FEDERAL COURT OF AUSTRALIA Vu v Commissioner of Taxation [2006] FCA 889 TAXATION – appeal from objection decision – Commissioner issued default assessments for income years of taxpayer and his wife – assessments based on bank deposits held separately and in joint names – income attributed 50 per cent to each taxpayer – notices of objection filed – assessments challenged on basis that funds were brought to Australia from Vietnam – objections disallowed on basis that funds were linked to joint businesses – Administrative Appeals Tribunal review of objection decision sought by one applicant only – Tribunal did not accept that most of the bank deposits came from Vietnam ADMINISTRATIVE LAW – whether Administrative Appeals Tribunal erred in failing to give reasons for treating money as joint funds – whether Tribunal erred in failing to take into account the identity of the bank account – limitations on the Tribunal when reviewing an decision under the Taxation Administration Act 1953 (Cth) – whether grounds of objection wide enough to include issues on appeal to Federal Court – onus of proof Held: The Tribunal correctly addressed the matters raised before it within the limitations of the grounds of objection – the grounds of objection did not put the issue of common sources of income directly to the Tribunal – onus of proof not discharged – no error in the Tribunal's reasons given the case put before it Income Tax Assessment Act 1936 (Cth) s 6(1), s 167 Income Tax Assessment Act 1997 s 6-5(2) Taxation Administration Act 1953 (Cth)s 14ZZ, s 14ZZK(b)(i) Administrative Appeals Tribunal Act 1975 (Cth) s 44 Hill v Repatriation Commission (2005) 218 ALR 251 cited Federal Commissioner of Taxation v Munro (1997) 37 ATR 249 cited McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 followed Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 cited Galea v Federal Commissioner of Taxation (1990) 90 ATC 5,060 discussed Casarotto v Australian Postal Commission (1989) 86 ALR 399 cited Holloway v McFeeters (1956) 94 CLR 470 applied MINH HIEU VU v COMMISSIONER OF TAXATION No VID 1238 of 2004 FINN J MELBOURNE 12 JULY 2006 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1238 OF 2004 BETWEEN: MINH HIEU VU APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: FINN J DATE OF ORDER: 12 JULY 2006 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the respondent's costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 1238 OF 2004 BETWEEN: MINH HIEU VU APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: FINN J DATE: 12 JULY 2006 PLACE: MELBOURNE REASONS FOR JUDGMENT Background 1 A taxation audit of the applicant, Minh Hieu Vu, and of his wife, Thanh Lap Duy, resulted in default assessments under s 167 of the Income Tax Assessment 1936 (Cth) ("the ITAA") being made against both of them for the income years ended 30 June 1997 to 30 June 1999 and against Mrs Duy for the year ended 30 June 2000, no income tax returns having been lodged by them in those years. Mr Vu lodged a return in the year ended 30 June 2000 disclosing a taxable income of $6,500. The Commissioner issued an amended assessment in respect of that return. Subject to some modifications made by the Administrative Appeals Tribunal ("the Tribunal") on review, those various assessments are the subject of this proceeding. For reasons I later give, I have ordered that the application be dismissed. 2 The assessments were based primarily on bank deposits in Australia held variously in the names of Mr Vu, Mrs Duy and in their joint names. (I use the term "bank deposits" as a compendious description of the various forms of deposit made in this matter.) These deposits in the income years in question (which amounted in aggregate to A$2.7 million ) were treated as income of which 50 per cent was attributed to each of Mr Vu and his wife. The total tax assessed payable by the couple was in the order of A$1.9 million. 3 Both filed notices of objection to the assessments, each's notices in respect of each income year being in relatively similar terms. The two presently relevant grounds of objection by Mr Vu were: (i) that the bank deposits did not represent income but represented funds: (a) brought to Australia from Vietnam; (b) being capital and/or income derived by the taxpayer when he was a non-resident of Australia or, alternatively, in part represents funds given to him by members of his or his spouse's family in Vietnam; and (ii) the total deposits did not represent assessable income as defined in s 6(1) of the Income Tax Assessment Act 1936 and were not assessable to the taxpayer under s 6-5(2) of the Income Tax Assessment Act 1997. The aptness of the first of the above grounds to the case put by the applicant both in the Tribunal and in this Court is, to say the least, questionable as will be seen. 4 A Deputy Commissioner of Taxation disallowed all of the objections in full. The bank deposits were considered to be linked to businesses operated by the two taxpayers, it being noted in the Deputy Commissioner's conclusions that "Mr [Vu] was assessed on 50% of the income generated by the businesses he was involved with, with his wife". 5 Only Mr Vu sought review of the decision by the Tribunal under s 14ZZ of the Taxation Administration Act 1953 (Cth)("the Administration Act"). A Review of the Administrative Appeals Tribunal 6 Division 4 of the Administration Act imposes several important limitations upon a Tribunal's review of an objection decision. Two are of particular importance for present purposes. Both are contained in s 14ZZK of that Act. The first is that, unless the Tribunal orders otherwise, an applicant is limited to the grounds stated in the taxation objection to which the decision relates. The significance of this limitation is that the objection circumscribes the issue or issues raised by the applicant which the Tribunal is required to determine. This contrasts with the usual case of Tribunal review where the Tribunal stands in the shoes of the person whose decision is in question, hearing the matter de novo and reaching its own conclusion on the material before it as to what is the correct or preferable decision. The difference between the forms of text review, as will be seen, can become accentuated when, as in this matter, an attack is made upon the adequacy of the Tribunal's reasons for decision: for the ordinary case of review see e.g. Hill v Repatriation Commission (2005) 218 ALR 251 at [105]. 7 The second limitation on an objection decision review is that the applicant bears the burden of proving, if the decision is an assessment, that the assessment is excessive: s 14ZZK(b)(i) of the Administration Act. This onus is of some significance in this proceeding. 8 The parties are in broad agreement as to the manner in which the discharge or non-discharge of the onus can affect a Tribunal's determination of the issues before it. They accept as do I, the correctness of the following observations of Lockhart J in Federal Commissioner of Taxation v Munro (1997) 37 ATR 249 at 258 in referring to the reasons of Gibbs J in McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284: "In McCormack v FCT (1979) 143 CLR 284 … Gibbs J said that s 190(b) of the Assessment Act placed the burden of proving that the assessment was excessive upon the taxpayer and that on ordinary principles the taxpayer therefore bore the burden of proving the facts necessary to make out his or her case (at CLR 301). To discharge the burden of proving that the assessment is excessive the taxpayer in McCormack (a s 26(a) case) was required to prove affirmatively on the balance of probabilities that the property was not acquired for the purpose of profit making by sale. His Honour said that the burden may be discharged by drawing inferences from the evidence, but he rejected (at CLR 303) the argument that a taxpayer can succeed simply because there is no evidence from which it can be concluded that the relevant purpose of profit making existed; since this would mean that the burden of proving the existence of that purpose lies on the FCT. That would, his Honour said, be to invert the onus of proof." See also Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89-90 per Mason J. Section 190(b), I would note, was the precursor of s 14ZZK(b). 9 The only additional matter of principle to which I need refer concerning the onus of proof is that in a Tribunal review of an assessment it is not necessary for the Commissioner to seek to establish that the applicant's assessable income was or was at least a particular figure. As Hill J commented in Galea v Federal Commissioner of Taxation (1990) 90 ATC 5,060 at 5,067: "The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by sec 190(b) of the Act to show, that the assessment is excessive. The Commissioner's failure to establish a positive case, if that is what he sought to do, leaves the Tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case." The Tribunal's Reasons and Decision 10 The Tribunal, necessarily, reviewed jointly the applications of Mr Vu and Mrs Duy as their cases and grounds of objection were interrelated. The primary cases put were that the money deposited in bank accounts during the relevant tax years represented capital and/or income of Mrs Duy derived by her in Vietnam prior to becoming a resident of Australia. Mrs Duy stated that she and Mr Vu subsequently carried US$550,000 and A$1,268,000 into Australia in cash in fourteen trips made by one or other of them: Reasons at [4], [10]. Only two small amounts allegedly so carried ($20,605 and $17,000) were declared to Australian Customs: Reasons at [10]. A further sum of A$513,999 was transferred from Vietnam through a Sydney-based company. I would note in passing that the Tribunal found (with considerable reservation) that this last sum was not income but represented funds of Mrs Duy prior to her arrival in Australia: Reasons at [31] and [32]. 11 The Tribunal accepted that Mrs Duy may well have earned income in a range of activities in which she said she engaged in Vietnam and which on the evidence of Mrs Duy and her witnesses indicated earnings of over US$2,000,000. However, the Tribunal was not satisfied that those activities necessarily resulted in her having available to her in 1996 the equivalent of almost A$2 million. 12 The Tribunal accepted that Mrs Duy did have substantial funds in Vietnamese banks but the evidence of activities in those accounts in 1996-1997 (excluding sums withdrawn before she met Mr Vu) only accounted for the $513,999 transferred to Australia by the Sydney-based company. 13 As to the alleged cash transfers, the Tribunal observed: "Altogether, I found the evidence of both Mrs B and Mr A unsatisfactory in relation to the alleged transfer of cash from Vietnam. When coupled with the reservation and lack of satisfactory evidence in relation to the alleged cash funds held by her and, later her brother in Vietnam in August 1996, I am unable to accept that such alleged cash brought to Australia was a source of the funds in Australia particularly as there was no correlation in any respect between the alleged dates of bringing in cash and deposits in bank accounts." 14 It went on to make the following finds about Mr Vu (i.e. "Mr A" in the reasons) and about the cases he and his wife ("Mrs B") advanced: "39. There are clear difficulties in accepting all of the evidence of Mr A. He was somewhat vague as to his activities since 1996 and it is difficult to accept that, apparently, he did nothing in that year other than prepare for the purchase of a retail business for $300,000 in February 1997. After only one month in that business he then, apparently, did nothing until 2000 when he acquired the tobacco retailing business. On his evidence he had no money and no paid employment for much of the four years in dispute and relied on funds from the lady who later became his wife. It is difficult to accept that he knew nothing of a company in which he was shown to be director and shareholder between 1995 and 2002, nor knew of the other named director and shareholder. Mr A was somewhat vague, also, on the source of alleged bundle of Australian bank notes brought by him from Vietnam to Australia and both the reason and method of carrying such sums in cash. When asked, he maintained that he had not discussed their respective evidence with his wife notwithstanding the almost identical wording of their statements and his presence in the hearing room during her evidence. I am unable to accept that his evidence should be accepted as being completely truthful. 40. To accept the applicant's contentions completely requires me to accept on the oral evidence of the applicant and some friends that, prior to coming to Australia, Mrs B earned and accumulated in excess of AU$2,700,000 between the ages of 20 and 26, left her high profile and successful career to join a penniless, unemployed and married man in Australia, someone was able to assemble bundles of $100,000 in Australian $100 notes in Vietnam on many occasions, cash in lots of up to 2000 bank notes were carried from Vietnam to Australia undetected, very large sums of cash were held in Australia for considerable periods of time and neither applicant generated any income from activities in Australia over four years other than $6500 of personal income by Mr A in 2000. Without some supporting evidence it is difficult to accept this evidence of the applicants. There was no independent expert evidence which may have supported a contention that Mrs B was able to earn the levels of income suggested from her alleged activities in Vietnam and that amounts of currency at the quantities alleged were available in Vietnam and able to be carried to Australia. 41. It was submitted for the applicant that there was no other suggested or possible source of the funds deposited or lost in gambling in Australia. However, it is clear from the legislation and the decision of the Courts that there is no requirement for the respondent to advance a positive case as to the likely source and amounts of income. It is sufficient if, contrary to that in Ma's case (supra), the taxpayers are unable to demonstrate a reasonable explanation of any appearance of the possession of assets. Such is the position here for the major part of the funds acquired by the applicants." 15 The Tribunal nonetheless accepted that there were certain sums declared on entry into Australia or transferred to Australia by the Sydney-based company and funds otherwise conceded by the Commissioner, to be non-assessable income by which the taxable incomes of the applicants should be reduced. To that extent it allowed the objections so reducing the taxable incomes of Mr Vu and Mrs Duy. 16 There is one additional aspect of the Tribunal's decision to which I should refer. Included in the calculation of the applicants' undeclared income were amounts reported by a casino as net gambling losses to the applicants. The total amount so included in the relevant tax years was $284,543 which was allocated as to 50 percent to each applicant. The application to this Court 17 Only Mr Vu has appealed to this Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act"). The questions of law raised on the appeal assert that the Tribunal erred in law: (i) by failing to give any reasons for treating the money deposited in the bank account of the applicant's wife as the applicant's income; and (ii) by failing to take into account the identity of the bank account into which was deposited the money the Tribunal held to be assessable to the applicant. 18 These two grounds focus essentially on the same matter. That is that if Mr Vu was to be found to be assessable in respect of 50 percent of the monies in his wife's account there had to be a positive reason for so finding and for not inferring or presuming those monies were hers alone given Mrs Duy was the legal owner of the account. No reason was given by the Tribunal for its finding. 19 The essence of the complaints made is as put in the applicant's Supplementary Submissions that: "Since the Tribunal rejected the explanation of the source or sources of the unexplained deposits it was not possible to say more than that certain funds had come into the bank accounts of Mrs Duy, certain funds had come into the bank account of Mr Vu and certain funds had come into the joint bank account Mr Vu and Mrs Duy. On the facts found by the Tribunal, the funds in Mrs Duy's accounts should have been treated as belonging to her, the funds in Mr Vu's account should been treated as belonging to him, and the funds and the joint account should have been treated as belonging to Mr Vu and Mrs Duy in equal shares." 20 A like subsidiary submission was made in relation to gambling income, although I would note that the Notice of Appeal is silent on this matter. 21 As I understand the "bank accounts" submission it is said that once the Tribunal rejected Mr Vu's and Mrs Duy's evidence on the provenance of the money in Mrs Duy's accounts and concluded that it could not be satisfied that it came from Vietnam, the evidence was, simply, that Mrs Duy had bank accounts in her name. In these circumstances the Tribunal should have inferred or presumed the moneys were hers (the second ground of appeal). If the Tribunal had a reason for not so inferring or presuming and for finding as it did, it did not state its reason in its decisions. This omission was in relation to a material question of fact: s 43(2B), AAT Act and as such involved an error of law (the first ground of appeal). On such an error see e.g. Casarotto v Australian Postal Commission (1989) 86 ALR 399 at 402-403. 22 These grounds of appeal can be answered shortly. The objection decision to be reviewed by the Tribunal was that all of the moneys in the bank accounts were the joint income of Mr Vu and Mrs Duy for the relevant tax years. The grounds of objection taken to the assessment of present relevance were, insofar as Mr Vu was concerned, (i) that the moneys in the accounts were brought from Vietnam; were capital and/or income derived by him when a non-resident of Australia; or were funds given to him by his own and his spouse's family; and (ii) the moneys did not represent assessable income and were not assessable to the taxpayer. 23 These, considered in context, are quite circumscribed grounds of objection. The Tribunal considered "their basic thrust" as relating to the alleged prior earning of funds by Mrs Duy in Vietnam and their later transfer by cash to, and then deposit in banks in, Australia. It would appear that Mr Vu's contentions before the Tribunal were limited to providing particular explanations as to the sources of the money in question which were ascribed primarily to his wife's money in Vietnam. 24 The case put seems to have been that the various sources of the moneys were such as to not represent assessable income. So considered, the second presently relevant ground of objection, when considered in light of the way the applicant put his case to the Tribunal, was simply a generalised restatement of the substance of the first. 25 Neither ground of objection, I might add, seems squarely to raise the issues ventilated in the present application: cf s 14ZZK(b) of the Administration Act. However, I do not consider it necessary to enter upon that point – it has been taken by the respondent Commissioner – because I am satisfied that the grounds of appeal are misconceived in any event. 26 Put shortly, the premise of the assessment was that the moneys held in various accounts (whether in the name of Mr Vu, Mrs Duy or both of them) represented the joint income of both of them. Mr Vu's case, as I have noted, was directed at identifying the sources of those moneys in a way which, if accepted by the Tribunal, would result in their being found not to represent assessable income of either himself or Mrs Duy. That case was only partially accepted with the consequence being that Mr Vu thereby failed in the main to show his assessments were excessive. For the most part the assessment withstood the objections he raised because he had not discharged the onus of proof he bore in the case he put. Significantly his grounds of objection did not put in issue directly or at all any question of whether or not he was in business with his wife and whether for that reason they had common sources of income. These, in consequence, were not matters that the Tribunal needed to address if it did not accept the particular case put by Mr Vu. Both grounds of this application should be dismissed for this reason alone. 27 I would, though, make the following additional comment. The applicant's characterisation of the resultant state of the evidence, the Tribunal having not accepted his and Mrs Vu's account of the provenance of the moneys in the deposits, is inaccurate. The matter put in issue by Mr Vu and his wife was not the identity of the holder of bank accounts but the alleged particular source of the deposits in those accounts, i.e. transfers of Mrs Duy's monies from Vietnam. That positive case failed. Its failure, though, did not authorise or require the Tribunal to infer or to presume that the monies deposited were Mrs Duy's. The Tribunal had not accepted that the moneys had the provenance both Mr Vu and Mrs Duy advanced. The Tribunal's reasons betray an understandable scepticism concerning the actions and statements of the couple. In this setting, where positive proof of the provenance of the moneys in the account was necessary, if Mr Vu was to show his assessments were excessive, there could be no possible place for a presumption such as is now advanced. Equally, in light of the Tribunal's reasoning and finding, the inference proposed could not properly be said to be the most probable and reasonable deduction from the established facts: cf Holloway v McFeeters (1956) 94 CLR 470 at 477. The applicant's failure to discharge the burden cast on him was not an advantage to him. Rather it left unestablished what was needed to be established if he was to succeed before the Tribunal. No process of inference could overcome that disadvantage. CONCLUSION 28 I will order that the application be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate: Dated: 12 July 2006 Counsel for the Applicant: Mr O'Loughlin Solicitor for the Applicant: Brian F Jacomb & Associates Counsel for the Respondent: Mr Sievers Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 3 July 2006 Date of Judgment: 12 July 2006