Case K15
Judges:AM Donovan Ch
RK Todd M
LC Voumard M
Court:
No. 2 Board of Review
A.M.J. Donovan (Chairman); R.K. Todd and L.C. Voumard (Members):
The first thing to be said of the taxpayer with whose references we are here concerned is that he is, like any other taxpayer, ``limited to the grounds stated in his objection'' - sec. 190(a) of the Income Tax Assessment Act 1936. This Board has recently considered yet again the terms of this provision, and there is no need to repeat what was there said: See Case J65,
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77 ATC 546. The notice of objection directed to assessments calculated by reference to an assets betterment statement raised points of objection in relation to six specific items, namely to the question of the amount of cash on hand at 30th June, 1971, to the quantum of the purchase price of the greyhound ``M'', to the character of payments made to Dr. X and to Mrs. D, to the amounts taken into account in relation to private expenditure, and finally to the question of whether the taxpayer was in the final three years with which we are concerned entitled to concessional deductions. Nothing was said in the notice as to the major contention which was raised at the hearing in relation to the year ended 30th June, 1971, that substantial sums of money held in various bank accounts at the close of that year, and an Esanda debenture, were, or represented, assets not of the taxpayer but of Mr. A. There is not a shadow of a suggestion in the notice of objection that the Commissioner should direct his mind to the consideration of such a contention. In view of this, the taxpayer's major contention must, on the authorities, clearly be rejected.2. This much should however be added in relation to the notice of objection. That notice may be broken down into the following parts as far as matters of substance are concerned:
- (1) It did state that ``the additional income included in each of the amended assessments does not constitute assessable income and, as such, should be excised therefrom''. As a general statement on its own, this does not take the taxpayer's case anywhere. As Williams J. said in
H.R. Lancey Shipping Co. Pty. Ltd. v. F.C. of T. (1951) 9 A.T.D. 267 at p. 273: ``Vague grounds such as that the assessment is excessive are not, in my opinion, a compliance with the Act''. This could have been cured by the notice condescending to details, but so far as the case that was sought to be maintained before the Board is concerned it did not so condescend, save in relation to the six items specifically mentioned to which we have already referred. - (2) It did also state, at the very end of the notice, that ``the amended assessments are wrong in fact and in law'', but the same comments as made under (1) above apply here also.
- (3) There may be cases where, in all the circumstances, a somewhat general complaint in the notice of objection may suffice, though such can ordinarily be the case only in a very simple situation since the Act requires that the grounds be stated ``fully and in detail''. But the fact is that where a number of detailed grounds are set out, it is not easy to contend that other unspecified detailed grounds are capable of being extracted from a general amorphous dragnet clause.
3. But it is necessary to add, lest what we have said about the notice be said to be ``technical'', that the matter goes a good deal further. Initially the taxpayer had offered to the investigating officers, as an explanation for the apparent presence of additional income, the suggestion that he had been conducting the activities of a starting price bookmaker. The taxpayer, in evidence, ventured that he had told them this on the prompting of Mr. B, his then taxation adviser - see transcript pp. 397-8, where he went on to say that the explanation was false. At the hearing before us, the taxpayer's counsel vigorously developed a thesis that what we might call ``the S.P. explanation'' had been improperly extracted from the taxpayer by undue pressure on the part of Departmental officers. The explanation was, he argued, to be rejected. Presumably it was to be rejected both as being unlikely to have been true, having been made only because of the allegedly improper pressure that was applied to him, and in any event as constituting an admission that on grounds of public policy ought not, having been allegedly improperly obtained, to be weighed in the balance against the taxpayer.
4. The first thing to be said about this is that ``the S.P. explanation'' was not it seems put to the taxpayer by the Departmental officers. It sprang from his head fully-armed, although the armorer seems to have been Mr. B. The second thing to be said is that when, at or at least by the time the notice of objection came to be prepared, the taxpayer had decided to repent of ``the S.P. explanation'', he did not then proceed to offer the explanation which he placed before the Board at the hearing, but rather an entirely different explanation and one which was still based on the hypothesis that the assets listed in the betterment statement and taken into account in determining the assessed incomes were his own. It now asserted a basis of receipt that
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presumably was designed to lead to a conclusion of non-assessability, namely that ``... the additional income in each year was from punting wins on racehorses and greyhounds. His only interest in gambling at all times has been as a punter.'' Not a word was said in the notice of objection about any of the taxpayer's assets belonging to Mr. A. Indeed, no reference was made to Mr. A at all. The curiosity of all this is compounded when regard is had to the previously mentioned matter of the cash-in-hand. The notice of objection did refer to this, but what was said was: ``It is maintained that all winnings are banked as soon as possible after collection and that the maximum amount of cash on hand at any one time would not be in excess of $500''. Yet no evidence was led to gainsay the Commissioner's figure of $2,600. What was instead said was that the money was Mr. A's. The point of this for present purposes is that it is not a matter simply of the taxpayer's failure to raise in his notice of objection the substantial points which he sought to make before the Board at the hearing. What he did in the objection was to change from one story to another, both of which stories were wholly inconsistent with the case ultimately put. If there were ever a case which illustrated that the rule enshrined in sec. 190(a) of the Act is not technical but is a necessary part of the process of evaluating the taxpayer's contentions, we should say that this was such a case.5. Much of what we have already said is relevant to the second observation to be made, namely that the burden of proving that the assessment was excessive lay upon him: sec. 190(b) of the Act. In an undeveloped submission, it was argued that the effect of
Gauci v. F.C. of T. 75 ATC 4257 was to alter the law as to onus of proof in a case where the Commissioner had proceeded to assess a taxpayer to tax upon the basis of the preparation of an assets betterment statement. The whole matter is fully and usefully discussed in Contesting an Income Tax Assessment (CCH Australia Ltd., 1977) at pp. 135-170. The matter was not argued in any depth before us and we shall simply state our conclusions: We do not think that what was said in Gauci's case (supra) touches the question of the onus of proof in relation to default or arbitrary assessments under sec. 167 of the Act. A Board of Review is plainly bound by what was said by Latham C.J. in
Trautwein v. F.C. of T. (1936) 56 C.L.R. 63 at pp. 87-88:
``2. Sec. 39 of the Income Tax Assessment Act 1922-1934 provides (inter alia) that the production of any notice or copy notice of assessment under the hand of the Commissioner shall be conclusive evidence that the assessment has been duly made and that the amount and all the particulars of the assessment are correct, except in proceedings on appeal against the assessment, when it shall be prima facie evidence only. Isaacs J. said in
Moreau v. F.C. of T. (1926) 39 C.L.R. 65, at p. 70, that sec. 39 `throws the burden on the appellant to establish his right to the benefit he claims'. This statement, if strictly construed, means that the taxpayer appellant does not rebut the presumption created by sec. 39 merely by showing that there is an error in it - and thereby `creating a blank' - he must go further and show either that there ought to be a `blank' - a complete omission of the item in question - or that something else should be substituted for that item. The circumstance that the facts are (or were) peculiarly within the knowledge of one party is a relevant matter in considering the sufficiency of evidence to discharge a burden of proof. (See cases cited by Isaacs J. in
Williamson v. Ah On (1926) 39 C.L.R. 95, at pp. 113-115.) Obviously the facts in relation to his income are facts peculiarly within the knowledge of the taxpayer.In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer, the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.
The application of sec. 39 is not, in my opinion, excluded as soon as it is shown that an element in the assessment is a guess and that it is therefore very probably wrong. It is prima facie right - and remains right until the appellant shows that it is wrong. If it were necessary to decide the point I would, as at present advised, be prepared to hold that the taxpayer must, at least as a general rule, go further and show, not only negatively that the assessment is
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wrong, but also positively what correction should be made in order to make it right or more nearly right. I say `as a general rule' because, conceivably, there might be a case where it appeared that the assessment had been made upon no intelligible basis even as an approximation, and the court would then set aside the assessment and remit it to the Commissioner for further consideration.''
6. This passage does of course raise some interesting questions. The Income Tax Assessment Act 1922-1934, which was there under consideration, contained no equivalent as such of sec. 190(b) of the Act of 1936. Section 39 was the equivalent of sec. 177 of the 1936 Act, with of course the important difference that the words ``(when it shall be prima facie evidence only)'' are absent from sec. 177. Those words formed part of the legal materials to which reference was made at that time in concluding that the burden of proving his case lay upon the taxpayer, but they were not the only materials. When in the 1936 Act sec. 190(b) came upon the scene, it obviously became the dominant legal requirement leading to that conclusion, but it is by no means clear that the position would be otherwise in the absence of sec. 190(b). Given the Commissioner's powers of assessment, and the fact that ordinarily the matters in dispute are peculiarly within the knowledge of the taxpayer, it would be a natural conclusion that the taxpayer, who comes seeking relief, should begin and should carry the burden of persuading the tribunal of the facts upon which he relies. In Moreau v. F.C. of T. (1926) 39 C.L.R. 65 at p. 71, Isaacs J., in the passage immediately following that cited by Latham C.J. in Trautwein's case (supra), referred to what was said by Lord Mansfield in
Blatch v. Archer (1774) 1 Cowp. 63 at p. 65, namely that ``all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted''. Certainly the custom in revenue cases has always been for the appellant to begin: see
Railway Commrs. of N.S.W. v. Petersham Municipal Council (1922) 6 L.G.R. (N.S.W.) 11, cited in Australian Federal Tax Reporter (CCH Australia Ltd.) para. 82-115. But whatever the force of these comments, so far as default or arbitrary assessments are concerned, the judgments in
George v. F.C. of T. (1952) 86 C.L.R. 183 put the matter beyond doubt. At first instance Kitto J. said at pp. 189-190:
``The object of the present application is really to have the Commissioner say whether he is prepared to assign a source or sources for the moneys included in taxable income in the assessment over and above those disclosed as taxable income in the return, and to admit that if they did not come from that source, or from one or more of those sources, those moneys were not liable to be included in the appellant's taxable income. The Commissioner may, if he chooses, voluntarily narrow the possible range of evidence in that way, but there could be no justification for ordering him to do so, under the guise of ordering particulars. If he attempts to prove derivation from a particular source and fails, he is none the less entitled under the Act to point to another source, or, without troubling about source at all, to stand upon his assessment and submit that the presumption in its favour has not been displaced. Even if the Commissioner at present has in mind to seek to prove that income not disclosed in the return was derived from a particular source, he cannot be pinned to that source, nor would it be proper to order him to reveal his present plan of campaign. He is entitled to say, `I do not allege anything about source at all; I may have ideas on the subject, but if I have I shall develop or modify or abandon or replace them as occasion may require, until the evidence on the hearing is complete, and then I shall make my submissions to the Court'.''
Then on appeal, in the joint judgment of Dixon C.J., McTiernan, Williams, Webb and Fullagar JJ., the following passage appears at p. 201:
``Section 190 provides that upon every appeal to the Court the burden of proving that the assessment is excessive shall lie upon the taxpayer. With this provision must be read sec. 177(1), which provides that the production of a notice of assessment, or a document purporting to be a copy under the hand of the Commissioner the Second Commissioner or a Deputy Commissioner, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all particulars of the assessment are correct. The word `assessment' is defined by sec. 6(1) to mean
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the ascertainment of the amount of taxable income and of the tax payable thereon. In conformity with this definition sec. 166 directs the Commissioner to make an assessment of the amount of the taxable income of any taxpayer and of the tax payable thereon. From these provisions both in their present form and in their slightly different earlier form, 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:
Stone v. F.C. of T. (1918) 25 C.L.R. 389, at pp. 392, 393; Moreau v. F.C. of T. (1926) 39 C.L.R. 65;
F.C. of T. v. Clarke (1927) 40 C.L.R. 246; Trautwein v. F.C. of T. (1936) 56 C.L.R. 63. `The justice of that burden cannot be disputed. From the nature of the tax, the Commissioner has, as a rule, no means of ascertainment but what is learnt from the taxpayer, and the taxpayer is presumably and generally, in fact, acquainted with his own affairs. The onus may prove to be dischargeable easily or with difficulty according to circumstances', per Isaacs A.C.J.,
F.C. of T. v. Clarke (1927) 40 C.L.R., at p. 251.''
Then at pp. 203-204 the Court said as follows:
``But, even were it true that the Commissioner must, upon the hearing of the appeal, affirmatively prove by evidence that he formed a judgment of the amount of the income upon which the appellant ought to be taxed, it could not be part of his case to establish the facts upon which he acted in forming the judgment or the grounds on which he proceeded, the materials before him, or the reasoning actuating him. The need supposed of showing that he formed such a judgment could be no ground for requiring particulars of the sources of the taxable income ascribed by the assessment to the appellant. The assumption made, however, has no foundation. The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. Section 166 and sec. 167 do not prescribe distinct duties or functions. They combine to show what the Commissioner may or must do in performing his single duty of arriving at an assessment. Section 166 on its own terms covers cases where the Commissioner depends exclusively on sources other than a return. It says that he is to make his assessment from (1) the returns, (2) from any other information, or (3) from any one or more of these sources. Clearly enough under sec. 166 the Commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return. Section 167 is epexegetical to sec. 166. It is not an independent power. What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by sec. 166, and to direct how in those situations the Commissioner shall proceed for the purpose of sec. 166. Just as under sec. 166 considered alone the Commissioner ascertains the amount of the taxable income and thus assesses it so does he under sec. 167, used in aid of sec. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it. By definition `assessment' means the ascertainment of the amount of the taxable income, and of the tax payable thereon. This is the view of sec. 166 and 167 adopted by Williams J. in
McEvoy v. F.C. of T. (1950) 9 A.T.D., at p. 211. The fact is that unless the taxpayer discharges the burden laid upon him by sec. 190(b) of proving that this ascertainment or judgment is excessive, he cannot succeed and it can be no part of the duty of the Commissioner to establish affirmatively what judgment he formed, much less the grounds of it, and even less still the truth of the facts affording the grounds. Yet that is what is involved when the demand for particulars of the sources alleged of the appellant's income is justified by reference to sec. 167.''
7. At p. 159 et seq. of Contesting an Income Tax Assessment (supra) there is a discussion of the nature of the duty of a Board of Review should it be at least shown that the Commissioner's judgment of the amount upon which tax ought to be levied is incorrect, and the suggestion is made that the position is different from that obtaining before a Court. Upon this it is unnecessary in the circumstances for us to comment, for, as the author points out, that question does not arise
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unless the taxpayer has at least established that the Commissioner's determination of the amount upon which income tax ought to be levied is in fact incorrect, and the burden of proving that this is so remains upon the taxpayer.8. It remains to be said that the problem with which the Courts were concerned in Gauci's case (supra) and in
Steinberg v. F.C. of T. 75 ATC 4221 was quite different from that which arises in the case of an arbitrary or default assessment. In these instances the concept of the taxpayer having placed upon him the burden of proving ``that the assessment is excessive'' seems both appropriate and necessary. The phrase quoted is however a good deal less apt and thus has the potential to be misleading in relation to a case arising under the first limb of sec. 26(a) of the Act. There, to say that the assessment is excessive or otherwise says very little about the true problem, namely what was the purpose for which the taxpayer acquired the property in question. As we read the judgments, what Barwick C.J. in Steinberg's case (supra) and in Gauci's case, and what both he and Jacobs J. in the latter decision, were saying was that where there is no evidentiary foundation for the assertion that the relevant purpose existed, then the assessment has a fortiori been shown to have been excessive and the burden of proof discharged. In a case involving the application of the first limb of sec. 26(a) of the Act the critical question is not one of the quality or quantity of an asset, of a payment or of a receipt as such, but of a state of mind. But in the case here before us the questions are simply ones relating to the quantity or quality of an asset, of a payment or of a receipt. We do not think that the same analysis as was adopted by Barwick C.J. in Steinberg's case (supra) and by the majority in Gauci's case (supra) is here applicable. In so saying we have not overlooked what was said by Bray C.J. in
Jones v. F.C. of T. 77 ATC 4058 at p. 4065, where he said, referring to Gauci's case (supra) that, ``It is true that that case turned on sec. 26(a), not on sec. 260, but, in my view, the remarks of the learned judges in the majority on the matter of sec. 190(b) are of general application''. With respect, we would wish to say to two things: First, that Bray C.J. cannot in that case have had the question of the onus of proof in relation to default or arbitrary assessments in mind when he made this comment, nor was there any occasion for him to consider the long-standing line of High Court decisions upon the topic which we have referred to earlier in these reasons. Second, when Bray C.J. proceeded to formulate, in the first paragraph of his reasons appearing on p. 4066 of the report of Jones case, a proposition in relation to sec. 260 of the Act and the onus of proof in relation thereto, his reasoning went, we would respectfully suggest, one step further than the reasoning of the majority in Gauci's case. In the latter case, Barwick C.J. and Jacobs J. concentrated upon the extent of the burden of proof in terms of the ``purpose'' the existence of which is required in order that sec. 26(a) may be invoked. It must be observed that Bray C.J's formulation of the burden of proof, which arose in the context of sec. 260, is in fact phrased in terms not of the words of sec. 260 but of judicial statements of what those words are intended to mean.
9. The New Zealand case of
Phillips v. Commr. of I.R. (N.Z.) (1959) 12 A.T.D. 138, seems to us to be a rather special one having regard to the way in which the assessment was raised. If it conflicts with the reasoning which we have adopted, it likewise conflicts with the decisions of the High Court to which we have referred, and cannot be followed in Australia.
10. It may be that we have misconceived the meaning of what has been said in Steinberg's case, Gauci's case and Jones' case. If so, it does not very much matter for present purposes, as long as we have not misconceived what was said in Trautwein's case, Clarke's case and, more particularly, in George's case. These authorities seem to us to be trenchantly clear. If they are no longer the law, it seems obvious that it would be necessary for the Courts to say so, not least because if they are no longer the law the position would be that the investigation of tax avoidance and evasion will be hopelessly impeded, and avoidance and evasion themselves found to be at a premium.
11. We would only add that in view of some of the comments made to the Board in this reference, it would be as well to note the remarks of Fullagar J. in George's case (supra) made in his separate additional reasons appearing at pp. 207-208 of the Report:
``It is common practice, in the Court lists and in the Law Reports to entitle a taxation appeal as if it were a proceeding between a named taxpayer and the Commissioner of Taxation. But the Commissioner is only nominally a `party' to the proceedings.
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The proceedings are really proceedings between Crown and subject... The Commission is an officer who, in the performance of his statutory functions, does acts which prima facie create an obligation as between the Crown and a particular subject, and the statute provides means whereby the subject may test before a court or a board the question whether the Commissioner has acted according to law. In proceedings before court or board the Commissioner's acts are called in question, but he is in no real sense a party.''
In this passage Fullagar J. had in mind the procedural effects of his comments, but what he said contains essential truths that should generally be borne in mind. It was persistently demanded of us at the hearing that we should be ``fair'' to the taxpayer. The persistent implication was likewise that such fairness should appear in a contest in which it was inferred that the Commissioner and/or the Taxation Office generally were pursuing the taxpayer in his or its own right and interest. But, as Fullagar J. said, this is not the case. The Board must be indeed fair to this or any other taxpayer. But it must be fair within the rules which the Act, and the Courts' interpretation of them, demand, and it must also be fair, within those same rules, not only to the taxpayer but to the whole tax paying community, whose rights are diminished by avoidance or evasion on the part of some other member of that community. It is this community which the Crown as parens patriae, through its agent the Commissioner, must protect just as much as it must protect, through institutions lawfully created, the individual taxpayer who comes for relief.
12. This disposes of the principal submission made on behalf of the taxpayer, but because of the emphasis it received and the time devoted to it perhaps there should be some comment on its merits. It was directed, as we have already indicated, to an assessment in respect of the year ended 30th June, 1971. That assessment and original or amended assessments in respect of the previous five fiscal years were all issued as the result of an investigation into the taxpayer's financial affairs and all were calculated on an assets betterment basis. Associated with counsel's submission was an argument that such a basis in any circumstances is, and particularly in the taxpayer's case was, an inappropriate method of determining taxable income. This argument misconceives the essence of an assets betterment statement, for in an ideal situation where everything is known of the taxpayer's affairs the application of this method and the traditional method gives exactly the same result.
13. An essential step in determining taxable income by the traditional method is to subtract from the total of the income derived from assessable sources the outgoings incurred in deriving that income, that is to say outgoings allowable as deductions under the Act. The resultant figure when added to funds received from non-assessable sources must be the sum used by the taxpayer to meet all non-deductible expenditure, including payments to acquire assets and reduce liabilities and to meet costs of living and the like. It is to the determination of the sum expended in this fashion that an assets betterment calculation is in the first place directed. In simple terms, the amount is ascertained by finding the improvement in net assets during the fiscal year and adding to it all non-deductible expenditure of the period not reflected in assets or liabilities. When allowance is then made for funds from non-assessable sources, there is left a figure which must equal the income derived from assessable sources less outgoings incurred in relation thereto. The congruence of the results from both systems of calculation is therefore apparent. There can be no doubt that in any circumstances both are appropriate methods of calculation, though obviously one is far more cumbersome than the other.
14. No doubt it is for this reason that the Commissioner appears to resort to an assets betterment calculation only where no records have been kept by the taxpayer or where he is dissatisfied with the accuracy of those which are in existence. It is true that the compilation of an assets betterment statement calls for technical skill, particularly where a taxpayer's affairs are complicated. Similarly, the interpretation of the mechanical steps involved requires some expert knowledge. Nevertheless, any error in the component items of the statement ought to be readily apparent to the taxpayer concerned. These errors will ordinarily comprehend the wrongful inclusion or omission of assets or liabilities, their inclusion at incorrect figures, allocation of incorrect amounts to expenditure not represented by assets or liabilities, failure to give credit for funds from
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non-assessable sources or the incorrect determination of capital profits or losses when there has been a disposition of assets. In practice a taxpayer may have difficulty in challenging assessments calculated in this manner if he has not retained records or if he has no recourse to bank records. This last mentioned disadvantage should not have applied to the taxpayer in this case, at least in relation to the year ended 30th June, 1971. This is the year in which the greatest amount by far is in dispute, and the taxpayer was aware within four months of the close of that financial year that his affairs were under scrutiny by the Commissioner.15. We have already said that the main submission was that to a very marked extent the increase in liquid assets during the year ended 30th June, 1971, which gave rise to most of the income assessed to the taxpayer for that period, represented money in which the taxpayer had no beneficial interest and which he held on behalf of Mr. A. The taxpayer gave evidence to this effect, and in so far as her limited knowledge went this evidence was supported by that of the lady with whom the taxpayer cohabited and whom we shall refer to as his wife. Nevertheless, the taxpayer impressed us as not being always a frank witness, and we would not be prepared to accept this evidence unless it was consistent with facts otherwise established.
16. There is no doubt that the taxpayer attended to a part of the considerable betting transactions entered into by Mr. A and that in the course of settling these wagers he handled large amounts of cash. Perhaps the other objective facts most strongly supporting his case are that when in the next financial year the mortgage on his home fell due for repayment he had to seek an extension of time for settlement, and later still when he wanted a deposit for the purchase of a home in another State he was obliged to borrow further funds on the security of his existing home. It might be inferred that the taxpayer at those times had insufficient funds of his own for the purposes mentioned, and it might perhaps be further inferred that therefore the funds held at 30th June, 1971, were, as he deposed, not his own but Mr. A's. But opposite inferences might just as readily be drawn, and in the circumstances one might have expected some attempt to have been made in the course of the hearing to explain in detail how the funds in question were subsequently disbursed by the taxpayer on behalf of Mr. A. No such attempt was made.
17. There are facts which tell against the acceptance of the taxpayer's version of events. On his own admission he mixed the money in question with his own funds and had recourse to some of it for his own purposes. At one stage we understood him to say that he kept no record of the moneys held on behalf of Mr. A, and on another that the record he kept had been handed to Mr. A. At all events, no record of the moneys was produced to the Board, and we were not told of any attempt to obtain the records which were said to have been given to Mr. A. The race books with betting details which were available for production to the Board would not on our understanding contain this information.
18. In this context the earlier conflicting explanations of the source of the funds held at 30th June, 1971, which have already been referred to, have considerable significance. The failure of the taxpayer himself to disclose to the investigator what he told the Board about this money is difficult to understand. His reticence cannot have stemmed from a desire to protect Mr. A, for the taxpayer disclosed the connection between them very early in the investigation. He told Mr. A of the departmental enquires, and it was Mr. A's suggestion that the investigation officer be referred to him - an invitation which when relayed to the investigator was not accepted. Just as difficult to understand is the statement in the objection which attributes the increase to punting wins. This document appears to have been signed by the taxpayer's solicitor, but it does not follow that he was its author. Unless there was some misunderstanding on the part of the person who actually drew the document, and this was a subject on which no evidence was led, the view is open that the author was misled by the taxpayer on this point.
19. The explanation given by the taxpayer to the Board has also to be examined in the light of the situation which existed in the 1970 year. The income of that period calculated on the assets betterment basis amounted to $5,463. If the contentious expenditure on improvements to the home and additional household furniture amounting to $500 and $100 respectively are ignored, and if the private expenditure is reduced by $520, the income of the year would be reduced to $4,343. This is to be compared with the income of $832
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disclosed in an amended tax return which we were given to understand was the entirety of the taxpayer's admitted income from assessable sources for that year. There is a discrepancy of $3,511. A very small proportion can be explained by stake winnings of the dog V. No explanation of the balance of the discrepancy was attempted. It cannot have been due to the winnings of the dog M which all occurred in an earlier period, nor to punting wins, because the taxpayer bet only in small amounts. The amount lent by Mr. T also appears to have been in an earlier year and not to have been responsible for the difference. On the evidence it cannot be accounted for by payments received by the taxpayer's wife from her former husband. Nor do we accept that it could have been due to her earnings. She had been employed part-time for a number of years, but was uncertain when her employment ceased. Since the last return submitted by her was in respect of the year ended 30th June, 1968, it is unlikely in the extreme that she derived salary during the year ended 30th June, 1970, which could account for the discrepancy. In the course of argument, counsel for the taxpayer seemed to suggest that apparent discrepancies of this type could be explained by a carry-over from year to year of amounts of cash on hand. That is possible of course, but if this were so an adjustment to the assets betterment statement was called for to include as an asset the amount of the cash fund at 30th June each year. No evidence touching this matter was adduced. On the face of things, therefore, there was a receipt of funds during the year ended 30th June, 1970, about which we were told nothing.20. Somewhat the same situation exists in relation to the 1971 year. Even if allowance is made for the amounts which were said to belong to Mr. A, there is still an apparent discrepancy between the income determined on the assets betterment basis and that disclosed in the amended 1971 return. No purpose, however, would be served by setting out the details.
21. If then the question whether money held in bank accounts and invested in the Esanda debentures at 30th June, 1971, represented funds held by the taxpayer on behalf of Mr. A were before the Board, the matters to which we have referred would have to be taken into account. The conclusion to which we would be forced to come is that on the balance of probabilities the taxpayer had failed to persuade us as a matter of belief that this was so, as a consequence of which the assessment for the year ended 30th June, 1971, to the extent to which it was calculated by reference to these assets, would have to be confirmed.
22. We now turn to consider the specific matters raised in the objection. Perhaps the most convenient matter to deal with first is the item ``Other Private Expenditure'' which was determined by the Commissioner at figures between $2,080 and $2,600 per annum. These amounts were nothing more than estimates. The objection contends that this expenditure ``has never been in excess of $36 per week and in earlier years somewhat less...'', and put the annual expenditure between $1,456 and $1,872. The expenditure in question was intended to cover the living costs of the taxpayer and his wife and the only evidence relevant to this question came from her. She said that the taxpayer gave her his money and that she controlled the common purse. She ``supposed'' that the cost of keeping the home going in 1966, the first year with which we are concerned, was $30 per week, that is $10 per week less than the Commissioner's figure. Her estimates for each of the succeeding years were likewise approximately $10 per week less than the figure adopted by the Commissioner. It was not in any way suggested that the figures she deposed to were anything but estimates, and indeed related to total expenditure without any attempt being made to break the amount into its component parts. Nevertheless, we were left with the impression that the household was not conducted in an extravagant manner. At the risk of criticism for accepting one unsupported estimate for another, we are prepared to accept that the onus of proof was on this point discharged and to adopt the figures given by the taxpayer's wife. The effect of so doing is to reduce the taxable income of each of the years with which we are concerned by $520.
23. It has already been mentioned that in the early part of the period under review the taxpayer's wife was in employment on a part-time basis. She said that her earnings were applied towards the maintenance of the household. Even if the objection directed to the quantum of private expenditure were framed in such a way as to enable us to take her earnings into account, nothing could be done in this regard for there was no acceptable evidence of the amount she earned or the
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amount she applied to the maintenance of the household from her own money.24. An amount of $2,600 cash was treated as an asset on hand at 30th June, 1971. In this regard the objection reads: ``It is maintained that all winnings are banked as soon as possible after collection and the maximum amount of cash on hand at any one time would not be in excess of $500.'' The investigator had examined cheques drawn by the taxpayer which had been met by his bank and which were then retained in its custody. He said that there had been a withdrawal of $2,600 from the bank on 30th June, 1971. This evidence was supported by a debit in the taxpayer's account with the Commonwealth Trading Bank at B of that amount on that date. No attempt was made on the taxpayer's behalf to show that the transaction was not a withdrawal in cash or that the amount was disposed of by the taxpayer before the close of that day. In these circumstances, the Board is obliged to find that the taxpayer has failed to show on the balance of probabilities that an amount of $2,600 was not held in cash at the end of the 1971 fiscal period.
25. Another item under challenge was the amount of $800, at which figure the greyhound M was included in the betterment statement. This was the figure which the investigator said the taxpayer had told him that the dog had cost. The taxpayer denied having made this admission and told the Board that he had purchased the animal for $100 from a friend, but that after the dog had had a succession of wins he had paid the vendor a further amount of $500 from money he had won backing the dog. Compared with the amount paid for other dogs the price of $100 is extremely low, but since the investigating officer did not independently establish the cost price we propose to accept what the taxpayer said. The cost of the dog, however, has to be taken as $600 for that was the amount which changed hands and not $100 as suggested in the objection. A further matter, however, needs consideration. As we observed earlier, the objection asserts that the income determined by the assets betterment statement was attributable to betting wins. Our acceptance of the taxpayer's account of the way the dog was paid for means that to the extent of $500 the objection on this point has been made out. In the result his income for the year ended 30th June, 1968, the year in which the dog was acquired, should be reduced by $700.
26. A somewhat similar explanation was given by the taxpayer concerning the purchase of the dog V. The position here, however, is quite different. The investigator said that he had identified a cheque which he understood was the payment for the dog. Without further elaboration on the taxpayer's part, we are not prepared to conclude that, within the terms of the objection, the whole or any part of the cost of the dog came from punting wins.
27. Another item taken into account in the assets betterment statement was the sum of $200 paid to Dr. X, who was Mr. A's physician and with whom the taxpayer was friendly. The amount was included by the investigating officer on the understanding that it was a payment made in appreciation of his having introduced the taxpayer to Mr. A. The objection asserts that the payment ``was a loan to Dr. (X) which was subsequently repaid. The loan was made and the repayment received during the year ended 30th June, 1971''. The taxpayer told the Board that the payment had been made at the direction of Mr. A from funds belonging to Mr. A. He said also that the amount had been repaid, but that he could not recall when this happened. We were not told from what fund the taxpayer had made the payment, but the inference to be drawn is that its source was one of the accounts to which reference has already been made and which were said to contain Mr. A's money. However, the objection does not raise the issue of whose money was involved and this point need not concern us. It is true that if repayment of the amount had been effected prior to the end of June, 1971, an appropriate reduction in the assessed income for that year would have to be made. As it was, the taxpayer's inability to recall when this occurred means that on this point too he has failed to discharge the onus which the Act places upon him.
28. Uncertainty also surrounds the transaction of which a payment of $450 to Mrs. D made in 1970 formed part. As far as it is relevant to this point, the objection states that the amount ``... represents repayment of a loan from Mrs. (D) of $450. The duration of the loan was for only a couple of months and was repaid from the proceeds of the sale of Valiant (Reg. No.).'' The registered number quoted was incorrect but no doubt reference was intended to a vehicle which was disposed of on 10th July, 1969. Our understanding of the position is that part of the very proceeds of sale was diverted to Mrs. D and constitutes the
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amount in question. The taxpayer told the Board that the amount was repayment of a loan, but no attempt was made to lead from him any evidence as to the date upon which the loan had been obtained. If, as it appears, repayment occurred within the first fortnight of July, it is probable that the loan was in existence at the commencement of that fiscal period and, if that be so, no adjustment to the 1970 assessment is called for. It is impossible on the evidence before the Board to decide what earlier assessment is affected and, in consequence, this ground of objection must also be treated as having failed.29. The final ground of objection relates to the non-allowance of concessional deductions, including deductions in respect of the taxpayer's two children who lived with his divorced wife. He contributed to their maintenance during the years in question, but that of itself is insufficient to ensure a deduction. Section 82B(4) provides that when two or more people contribute to the maintenance of a dependant, the deduction allowable to a contributor is only such amount as is in the opinion of the Commissioner reasonable. Since the children resided with their mother, the conclusion is inescapable that they were not wholly maintained by the contributions which the taxpayer made, and unfortunately no evidence was given of the total amount involved in their maintenance. In consequence, it is impossible to determine what would be a reasonable deduction to the taxpayer in the circumstances.
30. The other concessional deductions alluded to in the objection were those set out in amended returns lodged in respect of the three years ended 30th June, 1969 to 1971. Apart from a small discrepancy in one year about which we do not intend to concern ourselves, the issue raised can be taken as being the taxpayer's entitlement to deductions pursuant to sec. 72 of the Act in respect of local government rates. His counsel led evidence to the effect that the amounts in question had been claimed as deductions in the amended returns but did not attempt to show that the requirements of the section had been satisfied. In particular, it was not shown either that the taxpayer was personally liable for the rates or that the amounts had been paid. In spite of this omission, there was other evidence which showed that the taxpayer owned the house in which he lived and we suppose that in all the circumstances we can take it that rates were levied in respect of the property. We intend to assume that the quantum thereof was as set out in the returns and that the relevant amounts were paid in those years. The taxpayer is accordingly entitled to deductions of $81, $92 and $112 for the years ended 30th June, 1969 to 30th June, 1971 respectively.
31. In the result, therefore, the taxpayer's objection against each of the assessments before the Board succeeds to the extent of a reduction in taxable income of $520 related to the amount taken into account for ``Other Private Expenditure''. The objection in relation to the year ended 30th June, 1968, succeeds to the extent of a reduction in taxable income of $700 related to the amount included in the assets betterment statement in respect of the greyhound M. The objection against the assessments of the years ended 30th June, 1969, 1970 and 1971, also are upheld to the extent of allowing deductions in respect of rates pursuant to sec. 72 in the amounts of $81, $92 and $112 respectively. Otherwise the Commissioner's decisions on the objections are upheld.
Claim allowed in part
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