On 9 July 2021, the Federal Court has held that, although the AAT misapplied the principles relating to the onus of proof, placed on the taxpayers, there was a real and substantial risk that the AAT’s ability to assess the issues was impaired. The Court therefore remitted the matter for a re-hearing. The decision has 9 ‘Catchword’ headings and comprises 351 paragraphs, covering significant appeal issues.
See below for further details.
The facts –
- The taxpayers were a married couple, Mr and Mrs R.
- In late 2015, following an audit of their affairs using an “assets betterment” analysis, the ATO issued amended or default assessments to both Mr R (covering 5 income years) and Mrs R (covering 2 income years).
- The AAT took over 2 years to hand down its decision, but it was largely in the ATO’s favour.
- However, the AAT did find that certain amounts, including gambling winnings, cash gifts and a loan, were not assessable to Mr R and that the value of a Mercedes car that was assessable to Mrs R was $32,500 and not $171,500.
- The AAT also decided that some of the administrative penalties should be remitted.
On appeal, the Federal Court held that
- the AAT had erred by misapplying the principles relating to the onus of proof and how it dealt with the remission of the administrative penalties.
- However, the Court also concluded that because of the delay of just over 2 there was “a real and substantial risk that its ability to assess the issues in the applications to it was impaired”.
- In effect, therefore, both the ATO and the taxpayers won.
The Court ordered that the case be remitted to the AAT for re-hearing, but without hearing further evidence.
(CofT v Ross  FCA 766, Federal Court, Derrington J, 9 July 2021.)
[LTN 121, 12/7/21]
- TAXATION – onus of proof – appeal from decisions of Administrative Appeals Tribunal setting aside objection decisions relating to assessments – default assessments pursuant to s 167 of Income Tax Assessment Act 1936 (Cth) – whether Tribunal failed to apply correct onus pursuant to s 14ZZK of Taxation Administration Act 1953 (Cth) – whether taxpayers could satisfy onus by establishing errors in asset betterment methodology adopted by Commissioner – whether taxpayers could satisfy onus by establishing amounts included in asset betterment statement were not assessable income – whether taxpayers could satisfy onus by otherwise conceding unexplained amounts represented assessable income – whether Commissioner had agreed to confine issues in dispute before Tribunal – effect of concessions by Commissioner to Tribunal that amounts included in asset betterment statements were not unexplained wealth or were overstated – whether properly instructed Tribunal could have been satisfied that taxpayers had established true taxable income on evidence adduced below – where taxpayers adduced document as aide-memoire purporting to summarise evidence – whether document could explain unexplained wealth – whether document could establish taxpayers’ true taxable income – appeal allowed
- TAXATION – standard of proof – where Tribunal remitted objection decisions to Commissioner for reconsideration with direction to take account of “possibility” of double counting in asset betterment statements – whether Tribunal failed to apply correct standard of proof – appeal allowed
- TAXATION – grounds of objection – whether Tribunal considered matters not raised in taxpayer’s grounds of objection – whether Tribunal impliedly granted leave to amend grounds – whether Commissioner joined issue on new matters in submissions – appeal allowed in part
- TAXATION – administrative penalties – where taxpayer assessed for penalties for multiple income years – whether Tribunal erred in purporting to exercise discretion to set aside penalty uplift imposed by s 284-220(1)(c) of Sch 1 to Taxation Administration Act 1953 (Cth) – whether imposition of uplift depended on base penalty amount being worked out under relevant items in s 284-90(1) before conduct giving rise to further penalty – appeal allowed
- TAXATION – remission of penalties – scope of considerations relevant to discretion to remit – whether scope of relevant considerations temporally limited – whether Tribunal erred in taking into account death of taxpayer after hearing concluded in remitting penalties imposed on him and his spouse – appeal allowed
- ADMINISTRATIVE LAW – procedural fairness – whether Tribunal denied Commissioner procedural fairness by considering a matter arising after hearing concluded – whether Tribunal failed to provide opportunity to make submissions on new matter – appeal allowed
- ADMINISTRATIVE LAW – whether Tribunal denied taxpayers procedural fairness – where significant delay between hearing of evidence and delivery of decisions and reasons – whether delay gives rise to real and substantial risk that Tribunal’s capacity to assess matters was impaired – where Tribunal’s decisions failed to reflect its reasons in several respects – where Tribunal improperly used document tendered as aide-memoire as evidence – where reasons failed to specifically address matters raised before Tribunal – cross-appeal allowed
- ADMINISTRATIVE LAW – appropriate order on setting aside decisions of Tribunal – where no properly instructed Tribunal could be satisfied as to requisite onus by evidence adduced by taxpayers – whether s 44 of Administrative Appeals Tribunal Act 1975 (Cth) permits order substituting only decision available on evidence before Tribunal – where only decision available on evidence was different to decision made by Tribunal – order remitting matters to Tribunal for re-hearing
- ADMINISTRATIVE LAW – appropriate order on remission of matters to Tribunal for re-hearing – whether matters should be re-heard on same or further evidence – where taxpayers did not indicate nature or extent of further evidence to be adduced before Tribunal – where any further evidence could have been obtained for earlier hearing of evidence – significance of delay since earlier hearing – where taxpayers contended on appeal that evidence adduced below was adequate to satisfy onus – order that matters be re-heard without hearing further evidence.