The Full Federal Court has dismissed a taxpayer’s appeal, agreeing with the primary judge, that the taxpayer had not discharged the burden of proof that, default assessments, that included $2 million, that was received into a bank account, held in the taxpayer’s name, were excessive.

The Court said the taxpayer submitted that she was able to discharge her statutory burden of proof by relying upon what was described as “facts found by the Commissioner in his objection decision” and that the Commissioner was bound by those facts in proceedings under Part IVC of the TAA. It was submitted on that basis that the facts in the Commissioner’s objection decisions required the primary judge to conclude that funds assessed to her were held on trust for a company as trustee for a Unit Trust and were not assessable as income to her. The Court said the taxpayer did not otherwise establish that the funds held by her were not assessable to her because they were held on trust as said to have been found in the Commissioner’s objection decision.

The Full Federal Court (judgment was given by Pagone J) said the taxpayer’s submissions could not be accepted and proceeded from an erroneous premise. It said the burden imposed upon the taxpayer by s 14ZZO to prove that the assessment was excessive required her to establish the amount upon which tax was to be levied. The statutory amendments relied on by the taxpayer did not affect this requirement of s 14ZZO, the Court said. In the Court’s view, proof of the amount upon which tax was to be levied is not established by showing error by the Commissioner in the evidentiary, factual or legal basis of assessment. “The recital of facts found in an objection decision are not themselves the facts they purport to recite and their recitation does not bind the Commissioner, or the operation of the taxing statute, where a taxpayer is required to discharge the burden imposed by s 14ZZO to prove that an assessment is excessive. That can be done only by establishing the facts upon which the liability depends.”

The Court dismissed the taxpayer’s appeal.

(Zappia v FCT [2017] FCAFC 185, Full Federal Court, Robertson, Pagone and Bromwich JJ, 23 November 2017.)

[LTN 228, 28/11/17; Tax Month Nov 2017]

Extract from judgement

13.   The appellant’s submissions cannot be accepted and proceed from an erroneous premise. The question for a court hearing a tax appeal is whether a taxpayer has satisfied the burden cast by s 14ZZO: Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd [1994] HCA 58; (1994) 181 CLR 466 at 479. The burden imposed upon the appellant by s 14ZZO to prove that the assessment was excessive required her to establish the amount upon which tax was to be levied: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 625, 634; Gashi v Commissioner of Taxation [2013] FCAFC 30; 209 FCR 301 at [66]- [67], Rigoli v Commissioner of Taxation [2014] FCAFC 29; 96 ATR 19 at [26]. The statutory amendments relied on by the appellant do not affect this requirement of s 14ZZO. Proof of the amount upon which tax was to be levied is not established by showing error by the Commissioner in the evidentiary, factual or legal basis of assessment: Dalco, Rigoli. Statements made by the Commissioner in an objection decision do not establish the facts upon which tax was to be levied and do not bind the Commissioner, or the operation of the taxing provisions, except (perhaps) where the parties in proceedings have agreed to the facts for the purposes of the proceedings. The recital of facts found in an objection decision are not themselves the facts they purport to recite and their recitation does not bind the Commissioner, or the operation of the taxing statute, where a taxpayer is required to discharge the burden imposed by s 14ZZO to prove that an assessment is excessive. That can be done only by establishing the facts upon which the liability depends. The reasons in the joint judgment in Australia & New Zealand Savings Bank Ltd at 479 do not stand for a contrary proposition.

About the author