In 4 matters before the Full Federal Court involving amended assessments being issued to taxpayers “out of time” on the basis of “fraud or evasion”, the Court has unanimously confirmed that in the same way the onus of proof is on a taxpayer to show that an assessment is excessive, the onus of proof is also on the taxpayer to show that there is no fraud or evasion, and that it is not for the AAT to form its opinion on the matter.

At the same time, the Full Court unanimously held that the Commissioner is entitled to issue assessments to the estate of a deceased taxpayer in respect of income earned before their death but not assessed to them during their lifetime. In any event, the Full Court also found that the procedures contained in s 260-145 of Sch 1 to the TAA, for the recovery of tax from “unadministered estates” (as in this case) had been complied with by the Commissioner and that, therefore, it was not strictly necessary to consider the issue in relation to the matter before the Court.

In relation to another matter before the Court where the taxpayer’s records had been seized as part of the investigation into her tax affairs, the majority of the Court ruled that she had not been denied procedural justice in not having access to all these records for the purpose of discharging her onus of proof in her application before the AAT essentially because her affidavit evidence did not involve the relevant documents in question. At the same, the Court unanimously held that the AAT had not improperly applied the “criminal standard of proof” in the matter.

(Binetter v FCT; FCT v Tao Bai [2016] FCAFC 163, Full Federal Court, Siopis, Perram and Davies JJ, 2 December 2016.)

[LTN 237, 7/12/16]

260-145 Unadministered estate

(1) This section applies if neither of the following is granted within 6 months after a person’s death:

(a) probate of the person’s will;

(b) letters of administration of the person’s estate.

(2) The Commissioner may determine the total amount of *outstanding tax-related liabilities that the person had at the time of death.

(3) The Commissioner must publish notice of the determination twice in a daily newspaper circulating in the State or Territory in which the person resided at the time of death.

(4) A notice of the determination is conclusive evidence of the *outstanding tax-related liabilities, unless the determination is amended.

(5) A person who is dissatisfied with the determination may object in the manner set out in Part IVC if the person:

(a) claims an interest in the estate; or

(b) is granted probate of the deceased person’s will or letters of administration of the estate.

(6) Part IVC applies in relation to the objection as if the person making it were the deceased person.

Extract from Full Court’s reasons

  1. Mrs Binetter’s argument that the Tribunal erred by affirming the amended assessments without itself forming the opinion that there was fraud or evasion in relation to each relevant year relied on two propositions.
  2. The first proposition was that as the relevant jurisdictional fact under s 170 of the ITAA 1936 to enliven the amendment power was the formation by the Commissioner of the opinion that there was fraud or evasion, the onus imposed on Mrs Binetter by s14ZZK of the TA Act required her only to prove that the Commissioner had not formed the requisite opinion.
  3. The second proposition was that the s14ZZK onus to prove the absence of the fact of an opinion formed by the Commissioner ‘has nothing to do with a full merits review of the opinion of the existence of the fact’ (paragraph 30 of Mrs Binetter’s submissions). Mrs Binetter argued that the Tribunal, on review, ‘standing in the shoes of the Commissioner’, must itself form the opinion there was fraud or evasion to enliven the amendment power and that that opinion becomes, by operation of s 43(6) of the AAT Act and s169A(3) of the ITAA 1936, the authority under s170 of the ITAA 1936 for making the amended assessment. If the Tribunal did not form an opinion (or if on appeal the Court holds that the Tribunal did not properly form its opinion), the argument went, then the jurisdictional fact necessary to authorise the amendment of the assessment under s170 ‘has disappeared and not been replaced’ and the amended assessment ‘must be set aside as excessive under s 14ZZK’ (paragraph 39 of Mrs Binetter’s submissions). As in this case the Tribunal did not form its own opinion that there was fraud or evasion and the Tribunal’s own opinion was required as a precondition to the authority to amend, the Tribunal could not lawfully affirm the amended assessments.
  4. The fundamental difficulty with Mrs Binetter’s argument is that it disregards the effect of s14ZZK of the TA Act, which by s14ZZA of the TA Act modifies the powers of the Tribunal in relation to an application for review of a taxation decision.
  5. It is well established that the term ‘excessive’ in s14ZZK and s14ZZO relates to the taxpayer’s substantive liability for the amount of tax assessed, and that to discharge that onus the taxpayer must prove that the assessed amount is greater than the liability of the taxpayer under the relevant tax Act: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614. It is also well established that satisfaction of the requirements of s170(2) of the ITAA 1936 (and its cognate provisions) is a matter going to substantive liability, so that a taxpayer challenging the authority of the Commissioner to make an amended assessment bears the onus of proving that the statutory requirements for the authority to amend the assessment were not satisfied: McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263; Dalco at 622; WR Carpenter Holdings Pty Ltd v FCT [2008] HCA 33; (2008) 237 CLR 198 at [6].
  6. The seminal decision is McAndrew. In McAndrew it was held that s 190(b) (the predecessor provision to ss 144ZZK and 14ZZO) imposed the burden on the taxpayer to show that there had not been an avoidance of tax due to fraud or evasion. McAndrew was followed by the High Court in Dalco. Brennan J at 622 stated that:

McAndrew’s Case … establishes that s.170(2) creates a condition precedent governing the power to make an amended assessment and that the satisfaction of the requirements of s. 170(2) is not merely part of the due making of the assessment which does not affect substantive liability. It was held that s.170(2) creates a condition precedent, the satisfaction of which was not protected from challenge in appeal proceedings by s.177(1). As the amount of the amended assessment would be shown to be excessive if the requirements of s.170(2) were not satisfied, s.190(b) imposed on the taxpayer the burden of showing that the requirements had not been satisfied.

In Dalco the High Court affirmed the dissenting remarks of Mason J in Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89, that there was no onus on the Commissioner to show that the assessments were correctly made, and that unless the taxpayer discharged the onus imposed by s 190(b) the assessment stood. As stated by Brennan J (as his Honour then was) at 624, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed.