Edward J Denley and Gillian H Denley v the Commissioner of Taxation of the Commonwealth of Australia [1986] ACTSC 47 (13 June 1986)

SUPREME COURT OF THE ACT

EDWARD J. DENLEY and GILLIAN H. DENLEY v. THE COMMISSIONER OF TAXATION OF THE
COMMONWEALTH OF AUSTRALIA
S.C. No. 838 of 1984
S.C. No. 839 of 1984
Income Tax Assessment Act 1936

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Kelly J.(1)

CATCHWORDS

Income Tax Assessment Act 1936 - Amended assessments - Objections under s.185 disallowed - Appeals under s.187(1)(b) - Onus of proof - No new question of principle involved.

HEARING

CANBERRA
13:6:1986

ORDER

The appeals be dismissed.

The appellant pay the respondent Commissioner's costs of and incidental to the appeals, those costs to be taxed.

DECISION

These are appeals, heard together by consent, against decisions of the respondent Commissioner disallowing objections by the appellants, husband and wife, against amended assessments of their separate taxable incomes for the financial years ended 30 June 1978, 1979 and 1980.

2. Edward Jeffery Denley, the first appellant, to whom I will refer as Mr Denley, was at all material times a taxi proprietor as was his wife, Gillian Helen Denley, the second appellant to whom I will refer as Mrs Denley. Mr Denley was registered as proprietor of taxi cab plate No. TX-71 while Mrs Denley was registered as proprietor of taxi cab plate No. TX-11.

3. For the years ended 30 June 1978, 1979 and 1980 the Commissioner assessed Mr Denley's taxable income originally at $6,368.00, $4,932.00 and $7,348.00 respectively. He assessed Mrs Denley's taxable income for those three years originally at $2,335.00, $2,061.00 and $2,677.00.

4. By notices of amended assessment issued 13 April 1981 Mr Denley's taxable income was reassessed for the three years ended 30 June 1978, 1979 and 1980 at $8,099.00, $6,803.00 and $9,420.00 respectively.

5. By notices of amended assessment issued also on 13 April 1981 Mrs Denley's taxable income for the same three years was reassessed at $4,031.00, $3,932.00 and $4,749.00 respectively.

6. The adjustment sheet which accompanied each of the six amended assessments stated "Taxable Income increased from (amount originally assessed) to (amount of amended assessment) as a result of audit". A note at the foot of the adjustment sheets which accompanied Mr Denley's amended assessments for the years ended 30 June 1978 and 1979 read:-

"Taxable income for the . . . financial year

has been calculated by discounting the
understatement for the year ended 30 June
1980 by the consumer price index."

7. A note at the foot of the adjustment sheet accompanying Mrs Denley's amended assessment for the year ended 30 June 1980 was as follows:-

"The understatement for the years ending 30th
June 1978 and 1979 has been calculated by
discounting the understatement for the year
ending 30th June 1980 by the consumer price
index."

8. The appellants gave evidence. They maintained that their returns for the several years were correctly and accurately prepared from proper records. Each asserted that any increase in their joint assets came about as a result of gifts received from Mr Denley's late mother who died on 28 October 1985. There was available and tendered as part of the case the appellants sought to make an affidavit by the late Mrs Denley sworn 5 June 1981 and lodged with the several notices of objection.

9. In her affidavit the late Mrs Denley deposed that in 1969 after her husband's death she sold a property at Sutton, New South Wales, for approximately $150,000. The evidence does not establish that the property was part of her late husband's estate though I suspect that to have been the case. She further deposed that following the sale of the property she bought her home for $20,000 and that she gave one half of the balance of the sale after purchase of her home to Mr Denley. According to the terms of her late husband's will, a copy of which became Exhibit B, the balance of his estate after payment of his debts, expenses and estate duty was to be shared equally between his wife and Mr Denley whom he appointed his executrix and executor respectively.

10. The deponent went on to say that, "The balance of the purchase monies after gifting some to my son and purchasing the house in which I live were retained by me at my house." After disclosing that one of her reasons for retaining such a large sum of money at her home was for no honest purpose she said:-

"Since that date I have regularly given gifts
of money to my only child and such gifts have
been from time to time of quite large
amounts.
I have also given gifts of money to my
daughter-in-law Gillian Helen Denley from
time to time and such gifts have been of
quite large amounts.
I estimate that in the earlier years I gave
to my only son and my daughter-in-law $3,000
to $4,000 per annum.
In later years I have given substantially
more than that figure. In particular, in the
1978 financial year I believe that I may have
given my only son and daughter-in-law more
than $6,000. Furthermore, in the 1979 year I
may have given my son and daughter-in-law
more than $8,000.
I do not keep a record of such gifts."

11. Mr Denley gave evidence in chief concerning the receipt of gifts from his mother. He said they were always in cash which was usually in an envelope when his mother gave it to him. No books of account were kept in respect of the gifts, no receipts were given. The money so received was not, in his recollection, banked and was used for expenditure. The gifts to him were always made to him personally.

12. In cross-examination he agreed that in January 1981 he and his wife were interviewed by a Mr Domenici of the Taxation Office. Their accountant was present. He agreed that Mr Domenici asked him a lot of questions but could not recall any questions concerning gifts. He was not aware, in 1981, of the importance of obtaining evidence concerning the gifts.

13. He said that the largest gift he ever received from his mother was $4,200 but he remembered another for $1,700 and yet another for $1,500. He said he received the biggest gifts between 1976 and 1980, smaller gifts in other years. He was unable to give the denominations of the notes which made up the gifts of $4,200 and $1,500. He said that the gift of $4,200 was part of the proceeds of the sale by his mother of a block of land. He would have said that the sum of $4,200 was banked but could not say for sure. He stated that some of the money received as gifts from his mother would have been put into a bank account.

14. He said that all his receipts from the business were in cash except for cheques from the Department of Administrative Services.

15. He also stated that he paid all business outgoings by cheque, never from cash received as earnings from his taxi, and that he never used any of that cash for personal purposes.

16. He agreed that his average weekly earnings from the operation of his taxi cab were low by comparison with the average earnings of other proprietors. He agreed that according to his returns his average weekly income from the operation of his taxi cab for the year ended 30 June 1978 was approximately $114 per week, for the year ended 30 June 1979 approximately $52 per week and for the year ended 30 June 1980 approximately $141 per week. He attributed his low earnings to the effects of a spinal fusion which he underwent in 1964 and, in the earlier years, to the amount of time he devoted to his duties as a director of Aerial Co-operative.

17. He gave some details of his assets and of how they were built up. He gave evidence also about his two children and of the cost of their education at private schools.

18. He denied that he received payments in cash which were never disclosed in his Income Tax Returns.

19. I thought Mr Denley was an unsatisfactory witness.

20. In her evidence Mrs Denley said that all cash received as income from the operation of both taxis was kept in a safe and banked each week. She said that at the interview in January 1981 she could remember no questions about gifts. She gave evidence that she, too, had received gifts from her mother-in-law. She said that the gifts were usually given at times when additional heavy expenditure had to be made. She, too, took no account of the gifts she received which were always in cash left at her home either in the office or bedroom. She spoke of gifts to her of $500 or $600 to meet school fees. She became aware, she said, of her mother-in-law's affidavit some time after it had been sworn. Her mother-in-law, having learnt of the tax investigations and having been in touch with the accountant thereafter, had subsequently mentioned it to her. She spoke of Christmas gifts.

21. She then said in chief that there was no system by which independent records of receipts in respect of each of the taxi cabs were kept. The effect of her evidence under cross-examination was that the receipts were shared according to needs so that whichever of the two had the bigger expenses for the week would have a larger amount paid into his or her account. She agreed, somewhat reluctantly, that the bank deposit books would not be an accurate record of the amount actually received in cash with respect to each taxi. She then agreed that for the years ended 30 June 1978 and 30 June 1979 she had no accurate record to enable her to estimate the gross income earned by either taxi. In addition she gave evidence that fuel was purchased for cash.

22. I think that Mrs Denley was more concerned with the keeping of the two sets of accounts than was Mr Denley. I am satisfied that the returns were not accurately made. They could not have been having regard to the lack of system, the banking of moneys received into the two bank accounts in the way that was done and the expenditure in cash of some of it on fuel. In this area I accept Mrs Denley's evidence, given against her and her husband's interests.

23. I found the evidence concerning gifts unsatisfactory. I have set out at some length part of the evidence in Mr Denley's mother's affidavit. Its vagueness is apparent. The evidence concerning gifts is not enough to discharge any onus of proof borne by the appellants.

24. The amended assessments must have been issued under s.170(3) of the Act, since it was a case where there has been no full and true disclosure of all the material facts necessary for the assessments.

25. The appellants duly objected under s.185 of the Act. The objections were disallowed under s.186 and thereupon the appellants requested the Commissioner within the prescribed time to treat their objections as appeals and to forward them to this Court. Upon such reference, the taxpayers were limited to the grounds stated in their objections. The burden of proving that the amended assessments were excessive lies upon the appellants. (Section 190.) It is upon the appellants to show that the amended assessments were wrong. Trautwein v. Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 at p 88.

26. In George v. Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183, the High Court said, at p 204:-

". . . unless the taxpayer discharges the
burden laid upon him by s.190(b) of proving
that the ascertainment or judgment is
excessive, he cannot succeed and it can be no
part of the duty of the commissioner to
establish affirmatively what judgment he
formed, much less the grounds of it, and even
less still the truth of the facts affording
the grounds. . . . It is an error to treat the
formation by the commissioner of a judgment
as to the amount of the taxable income as if
it were not the ascertainment of the taxable
income which constitutes assessment or a
necessary part of that process and as if it
were but the fulfilment of a condition
precedent to the power or authority to
assess."

See also Krew v. Commissioner of Taxation (Cth) (1971) 45 ALJR 324, where, at p 326, Walsh J said:-

". . . it is not sufficient in my opinion, for
the appellant to make it seem probable that
the overall discrepancy of about 70,000 pounds
disclosed by the betterment statement is not
wholly correct. Each year must be considered
separately and it must be shown in respect of
a particular year that the challenged
assessment was wrong. If it is not proved
that the whole of the amount of income which
is in dispute has been wrongly included as
taxable income, then material must be
provided upon which the amount of income
which should have been excluded can be
ascertained. What I have just stated is
subject to the qualification that in some
cases it may be enough for a taxpayer to show
that the assessment has proceeded upon a
wrong basis or upon wrong principles: cf.
Henderson v. Commissioner of Taxation (Cth)
[1969] HCA 14; (1970) 44 ALJR 115."

27. Accepting that the appellants bear the onus of establishing their cases on the balance of probabilities only, I think they have failed, nevertheless, to establish that the respondent Commissioner proceeded upon a wrong basis or upon wrong principles in making the amended assessments. I am also satisfied that they have failed to demonstrate to the requisite degree that the amended assessments were wrong. No doubt this has come about because of the inadequacy of their bookkeeping but that is of no assistance to them. Stone v. Federal Commissioner of Taxation [1918] HCA 67; (1918) 25 CLR 389 at p 393.

28. The appeals against the amended assessments will be dismissed. The appellants are to pay the Commissioner's taxed costs.