A taxpayer has been partly successful before the AAT in discharging the onus of proving that various amounts deposited into his bank accounts from the 2001 to 2008 income years were not income, but were other amounts, which he could explain. At the same time, he was able to demonstrate there was no fraud or evasion involved in those amounts of income which he failed to declare and that, therefore, earlier assessments had been issued out of time.

The taxpayer was involved with property development or constructions groups in Australia. The tax years in dispute were the 2001 to 2008 years and the amounts in dispute were millions of dollars for which the Commissioner issued assessments to the taxpayer generating a liability of almost $4m (plus $2m in shortfall penalties for recklessness).

After examining the extensive documentary evidence, the AAT accepted the taxpayer’s claim in respect of the following: amounts that represented repayments of money previously advanced by the taxpayer to the companies in the group; amounts representing loans from his brother; transfers of the taxpayer’s own money from one account to another; reimbursed expenses incurred by the taxpayer on behalf of building contractors; and capital proceeds from the sale of a property in Sydney.

At the same time, the AAT found that the shortfall amounts resulted from a failure to take “reasonable care” to comply with the tax law and not “recklessness”, and the penalty amounts should therefore be reduced from 50% to 25%.

(Re Zhang and FCT [2016] AATA 662, AAT, File Nos 2011/2923-2927; 2012/3060-3062, Frost DP, 31 August 2016.)

[LTN 169, 1/9/16]

Extract from AAT decision


  1. The tax years in dispute are the 2001 to 2008 years inclusive. The amounts that the Commissioner says Mr Zhang failed to declare as assessable income are very substantial. In some years they are in the hundreds of thousands of dollars; in others they are in the millions. The total further tax claimed by the Commissioner is almost $4 million. On top of that there is administrative penalty of almost $2 million, imposed at the rate of 50 per cent for recklessness.
  2. Mr Zhang’s objections against the amended assessment for 2001, 2002 and 2005 were allowed in part. In relation to the remaining years, the objections had still not been determined almost two years after they were lodged. Mr Zhang accordingly required the Commissioner, under s 14ZYA(2) of the TAA, to make a decision on each of the objections. The Commissioner’s failure to do so within the 60-day time limit imposed by s 14ZYA(3) resulted in the objections being taken to have been disallowed.
  3. Decisions in relation to administrative penalty followed the primary tax, so that the penalty was reduced in part for the 2001, 2002 and 2005 years but deemed to have been affirmed in respect of the remaining years.


  1. Mr Zhang’s notice of objection against the assessments provides the following reasons for objection:
  2. Each of the assessments are excessive because [the amounts added to the declared taxable income] are not assessable income. In each case they are capital in nature, comprising:

(a) reimbursements of amounts paid on behalf of the builders, developer and sub-contractor.

(b) repayment of loans;

(c) Transfers between my bank accounts, including redraws from my loan account.

(d) Rental income already declared in my Individual Tax Return.

(e) Interest has been declared in my Individual Tax Return.

  1. Further, the assessments for the years of income ended 30 June 2001 to 2006 are excessive because there was no power to issue them, there being no fraud or evasion.
  2. The ‘no fraud or evasion’ ground in item 2 is beside the point in relation to the 2003, 2004 and 2006 income years, for the following reasons:
  • for each of the 2003 and 2004 years the Commissioner issued a ‘no tax payable advice’ on 9 June 2006, and therefore the assessments, notice of which issued on 29 April 2009 (and against which Mr Zhang objected) were not out of time, even in the absence of fraud or evasion – see table item 1 in s 171A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) – unless the 2003 and 2004 returns were lodged before 29 April 2005, and Mr Zhang has failed to satisfy me that that is the case;
  • for the 2006 year a notice of assessment issued on 23 July 2008 and notice of the amended assessment issued on 29 April 2009, well within the 2-year amendment period – see table item 1 in s 170(1) of the ITAA 1936.
  1. In relation to administrative penalty, Mr Zhang argues that there was ‘no tax shortfall upon which a penalty could be imposed’ and that, in any event, he took reasonable care when lodging his tax returns.