BAINI v FC of T

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2012] AATA 440

SA Forgie (Deputy President)

Mr Samir Baini has applied for review of the objection decision dated 9 April 2009 and made by the Commissioner of Taxation (Commissioner). The objection decision was made on Mr Baini's objecting to the Commissioner's:

• (1) GST assessments made under the A New Tax System (Goods and Services) Act 1999 (GST Act) on 21 October 2008 for the quarterly periods ending 30 September 2004 to 31 March 2008;
• (2) income tax amended assessments made under the income tax legislation^[1] Income Tax Assessment Act 1936 (ITAA36) and Income Tax Assessment Act 1997 (ITAA97) S A Forgie (Deputy President):
• (3) assessment of administrative penalties made under the Taxation Administration Act 1953 (TA Act) ($9,564.50 reduced to $4,782.25) for GST shortfalls ($19,129.00) made on 21 October 2008; and
• (4) assessment of administrative penalties ($19,741.55 reduced to $9,870.70) for income tax shortfalls ($39,483.22) made on 21 November 2008.

I have decided to affirm the Commissioner's objection decision.

PRELIMINARY MATTERS: summons and scope of review

2. At the outset, Mr Isaiah of counsel protested that the Commissioner's lodgement of "supplementary section 37 documents" on 16 November 2011 was very unfair and an ambush and its request that the Tribunal issue a summons an abuse of process. The Commissioner had five years to get his case in order, he continued. In accordance with the principles in
Bailey v Federal Commissioner of Taxation^[2] [1977] HCA 11 ; (1977) 136 CLR 214 ; 13 ALR 41 ; 7 ATR 251 ; 51 ALJR 429 ; Barwick CJ, Gibbs, Mason, Jacobs and Aickin JJ (Bailey), the Commissioner had given particulars of the basis on which he had made his assessment. That basis was the benchmark figures prepared by the Australian Taxation Office (ATO)^[3] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (AAT Act). and he now sought to go well beyond that. He now sought to go beyond that to support his assessment by reference to an asset betterment basis. He should not be permitted to do that and should be confined to the correctness of the benchmark figure and the condition of Mr Baini's vehicles.

3. On behalf of the Commissioner, Mr Linden of counsel submitted that he was not raising asset betterment as such but that there is an issue whether the income disclosed by Mr Baini to the Commissioner is sufficient to support his property losses and his living expenses. That was an issue raised in the audit findings on 21 October 2008^[4] T documents, T25-140 and again in the reasons given for the objection decision dated 9 April 2009.^[5] T documents, T2-20. See also the reasons for decision at T2-11 and [54] of the Commissioner’s Amended Statement of Facts and Contentions lodged on 14 July 2012 If regard is had solely to information returned by Mr Baini, his income is insufficient to support his outgoings.^[6] See table at [14] below

4. The case of Bailey makes clear that a taxpayer is entitled to know the basis on which the Commissioner has made an assessment.^[7] [1977] HCA 11 ; (1977) 136 CLR 214 ; 13 ALR 41 ; 7 ATR 251 ; 51 ALJR 429 at 217 per Barwick CJ; 219 per Gibbs J, 221 per Mason J; and at 231 per Aickin J, with whom Gibbs and Jacobs JJ agreed The Commissioner has not conducted the case as an asset betterment case and I do not regard it as such a case. It is, instead, a case focusing on whether Mr Baini has established the amount of his income, including cash takings, and of his outgoings. The latter involves his establishing the fuel usage of his vehicles. He has not kept records that establish that and so must rely on other evidence. If it should prove to be the case that the evidence shows that he needs more income to meet his expenses than he admits to receiving, it would be a relevant factor in examining and testing the evidence he produces of his income. That does not make it an asset betterment case.

5. A summons issued by the Tribunal at the request of the Commissioner to Mr Baini requiring the production of, among others, documents showing the amount of the loans obtained to purchase various real estate and details of repayments and financiers is not, as Mr Isaiah submitted, an abuse of process. It is directed to the production of documents that have adjectival relevance to the case^[8] “ Does the material sought have an apparent relevance to the issues in the principal proceedings, ie, is adjectival, as distinct from substantive, relevance established? Does the subpoena have a legitimate forensic purpose to this extent? This involves a consideration of the matter from the standpoint of Arnotts .” Trade Practices Commission v Arnotts Ltd and Others (No. 2) (1989) 88 ALR 90 at 103 per Beaumont J i.e. "… There … [is] some reason to suppose that the documents sought will be capable of being used ….".^[9] Hunt v Wark (1985) 40 SASR 489 at 493 per King CJ, with whom White and Millhouse JJ concurred

FACTUAL BACKGROUND

6. Mr Baini came to Australia from Lebanon in 1984. He worked first with his brother, Mr Gus Baini, in a confectionery business and later in other businesses on his own. None proved successful in the long term. Late in the 1990s, Mr Baini contracted Non-Hodgkin's Lymphona and he stopped working while he underwent treatment. While the treatment was successful and he is now in remission, he still feels lethargic and less motivated as a result. Despite that, he built a home for himself in Doncaster.

The taxi business

7. With effect from 9 January 2002, Mr Baini has been registered under the GST Act. He lodges his activity statements on a quarterly basis and accounts for GST on a cash basis.

8. In 2002, he leased a taxi plate (taxi licence), which I will refer to as Plate A,^[10] Licence 6774 and ran a taxi business as a lessee. He then leased a second taxi plate (Plate B^[11] Licence 6881 ) and purchased a second car. The base from which the taxis were run was first located at Mr Baini's home in Doncaster^[12] Mr Baini borrowed against that home to purchase a Reservoir property and then, with his sister, a property in Fawkner. He has since sold the Doncaster home and purchased a house in Bulleen with his sister as well as selling the Fawkner property. but later moved to his sister's home at Bulleen. His two brothers also live at that home where they conduct their own taxi business.

9. Although it is his business, Mr Baini has had no direct involvement in running his taxi business. Instead, he leaves that to his brothers, Mr Francois Baini and Mr Maroun Baini. Mr Francois Baini is responsible for the day to day operation of his business including the purchase and maintenance of the cars and bailment arrangements with those who drive his taxis. Mr Baini would sign associated documentation as required by his brother. Mr Maroun Baini is responsible for keeping the books of the business. He would summarise the drivers' handwritten notes and then dictate the summaries to Mr Baini. Mr Baini would enter the summaries into the computer. Mr Francois Baini would take a printed copy of the computerised records to the accountant. Apart from that role, I find that Mr Baini did not take part in the operation of the business because it was his view that he did not have the technical knowledge to do so and, because of ill health, did not have the energy to do so.

10. Mr Baini bears all of the costs of running the two taxis. Those costs include the cost of fuel. Drivers are engaged by Mr Francois Baini for both the day and night shifts on the basis that the fares each receives, whether received as cash or in a credit transaction, are split equally between the driver and Mr Baini. The split occurs when each driver returns to base and they are paid in cash on a daily basis. During the tax periods in question, the practice was for the driver to hand Mr Francois Baini or Mr Maroun Baini a handwritten note of the total income he has received.

The taxi licences and the cars

11. To the extent that he recalls them, the details of the cars used by Mr Baini in his business together with the taxi plates used on those vehicles are summarised in this table:^[13] Exhibit B at [36]

12. Mr Baini acknowledged in his statement that the figures in this table are approximately. The figure of 65,000, for example, is "about" what the Ford BA had on its odometer when it was acquired and the Ford AU11 had "approximately 72,000km on the odometer" when it was purchased on October 2002 and the Ford AU1 in December 2001 with "approximately 244,500 on the odometer".^[14] Exhibit B at [34]-[35]

Mr Baini's quarterly activity statements for the tax periods 2004-2008

13. During the quarterly tax periods in question between 1 July 2004 and 31 March 2008, Mr Baini lodged activity statements declaring the following:^[15] Reference in documents lodged under s 37 of the Administrative Appeals Tribunal Act (T documents) at 35-50; 59-62 and 71-73

Mr Baini's income tax returns

14. In the four income years in question, Mr Baini has declared the following amounts, expressed in dollars, in his income tax returns:

Benchmarks

A. Setting benchmarks

15. On the basis of the evidence of Mr Bryan O'Connor,^[22] Mr O’Connor is New South Wale’s Cash Economy Delivery Director in the Tax Practitioner and Lodgment Strategy Business Line of the ATO. He has been an officer of the ATO since 2000. Between February 2007 and June 2008, he was the Acting National Director of the Cash Economy Benchmarking Pilot Project in the Tax Practitioner and Lodgment Strategy Business Line. In that position, he was involved in the process of determining the taxi cents per kilometre rate for the income year ending 30 June 2006. I find that the ATO has prepared and published a benchmark for the taxi industry. In particular, it has prepared them for each income year since 1996 and, in particular, for the income years in issue in this case. The benchmark prepared for the 2008 income year as an example, sets out a benchmark guide on a per taxi basis as well as an income benchmark for a taxi operator on a per taxi basis and for a taxi driver.^[23] T documents, T 37 The figures shown in the benchmarking guide for the operation of a taxi in the 2008 income year were:^[24] T documents, T37-267

The notes to the table state:

". regional factors may affect total kilometres travelled, gross income and fuel consumption

. fuel consumption for LPG is the equivalent of 5.55 kilometres per litre

. fuel consumption for ULP is the equivalent of 7.5 kilometres per litre"^[25] T documents, T37-267

16. The figures shown in the benchmarking guide for income of a taxi operator on a per taxi basis were:

17. The figures shown in the benchmarking guide for income of a taxi operator on a per taxi basis were:

B. Taxi CPK Rates

18. The cents per kilometre rate for taxis (Taxi CPK Rate) referred to in the taxi operator and taxi driver benchmarks is the average amount of income earned by a taxi for the total kilometres travelled by that taxi in a year. On the basis of Mr O'Connor's evidence, I find that the kilometres travelled are all kilometres travelled regardless of whether the taxi is carrying a fare paying passenger or not. The amount of income takes account of income received by way of cash, credit card and Cabcharge. The cents per kilometre rate includes GST but takes no account of expenses incurred in earning the income. Regard is had only to the gross takings and the cents per kilometre rate represents gross takings per kilometre of distance travelled and measured.^[26] T documents, T38-270 The Taxi CPK Rates published by the ATO for the income years 2005 to 2008 are:^[27] T documents, T38-270

19. Up until the 2005 income year, the ATO's method of determining the Taxi CPK Rate required it to collect data from taxi operators from both metropolitan and rural areas in all States and Territories. The sample size was in the range of 5 to 7% of the national taxi population as noted on the Australian Taxi Industry Association (ATIA) website. Each of the taxi operators involved in data collection was given a sheet requiring them to set out details of the plate number of taxis operated, the odometer reading on each taxi at the beginning and end of the data collection period, the gross takings for each taxi for the data collection period and the dates on which the period for which data was collected started and ended. The ATO reviewed and analysed the data collected in order to calculate the Taxi CPK Rate.^[28] Exhibit 3 at [4]

20. Since the beginning of the 2006 income year, the ATO has used a different method. It has collected only data relating to fare increases in each State and Territory. Fare increases for each State and Territory are apportioned over the period of the income year for which they are effective in that State or Territory. Again on a State and Territory basis, the fare increases are then added together and apportioned according to the number of taxis in that State or Territory as a proportion of the national taxi population.^[29] Mr O’Connor gave the following example: “… [I] f a fare increase in New South Wales was 5% starting on 1 January 2012, that would be equivalent to a 2.5% increase in that State for the year ended 30 June 2012. If NSW represented 50% of the national taxi population, this would equate to a 1.25% increase in the national taxi fare for the year (50% × 2.5%). …”: Exhibit 3 at [5]. That gives the ATO any increase in the national taxi fare for that income year as a result of the increase in that State or Territory's increased taxi fares. Having regard to the figures reached for each State and Territory, the ATO settles upon an amount that represents the national increase in taxi fares.

21. The ATO then compares the figure it has arrived at with other sources of data to ensure that:

"… it does not come up with a rate that is unacceptable when compared to the following nationally available information:

• a. statistics published by the Australian Taxi Industry Association;
• b. information contained in any available fare review reports for all States and Territories. As the taxi industry is a regulated industry, these reports contain detailed information on income and expenses. As the final reports in these reviews are used to determine taxi fares in each state, they are considered a reliable source to assist in determining income and expenses for taxis;
• c. submissions to fare reviews in each state. These submissions usually contain any information on taxi income and expenses that are used in determining the State or Territory fare review recommendation on increases in taxi fares; and
• d. any mid-year ad hoc reviews of fares and associated information."^[30] Exhibit 3 at [5]

22. The ATO advises that taxi operators and drivers can use the benchmark figures to compare their performance with the rest of the industry by checking their business performance to the taxi industry average. The figures also enable them to check that their records accurately reflect their share of income earned. Their tax agents can use the figures to assist them when preparing and lodging tax returns and Business Activity Statements (BAS) for their clients engaged in the taxi industry.

23. On the basis of Mr O'Connnor's evidence, I find that the ATO itself uses the benchmark figures:

• "b. in cases where taxi operators or drivers have insufficient records and a Section 167 default assessment is to issue;
• c. in negotiations with taxi operators or drivers being audited; and
• d. also for audit case selection purposes."^[31] Exhibit 3 at [3]

C. Fuel consumption benchmarks

24. The benchmark guide per taxi shows fuel consumption for each taxi by reference to litres per 100 kilometres for both ULP and LPG type fuels. On the basis of Mr O'Connor's evidence, I find that the ATO calculated this figure by reference to an ATIA submission to an inquiry on fuel tax conducted by the Federal Government as well as fare reviews conducted in each State, the ACT and the NT over a five year period from 2001. Those reviews generally contain detailed information on fuel usage rates to determine increases in taxi fares. Four LPG fuel use calculations taken from State and ACT reviews were referred to by Mr O'Connor as examples of those referred to by the ATO in its calculation of the fuel consumption benchmarks. They were:

• (1) NSW Independent and Pricing and Regulatory Tribunal (2008) - Metropolitan and Country rate of 5km/litre;^[32] Exhibit 3 at [7]
• (2) Submission to the Independent Competition and Regulatory Commission by the Canberra Taxi Proprietors Association and Canberra Cabs, Draft Determination - Taxi Fares 1 July 2004 to 30 June 2007 (2004) - 5.5km/litre;^[33] Exhibit 3 at [7] and BO-4 to Exhibit 3
• (3) PWC Industry Survey Analysis, Victorian Essential Services Commission Review - Interim Report (2008) - Metro 6km/litre (median);^[34] Exhibit 3 at [7] The report is reproduced at Supplementary T documents (ST documents), ST1-372, to which Mr O’Connor refers. It shows a “ … median fuel consumption rate of 6 kilometres per litre obtained (or 17 litres per 100kms) .” That statement suggests to me that the figure of km/litre has been rounded up for the figure for litres/100km works out at 5.88 kilometres per litre. and
• (4) ATIA: "Submission to the Fuel Tax Inquiry" (2001) - 6km/litre.^[35] Exhibit 3 at [7] At BO-5, Mr O’Connor attached an extract from the Submission headed “ Financial Impact of LPG Pricing ”. It compared the availability and cost of LPG and petrol and the cost of vehicle maintenance. Recognising that fuel economy depends on driving conditions, the ATIA had applied a consumption rate of 15 litres/100km for LPG. That converts to a rate of 6.6km/litre, and so closer to 7km/litre than 6km/litre suggested.

I find that the ATO's benchmark for LPG fuel usage is 18 litres per 100 kilometres or 5.55 kilometres/litre.^[36] Exhibit 3 at [8]

The audit

25. The ATO conducted an audit of Mr Baini's activity statements for the 2006 income year. It did so by reference to the figure of $1.06, which is the Taxi CPK Rate and is the average amount of income earned by a taxi for the total kilometres travelled by that taxi in a year. After Mr Baini had lodged his application for review of its objection decision, the ATO asked Mr Baini for evidence of the odometer readings on each of his taxis for each period in dispute. Readings recorded in compliance with [9] of TR96/11 were acceptable as were readings taken during regular maintenance services of those taxis. Among the other information requested were Black Cab statements for taxi licence No. 6881 (Plate A) for the period in issue and for 6774 for the entire period other than the 2006 income year (Plate B).^[37] ST documents, ST3-640-642

26. The ATO used information of fuel purchases shown on the Black Cabs statements and fuel dockets to calculate that 65,414.15 litres of fuel had been purchased in the 2006 income year.^[38] T documents, T25-146-176 and T25-179-180 Based on the benchmark Taxi CPK Rate of $1.06, that expenditure would have led to the receipt of taxi fares amounting to $381,358.00. On the basis that half of the fares are returned to the driver, that would have meant that Mr Baini's share of the fares would have been $190,678.00 in that year. In that 2006 income year, Black Cabs had given Mr Baini a loyalty payment of $1,440.00. That meant that his income from the taxis should have been $192,118.00 if the benchmark figure were applied.

27. Mr Baini had, in fact, reported income totalling $142,734.00 in his activity statements lodged with respect to the 2006 income year. That was a figure less than that predicted by the benchmark figure. It was less by an amount of $49,384.00 or 34.6% of the amount that would have been expected under the benchmark figures. Mr Baini kept invoices of the amounts paid to his drivers in the income year 2006. They totalled $139,313.30 inclusive of GST.^[39] T documents, T41-283-353 and ST documents, ST11-7-6-1059 The ATO also identified shifts for which no invoice had been issued to a driver and instances of fuel purchases which did not equate with shifts. These are set out at ST12 of the ST documents.

28. After preparing a Position Paper relating to the 2006 income year, the ATO extended its audit to the period extending from 1 July 2004 up to 31 March 2008. It applied the figure of 34.6% to the amounts returned by Mr Baini in his business activity statements. It did so on the basis that Mr Baini had systematically omitted cash fare income. That meant that the adjustment to his business income in the relevant years of income became:

THE EVIDENCE

Mileage travelled by each of the taxis

29. Mr Baini worked out the mileage travelled by each of his taxis on the basis that each travelled 140,000 kilometres each year. He described that figure as "… our best estimate of distance the odometer readings for each year would have reflected …".^[40] Exhibit B at [36] I have taken his table at [36] of his statement and put it into the format of his earlier table:^[41] See [11] above

Paying the drivers and recording the income generated by the taxis

30. Mr Baini said that Mr Francois Baini had informed him that he had paid the drivers in cash at the end of each shift. The cash his brother used came from various sources including cash takings from the drivers, cash takings from his brother's own taxi business, cash from Mr Maroun Baini, cash from him and cash from the bank if necessary. In addition, Mr Francois Baini would get cash from cab charge dockets. His brothers, Mr Baini said, were running his business to support him as a family affair while running their own.

31. Mr Francois Baini gave similar evidence. He identified the taxi operator with whom he cashed the cab charges when they needed cash and emphasised that, as brothers, they operated as a family and shared resources.

32. Both brothers agreed that Mr Francois Baini had authority to draw upon Mr Baini's account at the National Australia Bank. There is no evidence that Mr Baini had authority to draw upon their accounts.

33. Mr Maroun Baini said in his statement that he would summarise the notes written by the drivers of the income they received during a shift. He disposed of the note when he had summarised it for his computer records. His records do not distinguish between cash receipts and EFTPOS or credit transactions.

34. The ATO's notes of an interview held on 31 January 2008 note that both Mr Baini and Mr Maroun Baini were present together with their agent and officers of the ATO. A record was made that the drivers keep 50% of the takings from their shifts and are paid in cash.^[42] ST documents at ST14-1083 In his witness statement, Mr Maroun Baini said that the cash collection from each shift would not exceed 10 to 15% of the total gross takings. During the period 2004 to 2008, Mr Maroun Baini said, the card takings were between 60 and 80% leaving 20 to 40% in cash. He denied saying that, on some nights, the split was closer to 50% of each.^[43] Exhibit G at [4]

35. Mr Baini said that his brother, Francois, had informed him that he had the cash on hand to pay the drivers. It came from cash takings from his own taxis, cash from their brother, Maroun, from his own cash, from Cab Charge dockets and from the bank occasionally. Mr Baini emphasised that his brothers were running his business as a family affair.^[44] Exhibit B at [18] Mr Francois Baini pointed to thirteen withdrawals from Mr Baini's account. He had made them, he believed to the best of his recollection, that he had used the amounts withdrawn to pay drivers. The cheque butts could not be found, he said, and he thought that they might still be with the ATO.^[45] Exhibit A at [12] They were dated from July 2005 to June 2006.

36. Mr Francois Baini did not give any evidence of approaching the bank for relevant records or of asking the ATO for them but the ATO approached the bank. It reported that nine of the thirteen were cash withdrawals.^[46] ST documents at ST24-1171 In cross-examination, Mr Francois Baini insisted that the cheque butts had been given to the ATO and that, when a cheque was written for cash, it was for cash. As to the remaining four cheques totalling $13,100 and as to the suggestion that they had been used to pay Mr Baini's personal expenses, Mr Francois Baini replied:

"Could be for anything. I don't know. Just, you know what I mean, if you ask me something happened 10 years ago, how I'm going to remember everything. You see, I mean?"^[47] Transcript at 48

Mr Francois Baini said that the money was probably used for Mr Baini's taxi business. He knew that because he has the same practices today. Most are cash cheques. As for Mr Baini's personal expenses, his brother should be asked about them. As far as Mr Francois Baini was concerned, his brother could put his hand in his pocket and take the money if he wants to.^[48] Transcript at 49

37. As to cashing the Cabcharge vouchers, Mr Francois Baini said that he took them to Alex Taxis where he exchanged them for cash. He was not given a receipt for them. When he asked them for a report, he said, he was told that they do not give reports. He could not give any information as to the amount of cash he received in this way.^[49] Transcript at 52

38. Mr Baini said that his brother, Mr Maroun Baini, acted as his agent and was responsible for the bookkeeping of the business. Either Mr Maroun Baini or Mr Francois Baini would collect handwritten notes from the drivers at the end of each shift. The notes would set out the total amount of income received and divide it between cash and EFTPOS. Mr Maroun Baini would summarise the information and dictate it to Mr Baini, who would type it in the computer. The typed summary was printed and handed to Mr Francois Baini to take to the accountant. In his statement, Mr Baini said:

"The records which Maroun prepared and which Francois provided to the accountant in this matter truly reflect the income which the drivers disclosed to us. They are an accurate account of my 50% receipt of income taken from each shift. I never received anything more than what is recorded in the accounts. I know this because I trust my brothers. Although I helped type summaries for Francois I played no other active part in watching the accounts of the business, which I entrusted to Francois totally."^[50] Exhibit B at [45]

39. If the ATO is correct in asserting that more cash was taken in his business than has been declared, it was not taken by either him or his brothers, Mr Baini said. It must have been stolen by his drivers but he was in no position to accuse them of theft and did not do so. He continued:

"… My brothers and I come from a strong Christian family and believe that stealing is wrong and also believe that falsely accusing someone is wrong. We have not done either one of those things. In fact my brother Maroun's name derives from our Christian heritage where our community was founded by Maron, a 4^th-century Syriac monk."^[51] Exhibit B at [50]

40. Mr Baini went on to speak of two instances which Mr Francois Baini had told him about. In both, Mr Francois Baini had entertained suspicions that drivers were not reporting all cash receipts to him. His brother had also told him that there had been many occasions during the period from July 2004 to July 2008 on which he had suspected that all takings were not being reported. They were occasions on which very little takings were returned but fuel usage had been high. Without proof that they were dishonest, his brother would not confront the drivers because, if confronted, the drivers would leave and could not easily be replaced.

41. Mr Francois Baini confirmed these events and recounted other occasions on which one of his drivers would tell him that passengers had not paid the fare but he had used up high amounts of fuel. Some fare evasion was to be expected, he said, as they worked in some rough areas but that driver would report fare evasion more frequently than others and he was suspicious of him.

42. Mr Maroun Baini said that approximately 20 to 40% of fares were paid in cash and the remaining 60 to 80% paid by card. He said in his statement made on 14 October 2011 that:

"From 2002 onwards I have kept records for Samir's business. The way that I keep the records is as follows:

• 1. the driver would make a handwritten note of the total income for a shift breaking down how much cash was taken and how much eftpost income was taken and giving a total.
• 2. The driver would hand me or François a handwritten note.
• 3. I would then summarise the handwritten notes for the purposes of record keeping and accounting, and
• 4. I would provide the accountant with the summary of income for each vehicle quarterly for tax purposes.
• 5. I have accurately stated the income as reflected in the handwritten notes from the drivers.
• 6. The drivers never gave me or anyone else, to my knowledge, any further income from the shifts by way of cash or any other kind of income. No income which we received was ever concealed from the ATO. It was all accounted for.
• 7. The summaries that I prepared as to the income and expenses of Samir's businesses were first written by hand, and then I dictated the handwritten notes to Samir who would type in the information to computer generated summaries. This was necessary because I have no English skills or computer skills. I would then dispose of the handwritten notes. …"^[52] Exhibit G at [11]

43. In cross-examination, Mr Maroun Baini said that the drivers' notes did not record the hours of their shifts. All that was recorded was the date on which it started and whether it was a day or night shift. Sometimes, he would summarise the notes daily and, at others, weekly or every ten days. He would not include a breakdown between cash and eftpos payments. When asked whether he had kept the drivers' notes, Mr Maroun Baini replied that there were no drivers' notes. He would summarise what the drivers told him in a notebook and then he would give it to his brother, Mr Baini, to type.^[53] Transcript at 26-27

44. The "handwritten note" to which he had referred at [11.2] of his witness statement was a reference to the note of the meter reading showing how much money had been taken, Mr Maroun Baini said. He would write down that figure in his notebook. Once he had written it down there and paid the driver 50% of the takings, he threw the note of the meter reading away as it was no longer needed.

45. In cross-examination, Mr Maroun Baini was asked about the invoicing. His attention was drawn to page 711 of ST 11 of the Supplementary T documents. This shows an invoice said by Mr Maroun Baini to have been given to a driver in respect of his work in July 2005 in respect of the taxi licence number 6774 and in respect of night shifts. It was given to the driver so that he could pay his GST and his taxation.^[54] Transcript at 43 It recorded two dates: 4 and 30 July 2005. For each of them, it recorded income. For the earlier date it was $75.70 and for the latter it was $159.85. GST was $6.88 and $14.53 respectively. The net income was $68.82 and $145.32 respectively. The total of each was then added together for the month.

46. Similar information was recorded for a different driver for the same month and in relation to day shifts.^[55] T documents at ST11-724 That driver drove substantially more shifts. On three occasions, the invoice showed three days grouped together and, on one occasion, with two days grouped together. Single amounts of income inclusive of GST, GST and income exclusive of GST were shown against the grouped days as well as the single days on which a day shift was worked. Mr Maroun Baini said that, when the days were grouped, the driver had taken the vehicle on the first day and returned it on the last day. He and his brothers did not know whether the driver had worked on each of the days or not. The effect of Mr Maroun Baini's evidence was that he would show one figure for the whole period and not record the income on a shift by shift basis. By the same token, they did not know when the driver refuelled the vehicles. The driver was able to drive the vehicle whenever he liked while he had it.^[56] Transcript at 41-43

47. I note that there is some double recording in the invoices. The invoice at ST11-795, for example, records the receipt of income by a driver for a night shift on 30 October 2005 and a different invoice at ST11-799 shows receipt of income by a different driver for the same shift on the same day and for the same vehicle. While it might be thought that the income recorded in the second invoice was a little lower than normal for that driver, the income recorded on the first was at the higher end of the income for that driver but consistent with the pattern of earnings.

Purchase of fuel

48. Mr Baini has not led any evidence to contradict the figures obtained from Black Cabs for the purchase of fuel. Those figures are reproduced at T41 of the T documents together with the day and night shifts and the drivers identified in the invoices given to drivers. There are a number of instances on which there is no driver's name, and so no income and related information, entered against a particular shift but there is a purchase of fuel during the period of that shift following a purchase near the end of the shift for which details are recorded. Taking 22 October 2005 as an example, details of a night shift are entered. Fuel was purchased at 4.00am on 23 October 2005. No day shift follows but there is a further purchase of fuel at 1.30pm.^[57] T documents at T41-298 Another example occurs in relation to 15 and 16 October 2005.^[58] T documents at T41-298

Maintenance of the vehicles

49. Mr Francois Baini said that he carried out much of the maintenance on the vehicles in order to cut costs. Their margins were low and they could not afford to buy newer vehicles.

Refuelling the vehicles

50. Mr Francois Baini said that it was the usual practice for drivers to refuel the vehicle before returning it to the depot at the end of a shift. That did not always happen, though, and there were many occasions when he had to refuel it himself. On many occasions, the drivers would keep the vehicle for more than one day. That would occur if there was nobody driving it for the following shift or shifts. Mr Francois Baini would ask them to park the vehicle so that the depot was kept clear. In that case, it might be that the drivers would refuel the vehicles at the end of their shift or on the day they returned it to the depot. It might be that they refuelled twice. Whatever the case, Mr Francois Baini said that the books would only show one invoice date for the fuel. The date shown on the invoice was the date the driver picked up the vehicle. It would not necessarily match with the dates of refuelling and there might appear to have been no refuelling on occasions because the date of the invoice was the pick up date and not the date of refuelling. Mr Francois Baini pointed to several instances in which he stated that the ATO had misunderstood the records.

The calculation of the Taxi CPK Rate

51. Mr O'Connor compared the ATO's Taxi CPK Rate for the 2006 income year of $1.06/km and compared it with the average fare of $1.31 per kilometre calculated by referring to the data published by the ATIA and available on its website.^[59] Exhibit 3 at [6] and BO-2 The data is collected from the six States and the Australian Capital Territory (ACT) and the Northern Territory (NT) and shows national averages for each line of data collected. The collected data includes the average prices of taxi licences, number of taxis, monthly radio dues, flag falls and rates per kilometre according to various criteria, average fares in the metropolitan area, the average length of a job in the metropolitan area, the total number of jobs, average jobs per taxi and average kilometres travelled by each taxi in the year. The ATO calculated from these figures an average gross income of $1.31 per kilometre travelled from the following formula:

[Average jobs per taxi (11,323)×Average fare($17.99)]
	=	$1.31 average gross income per kilometre travelled[60] Exhibit 3 at [6]
Average km travelled (155,400)

Fuel consumption benchmarks

52. In cross-examination, Mr Isaiah explored the basis of the ATO's fuel consumption benchmarks. Mr O'Connor agreed with him that the figure does not necessarily accurately reflect the mileage achieved per litre of LPG for every vehicle used as a taxi. It may or may not. The ATO relies on information obtained from various operators in Australia and believes that the information it has forms a reasonable basis for its assessment of what is a reasonable fuel consumption benchmark. He agreed that there is a deviation of some 20% in the figures relied upon by the ATO in calculating the fuel consumption benchmarks.

53. Mr O'Connor told Mr Isaiah that the taxis from which the data had been collected could be no older than six or six and half years. The age of vehicles used as taxis is regulated in most States and Territories. The average distance travelled by a taxi in Victoria is 140,000 kilometres. Mr O'Connor agreed that a vehicle has soon travelled up to 500,000 kilometres. When asked whether mileage at that level would mean that it would be likely to be getting at the lower end of fuel economy, Mr O'Connor replied that it all depends upon how well it has been looked after, serviced and driven. Without more information, it cannot be said that fuel efficiency decreases with age.

54. Mr Isaiah suggested to Mr O'Connor over the course of questioning that, if a taxpayer advises the ATO that a vehicle used as a taxi is really old, has problems and is not getting the fuel efficiency the ATO expects, it is good practice for the auditor to make further enquiries. The auditor should suggest that they look at the vehicle and look at whether it can be tested. Mr O'Connor replied that, in all audits, the taxpayer's records are the primary source to which an auditor turns. An auditor would generally ask for all fuel dockets and service records to show odometer readings. Each auditor audits in his or her own way but only if there is a problem with the taxpayer's records will he or she turn to other sources.

55. Mr O'Connor agreed that fuel efficiency can be affected by how old a vehicle is, how hard it has been driven and how it has been serviced. An operator's records should show that and an auditor will ask for them to substantiate an operator's statements to that effect, he continued. In Victoria, an operator is required to keep records of distances travelled by the Victorian Taxi Directorate. The ATO does not test vehicles. Instead, its test is that of the records including the records of the fuel purchased and the service records, which should show how far the taxi has travelled. If documents can be relied upon, the ATO will look at them but, if they cannot, it will go to other sources. Looking at a vehicle will not tell it what state that vehicle is in. Mr O'Connor rejected a suggestion that the auditor should put fuel in the vehicle and run it. An auditor could not recreate the same conditions and, even if the vehicle is still in use, the audit will be taking place a year to eighteen months after the relevant period. The conditions relevant to the vehicle at the time cannot be recreated. The operator has to keep records of the kilometres travelled and the fuel purchased. Tax Ruling TR96/11 applies to everyone in the taxi industry.^[61] See [102]-[105] below It is not up to the ATO to keep the records.

56. If a vehicle had been tested and had shown a fuel efficiency less than 5 or 5.5km/litre, it might indicate that the benchmark figure might not be appropriate but that would only be one of the factors to take into account when a person has not kept proper records. If the records show that an operator is achieving only 4 to 4.5 kilometres per litre, the ATO will accept that figure. It does not operate taxis and Mr Isaiah may be correct in asserting that 5.5 kilometres per 1 litre of LPG is not an accurate figure but, if an operator either will not or cannot provide records, that is the figure that the ATO will rely upon.

57. Mr O'Connor rejected Mr Isaiah's suggestion that it would be an act of bad faith for the ATO to turn a blind eye to an operator's statements that the vehicle is "clapped out" and not getting the fuel economy suggested by the benchmarks even when the operator does not have the documentation. He observed that the ATO always asks for information. If a statement is made about a particular vehicle, substantiation is requested.

Fuel consumption of Ford AU1 and Ford BA

A. Condition of the vehicles

58. Mr Francois Baini said that he serviced his brother's vehicles most of the time in order to save money. He would change the oil, check that the tyres were not bald and were inflated correctly, checked their road worthiness, headlights, electrical systems, water and the like. He would mend things such as alternators and purchase spare parts as required. When major work had to be done, Mr Francois Baini would take the vehicles to Mr Moneer Israil. He said that he took the Ford AU1 vehicle to Mr Israil frequently in the 2006 year of income. It had substantial problems with fuel consumption during that and the previous year.

59. Mr Francois Baini said that, in 2006, the Ford AU1 had done over 800,000 km and was in bad condition by any measure. That was the reason for its replacement in April 2006. He continued:

"There were increased number of problems with the cars the older and more km's they had done. The tyres would go flatter quicker, balder quicker, there were alignment problems. Busher's would need replacing, ball joints, suspensions. After 1 1/2 years fuel consumption continues to increase in all taxi's because they are driven so much they start to slowly wear out."^[62] Exhibit A at [36]

60. Mr Israil owns Just Cabs Workshop, which repairs and services taxis. He qualified as a Motor Mechanic with Victorian Automobile Chamber of Commerce (VACC) and has more than fifteen years' experience. For the past ten years, he has been a member of the VACC. Before opening Just Cabs Workshop, Mr Israil worked for the Crown Cab Taxi Depot in servicing and repairing its fleet.

61. Mr Israil said that he had carried out most of the mechanical repairs to Mr Francois Baini's taxi fleet since 2001. He recalls Mr Francois Baini's complaining of high fuel consumption of the vehicles using Plates A and B in approximately 2004 to 2008. In his statement, Mr Israil said:

• "9. The first vehicle AU1, had very poor fuel consumption and we carried out several repairs and tunes trying to improve the fuel consumption until we came to conclusion that the main reason causing high fuel consumption was the low compression of the engine due to the age and the high kilometre the engine did travel.
• 10. I always advised him not to compare his fuel consumption with other cabs having the same model as his car due to the fact that his cars condition was in much poorer than most of other cabs I serviced and I remember advising him to change the vehicle and not to take any more actions due to the fact that replacing the engine will cost him more than what he will be saving in fuel, especially because the due date of the car to be off service was around one year. During the remaining time we always reset the tunes just to get the car going."^[63] Exhibit C

62. With regard to the Ford AU11 used between 2004 and 2008, Mr Israil said that it had been built in 2002 with a Vialle straight LPG system. In 2005, it had travelled more than 500,000 kilometres and had very poor fuel efficiency. He repaired and overhauled the LPG convertor several times and replaced the ignition coil, spark plug leads, spark plugs and stepper motor.

63. Based on his experience of servicing taxis over the years and his 15 years as a Motor Mechanic, Mr Israil concluded that the two vehicles would, when compared with an average taxi, have been getting at least 20 to 25% lower fuel efficiency because of their poor condition.

64. Mr Baini relies on the advice of his brother, Mr Francois Baini, with regard to the condition of his vehicles and their fuel consumption.^[64] Exhibit B at [32] and see [33]-[44] He could not give any evidence on the subject from his own knowledge.

B. Fuel consumption of the Ford AU1, Ford AU11 and Ford BA models

65. Mr Francois Baini said that he had told the drivers he engaged not to drive aggressively and not to accelerate and brake hard because he was conscious that to do so used more fuel than was otherwise the case. They did not listen to him. Furthermore, they would use the air conditioner in summer and winter and that increased fuel costs. That was particularly so when waiting in line at the airport.

66. Fuel consumption, Mr Francois Baini said, is also affected by location. As their base was located within 30km of the airport, drivers would travel to the airport empty if the demand for taxis was not high. They would use fuel getting there and more waiting in line. Once they had picked up a fare, they could return to the head of the queue if they could deliver their passenger and return to the airport within 20 minutes. If they could not, they returned to the back of the queue.

67. Mr Francois Baini said in his statement that he rejected any suggestion that it was difficult for drivers to cheat him. He said:

"… I did not know what to expect in terms of what fuel efficiency I should expect from our vehicles. We had only been at the business for a few years and knew nothing about the nationwide surveys which we have become aware of in this proceeding. I simply thought that I just had to do that. I had a general knowledge that driving a car aggressively could make a difference to fuel use and had talked to the drivers about that. But there was nothing I could do except sack them, and then I had difficulties getting others.

I also thought that fuel efficiency varied a lot from car to car. But I had no specialised knowledge and certainly did not know at any time before the ATO's audit of Samir, what ratio of litres to kilometres to expect of a vehicle. So it would have been impossible for me to have worked out, let alone told Samir, that we were being cheated by drivers on the basis that I knew we should have been getting 5.5km/l and that our income should have been higher on that basis?"^[65] Exhibit A at [61]-[62]

68. Mr Joseph Bedros is a qualified Motor Mechanic, a licensed LPG installer and air conditioner repairer and a roadworthy tester. From 1989 until 2006, he was employed at several Ford dealerships and worked his way from the position of a Technician through various positions to that of a Master Technician. In 2006, Mr Bedros started his own wholesale business supplying spare parts for the taxi industry and providing technical support for taxi depots and workshops. Mr Francois Baini has been his customer since 2008.

69. The Ford specifications, Mr Bedros said, show fuel consumption for the Ford AU1 (straight gas) to be 11.1 litres/100 kilometres or 9 km/litre. For the Ford BA, it is 15.3 litres/100 kilometres or 6.5 km/litre. The figures are based on standard factory testing. The difference in fuel efficiency between the two lies in the fact that the Ford AU11 has a modified piston head, rings and camshaft.

70. Mr Bedros said that:

"The standard test is set by the ADR (Australian Design rules) to give customers fair comparison fuel consumption between different cars manufactures."^[66] Exhibit D at [9]

These figures, he said, cannot be obtained in real driving conditions for they are figures obtained in testing the engine alone using a dynamometer. No account is taken of the load of the vehicle, air resistance and driving conditions. In the opinion of Mr Bedros, these considerations alone increase fuel consumption by 30 to 35%. In his response to Professor Watson's statement of opinion, Mr Bedros wrote that he had been given this information by Ford when he had telephoned its hotline. Several of his customers had complained that their fuel consumption did not match the values written on the sticker on the windscreen of their new vehicles.

71. Fuel consumption can also be affected by factors such as the weather, driving conditions generally, the tuning of the engine, mileage and the type of LPG management system installed in the vehicle. Fuel consumption increases by approximately 10% for every 100,000 kilometres that the engine travels due to the wear and tear on internal components of the engine including the piston, rings, valves, camshaft and lifters. This wear reduces engine compression, he said, leading to a higher level of unburnt fuel and so loss of efficiency. A badly tuned engine increases fuel consumption by up to 30%. The oxygen sensor should be replaced every 150,000 kilometres as the vehicle's computer relies on the oxygen sensor to calculate fuel delivery.

72. Braking hard and accelerating quickly further increases fuel consumption by approximately 25 to 30%. Mr Francois Baini had told Mr Bedros that his drivers frequently did airport work. In Mr Bedros's opinion:

"Engine idle time does increase fuel consumption dramatically. As far as I am aware it is common practice for drivers who do airport work to wait for hours in the airport taxi rank to get a job in cold or hot weather they will leave the engine running at idle to allow the operation of the heater or the air-condition. Drivers also commonly do this in other taxi ranks too. But the time waiting at the airport is greater…."^[67] Exhibit D at [15]

73. Mr Bedros was of the view that an average fuel consumption of between 4.0 and 4.2 kilometres per litre was reasonable for each of three vehicles used during the 2006 income year assuming that:

• (1) the Ford AU1 used a Vialle convertor system and its mileage increased from 729,500 on 1 July 2005 to 843,000 kilometres on 6 April 2006;
• (2) the Ford BA used straight gas used a Vialle convertor system and its mileage increased from 65,010 on 6 April 2006 to 100,000 kilometres on 30 June 2006;
• (3) the Ford AUII used a Vialle convertor system and its mileage increased from 447,890 on 1 July 2005 to 587,890 kilometres;
• (4) the vehicles were driven by drivers other than the Baini brothers;
• (5) the oxygen sensors had not been replaced as he had been advised by Mr Francois Baini; and
• (6) the poor report of the vehicles as described by Mr Israil.

Drivers

74. Mr Francois Baini said that his brother's vehicles were almost always driven by bailee drivers. On rare occasions, he would fill in. At the time of the hearing, they ran the taxis on 12 or 14 hour shifts but, in the relevant income years, his vehicles were run for only nine to eleven shifts each week. There were frequently days and nights when the vehicles were not in use because of the lack of available drivers. The drivers they could get were relatively inexperienced students whom he would see driving in an aggressive and erratic manner.

Professor Harry Watson

75. Professor Watson holds a personal chair in the University of Melbourne where he has worked in its Department of Mechanical Engineering since 1969. His experience relevant to this case can be summarised as follows:

• (1) research into the influence of the way vehicles were driven in 1974 leading to a book on the influence of driving patterns on fuel consumption in 1976 for the then Bureau of Transport Economics;
• (2) organised two conferences in 1980 and 1982 with the Australian Road Research Board and SAE-A^[68] Society of Automotive Engineers Australasia on the interaction of road design and fuel consumption;
• (3) appointed to the National Energy and Research Development Committee to develop Traffic Management as a national priority for fuel consumption reduction;
• (4) founded a biennial course in Road Transport Energy and Emissions in 1973 and other alternative fuels;
• (5) founding Chairman and Chairman of the SAE-A's Energy and Emissions Policy Advisory Committee from 1978 to 1998, President of the SAE-A from 2002 to 2006 and an elected Fellow of the Australian Academy of Technological Sciences and Engineering; and
• (6) widely published and recognised professionally, both nationally and internationally, for his work in automotive engineering.

76. The Commissioner asked Professor Watson to provide his expert opinion on the material in paragraphs [8], [10] and [13]-[16] of Mr Bedros's statement and [12] of Mr Israil's. Both statements were enclosed.

A. Professor Watson's response to Mr Bedros's statement

77. In outline, Professor Watson's response to Mr Bedros's statement was:

• (1) Fuel consumption testing of the Ford AU1 and the Ford AU11 would have been based on the Australian Standard AS 2877 which was itself based on the US (Federal Test Procedure) City and Highway test driving cycles.
• (2) Tests are performed on a car that allows 100kg extra mass on a rolling road (in the form of a chassis dynamometer) and with either a calibrated aerodynamic/air resistance drag or a default drag related to vehicle weight.
  • (a) A survey of in-service cars conducted in Australia in 1996 with the assistance of SAE-E funding concluded that the US figures underestimated Australian consumption for city driving by about 10% and for highway driving by about 35%.
  • (b) Although Ford was represented on the committee undertaking the survey, its practice at the time was to adopt the US figures multiplied by 0.55 in the case of city driving and 0.45 in the case of highway driving.
  • (c) The weighting factors are defined by the Environmental Protection Agency (EPA) in the United States of America and gazetted in the Federal Register in that country. Australia has adopted it in various relevant Australian Design Rules (ADRs).
• (3) There is little difference between the Ford AU11 (15L/100km for city and 9L/100km for highway conservative driving) and the Ford BA (15L/100km for city and 9.5L/100km for highway conservative driving).
  • (a) The difference in the reporting process by Ford is likely to be the reason for the apparent increase in the two models rather than any significant change in design.
  • (b) In normal driving conditions, the SAE-A recommends using the city value. A 10% increase, and so 16.5L/100km for the Ford AU11, would be in line with that report.
• (4) "… Although various public guides have claimed significant penalties for carrying extra weight and devices increasing air drag my experiences does not concur with the early US data on which these claims were based. …"^[69] Exhibit 2 at 2
  • (a) An increase in mass of approximately 50% is required in a Falcon (Ford AU11, BA or the like) sized car in order to increase its consumption by 10%.
  • (b) Only at high speeds does aerodynamic drag become important.
  • (c) Based on measurements from hundreds of vehicles tested in his laboratory, Professor Watson is of the view that, in urban driving, aerodynamic drag contributes less than 10% of the fuel used.
• (5) In 1999, Professor Watson was engaged by the Australian LPG Association to direct and analyse comparative tests performed by Holden (Commodore models) and Ford (AU models) on their then current original equipment dual fuel LPG cars.
  • (a) The energy efficiency of each was shown to be equal on gas and petrol.
  • (b) The test involved twelve different LPG formulations.
  • (c) Each formulation involved four tests but, as each test was repeated more than once to ensure the stability of the data, hundreds of tests were involved.
  • (d) The L/100km varied according to the density of the fuel.
  • (e) The tests showed that each vehicle had a small reduction in fuel consumption with time.

    "… This was quite consistent with the SAE-A 1996 survey of mostly petrol cars, which included examining the fuel use data of commercial fleet cars, where fuel consumption was compulsorily reported over periods of up to 3 years. These results showed fuel consumption reductions in the range of 0 to 3% per distances of the order of 50,000 km (depending upon the time and distance the vehicle was retained in the fleet and for which the data was error free. No increases in fuel consumption were observed."^[70] Exhibit 2 at 3 Mr Bedros understood this passage to mean that the vehicles tested were no more than three years old. He said “ … The average car travel in Australia 20000 to 25000km per year and the research been completed on vehicles up to 3 year old, with a small calculation prove that Professor Watson completed his research on engines travelled no more than 75000km. In our case we are talking on engine travelled between 700000 and 80000 [0] km and at this age all the internal components on the engine such as pistons, rings, valves, camshaft lob and timing chain will be absolutely worn and causing a dramatic reduction in the engine compression. Engine with very low compression will have very high fuel consumption. Much more fuel needed to be burnet to obtain the same power .”: Exhibit E at [4]

    "… fuel consumption reduces as vehicles age and only increases when parts such as bearings or pistons or piston rings are replaced at overhauls."^[71] Exhibit 2 at 3

• (6) Driver behaviour is a very influential factor in fuel consumption. Research conducted by General Motors in the United States of America in the 1970s shows that the difference between aggressive and smooth driving can be up to one third. With more modern engine controls, some of that difference has been eliminated but a 20% variance is still possible at average speeds.
• (7) Engine idle time only increases fuel usage when the fuel use is low. It can be demonstrated, Professor Watson said, the increase in fuel consumption of a taxi covering 200km in a twelve hour shift can be by a third.^[72] Mr Bedros responded to this in a further statement. While agreeing with the figure of one third, Mr Bedros said that “ All taxi in Melbourne report that they travel around 150000 to 160000 km per year averaging 200 km per shift .”: Exhibit E at [6] The fuel consumption of the same taxi covering 500km in the same time will be increased by less than 10% as a result of idle time. That follows from the fact that there is less time to idle the engine as the vehicle is travelling for a longer time to cover the greater distance.
• (8) Studies by the SAE-A and the National In-service Emission programmes show that, on average, preventative maintenance or engine tune-ups can save only about 3% in fuel consumption.
  • (a) In Professor Watson's experience of severe malfunction, the worst deterioration is in the order of 10%.
  • (b) A 30% increase related to improper mixture settings or ignition timer settings would lead to severe driveability problems and possibly so severe that the vehicle would be unsafe to drive.^[73] Mr Bedros disagreed that a vehicle would necessarily be unsafe to drive. He referred to an instance in which the stepper motor shaft in a taxi was fully seized. The vehicle had been driven safely for several shifts but the problem had caused an increase in fuel consumption of nearly 33%: Exhibit E at [7].

B. Professor Watson's response to Mr Israil's statement

78. Professor Watson has worked with Ford Australia since the 1980s on projects related to improving the performance and fuel efficiency of the natural gas and LPG versions of their engines. The NISE-1 study was designed to obtain vehicles on a representative basis and so to avoid vehicles' being "volunteered" for testing. In that survey, there was no evidence of any Ford Falcon's having increases in fuel consumption by 20 to 25% from what had been expected. The survey fleet included LPG vehicles.

Record keeping

79. Mr Thomas Tyrrell is a Qualified Accountant and has a very long history as a tax practitioner. He prepared Mr Baini's tax returns and BAS returns for the 2010 and 2011 income years and so outside the income years in question in this case. Mr Maroun Baini had supplied all of the records to him regarding Mr Baini's business. Mr Tyrrell regarded them to be some of the most detailed and orderly records that he had examined in his career in the public and private sector. He did agree, however, that it was a good idea to record income received in cash. Records of cash receipts had been made only in 2008. He did not know whether Mr Baini had kept records of the distances his taxis had travelled and did not have odometer readings, or shift hours. Mr Tyrrell said that he did not know what records were required in Victoria. He prepares taxation returns from the information supplied to him and was not familiar with TR96/11.

80. In a letter to the ATO dated 16 November 2009, Mr Tyrrell had written that the odometer readings for the period from 1 July 2005 to 30 June 2006 had not been retained. They had been disposed of after a record audit had been completed and "given a 5 star rating".^[74] ST documents, ST4-643 Mr Tyrrell said in cross examination that he had been told this by Mr Francois Baini. Mr Baini's recollected being told the same thing by his brother but, rather than the comment's being made after an audit in relation to odometer readings, it was made after a general enquiry by the ATO about a driver and in the context of income. His understanding was that the ATO had been told that the drivers' notes were being summarised and then discarded.

81. In relation to odometer readings, Mr Baini said in his statement:

"In 2009 it was suggested that we should have kept odometer readings. Nor I or any of my brothers was ever aware that we had any obligation for any purpose, let alone bookkeeping, to keep odometer readings and so we don't have such readings for the period in question in this proceeding. I wish we did as I am sure it would prove beyond doubt what in substance I will state below."^[75] Exhibit B at [23]

82. The first time that they were aware of anything about standards applying to the taxi industry, Mr Francois Baini said, occurred when they applied for renewal of their taxi operator licences in 2008. The renewal process was more formal than it had previously been because of the introduction of the Transport (Taxi-Cabs) Regulations 2007 (TTC07 Regulations). Mr Francois Baini said that, until the ATO suggested that they should have kept odometer readings in 2009, they had never been aware that they had any obligation to do so for any purpose at all. Consequently, they did not have readings for the period in question.^[76] Exhibit A at [19]-[20] Mr Maroun Baini's evidence was to like effect.^[77] Exhibit G at [3]

83. Where no invoice had been retained in relation to the purchase of fuel, Mr Francois Baini said that the practice had been to make an invoice entry when the vehicles were picked up by the driver. The vehicles were returned either the following day or on a later day and might not have been driven. Fuel was often purchased on the following day at the end of a shift, Mr Tyrrell was told by Mr Baini.^[78] Exhibit H at [17(a)]

84. On the basis of the information in the Table at [29] above and on the assumption that the vehicles had each travelled 140,000 kilometres each year^[79] Mr Tyrrell based this figure on the Final Report of the PWC Industry Survey Analysis, Victorian Essential Services Commission Review at ST documents, ST2-489. I note that the figure of 140,000 kilometres is given for a large metropolitan fleet in 2007 and the source of the data was a personal communication with the metropolitan fleet manager on 31 January 2008: ST documents, ST2-489. in the relevant periods and that the figure of $1.06 as the Taxi CPK Rate, Mr Tyrrell said that the result was an income of $148,400 in the 2006 income year. That was not far off Mr Baini's reported income of $142,734. Furthermore, it is a near match for the income to be expected if the figure given in the Report of the PWC Industry Survey Analysis, Victorian Essential Services Commission Review - Interim Report (2008) for metropolitan and outer suburban taxis in 2007 is correct. That figure is $1.27.^[80] ST documents, ST1-359

85. Again assuming an annual mileage of 140,000 kilometres, Mr Tyrrell divided Mr Baini's fuel purchase of 65414.15 litres by two as there were two vehicles in the relevant period. He then divided 140,000 kilometres by the average fuel usage of 32,707 leaving him with a figure of 4.28 kilometres per litre. That figure, Mr Tyrrell said, was the actual evidence that was available. It explained why Mr Baini's vehicles used a higher amount of fuel for the distance they had travelled.

LEGISLATIVE BACKGROUND

GST and its imposition

86. Among other things, GST became payable on taxable supplies from the commencement of the GST Act on 1 July 2000.^[81] GST Act. s 7-1 Section 9-30 provides for supplies that are GST-free or input taxed but they are not relevant in this case. The amount of GST on a taxable supply is an amount that is 10% of the value of the taxable supply^[82] GST Act, s 9-70 where that value is calculated in accordance with ss 9-75 to 9-99.

87. There is:

"… a taxable supply if:

• (a) you make the supply for consideration; and
• (b) the supply is made in the course or furtherance of an enterprise that you carry on; and
• (c) the supply is connected with Australia; and
• (d) you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed."^[83] GST Act, s 9-5

88. The word "supply" is defined in s 9-10 of the GST Act.^[84] GST Act, ss 2-25 and 195-1 Section 9-10(1) provides that it means "… any form of supply whatsoever." Without limiting the breadth of that meaning, ss 9-10(2)(a) and (b) provide that "… supply includes …(a) a supply of goods …[and] (b) a supply of services …". Whether the act constituting supply is lawful or not is irrelevant.^[85] GST Act, s 9-10(3)

89. Section 9-15 is concerned with the meaning of the word "consideration". Although subject to qualification by the remaining provisions of s 9-15 and other provisions of the GST Act, it is sufficient to note that " Consideration includes … any payment, or any act of forbearance, in connection with the supply of anything …".^[86] GST Act, s 9-15(1)(a)

90. Section 9-20 defines the word "enterprise".^[87] GST Act, ss 2-25 and 195-1 In so far as it is relevant, it provides that "An enterprise is an activity, or series of activities, done … in the form of a business …".^[88] GST Act, s 9-20(1)(a)

GST and registration

91. Part 2-5 is concerned with registration. In most cases, a person is required to be registered under the GST Act if carrying on an enterprise and the person's annual turnover meets the registration turnover threshold.^[89] GST Act, s 23-5 A person may be registered if carrying on an enterprise, or intending to carry on an enterprise from a particular date, whether or not the turnover is above or below the registration turnover threshold.^[90] GST Act, s 23-10

92. Section 23-99 contains special rules relating to the registration of certain entities and persons including taxis. Taxis are the subject of Division 144 of Chapter 4 of the GST Act and its provisions override the general provisions regarding registration in s 23-5.^[91] GST Act, s 144-5(3) Section 144-5(1) requires a person to be registered if, in carrying on an enterprise, that person supplies taxi travel. It does not matter whether the person's GST turnover meets the registration turnover threshold.^[92] GST Act, s 144-5(2)(a) It does not matter whether the enterprise makes supplies in addition to taxi travel.^[93] GST Act, s 144-5(2)(b)

93. The expression "taxi travel" is defined in the Dictionary to the GST Act to mean "… travel that involves transporting passengers, by taxi or limousine, for fares".^[94] GST Act, ss 2-25 and 195-1

GST and its payment

94. A person who is registered or required to be registered under the GST Act must pay the GST payable on any taxable supply he or she makes.^[95] GST Act, s 9-40 It is not paid directly to the Commissioner following each individual supply. Instead, an amount known as the net amount is worked out and is payable. That is calculated by first working out the total amount of GST for which a person is liable on all taxable supplies in a tax period. From that amount is deducted the sum of all input tax credits^[96] A person is entitled to an input tax credit when making creditable acquisitions. The amount of that input tax credit is an amount equal to the GST payable on the supply of the thing acquired. If the acquisition is only partly creditable, the amount of the input tax credit is reduced. A creditable acquisition is made when a person acquires anything solely or partly for a creditable purpose, the supply of the thing to that person is a taxable supply, the person is liable to provide consideration for the supply and the person is registered or required to be registered: GST Act, s 11-5. In general terms, a person acquires a thing for a “ creditable purpose ” to the extent that person acquires it in carrying on that person’s enterprise: GST Act, s 11-15(1). ⁹⁶ A person does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature. to which the person is entitled for the same period.^[97] GST Act, s 17-5 That net amount may be increased or decreased if there are any adjustments calculated under Part 2-4 of the GST Act.^[98] GST Act, s 17-10

GST and record keeping

95. A person's obligation to keep records in relation to taxable supplies or creditable acquisitions are found in the Taxation Administration Act 1953 (TA Act) rather than in the GST Act. In the first tax period with which we are concerned - from 1 July 2004 to 30 June 2005 - the obligation was found in s 70 of the TA Act. Since its amendment with effect from 1 July 2006,^[99] Section 382-5 was inserted by Fuel Tax (Consequential and Transitional Provisions) Act 2006 , s 3 and Schedule 5, Part 1, Item 51 the obligation is found in s 382-5 of Schedule 1 to that Act. Although the two sections are differently structured, their substance and meaning are the same.

96. I will refer to s 382-5 of the TA Act for it covers the majority of the tax periods with which I am concerned. It specifies a person's obligation to maintain and keep records relating to a number of matters. I am concerned only with ss 382-5(1) and s 382-5(2) which deal respectively with the nature of the obligation relevant in this case and the person upon whom it is imposed. Beginning with the nature of the obligation, s 382-5(1) provides that:

"You must:

• (a) keep records that record and explain all transactions and other acts you engage in that are relevant to a *supply, importation, acquisition, dealing, manufacture or entitlement to which the subsection applies; and
• (b) retain those records for at least 5 years after the completion of the transactions or acts to which they relate."

Among others, the obligation applies to a taxable supply and a creditable acquisition.

Income tax and assessable income

97. At its simplest, an individual taxpayer's income tax is worked out by first working out his or her taxable income for the income year in question. The taxpayer's basic income tax liability is calculated on that taxable income and reduced by any tax offsets applicable to him or her.

98. As a general rule, taxable income is assessable income reduced by any deductions in the relevant income year.^[100] ITAA97, s 4-15(1) "Assessable income" includes two types of income: ordinary income and statutory income other than exempt income.^[101] ITAA97, s 6-1(1)-(5). “ Statutory income ” is not ordinary income but it is included in assessable income by provisions of ITAA97: s 6-10. “ Exempt income ” is an amount of ordinary or statutory income that is made exempt from income tax by a provision of ITAA97 or by another Commonwealth law: ITAA97, s 6-20. Amounts that may be deducted from assessable income are the subject of Division 8 of Part 1-3 of ITAA97. I am concerned only with ordinary income. In the case of an Australian resident, that is income according to ordinary concepts that is derived directly or indirectly from all sources, whether inside or outside Australia, during the income year.^[102] ITAA97, ss 6-5(1) and (2)

Record keeping

A. Legislation

99. Section 262A of the Income Tax Assessment Act 1936 (ITAA36) sets out a taxpayer's obligations to keep records when carrying on a business. The general principles relevant to this case are set out in ss 262A(1), (1D) and (2). Beginning with s 262A(1), it sets out the general obligation that:

"(1) Subject to this section, a person carrying on a business must keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of this Act."

100. What is required to meet that obligation is explained further in s 262A(2):

"The records to be kept under subsection (1) include:

• (a) any documents that are relevant for the purpose of ascertaining the person's income and expenditure; and
• (b) documents containing particulars of any election, choice, estimate, determination or calculation made by the person under this Act and, in the case of an estimate, determination or calculation, particulars showing the basis on which and method by which the estimate, determination or calculation was made."

Section 262A(3) provides for the manner in which records must be kept. As this case is not concerned with the particular circumstances dealt with in ss 262A(3)(c) to (e), I will note only its general requirements:

"A person who is required by this section to keep records must:

• (a) keep the records in writing in the English language so as to enable the records to be readily accessible and convertible into writing in the English language; and
• (b) keep the records so as to enable the person's liability under this Act to be readily ascertained; …
• (c)-(e) …"

101. Section 288-25 in Schedule 1 to the TA Act complements s 262A by providing that:

"You are liable for an administrative penalty of 20 penalty units if:

• (a) a provision of a *taxation law requires you to keep or retain a record; and
• (b) you do not keep or retain that record in the manner required by that law."

B. The Commissioner's Rulings

102. The Commissioner has explained his understanding of the obligation imposed by s 262A and what he requires in a Taxation Ruling TR96/7 issued on 20 March 1996. I will note only two. Paragraph 11 states that:

"The records that a person must keep under subsection 262A(1) must record every transaction that relates to the person's income and expenditure. However, we consider that to explain the essential features of every transaction, a person does not necessarily have to make a record of each individual transaction. Some records are capable of explaining the essential features of transactions when considered as a group rather than when considered individually. We believe that this is the case where any records of the individual transactions provide no additional information about the essential features of the transactions than does a record of the transactions as a group. The following examples show how we believe this principle applies."

103. The Commissioner has dealt with situations in which it is clearly impractical for a person to record every individual cash transaction. Those situations may occur, the Commissioner has said, when recording each individual transaction would seriously impair the normal conduct of the business. A business with high volume/low value cash transactions operated from various locations provides an example. In those cases, the Commissioner:

"… will accept that the keeping of summary records of the cash transactions will satisfy the person's obligations under subsection 262A(1), as long as the person can reconcile the summary records with the bankings. The person must make these summary records at regularly defined intervals, e.g., at the end of each day or shift. The reconciliation must take into consideration any cash earned that the person used for other purposes and should show at least the following details: total cash at day end + drawings + expenses − opening float. …"^[103] TR 96/7 at [16]

104. The Commissioner also highlighted in the Tax Ruling that he would need to issue further Rulings and Determinations dealing with specific record keeping issues and record keeping issues in specific industries.^[104] TR1996/7 at [7] We may follow it with more specific Rulings or Determinations as we identify needs. These may deal with specific industries or record keeping issues. TR96/11, issued on 24 April 1996 is an example of such a Ruling. It refers to the earlier Ruling and sets out the Commissioner's views of the records that must be kept to record income from taxi takings for the purposes of s 262A. It applies to operators of taxi licences and taxi plates including those who own them and conduct a business of plying a taxi cab for hire.

105. The Commissioner stated that:

• "9. In respect of the taxi industry, we consider that the operators should keep the following records:
  • (i) the full identity details of all persons who derive income from driving the operator's taxis (i.e. name, address, taxi driver licence number);
  • (ii) the details of each operational taxi shift (i.e. date, identity of driver, distance travelled, shift hours, total takings for each shift, shift expenses); and
  • (iii) the details of the arrangements between the operator and drivers as to how they will apportion shift takings (i.e., set pay-in, percentage pay-in) and the amounts apportioned to the operator and the drivers for each shift.
• 10. In paragraph 11 of TR 96/7 we take the view that it is not necessary for a person to keep a record of each individual transaction where any records of the individual transactions provide no additional information about the essential features of the transactions than does a record of the transactions as a group. The following paragraph sets out how we believe this transaction applies in the taxi industry.
• 11. In the taxi industry, generally, drivers record information as to the date, amount and character (i.e., hire charge, tips, etc.) of the takings for their shift on a shift summary such as a pay-in slip, envelope or worksheet. They also need to record the other information required in paragraph 9(ii) above on these shift summaries. We consider that any record made by a driver of each individual hire transaction provides no additional information about the essential features of the operator's takings than does the information provided on the shift summaries. Where drivers do not fill out shift summaries, operators must make a record of the details that would be on the shift summaries at the end of each shift."

C. Victorian legislation

106. As in force in the income years in this case, the Transport Act 1983 (Vic)^[105] The title of this Act was changed to the Transport (Compliance and Miscellaneous) Act 1983 with effect from 1 July 2010 by s 199(1) of the Transport Integration Act 2010 (Vic); No. 6/2010. (Transport Act) provided for accreditation to "… facilitate the provision of safe, reliable and efficient taxi-cab services that meet reasonable community expectations by ensuring that only suitable people hold taxi-cab licences, operate taxi-cabs or permit them to be operated or provide taxi-cab network services."^[106] Transport Act, s 130 The operator of a taxi-cab was not permitted to operate a taxi-cab or permit it to be operated unless accredited under Division 4 of Part VI of the Transport Act as a taxi-cab operator.^[107] Transport Act, s 131 An applicant for accreditation must satisfy the licensing authority that the requirements for the relevant accreditation are satisfied^[108] Transport Act, s 132(2)(b)(ii) as well as any other things required by the regulations.^[109] Transport Act, s 132(2)(b)(iii) An application must be accompanied by any fee that the licensing authority determines is payable.^[110] Transport Act, s 132(2)(b)(i)

107. Regulations made under ss 162 and 256 of that legislation, the Transport (Taxi-Cabs) Regulations 1994 (TTC 1994 Regulations) came into force on 1 July 1994. They provided for books of records to be kept by the operator who, in this case, is Mr Baini. Those provisions are very similar to those found in later regulations in the form of the Transport (Taxi-Cabs) Regulations 2005 (TTC 2005 Regulations). The later regulations came into force on 28 June 2005.^[111] Regulation 11 of the TTC 1994 Regulations was amended with effect from 29 June 2008 by the Transport (Taxi-Cabs) (Amendment) Regulations 2008 . That is outside the years with which we are concerned. They set out the books of records to be kept by the operator:^[112] Unless the right to operate a taxi-cab has been assigned to a person under s 150 of the Transport Act, an “ operator ” in relation to a taxi-cab means the holder of the licence under which the taxi-cab is operated: TTC 2005 Regulations, r 3(1) and see also Transport Act, s 86(1) defining “operator in relation to a taxi-cab ”.

"In addition to any other books and records that the operator of a taxi-cab is required to keep under the licence under which the taxi-cab is operated, the operator must keep the following books or records about the operation of the taxi-cab -

• (a) the revenue earned;
• (b) the kilometres travelled;
• (c) the number of hirings of the taxi-cab;
• (d) the costs incurred in operating and maintaining the taxi-cab;
• (e) an up to date record of the names, addresses, driver licence numbers and driver's certificate numbers of every person who has been driving the taxi-cab so that the identity of the driver at any time can be ascertained."^[113] TTC 2007 Regulations, r 11(1)

The operator must keep the books and records for a period of at least three years from the date the records or last entries in the books were made.^[114] TTC 2007 Regulations, r 1(2)(b) Failure to meet these obligations attracts penalty units.

108. The Transport (Taxi-cab Industry Accreditation) Regulations 2007 (TTC 2007 Regulations) came into operation on 31 December 2007. Regulation 7 required the accreditation of a person as a taxi-cab operator to be subject to the condition that the person must keep a record of the information specified in Schedule 1. Item 1 of that Schedule requires that the person must keep, among other information:

"The following information in respect of each taxi-cab operated, or permitted to be operated, by the taxi-cab operator -

• (a) the days on which, and the times during those days when, the taxi-cab was available for hire; and
• (b) the total revenue earned during each shift; and
• (c) the total kilometres travelled during each shift; and
• (d) the number of hirings of the taxi-cab during each shift; and
• (e) the total kilometres travelled during each shift when the vehicle was hired; and
• (f) the costs incurred in operating and maintaining the taxicab; and
• (g) the name, address, driver licence number and driver accreditation certificate number of each person who has operated the taxi-cab and the days on which, and the times during those days when, that person has operated the taxi-cab; and
• (h) the contents of each bailment agreement with each bailee driver to whom the taxi-cab is bailed that is either in writing or evidenced in writing; and
• (i)-(n) …"

BURDEN OF PROOF

Statutory provision

109. Section 14ZZK of the TA Act provides:

"On an application for review of a reviewable objection decision:

• (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
• (b) the applicant has the burden of proving that:
  • (i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or
  • (ii) …
  • (iii) in any other case - the taxation decision concerned should not have been made or should have been made differently."

How a taxpayer may satisfy the burden

110. Section 14ZZK does not alter the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.

111. The case of
McCormack v Federal Commissioner of Taxation^[115] [1979] HCA 18 ; (1979) 143 CLR 284 ; 23 ALR 583 ; 9 ATR 610 ; 53 ALJR 436 ; 79 ATC 4111 illustrates the nature of a taxpayer's task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of ITAA36 as it was then in force. Gibbs J explained Mrs McCormack's task:

"… The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail."^[116] [1979] HCA 18 ; (1979) 143 CLR 284 ; 23 ALR 583 ; 9 ATR 610 ; 53 ALJR 436 ; 79 ATC 4111 at [11]; 303; 597; 443; 622; 4,121

112. If all of the material facts were known and the amount of a taxpayer's taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.^[117] Federal Commissioner of Taxation v Dalco [1990] HCA 3 ; (1990) 168 CLR 614 ; 90 ALR 341 ; 20 ATR 1370 ; 64 ALJR 166 ; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J

113. It is open to the taxpayer to attack the Commissioner's power to make an assessment^[118] McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 ; 30 ALJR 464 at 270-271; 465-466 per Dixon CJ, McTiernan and Webb JJ or the calculation of the amount of an assessment. If the taxpayer chooses to attack the calculation of the amount of the assessment:

"… mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment …, the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. …"^[119] Federal Commissioner of Taxation v Dalco [1990] HCA 3 ; (1990) 168 CLR 614 ; 90 ALR 341 ; 20 ATR 1370 ; 64 ALJR 166 ; 90 ATC 4088 at 623; 345; 1374; 169; 4092 per Brennan J

114. Therefore, as Brennan J said in Dalco:

"… A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. …"^[120] [1990] HCA 3 ; (1990) 168 CLR 614 ; 90 ALR 341 ; 20 ATR 1370 ; 64 ALJR 166 ; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J with whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed

No burden of proof on Commissioner and no obligation to put forward material establishing a particular view

Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in
Gauci v Federal Commissioner of Taxation^[121] (1975) 135 CLR 81 ; Bawick CJ and Jacobs JJ; Mason J dissenting (Gauci):

"The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail."^[122] (1975) 135 CLR 81 at 89 and approved by Brennan J in Dalco [1990] HCA 3 ; (1990) 168 CLR 614 ; 90 ALR 341 ; 20 ATR 1370 ; 64 ALJR 166 ; 90 ATC 4088 at 624; 346-347; 1375; 170; 4,093

115. His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:

"… There is nothing inherently unfair in the provision which places the onus on the taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge."^[123] (1975) 135 CLR 81 at 89

116. In
Galea v Commissioner of Taxation,^[124] [1990] FCA 456 ; (1990) 90 ATC 5060 ; 21 ATR 1108 Hill J said:

"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. As is clear from Dalco, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant's assessable income was at least a particular figure. 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 s 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."^[125] [1990] FCA 456 ; (1990) 90 ATC 5060 ; 21 ATR 1108 at [34]; 5,067; 1116 See also Vu v Commissioner of Taxation [2006] FCA 889 ; (2006) 63 ATR 341 at [9]; 344 per Finn J

EXPERT EVIDENCE

The rules of evidence and the Evidence Act 1995

117. The rules of evidence have been developed over many years in the adversarial proceedings in courts on a variety of matters directed, in broad terms, to two main objectives. The first is to ensure that evidentiary material relied upon by a court is relevant to the issue to be decided and will be reliable or probative of the matters to which it is directed. The second is to ensure fairness. Fairness is a concept that may relate to the manner or circumstances in which evidentiary material is obtained as well as to the presentation or withholding of evidentiary material in a particular case.^[126] Evidentiary material may be withheld if, for example, it is subject to legal professional privilege or public interest immunity.

118. Since 1995, the Evidence Act 1995 (Evidence Act) and related State and Territory Acts have been enacted. As the long title to the Evidence Act states, it is "An Act about the law of evidence, and for related purposes", but it is a law that does not apply to proceedings in the Tribunal. That follows from the fact that, although it is a body exercising a power under the law of the Commonwealth, it is not a "… body … required to apply the laws of evidence". As s 33(1)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act) provides, "The Tribunal is not bound by the rules of evidence and may inform itself on any matter in such manner as it thinks appropriate." Consequently, the Tribunal does not come within the definition of a "federal court" and the Evidence Act does not apply to it.^[127] Section 4(1) of the Evidence Act provides that it “ … applies to all proceedings in a federal court …”. A “ federal court ” is defined in Part 1 of the Dictionary to “ include a person or body … that, in performing a function or exercising a power under a law of the Commonwealth, is required to apply the laws of evidence .” That is consistent with the Tribunal's being an administrative body and part of the Executive arm of government under the Australian Constitution rather than part of the judicial arm as are the federal courts.

The Tribunal is not bound by the rules of evidence but has regard to them

119. There is, though, a difference between not being bound by the rules of evidence and not having regard to them. It is always open to the Tribunal to have regard to them and, in the past, the Tribunal's not being bound by the rules of evidence has not necessarily translated into any obvious difference between the material to which the Tribunal will have regard in carrying out its task of reviewing administrative decisions on their merits and that to which a court will have regard in its civil jurisdiction. That is so even though a plaintiff or applicant in a court carries a burden of proof and, in most cases other than tax cases of the sort with which I am concerned, no party to an administrative review carries any burden.

120. The tasks the two must carry out before they make their final determination are essentially the same. Both must ascertain and apply the law. Both may take evidence on oath or affirmation.^[128] AAT Act, s 40(1)(a) Both must make findings on material questions of fact referring to the evidence or other material on which those findings were made. Both must generally give reasons for their decisions. The basis of their doing so differs but the difference in those bases makes no difference to their roles and functions. The Tribunal has obligations based in statute either expressly^[129] AAT Act, s 43(2B) and see also the Administrative Decisions (Judicial Review) Act 1977 , s 13 or impliedly but not generally at common law whether in its duty to act with procedural fairness or otherwise.^[130] Public Service Board of NSW v Osmond [1986] HCA 7 ; (1986) 159 CLR 656 at 662 per Gibbs CJ, with whom Wilson, Brennan and Dawson JJ agreed and 675-676 per Deane J and approved in Wainohu v New South Wales [2011] HCA 24 ; (2011) 243 CLR 181 ; 278 ALR 1 ; 85 ALJR 746 at [92]; 225 per French CJ and Kiefel J and at [155]; 241; 783 per Heydon J For a court:

"… there have been many cases… in which it has been held that it is the duty of a judge or magistrate to state his reasons. That does not mean that a judicial officer must give his reasons in every case; it is clear … that there is no 'inflexible rule of universal application' that reasons should be given for judicial decisions. Nevertheless, it is no doubt right to describe the requirement to give reasons … as 'an incident of judicial process', subject to the qualification that it is a normal but not universal incident….".^[131] Public Service Board of NSW v Osmond [1986] HCA 7 ; (1986) 159 CLR 656 at 666-667 per Gibbs CJ (citations omitted) and see general discussion in Wainohu v New South Wales [2011] HCA 24 ; (2011) 243 CLR 181 ; 278 ALR 1 ; 85 ALJR 746 at [54]-[59]; 213-215; 766-767 per French CJ and Kiefel J

121. The question then arises whether there is a place for the rules of evidence in administrative proceedings such as those in the Tribunal. That question arises particularly in a jurisdiction such as the taxation jurisdiction where the taxpayer carries a burden of proof of proving the same matters to the same standard of proof whether in the Tribunal or in the Federal Court.^[132] Taxation Administration Act 1953 ; ss 14ZZK and 14ZZO It seems to me that any difference between the proceedings in the taxation jurisdiction of the Federal Court and the Tribunal should be identifiable in terms of formality and cost. In so far as the evidentiary material is concerned, its relevance and probity should be determined by reference to the same standards as those reflected in the rules of evidence for, as I have said, the issues are the same, the burden of proof the same and the standard of proof the same. That there should be the potential to have a different outcome because different standards apply does not accord with consistent decision-making whether properly characterised as administrative or judicial decision-making. When there are differences, they will be differences resulting from differences between formal and less formal approaches. Objections to affidavit evidence provide an example. In a court, it might be expected that the court will hear each objection to the affidavit and allow or disallow it. The Tribunal will generally provide more latitude in the sense that, unless entirely flawed, it will generally admit the affidavit evidence but what would have been the basis of the objection in the court will ultimately become the basis of a submission as to why the evidence is unsafe, should not be relied upon is not probative of the issue it is addressing and so on. In other words, the rationale supporting the rule of evidence that would render the evidence inadmissible in a court will become the rationale of the substantive submission attacking its relevance and probity.

122. The ultimate outcome of the two approaches should not lead to a different substantive outcome for relevance and probity lie at the heart of each approach. As Deane J, with whom Evatt J agreed, said in
Minister for Immigration and Ethnic Affairs v Pochi^[133] [1980] FCA 85 ; (1980) 4 ALD 139 ; Smithers, Evatt and Deane JJ at 160 when referring to the duty of a tribunal to make decisions based on evidence reasonably capable of sustaining those decisions:

"… the requirement that findings of material fact of a statutory tribunal must ordinarily be based on logically probative material and the requirement that the actual decision of such a tribunal must, when relevant questions of fact are in issue, ordinarily be based upon such findings of material fact and not on mere suspicion or speculation. Those requirements, like all the ordinarily applicable rules of natural justice, may be modified or abolished by the express words or intendment of the legislation establishing the tribunal or conferring jurisdiction upon it …"^[134] Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85 ; (1980) 44 FLR 41 ; 31 ALR 666 ; 4 ALD 139 at [24]; 67-68; 690; 160

123. This approach sits side by side with the Tribunal's duty to accord procedural fairness to the parties or, as it has been described from time to time, to act according to substantial justice. Justice Evatt in
R v War Pensions Entitlement Appeal Tribunal; ex parte Bott^[135] [1933] HCA 30 ; (1933) 50 CLR 228 considered the correlation between the rules of evidence and the former War Pensions Entitlement Appeal Tribunal's duty to act "according to substantial justice"^[136] The AAT Act does not impose a duty upon the Tribunal in those terms but s 2A imposes upon it an obligation requiring it, in part, to “ … pursue the objective of providing a mechanism of review that is fair ,[and] just …” among other qualities. The difference in expression, I suggest, does not lead to a difference in obligation. and said:

"… Some stress has been laid by the present respondents upon the provision that the Tribunal is not, in the hearing of appeals, 'bound by any rules of evidence.' Neither it is. But this does not mean that all rules of evidence may be ignored as of no account. After all, they represent the attempt made, through many generations, to evolve a method of inquiry best calculated to prevent error and elicit truth. No tribunal can, without grave danger of injustice, set them on one side and resort to methods of inquiry which necessarily advantage one party and necessarily disadvantage the opposing party. In other words, although rules of evidence, as such, do not bind, every attempt must be made to administer 'substantial justice.'"^[137] [1933] HCA 30 ; (1933) 50 CLR 228 at 256

Are the rules of evidence codified or modified by the Evidence Act 1995?

124. The reference to the "rules of evidence" in both the AAT Act and the Evidence Act is not defined. The question arises whether those rules are now codified in the Evidence Act, whether there is a separate body of rules to which I may have regard or whether I may have regard to both.

125. I will start with the Evidence Act itself. It was considered by Hill J in
Pepsi Seven-Up Bottlers v Commissioner of Taxation^[138] (1995) 62 FCR 289 ; 132 ALR 632 ; 31 ATR 445 when he said that "… the Evidence Act does not represent a code of the law of evidence."^[139] (1995) 62 FCR 289 ; 132 ALR 632 ; 31 ATR 445 at 301; 633; 456 That case concerned the meaning of certain words. The general principle is that evidence is not admissible to interpret a word used in a statute or a document in accordance with its ordinary English meaning but evidence may be led where that word is used in a trade or technical sense and that sense differs from its ordinary English meaning. His Honour said of the Evidence Act that:

"… it would not preclude the admissibility of evidence of usage where that evidence was relevant to an issue in the case. But nor would it permit evidence of usage to be given if that evidence were precluded by the common law of evidence. …"^[140] (1995) 62 FCR 289 ; 132 ALR 632 ; (1995) 31 ATR 445 at 301; 643-644; 456

126. That does not mean that the Evidence Act has not had any effect on the common law rules of evidence. In
Papakosmas v The Queen,^[141] [1999] HCA 37 ; (1999) 196 CLR 297 ; Gleeson CJ, Gaudron, McHugh, Kirby and Hayne JJ the High Court considered whether the common law limitations on the use of recent complaint evidence of sexual assault for a hearsay purpose continued despite the enactment of the Evidence Act. It decided that, subject to certain judicial discretions and provided the conditions in s 66(2) were met, they did not. The reasons for their reaching that conclusion are not important but the general statement of principle by Gleeson CJ and Hayne J is:

"It is clear from the language of the Act, and from its legislative history, that it was intended to make, and that it has made, substantial changes to the law of evidence in New South Wales. Similar legislation has been enacted by the Parliament of the Commonwealth…. Section 9 of the Act provides that it does not affect the operation of the common law except so far as the Act provides otherwise expressly or by necessary intendment. Even so, the sections of the Act relevant to this case undoubtedly make express provision different from the common law. It is the language of the statute which now determines the manner in which the evidence of the kind presently in question is to be treated. The appellant argues that the meaning and effect of that language properly understood, is to be determined in the light of, and in a manner that conforms to, the pre-existing common law. For reasons that will appear, that argument must be rejected. …"^[142] [1999] HCA 37 ; (1999) 196 CLR 297 at [10]; 302

127. Much more recently, the High Court adopted the same approach in considering previous authority relating to opinion or expert evidence. Referring to particular decided cases, the majority said in
Dasreef Pty Ltd v Hawchar:^[143] [2011] HCA 21 ; (2011) 243 CLR 588 ; French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ; Heydon J dissenting on outcome but not otherwise

"… The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. …"^[144] [2011] HCA 21 ; (2011) 243 CLR 588 at [37]; 604

128. The answer to the question I have posed in the heading to this section of my reasons must be that the rules of evidence established by the common law continue in existence to the extent that they have not been modifed by the Evidence Act. Where they have been modified or where the Evidence Act provides for a matter not provided for by the common law, the Evidence Act prevails. Otherwise, the rules of evidence as developed by the common law continue to remain relevant.

Assessment of expert evidence

129. The following is a brief summary of points that are relevant to this case and that have been established by the authorities regarding expert evidence:^[145] A more concise statement of principles appears in the judgment of Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85]-[86]; 743-745. I have adopted a broader version to set the principles in their background so that their application to administrative decision-making can be seen.

• (1) Opinion evidence is evidence of "a belief or judgement which seems likely to be true, but which is not based on proof …".^[146] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers (Chambers) In a legal context, it is "a conclusion, usually judgmental or debatable, reasoned from facts"^[147] RW Miller & Co Pty Ltd v Krupp (Australia) Pty Ltd (1991) 34 NSWLR 129 at 130 per Giles J and as "an inference from observed and communicable data".^[148] Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73 at 75 per Lindgren J citing JH Chadbourn (ed), Wigmore on Evidence 1978), Vol 7, par 1917. Although Part 3.3 of the Evidence Act provides that such evidence is not admissible to prove the existence of the fact about the existence of which the opinion was expressed,^[149] Evidence Act, s 76(1) this general rule is subject to certain exceptions.
• (2) One of those exceptions is found in s 79(1) of the Evidence Act:

  "If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge."

• (3) "In determining whether or not there is, or is not, a field of knowledge which requires expert assistance, the judge is to a large extent involved in an exercise of personal judgment, for which authority provides little help: see per Blackburn J in
  Millirrpum v Nabalco Pty Ltd (1971) 17 FLR 141 at 160."^[150] R v Bartlett [1996] 2 VR 687 at 695 (Vic CA) per Winneke P
• (4) Determination of whether a person has specialised knowledge depends on:

  "… whether the subject matter of the opinion forms part of a body of knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court. The second question is whether the witness has acquired by study or experience sufficient knowledge of the subject to render his opinion of value in resolving the issues the court."^[151] Bonython v R (1984) 38 SASR 45 ; 15 A Crim R 364 at 46; 366

• (5) The categories of expert evidence are unlimited^[152] Weal v Bottom (1966) 40 ALJR 436 at 439 in the sense that they are not limited to areas in which a person's special knowledge or skill is derived from scholastic studies.^[153] “ There are many fields in which an expert’s skill does not derive from scholastic studies. Examples include the practical experience of an Aboriginal tracker …, a mechanic with much practical experience of engines … and even the capacity of a heroin addict to identify a substance as heroin …”; R v Lam, Truong, Duong & Anor [2001] QCA 279 ; (2001) 121 A Crim R 272 (Qld CA) at [81] per Thomas JA with whom McPherson JA and Chesterman J agreed. As Gaudron J expressed the principle in
  HG v The Queen:^[154] (1999) 197 CLR 414 at 427

  "The position at common law is that, if relevant, expert or opinion evidence is admissible with respect to matters about which ordinary persons are unable 'to form a sound judgment … without the assistance of [those] possessing special knowledge or experience … which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience'."^[155] HG v The Queen (1999) 197 CLR 414 ; 160 ALR 554 at 432, 566; [58] quoting from a judgment of King J in R v Bonython (1984) 38 SASR 45 at 46-47 and see also Clark v Ryan [1960] HCA 42 ; (1960) 103 CLR 486 at [4]; 491 per Dixon CJ adopting the notes by JW Smith to Carter v. Boehm 1 Smith L.C., 7th ed. (1876) p. 577, R v Bartlett [1996] 2 VR 687 at 695 (Vic CA) per Winneke P.

  The "… categories of expert evidence are unlimited …"^[156] Weal v Bottom (1966) 40 ALJR 436 at 439 and are not limited to areas in which a person's special knowledge or skill is derived from scholastic studies. As Thomas JA, with whom McPherson JA and Chesterman J agreed, said in
  R v Lam:^[157] (2001) 121 A Crim R 272 (Qld CA)

  "There are many fields in which an expert's skill does not derive from scholastic studies. Examples include the practical experience of an Aboriginal tracker …, a mechanic with much practical experience of engines … and even the capacity of a heroin addict to identify a substance as heroin …".^[158] (2001) 121 A Crim R 272 at 290 in which a witness’s evidence was found to be admissible on the basis that he had extensive experience and was an expert in both the rules and procedures of the game of baccarat and in the video surveillance of games of baccarat.

• (6) An expert witness must be sufficiently independent, have specialised knowledge and base his or her expert opinion on both that specialised knowledge and a relevant factual basis:

  "… If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert's specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ's characterisation of the evidence in
  HG v The Queen (at 428 [41]), on 'a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant and a process of reasoning which went well beyond the field of expertise."^[159] Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 ; (2001) 52 NSWLR 705 at [85]; 744 per Heydon JA. See also Dasreef Pty Ltd v Hawchar [2011] HCA 21 ; (2011) 243 CLR 588 at [36]-[37]; 604 per French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ; Heydon J dissenting on outcome but not otherwise

• (7) "… It is often said that an expert cannot give an opinion as to the ultimate fact that the court has to decide. This is inaccurate, as experts, especially valuers, often give evidence as to the ultimate fact, and in many cases the question whether that fact exists can be answered only by experts … What the rule really means is that an expert must not express an opinion if to do so would involve unstated assumptions as to either disputed facts or propositions of law. …"^[160] Evidence, Proof and Probability by Sir Richard Eggleston quoted in Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 ; 97 ALR 555 at 350; 594
• (8) The way in which a court or tribunal satisfies itself that the opinion is based on specialised knowledge:

  "… would normally be satisfied by the person who expresses the opinion demonstrating the reasoning process by which the opinion was reached. Thus, a report in which an opinion is recorded should expose the reasoning of its author in a way that would demonstrate that the opinion is based on particular specialised knowledge. Similarly, opinion evidence given orally should be shown, by exposure of the reasoning process, to be based on relevant specialised knowledge."^[161] Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 at [23] per Black CJ, Cooper and Emmett JJ

• (9) To assist a court or tribunal in satisfying itself, the expert report:

  "… must be presented in such a way that the court can readily assess whether the requisite correlation between opinions and specialised knowledge is present.

  Proper categorisation of an intermediate proposition depends on reaching an understanding as to the role of that proposition in the reasoning process, its derivation and its relationship with the assumed or accepted facts. In my opinion, it is sufficient under s 79 [of the Evidence Act 1995] for the report to make it plain, in substance and on a fair reading, that a particular proposition has been deduced by a process of inference from the assumed or accepted facts, and that the process of inference involves the application of the expert's specialised knowledge. If, as a matter of substance rather than form, a proposition is an inference from the assumed or accepted facts, drawn by the expert with the aid of his or her specialised knowledge, it is potentially admissible under s 79 whether it is introduced by some such words as 'in my opinion' or is presented as an assertion of fact. But if, in substance, a proposition cannot fairly be regarded, directly or indirectly, as an inference from the assumed or accepted facts drawn with the aid of the expert's specialised knowledge (because, for example, the expert's reasoning process leading to the proposition has been inadequately disclosed or is non-existent), the proposition is not admissible under s 79 even if it is expressed to be an opinion. …"^[162] Australian Securities and Investment Commission v Rich [2005] NSWSC 149 ; (2005) 190 FLR 242 ; at [267]-[268]; 305-306 per Austin J

  "… What does matter …is that the assumptions upon which the opinion is based are identified and articulated. Of course, if the assumptions made by the witness turned out to be different to those ultimately found by the Court, the opinion might have little relevance. …"^[163] Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 ; 97 ALR 555 at 351; 595

  The rationale for requiring an expert witness to disclose the underlying assumptions made in forming an opinion has its basis in:

  "… the difficulty in predicting the 'permutations and combinations necessary to cover all possible findings by the Court'. If an economist were permitted to express opinions upon the effect of the evidence given, without identifying the facts which he or she assumed for the purpose of those opinions, it would be impossible for the Court to know how to apply that evidence. One of the permutations or combinations may have rendered the opinion inapplicable in the expert's eyes but the Court would never know."^[164] Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 ; 97 ALR 555 (1990) 24 FCR 313 ; 97 ALR 555 at 352; 596

• (10) "… An expert opinion is not admissible unless evidence has been, or will be, admitted, whether from the expert or from some other source, which is capable of supporting findings of fact which are sufficiently similar to the factual assumptions on which the opinion was stated to be based to render the opinion of value. …

  …

  There is no common law rule that expert opinion evidence cannot be received unless there exists already 'admitted' evidence. It suffices if it can be seen that the appropriate evidence will be admitted later. …"^[165] Dasreef Pty Ltd v Hawchar [2011] HCA 21 ; (2011) 243 CLR 588 at [66]-[68]; 613-615 per Heydon J in dissent on outcome but not otherwise

• (11) Whether there is sufficient parity between the assumptions and the findings of fact made by the Tribunal is ultimately a question of fact for it to decide.^[166] See, for example, Paric v John Holland (Constructions) Pty Ltd [1985] HCA 58 ; (1985) 62 ALR 85 ; 59 ALJR 844 at [9]; 88; 846

  "It is trite law that for an expert medical opinion to be of any value the facts upon which it is based must be proved by admissible evidence … But that does not mean that the facts so proved must correspond with complete precision to the proposition on which the opinion is based. The passages from Wigmore on Evidence cited by Samuels JA in the Court of Appeal … to the effect that it is a question of fact whether the case supposed is sufficiently like the one under consideration to render the opinion of the expert of any value are in accordance with both principle and common sense.

  As Wigmore states …, 'the failure which justifies rejection must be a failure in some one or more important data, not merely in a trifling respect'. …"^[167] Paric v John Holland (Constructions) Pty Ltd (1985) 62 ALR 85 at 87-88

• (12) "The use of an expert witness to filter the facts, asking the witness to hear or read all the evidence and then express factual conclusions, is … illegitimate. It must be stopped. …"^[168] Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 ; 97 ALR 555 at 353; 597
• (13) "Obviously, parties will call upon experts whose opinions support their view of the case. However, it is not appropriate for an expert witness to act as an advocate for the instructing party, at all costs, and professional witnesses should be willing to concede points which, whilst not advancing the case of the party engaging them, they believe to be open as a fair and reasonable assessment on the material before them."^[169] Re Qantas Airways Limited [2004] ACompT9 at [216] per Goldberg J
• (14) If evidence given as expert evidence should transgress one or more of these boundaries from time to time, those transgressions do not necessarily render the whole of the evidence inadmissible. That which does not transgress may properly be regarded as admissible.^[170] Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 ; 97 ALR 555 at 353; 597

Evidence of Professor Watson: the submissions

130. Mr Isaiah did not challenge Professor Watson's expertise as an automotive engineer but queried how, with two exceptions to which I will return, his evidence could assist me. He queries how Professor Watson's experience is relevant to the issue in this case i.e. "… whether the express assumptions laid out in the witness statements describing the condition of the cars, are consistent with the loss of efficiency consistent with the witness statements in this proceeding."^[171] Applicant’s Submissions re Professor Watson’s Report at [11] It has not been demonstrated how his research work and publications, to which I have referred at [75] above, are relevant to the specific condition of the vehicles in this case. Although he refers to having written over 350 papers, Professor Watson has not cited any literature in support of his conclusions, Mr Isaiah submitted.

131. Mr Isaiah also submitted that Professor Watson had not been asked to answer any questions and had not been given critical documentation that would give him the correct context for his advice. Professor Watson was not given the Commissioner's Statement of Facts and Contentions, Mr Baini's objection and the Commissioner's reasons for his objection decision. He was not asked to take the assumed condition of the vehicles into consideration and so does not address the assumptions made about them. His comments are addressed to general points made in relation to different vehicles altogether. At no stage does he indicate that the vehicles studied were of the same type or in comparable condition in terms of mileage or other factors stated in the witness statements. It is the condition of Mr Baini's vehicles and their mileage which are in issue.

132. Mr Isaiah has commented on particular passages of Professor Watson's report. Referring to the 16.5L/100km figure recommended by SAE-A, he submitted that Professor Watson had not referred to the condition of the vehicles tested to achieve that result. Professor Watson's reference to "The difference in the reporting process by Ford is likely the reason for that apparent increase for the two models given by Mr Bedros in paragraph 8 …"^[172] Exhibit 2 at [8] must imply a different reporting or testing procedure from that he had conducted.

Evidence of Professor Watson: consideration

133. Mr Isaiah's suggestion that Professor Watson's expertise is not relevant is not well-founded. On its face, his recitation of his studies, his research projects and his publications reveal him to have developed an expertise in fuel efficiency in motor vehicles whether the fuel be petrol, natural gas or LPG. Fuel efficiency is at the heart of the case put on Mr Baini's behalf.

134. Mr Isaiah has noted that Professor Watson has not referred to any literature in support of his conclusions and only broadly states that studies were conducted. Professor Watson has referred to studies in which he has been involved and the research data on which he has relied and has given sufficient information for the studies and data to be located and checked. He has referred to the particular matters on which he is expressing an opinion. It seems to me that the reference to the studies and sources in Professor Watson's report is sufficient to find them. I refer, for example, to his table of reported fuel data for the Ford AU11 and Ford BA. It was given by him as www.environment.gov.au/settlements/transport/fuelguide/search and is easily locatable even though it can only be found if "/search" is omitted from the address. Another that can easily be found is the survey of in-service cars conducted in Australia in 1996 i.e. the Report on the National In-Service Vehicle Emissions Study at www.infrastructure.gov.au/roads/environment/emission/pdf/natinserv-exec-sum.pdf. I do not think it appropriate to refer to any material from that report other than that to which Professor Watson has referred. What I do point out is that Professor Watson has referred to it in support of his opinion, it is available to all to examine.

135. Mr Isaiah has stated that he does not understand Professor Watson's statement in relation to paragraph [9] of Mr Bedros's statement that the standard test set under the Australian Design Rules (ADR) gives a fair comparison of fuel consumption. In response to that, Professor Watson has written:

"As explained above the fuel consumption test is an AS (Australian Standard) and not the ADR for emissions. Even so, the procedures are so similar that they can be performed con-currently."^[173] Exhibit 2 at 2

Earlier in his report, he had said, in part:

"The standard for Fuel consumption testing of vehicles of this period was AS 2877 and uses two tests also in the emission test ADR (Australian Design Rule)."^[174] Exhibit 2 at 1

Reading the two together, it is clear that Professor Watson is distinguishing between an ADR and an AS. In his view, Mr Bedros had incorrectly referred to fuel consumption testing as taking place under an ADR when, in fact, it takes place under an AS and, in particular, AS 2877. He pointed that out as a matter of fact while observing that the two tests are so similar that they can be conducted at the same time. This could have been clarified further in cross-examination had the opportunity been taken.

136. I agree with Mr Isaiah that Professor Watson does not address the particular condition of Mr Baini's vehicles or address the assumptions that Mr Baini asks me to make about their condition. His evidence is not addressed to those issues because he was not asked to do so. It is apparent from the letter of instructions he was sent by the Commissioner that he was asked only to address paragraphs [8], [10] and [13]-[16] of Mr Bedros's statement and [12] of Mr Israil's. Paragraphs [8], [10] and [13]-[16] are addressed to general statements regarding fuel usage and the factors that affect it. They are not addressed to the particular condition of Mr Baini's vehicles. Just as they are put forward as relevant to the issues in this case, so too is the opinion of Professor Watson.

137. Paragraph [12] of Mr Israil's statement is a little different in that he does refer to his "observations of the poor condition of the cars", to which he had previously referred, to draw the conclusion that "compared to the average taxi cab, they would have been getting at least 20% to 25% lower fuel efficiency based on their poor condition." Professor Watson had been given the whole of Mr Israil's statement (as had been given that of Mr Bedros) and so was aware of Mr Israil's view of the condition of Mr Baini's vehicles. The particular condition of Mr Baini's vehicles is not relevant to his evidence. He cannot give evidence about the particular state of the vehicles for he has neither seen nor tested them. What he can give evidence about is any relevant research that has been done in relation to fuel efficiency of like vehicles, being the Falcon, in Ford's fleet. It was a study where vehicles were obtained on a representative basis, Professor Watson said. It can be expected that vehicles of the sort operated by Mr Baini were included and it is relevant to the issues.

138. I do not accept Mr Isaiah's criticism that, in commenting on Mr Bedros's statement at paragraph [10, Professor Watson has not explained his position that the fuel consumption test is a rolling road, and not an engine, test without regard to considerations such as load, air resistance and driving conditions. In response to paragraph [8] of Mr Bedros's statement, Professor Watson had stated that the tests are performed on a vehicle at a weight that allows 100kg extra mass on a rolling road (chassis dynamometer).

Mr Bedros's evidence: the submissions and consideration

139. I accept Mr Linden's submissions that Mr Bedros's evidence should not be accepted as that of an expert. That is not to say that the subjects on which Mr Bedros was questioned cannot form part of a body of knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court. He is a qualified Motor Mechanic and has practical experience that might qualify him as an expert in other circumstances. In view of the conclusion I have reached in the following paragraph, I do not propose to come to a conclusion about his expertise.

140. There are other criteria that must be considered in addition to a person's expert knowledge. Among them is that the witness understand the boundaries of the evidence that an expert witness may give. An expert is called on the basis of that witness's special knowledge or skill and not simply as a witness who can attest to the facts in issue. He or she may not generally give evidence as to the ultimate issue that a court must decide^[175] The prohibition is not absolute: Murphy v R (1989) 167 CLR 94 at 110 per Mason CJ and Toohey J and at 127 per Deane J and should state the assumptions of fact that underpin the opinion given to the court.^[176] R v J (1994) 75 A Crim R 522 (Vic CCA) at 531 per Brooking J and Trade Practices Commission v Arnotts (No 5) (1990) 21 FCR 324 ; 92 ALR 527 at 330; 353 per Beaumont J Parties themselves have been permitted to give expert evidence but only if their evidence meets the standards expected of independent expert witnesses.^[177] Shell Pensions Trust Ltd v Pell Rrischmann & Partners [1986] 2 All ER 911 (QBD)

141. Considering Mr Bedros and his evidence in that light, I note that he is not independent in that Mr Francois Baini is a customer and a friend. That would not necessarily be conclusive of the matter. What is conclusive and leads me to find that his evidence cannot be regarded as expert evidence is that he does not set out the factual basis for his opinions. He does not demonstrate how he reaches his opinions and has not referred to any literature in support of his conclusions. Instead, his opinions are based on his discussions with customers and a friend. There is no opportunity for Mr Linden or for me to find those opinions, analyse and test them.

Mr Israil's evidence: the submissions and consideration

142. For the same reasons, I do not accept the evidence of Mr Israil as that of an expert.

Evidence of Mr Tyrrell: the submissions and consideration

143. Mr Linden submitted that Mr Tyrrell's evidence should not be regarded as that of an expert. He points to Mr Tyrrell's not having set out the basis for his opinion that the records maintained by Mr Baini are detailed and orderly. I agree that Mr Tyrrell does not. On the basis of his evidence, I am satisfied that Mr Tyrrell prepared Mr Baini's taxation returns for the income years 2010 and 2011. It may be that he is correct in his assessment of the record-keeping in those years but they are not the income years in issue in this case. He acknowledged that he has not seen records of cash amounts for those income years and does not know if Mr Baini kept records of distances travelled by his vehicles in each shift. Taxation Ruling TR96/11 relating to the taxi industry had not been drawn to his attention and nor had the requirements of the Victorian legislation regarding an operator's obligations to keep records.

144. Mr Tyrrell, I find, was asked to give evidence in circumstances in which he either did not have, or had only limited access to, records of the sort that Mr Baini was required to keep under Victorian law and that he was required to keep under taxation law. He put into order what he was given and did so as best he could. This, though, does not qualify his evidence as that of an expert in the circumstances of this case.

THE RECORDS

The five star rating

145. Mr Isaiah pointed to the five star rating given to Mr Baini's records by the ATO on 11 June 2009.^[178] T documents, T22-75 The categories of Sales Records, Purchase/Expense Records, Capital Assets, Assets-Leased or on Hire Purchase and Year End Records were each given five stars. The report then said that Sales Records and Purchase/Expense Records needed to be addressed in order to achieve a higher rating and advises that receipts be issued for all sales and advises that a petty cash system is useful to keep track of minor cash purchases. Whether it was an assessment by the ATO or by Mr Baini using a tool provided by the ATO is not clear. It is possibly the latter because the assessment is followed by a Disclaimer. Included in that Disclaimer is the statement that:

"Whilst every effort has been made to ensure the accuracy of this product, including consultation with small businesses and tax professionals, the Tax Office does not accept any liability for, or arising as a result of, the use of this tool."^[179] T documents, T22-76

146. The record keeping evaluation dated 4 February 2008 has been carried out by the ATO as appears on the face of the document.^[180] T documents, T22-74 The ATO concluded that:

"We have completed the evaluation of your business records and record keeping practices for the periods 1 July 2005 to 30 June 2006 and we consider them to be of the standard listed in the enclosed Record keeping assessment. …

This evaluation is limited to only the business records and practices examined.

We do not propose to take any further action in relation to the record keeping evaluation unless errors or omissions are discovered during the course of the audit.

You need to keep your business records for 5 years, including all records examined as part of this evaluation."^[181] T documents, T22-74

This was an evaluation within the period under consideration but it is clearly an evaluation only and not an audit. It was not an evaluation that what was recorded was accurate.

The obligations to maintain records

147. Even if I were incorrect in my understanding of the evaluation, I would not prefer its statement to the evidence that I have in this case. Whether the obligation is found in the TA Act in relation to GST, in ITAA36 in relation to income tax or in the various Victorian Regulations to which I have referred in relation to a taxi operator, it is expressed in terms of "keep". The taxpayer or the operator must "keep" the records prescribed. When used in that sense, the word "keep" is used in the sense of "… to have; to possess. 2 to continue to have something; not to part with it; to save. 3 to maintain or retain. … 12 to maintain (a record, diary, accounts etc) …"^[182] Chambers It is in the sense of "maintain" that Riley J interpreted the word "keep" in the Bankruptcy Act 1966^[183] Re Aarons; Ex parte The Bankrupt (1978) 19 ALR 633 at 635-636 but that was in the context of an obligation to "keep and preserve" proper books under s 150(6)(e) of that legislation.^[184] At the time, that provision required a bankrupt to “… to keep and preserve such books, account or records as sufficiently disclose his business transactions and financial position within the period of five years immediately preceding the date on which he became bankrupt .”

148. In
Valoutin v Furst,^[185] (1998) 154 ALR 119 Finkelstein J considered the meaning of the word "kept", without the additional qualifier of "preserved". He did so in the context of s 1305(1) of the then Corporations Law, which provided that a book "kept" by a body corporate under the requirements of that legislation or under a corresponding provision of a preceding law was admissible in evidence and was prima facie evidence of what was recorded in the book. His Honour surveyed the previous law and concluded that, in the context of the Corporations Law, the word should be given its ordinary meanings of "to maintain" and "to retain".^[186] (1998) 154 ALR 119 at 128-129

149. It seems to me that I should adopt a similar interpretation in relation to the meaning of a taxpayer's obligation in s 382-5(1) of the TA Act and s 262A(1) of ITAA36. In the case of the former, the obligation specifically relates back to the basis on which GST is imposed and on which input tax credits may be claimed. Retention of the records, as well as their being maintained in the first place, is consistent with the ongoing process of imposition and crediting that may occur under the GST Act. That this is the correct interpretation is underlined by s 382-5(2), which provides that the records must be maintained for at least five years after the completion of the transactions to which they relate.

150. Similar reasoning leads to the same conclusion in relation to s 262A(1) of ITAA36. With the exception of particular instances such as deductions of income tax under the PAYE system of wage and salary earners, income tax is not calculated and deducted at the point at which income is received in the hands of a taxpayer. Even for wage and salary earners, an assessment is made at the end of the year of income. Given the obligation to "… keep records that record and explain all transactions and other acts engaged in by the person that are relevant for any purpose of this Act", it necessarily follows that records must be kept in the sense of maintained and retained. The length of time is not determined by the length of the year of income for audits may be conducted and assessments amended after that time.

151. Section 262A(1) relates to taxpayers carrying on a business. There is no question that Mr Bain is doing that. Section 262A(2) specifies records that must be kept under s 262A(1) but it is not an exhaustive definition. It is expressed in terms of "include". This is an instance in which the word "include" is clearly being used in its ordinary meaning of "… to take in or consider something … along with other things …, as part of a group …".^[187] Chambers See also the general discussion in Statutory Interpretation in Australia , DC Pearce and RS Geddes, 7th edition, LexisNexis Butterworths, 2011, Australia at [6.61]-[6.64] In other words, s 262A(2) is not an exhaustive definition of the documents that must be kept. For all that, the provision describes documents of a broad compass. Identification of the documents that would satisfy the obligation could only be determined after having regard to the nature of the business carried on by the taxpayer. That will give context to the transactions and context to the income that is derived and the expenditure incurred. It will give context to the particular records that might be required to record and explain transactions and acts relevant under ITAA36.

Has Mr Baini complied with his obligations to keep records?

A. Mileage

152. I have already referred to Mr Baini's obligations to maintain records under Victorian legislation.^[188] See [147]-[151] above They included obligations to keep books and records about the revenue earned, the kilometres travelled and the costs of operating and maintaining the taxi. Details of that sort were not required on a shift by shift basis until 31 December 2007. On that day, the TTC 2007 Regulations required details such as revenue earned, kilometres travelled and kilometres travelled when hired to be recorded on a shift by shift basis. That was the law for the last three months of the period with which I am concerned. In relation to the earlier years of income, no particular period was specified by TTC 1994 Regulations and TTC 2005 Regulations in relation to keeping those records. Accreditation could be up to five years. It seems to me, though, that the obligation imposed on an operator by r 10(4) of the TTC 2005 Regulations to make the books and records available for inspection on demand to a member of the police force or to the licensing authority, when taken with the obligation to record driver details, suggests that the records would need to be kept as a running record and not as a consolidated record at the end of a lengthy period such as a year of income or even at the end of a month. The TTC 2007 Regulations made the period quite clear by specifying that the records were kept for each shift.

153. Even allowing for uncertainty in the recording period, I find that Mr Baini has not kept odometer readings at the beginning and end of each year of income let alone at the beginning and end of any shorter period such as a shift. He has not produced odometer readings that might be expected to have been recorded by the mechanics when his taxis were serviced or repaired. Mr Israil did not refer to any records and he serviced them from time to time when they required major repairs. At best, he estimated that the Ford AU11 had travelled more than 500,000 kilometres by the 2005 year of income. Mr Francois Baini, who had assumed responsibility for ensuring that the vehicles were serviced and serviced most of them himself, had no records to produce to show their odometer readings. Mr Baini, Mr Francois Baini and Mr Maroun Baini each gave estimates of the vehicles travelling 140,000 kilometres. Each set out the same table in his statement setting out what the odometer of each vehicle would have read had that been the case. Each is seeks to draw support from the other but, at the end of it all, the evidence can go no higher than that it is Mr Francois Baini's memory of what would have happened. His memory and that of his brothers does not equate with their keeping records of the mileage travelled in any sense. There are no broad figures at the beginning and end of years of income and not even records from service to service.

B. Records linking shifts, fuel usage and income

154. I have read the invoices given to drivers and the fuel purchase records as gathered together in the table at T41. I have given only two examples of circumstances in which there are no invoices recorded as relating to a shift for the taxi using licence 6774 but there have been fuel purchases. There are a number of other examples. The explanation can only be one of two things. Either the shift was worked and no invoice kept, whether in the sense of maintained or retained, of the money paid to the driver or the vehicle was used for purposes other than a shift but fuel was purchased as if it were a business-related expense. Whichever explanation is correct, it leads me to the view that the records are not accurately kept. The invoices cannot be relied upon to reflect the income distributed to the drivers engaged by Mr Baini.

155. I have the fuel recorded by Black Cabs as the fuel purchased for each of the vehicles. Mr Baini has not challenged its records and I find that I can rely on them. Given his lack of recordkeeping of the mileage travelled by his taxis, I find that I have no records of mileage on which I can rely.

156. As to the income received by Mr Baini from his taxi business, I have the invoices he gave his drivers recording amounts of income and GST. In view of the discrepancies between the invoices and the fuel records, I am of the view that the records would need corroboration before I could rely on them to make findings of income received from, and paid to, the drivers. Corroboration, I find, does not come from the evidence I have been given. The evidence of Mr Baini and his brothers is not consistent as to the source of the cash paid to the drivers. Given their evidence that no more than half of the takings were received in cash and generally much less, the source of the cash is left open to speculation. For the 2006 income year, Mr Francois Baini has pointed to cheques written to cash from Mr Baini's National Bank account but I have no basis on which to find that those amounts were paid to the drivers. Cash could have been used to pay for fuel. There would have to be other expenses associated with the business however frugally the brothers ran it. Even though Mr Francois Baini insisted that his brother lived on nothing once he was diagnosed with lymphoma, he had to live on something even if he lived ever so frugally. He has had interests in property investments in this period. That is another possible destination for the funds. I cannot make a finding how Mr Baini spent the cash but, equally, I am not satisfied that the cash amounts withdrawn from the National Bank were necessarily used to pay drivers.

The benchmarks and Mr Baini's calculation of mileage and fuel usage

157. I have no reason to doubt that the brothers come from a good family holding strong Christian values who believe stealing and making false accusation is wrong. That is part of the evidentiary background that I have but merits review requires the Tribunal to engage in a deliberative, rather than an intuitive, process of reasoning having regard to the evidentiary material.

158. I can understand that the brothers regard their business and the money of each as available to the others. That is commendable in terms of providing family and social support for each of them but it is not an approach consistent with Australia's taxation laws. Liability to pay tax falls on the taxpayer and the burden of proving that the assessment is excessive falls on that taxpayer; not on his or her family. The taxpayer has to be able to point to material that satisfies that burden whether the material is lodged by the Commissioner or by the taxpayer. It is important to remember that the Commissioner has obligations to lodge material under s 37 of the AAT Act and as a model litigant but that he does not carry a burden of proof. Therefore, contrary to what seemed to be an underlying premis of Mr Isaiah's submissions, the Commissioner was not under a duty to test Mr Baini's vehicles even if it were a practical option given that some years have passed and the vehicles would not be in the same condition as they were.

159. Mr Baini has sought to challenge the fuel usage based on his assumption that his vehicles are different from those on which the benchmark figures have been calculated. I do not accept that submission. As I have already found, the ATO's benchmark figures have been assessed and fixed on the basis of a sample size in the range of 5 to 7% of the national taxi population, I am satisfied that the vehicles will reflect the cross-section of vehicle ages in that population. I am also satisfied that the figures set out in those benchmarks have been calculated from information provided by the drivers and operators included in that sample as well as information obtained from various fare reviews conducted in each State and two mainland Territories. Given the State and Territory regulation of the age of taxis on the road, I find that the vehicles in the sample could be no older than six or six and a half years. Therefore, the sample would include vehicles of that age, new vehicles and vehicles of all ages in between. In particular, it will include vehicles similar in age to those used by Mr Baini. If, as I find, an average taxi travels 140,000 kilometres each year on average, the sample will include vehicles that have travelled in the order of some 840,000 kilometres.

160. Given the fact that the benchmarks were drawn from a sample of operators engaged in the industry, I am satisfied that the sample will include drivers of varying abilities and driving skills. It will include drivers of the skills of those used by Mr Baini. Even if I were to accept Mr Isaiah's submission that I could take judicial notice of the fact that some taxi drivers are commonly known to be aggressive in traffic, it would make no difference to my consideration of the benchmarks.^[189] Mr Isaiah relied on Hamilton v Nuroof (WA) Pty Ltd (1956) 96 CLR 18 and Australian Oil Refinery Pty Ltd v Bourne (1980) 28 ALR 529 Given the basis on which the benchmark was developed, it is to be expected that such drivers would be represented. What was important for Mr Baini to establish was not what drivers might commonly do in traffic but what his drivers did and what fuel efficiency was achieved as a result.

161. When Mr Isaiah asks me to accept that Mr Baini's vehicles were badly tuned and aged and his drivers inexperienced. He asks me to find on that basis that their fuel efficiency was poor. He relies on the evidence of Mr Israil, Mr Bedros and Mr Francois Baini. Without records of servicing and of odometer readings, that becomes essentially anecdotal evidence. In so far as Mr Bedros addresses the fuel efficiency tests conducted on the vehicles and states that they were not conducted under real road conditions, I prefer the evidence of Professor Watson. I have given reasons above for doing so at [133]-[138] above.

162. On the evidence that I have been given, I am not satisfied that there is a distinction to be drawn between the condition of Mr Baini's vehicles and his drivers from vehicles of the sort and drivers with the experience who would have been among the cross-section of vehicles on which the benchmark figures were prepared. He has not given me records that would enable me to calculate mileage and compare that mileage with fuel purchases and the income recorded on the invoices given to his drivers. He has given me no basis on which I can trace the cash money used to pay his drivers to its source.

163. At the same time, he puts an argument that accepts the Commissioner's Taxi CPK Rate of $1.06 for the 2006 income year and multiplies that by 140,000 as the average kilometres he asks me to assume that his vehicles travelled. That works out to an annual income of $142,734 for the 2006 income year. It compares favourably with the estimated income for a taxi operating in the outer suburban area of Melbourne in the 2007 income year but it is no more than a hypothesis. It is not established by records of mileage that Mr Baini has maintained. In the absence of odometer readings that I can compare with fuel purchases, I am not satisfied that the fuel efficiency of his vehicles was compromised by their condition or their drivers.

164. As to Mr Baini's income, I do not accept that his records are an accurate record of his income. I have set out examples of the discrepancies above.^[190] See [154]-[156] above Mr Linden submitted that an analysis of Mr Baini's reported cash and non-cash receipts from his business shows that the proportion of cash to non-cash receipts is significantly lower than is reported as the industry average. The Commissioner's assessment, based on the CPK rate relevant to each year of income, leads to a figure that is closer to the industry average of cash to non-cash receipts. While I agree that it does, I have not relied on this analysis to support my findings. Had Mr Baini had the evidentiary material to support his claims, it would not have mattered that the proportion of his cash to non-cash receipts differed from the industry average. In that regard, the exercise is like that of the industry benchmarks relied on by the Commissioner. Evidentiary material establishing a contrary position will be preferred to a benchmark. As it is, I am not satisfied that Mr Baini has discharged his burden of proving that the Commissioner's assessments of income tax and GST are excessive.

PENALTIES

Legislative framework

165. A taxpayer is liable to an administrative penalty if one of the four circumstances set out in s 284-75 of the TA Act applies. Only that in s 284-75(1) is relevant in this case. It applies if a taxpayer or a taxpayer's:

• "(a) … agent makes a statement to the Commissioner …; and
• (b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and
• (c) you have a shortfall amount as a result of the statement."^[191] TA Act, Schedule 1, s 284-75(1)

166. In the context of this case, a taxpayer has "a shortfall amount if an item in this table applies to …[that taxpayer]. That amount is the amount by which the relevant liability … is less than or more than it would otherwise have been."^[192] TA Act, s 284-80(1) Only item 1 of the table set out in the section is relevant to Mr Baini's circumstances. It provides that a taxpayer has a shortfall amount if "A tax-related liability of yours for an accounting period … worked out on the basis of the statement is less than it would be if the statement were not false or misleading."

167. Section 284-85 specifies the way to work out the amount of the penalty. It requires the base penalty to be worked out first and then that figure either to be increased under s 284-220 or reduced under s 284-225 of TA97. The base penalty amount is worked out by determining the item applicable to the taxpayer's circumstances. In this case, the Commissioner has relied on Item 3 of s 284-90(1), which provides that the base penalty amount is 25% of the shortfall amount when:

"Your shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a taxation law."

Under s 298-20(1), the Commissioner may remit all or part of a penalty.

Consideration

168. In view of the findings I have made above, I am satisfied that the statements and claims made by Mr Baini in lodging his income tax returns and his BAS Statements led to his being assessed as having a liability to income tax and a liability to GST less than it would otherwise have been. That means that they were false or misleading in a material particular. Therefore, he is liable to the imposition of an administrative penalty under s 284-75(1).

169. In the absence of records of odometer readings, Mr Baini has failed to comply with his obligations under Victorian law to keep a record of the kilometres travelled. The disparity in his records between fuel purchases and shifts also leads to the conclusion that he has failed, at least to some extent, to keep a record of the costs incurred in operating and maintaining the vehicles for the fuel costs cannot be matched to a shift when a vehicle was used as a taxi. These failures relate to all of the income years and it makes no difference that there were changes to the regulatory requirements from 31 December 2007.

170. Breach of the Victorian regulatory requirements is not in itself relevant to the imposition of a penalty. What is relevant is Mr Baini's failure to maintain records as required of him by ITAA36 and the TA Act. I have already made that finding. Taken with the breach of the Victorian regulatory requirements, I am satisfied that his failure to maintain records is systemic and not an isolated failure. It is a failure that has come about through a failure to take reasonable care and imposition of a tax shortfall penalty of 25% is appropriate.

171. I am not satisfied that the penalty should be remitted in whole or in part. Given the Victorian regulatory scheme, this is not a situation in which Mr Baini could be thought to have inadvertently failed to keep adequate records to reflect his income and deductions. Furthermore, the Commissioner's ruling, TR96/11, quite clearly puts every operator in the taxi industry on notice of the need to maintain adequate records to reflect that operator's claims and declarations under taxation legislation.

DECISION

172. For the reasons I have given, I affirm the Commissioner's:

• (1) GST assessments made on 21 October 2008 for the quarterly periods ending 30 September 2004 to 31 March 2008;
• (2) income tax amended assessments for the years ending 30 June 2004, 2005, 2006 and 2007 made on 21 November 2008;
• (3) assessment of administrative penalties ($9,564.50 reduced to $4,782.25) for GST shortfalls ($19,129.00) made on 21 October 2008; and
• (4) assessment of administrative penalties ($19,741.55 reduced to $9,870.70) for income tax shortfalls ($39,483.22) made on 21 November 2008.