Case L57

Judges: HP Stevens Ch
CF Fairleigh QC

JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 26 September 1979.

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J.R. Harrowell (Member): I accept the facts as set out by the Chairman, Mr. H.P. Stevens, and agree with the conclusions reached by my two colleagues, and I agree that the Board has no power (jurisdiction) in the present case to consider a claim under sec. 105AA. In para. 2 to 9 hereof inclusive I am confining my consideration to the quantum of penalty.

2. It was not disputed that the complicated transactions in which the taxpayer became involved were part of an intricate plan to avoid tax. This was frankly admitted by the two witnesses who represented the taxpayer. Unfortunately they did not maintain that standard of frankness when giving evidence.

3. As will be seen from the detailed resume of the facts what initially was held out to be a simple sale of undeveloped land for $50,000 became a sale of developed land with international complications. What was to be a simple sale began with the grant of an option to a Vila company for $500 to purchase the subject land for $50,000. The Vila company assigned its right to a second Vila company for some $1,000 who almost immediately reassigned it to a third Vila company for $200,000. The shareholder of the second Vila company was a trustee

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ATC 458

company administering trusts relating to persons and their families associated with the joint venture which owned the land through nominees. The foregoing information was given to us by way of an opening address by counsel for the taxpayer. No evidence was tendered to substantiate the part allegedly played by the second company.

4. The third Vila company finally purchased the subject land for $50,000 from the joint venture.

5. Notwithstanding the question mark arising through lack of evidence the keystone of this plan centred on the second Vila company which was allowed to make a profit of some $199,000. Despite the absence of evidence in this area I have no reason to believe that such company as described by counsel for the taxpayer and referred to by a witness did not exist.

6. The net result of the transactions was that two returns were lodged in Australia for the year ended 30 June 1972 in connexion with this land. The joint venture lodged a return bringing in the sale figure of $50,000 less related costs. The third Vila company, having registered in Australia as a (foreign?) company, lodged a return presumably including income from the sales of lots and the related costs. No figures or returns relating to that company were tendered. However, it appeared from the evidence that if one combined the income and expenditure relating to the development and sale of the subject land as contained in these two Australian returns for that year the net result would be short by the sum of about $200,000 being the income (diverted?) to the second Vila company.

7. It is no part of my duty to make moral judgments on what may be euphemistically termed ``legal tax avoidance schemes''. In their purest form they rely on loopholes in the law not on non-disclosure. Non-disclosure strips such a scheme of its legal pretensions (compare Murphy J. in
Macmine Pty. Ltd. v. F.C. of T. 79 ATC 4133 ).

8. In this reference the Australian returns lodged in respect of the year ended 30 June 1972 by the joint venture, the partnership of companies and the taxpayer contain nothing to indicate the existence of a scheme and certainly not the existence of the three Vila companies and the part they were supposed to have played. These returns gave no opportunity for the Commissioner to assess the validity of the scheme adopted by the taxpayer and those associated with it. No later evidence was before the Board to cause me to hold another view.

9. For these reasons I would uphold the Commissioner's decision to impose additional tax pursuant to sec. 226.

10. I would uphold the Commissioner's decision on the objection to the amended assessment of primary tax and also his decision on the objection to the assessment of Div. 7 tax, and in each instance I would confirm those assessments.

Claim disallowed