Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877

IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 33 of 1994 ) GENERAL DIVISION ) BETWEEN: GERALD ANTONIO FAVARO and VITA FAVARO Applicants - and - COMMISSIONER OF TAXATION Respondent MINUTES OF ORDER CORAM: Branson J PLACE: Sydney (video link to Adelaide) DATE: 9 October 1996 THE COURT ORDERS THAT: 1. The respondent bring in short minutes, on a date to be fixed, of orders appropriate to reflect the reasons of the Court. 2. Counsel are at liberty to speak to minutes of order. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No SG 33 of 1994 ) GENERAL DIVISION ) BETWEEN: GERALD ANTONIO FAVARO and VITA FAVARO Applicants - and - COMMISSIONER OF TAXATION Respondent REASONS FOR JUDGMENT CORAM: Branson J PLACE: Sydney (video link to Adelaide) DATE: 9 October 1996 By application dated 22 April 1994 the applicants, who are husband and wife, appeal to the Court against:- (1) the decisions of the respondent to disallow in full the applicants' objections to the amended assessments made by the respondent of their respective taxable incomes for the years of income ended 30 June 1986, 30 June 1987 and 30 June 1988; and (2) the decision of the respondent to disallow in part the applicants' objections to the assessment and amended assessments made by the respondent of the respective taxable incomes of the applicants for the year of income ended 30 June 1989.

The right of appeal thus exercised by the applicants is that created by s14ZZ of the Taxation Administration Act 1953 (Cth) ("the Administration Act"). The decisions of the respondent on the applicants' objections are "objection decisions" (s14ZY of the Administration Act) which are "appealable objection decisions" within the meaning of s14ZZ of the Administration Act (s14ZQ of the Administration Act). Section 14ZZO of the Administration Act is concerned with grounds of objection and burden of proof on appeals under s14ZZ of the Administration Act. So far as is here relevant, it provides as follows:- "In proceedings on an appeal under s14ZZ to the Federal Court against an appealable objection decision: (a) the appellant is, unless the Court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the appellant has the burden of proving that: (i) if the taxation decision concerned is an assessment ... - the assessment is excessive; or (ii) (not here relevant); or (iii) (not here relevant)." In Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621 Brennan J, with whom Mason CJ, Dawson, Gaudron and McHugh agreed and Deane J was 'in general agreement', said, in the context of the then statutory equivalent of s14ZZO of the Administration Act:- "Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment." The onus of proof required to be met by the taxpayer is, of course, that of the balance of probabilities. As Burchett J pointed out in Ma v Commissioner of Taxation (1992) 37 FCR 225 at 230:- "... if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax." BACKGROUND FACTS The following background facts are taken from the applicants' statement of facts issues and contentions. The accuracy of the facts here set out is admitted by the respondent. The first applicant lodged income tax returns with the respondent for the years of income from the year ending 30 June 1986 to the year ending 30 June 1989 ("the years of income") returning the taxable income shown below:-