-762 of the supplementary T documents. This is a document that contains the Australian coat of arms and the words "Australian Government AUSTRAC" below it. It contains a reference to a transaction, dated 12 April 2000, in which Edmond Overlay transferred $9,500 in cash to the bank account held by the Ulster Trust at the Banque d'Hawaii (Vanuatu). The next step in the taxpayer's reasoning chain is to compare that document with the "AUSTRAC Report Detail List", referred to in the previous paragraph, and which does not contain the Australian coat of arms or the words "Australian Government". The taxpayer says that the contents of the document at page ST11-762, which he appears to accept as an "official" AUSTRAC report, do not appear anywhere in the "AUSTRAC Report Detail List". For that reason, he says, the integrity of the entire "AUSTRAC Report Detail List" must be under a cloud.
26. The taxpayer also notes a number of "differences between the information recorded on the physical CBA[12]
- • instances where the IMTA records the receiving bank as "Banque D'Hawaii (Vanuatu) Ltd" but the Austrac report shows it as "Banque D'Hawaii Vanuatu";
- • instances where the IMTA records the receiving bank as "Banque D'Hawaii (Vanuatu) Limited" but the Austrac report shows it as "Banque D'Hawaii (Vanuatu)";
- • instances where the IMTA records the receiving bank as "Banque D'Hawaii Vanuatu Limited" but the Austrac report shows it as "Banque D'Hawaii (Vanuatu)".
27. This leads him to submit as follows[15]
- 7.It is my submission that between the electronic transmission of the CBA IMTA data to Austrac the pure electronic link between the CBA and Austrac was interrupted by the intervention of some individual person at Austrac who viewed the electronic data received from the CBA, and then recorded this CBA information on the
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Austrac data base using a format, and wording of their own choosing. - 8.The other possibility is that Dirani forged the so called Austrac reports in precisely the same way I forged the so called Austrac documents in relation to Jill Gatland.
28. I will start with the taxpayer's comment that he "forged the so called Austrac documents in relation to Jill Gatland". The background to that statement is explained in the taxpayer's written submissions, at pages 5-6, as follows:
Provenance and authenticity of the so called Austrac reports at ST11-763 to ST11-858
- 1. Some days ago I sat down with Michael, a man with some computer expertise.
- 2. I asked Michael if it was possible for him to reproduce a credible replication of some of the so called Austrac reports at ST11-763 to ST11-858
- 3. Using a so called Austrac report as a template Michael created a document which I have downloaded on my computer.
- 4. Using Michael's template, I have created a 4 page document, which is identical in format to any of the so called Austrac reports at ST11-763 to ST11-858.
- 5. In this fake document[16]
I have recorded Jill Gatland as a person who has sent the following amounts of money to the Gatland Family Trust in Vanuatu This “fake document” was admitted into evidence as Exhibit A8
- 1. Page 1: 3 February 2012 $3,000
- 2. Page 2: 9 February 2012 $3,500
- 3. Page 3: 16 February 2012 $6,300
- 4. Page 4: 20 February 2012 $9,500
- 5. …
- 6. This exercise illustrates how important that no so called Austrac report should be taken at face value unless its contents are corroborated by
- 1. A valid Austrac document such as ST11-762 and ST11-761
- 2. A legible CBA International Money Transfer Application, or
- 3. A CBA audit trail that has been verified by Tanya Ristevski.[17]
According to the taxpayer, Tanya Ristevski is, or was, employed as a Compliance Officer with the CBA Operations Centre
29. The taxpayer's exercise in forgery was, to him, a means of demonstrating the ease with which one could create documents that resemble those at ST11-763 to ST11-858.
30. He takes that exercise to a different level when he suggests that Mr Dirani (see [11] of these reasons) may himself have forged documents in the same way.
31. Mr Dirani was called by the Commissioner and cross-examined extensively by the taxpayer. The taxpayer sought to discredit Mr Dirani but he was singularly unsuccessful in his attempt to do so. I have no hesitation in concluding, contrary to the taxpayer's unjustified submission that Mr Dirani was not a truthful witness, that Mr Dirani's evidence was entirely truthful and reliable. I reject outright the taxpayer's submission that Mr Dirani may have been involved in the fabrication of documents on which the Commissioner relies in these proceedings.
32. The taxpayer's remaining submission, which sought to undermine the reliability of the "AUSTRAC Report Detail List" because of some unspecified human intervention, is not made out. Indeed, the mere fact of human intervention (which, on the evidence, appears more likely than not - although a more neutral and accurate, and less pejorative, label is "manual processing") does not lead to a conclusion that the records are unreliable, nor that the orchestrated conspiracy that the taxpayer seemed to assert was in play against him is anything more than a suspicion, and a baseless suspicion at that.
33. I find that all the transfers shown in ST11-763 to ST11-858 as having been undertaken by Edmond Overlay were indeed undertaken. The taxpayer was the instigator of each one of them.
34. That does not necessarily mean that each of the amounts should be included in his assessable income.
35. There may be reasons why the taxpayer travelled around to seven different CBA branches in nine and a half months to transfer money to Vanuatu in an assumed name; or why he transferred money to Vanuatu, a tax-free jurisdiction, when that money, as he asserts, had been properly recorded and would be included in the assessable income of the juice business; or why the taxpayer thought it necessary or
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desirable to send amounts of money to Vanuatu when those amounts, according to his version, represented repayments of loans that he had previously made to the juice business; or why the recipient of the transferred money was a trust, controlled by the taxpayer and set up in Vanuatu on the advice of a supposed expert who indicated that there were "advantages" in doing so (although no detail was provided as to what those advantages were said to be).36. One possible explanation for doing all those things is that the taxpayer was trying to conceal his income. Indeed, the taxpayer advances no plausible alternative that might render that explanation an unlikely one.
37. There is an assertion - unsupported by any primary records - that the money the taxpayer sent overseas was paid to him by the juice business in repayment of loans he had made to the business over a number of years.[18]
38. And he has never given a plausible explanation for the need to use an assumed name. He did say that it was avoid being mistakenly identified as a drug deal, but I consider that explanation fanciful.
39. The taxpayer's primary focus has been on trying to establish that the amounts relied on by the Commissioner are wrong. He has failed to satisfy me on that count. Indeed, a comparison between the available Ulster Trust bank accounts and the Austrac reports shows that, in every single case the transfer recorded in the Austrac document is reflected by a deposit to the Ulster Trust bank account.[20]
40. I am therefore not satisfied that the amounts transferred to Vanuatu should not form part of the assessable income of the taxpayer for the relevant years. To the extent that the Commissioner disallowed the taxpayer's objection in relation to those amounts, the objection decision is affirmed.
ISSUE 2 - FURNITURE REMOVAL EXPENSES
41. In relation to the 2002 income year, the taxpayer claimed a deduction of $3,080 in respect of furniture removal expenses. The Commissioner disallowed the claim.
42. The expenses were incurred by the taxpayer in moving his furniture out of a property which he owned in Macquarie Street, Sydney, to a different property in Paddington. He had lived in the Macquarie Street property for some time, and then decided that he would rent it out and move to the Paddington property. In doing so, the taxpayer was about to engage in an income-producing activity.
43. The taxpayer submits that if he had not moved his furniture out of the property, his prospective tenant would not have moved in, and so the taxpayer would not have been able to derive the rental income in the first place. Therefore, the expense was necessarily incurred in the production of assessable income. It is a simple submission, but it is one that must fail.
44. Similar arguments have been advanced by countless taxpayers over the years. For example, the applicant in
Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478 put a similar proposition in support of a deduction claim for fares incurred in travelling from home to his place of employment. The High Court said at 498-9:
It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will
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not even begin to engage in those activities from which their respective incomes are derived.
45. Moving furniture from one place of residence to another does not have the essential character of an income-producing expense. Moreover, it is fundamentally an expense of a private or domestic nature and is specifically excluded from deductibility under s 8-1(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997).
ADMINISTRATIVE PENALTY
46. Administrative penalty has been imposed on the taxpayer at the rate of 75% for intentional disregard of the law. For the 1996 to 2000 income years the penalty was imposed under s 226J of the Income Tax Assessment Act 1936 (ITAA 1936), and for subsequent years it was imposed under s 284-75 and table item 1 in s 284-90(1) in Schedule 1 to the Taxation Administration Act 1953 (TAA).
47. Aside from raising in his objection a general contention that the penalty should be reduced from 75% to either 50% or 25%[21]
8ZE Civil penalty not payable if prosecution instituted
If:
- (a) a person is liable to pay by way of penalty (other than for an offence) an amount under a taxation law because of an act or omission of the person; and
- (b) a prosecution is instituted against the person for a taxation offence constituted by the act or omission;
then (whether or not the prosecution is withdrawn):
- (c) the person is not liable to pay the amount; and
- (d) any amount paid, or applied by the Commissioner, in total or partial discharge of that liability is to be refunded to the person, or applied by the Commissioner in total or partial discharge of another tax liability of the person.
Note: An example of a penalty referred to in paragraph (a) is a penalty payable under section 284-75 in Schedule 1.
48. The taxpayer relies on his prosecution for various offences under the Financial Transaction Reports Act 1988 (FTRA) as justification for the removal of the penalty in his case.
49. For the taxpayer to make good his argument that s 8ZE applies, he must show, at least, that the "act or omission" that caused him to become liable to the penalty (paragraph (a)) is the same as the "act or omission" constituting the "taxation offence" for which he was prosecuted (paragraph (b)). This is because of the use of the definite article "the" before the expression "act or omission" in paragraph (b); this must be a reference to the "act or omission" identified in paragraph (a).
50. Now, as far as paragraph (a) is concerned, the "act or omission" that caused the taxpayer to become liable to the penalty is:
- • for the 1996 to 2000 income years - "the intentional disregard by the taxpayer … of [the ITAA 1936] or the regulations" leading to a "tax shortfall"; and
- • for subsequent years - making a "false or misleading" statement to the Commissioner, leading to a "shortfall amount" which resulted from "intentional disregard of a taxation law by [the taxpayer or his agent]".
51. By contrast, and in relation to paragraph (b) of s 8ZE, the offences for which he was prosecuted (and in respect of which he was convicted) are that, on 26 separate occasions, he:
… did make a statement in writing that was to his knowledge false in a material particular and capable of causing a cash dealer, namely the Commonwealth Bank of Australia ("CBA"), to make a report of an international funds transfer instruction that was false in a material particular in that, in an 'International Money Transfer Application' made to the CBA seeking an overseas telegraphic transfer of $[…], he did state that the purchaser was Edmond Overlay
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contrary to subsections 29(5) and 29(4)(b) of the Financial Transaction Reports Act 1988 …[22]Exhibit A1, Tab 19
52. For completeness, I set out the relevant portions of s 29 of the FTRA below:
29 False or misleading information
- …
- (4) A person shall not make a statement, either orally or in writing, or present a document that is, to the person's knowledge, false or misleading in a material particular and is capable of:
- …
- (b) causing a cash dealer to make a report of a cash transaction, or of an international funds transfer instruction, that is false or misleading in a material particular; or
- …
- (5) A person who contravenes subsection (1), (2), (2A), (3) or (4) commits an offence against this subsection punishable, upon conviction, by imprisonment for not more than 5 years.
53. There is clearly no equivalence between the "act or omission" that exposed the taxpayer to the administrative penalties under the taxation law and the "act or omission" constituting the offence for which he was prosecuted under the FTRA. (It is not necessary for me to express an opinion in relation to the further hurdle that the taxpayer must overcome in paragraph (b) of s 8ZE, that being whether the offences against the FTRA are "taxation offences" in the first place.)
54. The taxpayer's arguments in reliance on s 8ZE of the TAA must fail.
CONCLUSION
55. The taxpayer has not succeeded on any of the issues that needed to be determined by the Tribunal.
56. The objection decisions will therefore be affirmed, except to the extent conceded by the Commissioner during and after the conciliation conferences, and as recorded in the Commissioner's letter dated 21 December 2012 to the taxpayer.
Footnotes
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