In a decision handed down on Tue 17.7.2012, the Federal Court allowed the Commissioner’s appeal and held that the taxpayer had not in fact discharged the onus of proving that amounts of over $4.75m deposited in its bank account from an overseas bank was not income.
At first instance, in AAT Case [2011] AATA 628, Re Areffco and FCT (see 2011 LTN 196 [9]), the AAT found that the amounts were legitimate loans and that the payments made back to the bank in respect of them were legitimate interest deductions. It did so essentially on the basis of finding that there was sound evidentiary basis for concluding that the receipts were loans given, among other things, that they were from a reputable overseas bank and that the outgoings were real interest obligations in respect of those loans.
However, on appeal, the Federal Court found that the AAT had erred in finding that the taxpayer had discharged the onus of proof on this. In particular, it found that the existence of a loan is primarily proved by an obligation of repayment under the terms of a contract under which money is transferred from one party to another, and that in this case there was no evidence before the AAT of any such contract nor, of any obligation on the part of the taxpayer to repay the amounts it received. The Court also found that there was evidence that the payments represented only some form of transfer of funds, rather than the making of loans given that, among other things, there was no evidence of any security for the alleged “loans” and that the taxpayer had no assets in Australia nor any apparent capacity to repay the alleged loans.
(FCT v Rawson Finances Pty Ltd [2012] FCA 753, Federal Court, Edmonds J, 17 July 2012.)
[LTN 136, 17/7]