Decision impact statement

Rawson Finances Pty Ltd v Commissioner of Taxation

Venue: Federal Court of Australia
Venue Reference No: NSD 1067 of 2012
Judge Name: Jessup, Jagot, Nicholas JJ
Judgment date: 5 March 2013
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• Not applicable

Subject References:
Offshore loans
Burden of proof
Error of law
Procedural fairness

Précis

Outlines the ATO response to a decision of the Full Federal Court, about whether the AAT erred in law in deciding that the taxpayer sufficiently discharged its onus of proof to establish that the relevant transactions were pursuant to a loan arrangement.

Brief summary of facts

During the 1997 and 1998 income years, the taxpayer received a total of $4.75 million from Mercantile Discount Bank of Israeli (Bank).

From 1997 until 2008, the taxpayer made sporadic payments to the Bank and claimed interest deductions. The documentation in support of the purported loans was limited. There were no loan documents, no security, no guarantee, and no consistent stream of payment amounts. The payments that were made were inconsistent with the alleged rate of interest.

The taxpayer's evidence consisted of some correspondence between the Bank and the taxpayer during the course of the purported loan. The taxpayer had several witnesses, two of which, a former employee of the Bank and an expert as to Israeli banking law, were unavailable for cross-examination.

The Tribunal found that the funds received by the taxpayer from the Bank were loans and that the payments made were allowable deductions.

The Commissioner appealed to the Federal Court on the basis that the factual findings and inferences made by the Tribunal were not open to it; and that the Commissioner had been denied procedural fairness before the Tribunal, for example by the admission into evidence of statements of witnesses who were unavailable for cross-examination by the Commissioner. The Commissioner also relied on the ground that the Tribunal had erroneously reversed the taxpayer's onus of proof under subparagraph 14ZZK (b)(i) of the TAA 1953.

In the Federal Court, Edmonds J reversed the Tribunal's decision, allowing the Commissioner's appeal. His Honour's decision was based on a finding that the Tribunal had erred in law in applying subparagraph 14ZZK (b)(i) and that there were fundamental deficiencies in the taxpayer's evidence such that the Tribunal's finding was not open on the evidence.

The taxpayer then appealed to the Full Federal Court.

Issues decided by the court

The taxpayer's grounds of appeal were that:

•

there were fundamental deficiencies in the taxpayer's evidence and the taxpayer had not discharged its onus of proof, in essence because the finding that there was a loan was not open on the facts.

•

the Tribunal erred in law in applying subparagraph 14ZZK (b)(i) of the TAA 1953, with the effect that the onus provisions had been reversed.

The Commissioner filed a Notice of Contention that the Commissioner was denied procedural fairness; characteristics of the alleged loan were ignored; the finding that the loan was genuine was so unreasonable that no reasonable decision-maker would have made it; material facts in relation to the interest payments were ignored; the process of reasoning was so illogical and irrational that it was an error of law.

Jagot J, with whom Nicholas J agreed, and Jessup J allowed the taxpayer's appeal. The plurality agreed there was no procedural fairness.

ATO view of Decision

There are no significant implications from the decision on other cases as the decision turned on its particular facts in relation to the characteristics of the loan.

Administrative Treatment

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

Not applicable.

Implications on Law Administration Practice Statements

Not applicable.

Court citation:
[2013] FCAFC 26
2013 ATC 20-374
(2013) 296 ALR 307
(2013) 93 ATR 775

Legislative References:
Taxation Administration Act 1953 (Cth)
s 14ZZK

Administrative Appeals Tribunal Act 1975 (Cth)
s 33
s 44

Case References:
Areffco v Commissioner of Taxation
[2011] AATA 932
56 AAR 263
125 ALD 340

Australian Broadcasting Tribunal v Bond
[1990] HCA 33
170 CLR 321
64 ALJR 462
21 ALD 1
94 ALR 11

Bailey v Commissioner of Taxation
[1997] HCA 11
136 CLR 214
51 ALJR 429
7 ATR 251
13 ALR 41
77 ATC 4096

Parramatta City Council v Pestell
[1972] HCA 59
128 CLR 305
46 ALJR 662
27 LGRA 72
[1972-73] ALR 811

Seltsam Pty Ltd v McGuiness
[2000] NSWCA 29
49 NSWLR 262
[2000] Aust Torts Reports 63,565 (81-547)
19 NSWCCR 385

Re Sharkey v Commissioner of Taxation
[2007] AATA 1435
66 ATR 878
95 ALD 509
2007 ATC 2218
[2008] ALMD 441

Tisdall v Webber
193 FCR 260
[2011] FCAFC 76
122 ALD 49
[2011] ALMD 5260