Decision impact statement

Gashi v Commissioner of Taxation

Court Citation(s):
Full Federal Court:
[2013] FCAFC 30
(2013) 296 ALR 497
(2013) 209 FCR 301
2013 ATC 20-377
(2013) 91 ATR 1
High Court (special leave application refused on 16 August 2013):
[2013] HCATrans 181

Venue: Federal Court of Australia
Venue Reference No: VID 490 of 2012, VID 491 of 2012
Judge Name: Bennett, Edmonds & Gordon JJ
Judgment date: 14 March 2013
Appeals on foot: No
Decision Outcome: Favourable

Impacted Advice

Relevant Rulings/Determinations:
  • None

Subject References:
Default assessment
Onus of proof - excessiveness
Asset betterment
Validity of assessments
Part IVC appeal

Exclamation This document is not a public ruling, but provides a statement of the Commissioner's position in relation to the decision and how the law will be administered as a consequence of the decision. Any proposals for changes in the law are matters for government and it is not appropriate for the Commissioner to comment.


Outlines the ATO's response to this case which concerned whether the taxpayers had discharged the onus of proving that default income tax assessments issued to them based on the asset betterment methodology were excessive.

Brief summary of facts

Mr Gashi did not lodge income tax returns for the 2001, 2002 and 2006 income years, but lodged returns for the 2000, 2003, 2004 and 2005 years, declaring only modest amounts of taxable income. Mrs Gashi did not lodge returns for any of those years. An audit into the income tax affairs of both taxpayers revealed ownership of substantial real estate investments and other assets and significant transfers of funds by the taxpayers to associates overseas during those income years. Following the audit, the Commissioner issued assessments to the taxpayers in March 2010 under section 167 of the Income Tax Assessment Act 1936 (ITAA 1936), utilising the 'asset betterment' method of estimating the combined incomes of the taxpayers, and then dividing that income between them equally on the basis that they were in partnership.

In June 2010, Mrs Gashi lodged returns for the 2001 to 2006 income years, declaring amounts of taxable income well below those assessed to her in March 2010. Those returns caused amended assessments to be issued to her reflecting her declared income. Further amendments were issued in August 2010 that restored the amounts assessed on the original assessments. A similar process occurred when Mr Gashi lodged a return for the 2002 income year.

On appeal to the Federal Court, the taxpayers argued that the multiple assessments issued to Mrs Gashi, and to Mr Gashi for the 2002 income year, were invalid. They also challenged the Commissioner's reliance on the asset betterment approach as a basis for inferring the existence of partnership income.

Jessup J [2012] FCA 638 rejected the taxpayers' argument that the assessments were invalid, as there was only ever one assessment extant for each taxpayer for each year. His Honour found that Mr Gashi did not satisfy the burden of proving that the assessments issued to him were excessive, as he primarily sought to attack the Commissioner's asset betterment calculations, rather than positively establishing what was his actual table income for the relevant years. However, his Honour accepted both Mrs Gashi's evidence that she was not in partnership with her husband and her accountant's evidence of the amounts of her actual taxable income. His Honour also found that the Commissioner did not establish that Mrs Gashi had derived any income in excess of that established by her accountant.

The Full Federal Court (Bennett, Edmonds and Gordon JJ) dismissed Mr Gashi's appeal, and, in Mrs Gashi's case, allowed the Commissioner's appeal, from the decision of Jessup J. On 16 August 2013, French CJ and Gageler J refused special leave to the taxpayers to appeal to the High Court from the decision of the Full Court. Their Honours noted that no ground warranting a grant of special leave was disclosed in either case.

Issues decided by the court

The Full Court found that the Federal Court does not have jurisdiction in tax appeal proceedings under Part IVC of the Taxation Administration Act 1953 to determine if assessments are invalid, because of jurisdictional error of the type considered in FC of T v Futuris Corporation Ltd (208) 237 CLR 146, as the subject matter of such an appeal is a valid assessment (paragraphs 41-43). The Court then found that, in any event, each assessment or amendment validly imposed a fresh tax liability or adjusted an existing liability (paragraph 44).

The Court rejected arguments that Jessup J had found that the movement in value of Mr Gashi's assets was ordinary income and should have found that the movement was not ordinary income (paragraph 49). Those arguments misconceived the operation of section 167. Unlike section 166, where the Commissioner is required to make an assessment of the amount of taxable income (being assessable income less allowable deductions), section 167 empowers the Commissioner to make an assessment of the amount on which in his judgement income tax ought to be levied. This does not require the Commissioner to adopt a view of the facts which discloses a taxpayer's taxable income (paragraphs 53-56).

The Court agreed with Jessup J that Mr Gashi had not discharged the onus of proving that his assessments were excessive. It is insufficient for a taxpayer simply to show error on the Commissioner's part under section 167. A taxpayer must positively prove his actual taxable income, and must show that unexplained accumulated wealth was from non-income sources. This was what Mr Gashi did not show (paragraphs 62-67).

However, the Court disagreed with Jessup J that the evidence of Mrs Gashi's accountant was sufficient to discharge the onus of proving that her assessments were excessive. Neither Mrs Gashi, nor her accountant, identified her sources of income, nor provided an explanation of the sources for the unexplained increase in her assets, nor identified whether any such source was taxable (paragraphs 75-79).

ATO view of Decision

The ATO notes that the decision of the Full Court is consistent with the views of the Commissioner on the inability to challenge the validity of assessments in Part IVC tax appeals, on the operation of section 167 of the ITAA 1936, and on what is required by a taxpayer in a Part IVC tax appeal to discharge the onus of showing that an assessment issued under section 167 is excessive.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)


Implications on Law Administration Practice Statements


Legislative References:
Income Tax Assessment Act 1936
s 6(1)
s 166
s 167
s 170(1)
s 170(1A)
s 175
s 175A(1)
s 177

Income Tax Assessment Act 1997
s 4-15
s 6-5(1)

Taxation Administration Act 1953
Part IVC
s 14ZW
s 14ZY
s 14ZZ
s 14ZZO
Schedule 1 s 284-75(3)
Schedule 1 s 298-30

Case References:
Darrell Lea Chocolate Shops Pty Ltd v FC of T
(1996) 72 FCR 175
34 ATR 491
97 ATC 4040

DC of T v Richard Walter Pty Ltd
[1995] HCA 23
(1995) 183 CLR 168
29 ATR 644
95 ATC 4067

FC of T v Futuris Corporation Ltd
[2008] HCA 32
(2008) 237 CLR 146
69 ATR 41
2008 ATC 20-039

FC of T v Hoffnung & Co Ltd
[1928] HCA 49
(1928) 42 CLR 39

FC of T v Stokes
(1996) 72 FCR 160
34 ATR 478
97 ATC 4001

FJ Bloemen Pty Ltd v FC of T
[1981] HCA 27
(1981) 147 CLR 360
11 ATR 914
81 ATC 4280

Gauci v FC of T
[1975] HCA 54
(1975) 135 CLR 81
5 ATR 672
75 ATC 4257

George v FC of T
[1952] HCA 21
(1952) 86 CLR 183

Kennedy v AAT
[2008] FCAFC 124
(2008) 168 FCR 566
2008 ATC 20-037
73 ATR 276

Ma v FC of T
(1992) 37 FCR 225
23 ATR 485
92 ATC 4373

Mount Pritchard & District Community Club Ltd v FC of T
[2011] FCAFC 129
(2011) 196 FCR 549
2011 ATC 20-288
85 ATR 496

Stokes v FC of T
(1996) 136 ALR 632
32 ATR 500
96 ATC 4393

Trautwein v FC of T
(1936) 56 CLR 63
[1936] HCA 77