FEDERAL COURT OF AUSTRALIA David Cassaniti v Commissioner of Taxation [2010] FCA 641 Citation: David Cassaniti v Commissioner of Taxation [2010] FCA 641 Parties: DAVID SALVATORE CASSANITI v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number: NSD 2489 of 2005 Judge: EDMONDS J Date of judgment: 24 June 2010 Catchwords: INCOME TAX – withholding payments being salary or wages – what constitutes the withholding of an amount from salary or wages paid to an individual as an employee under the Pay As You Go (PAYG) withholding system in Pt 2-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) – whether, by virtue of s 18-15(1), the applicant is entitled to a credit for amounts said to be withheld from salary or wages said to be paid to him – whether quantification of the credit on a notice of assessment is part of the process of the assessment and so a particular of the assessment protected by s 177(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 36) or merely a particular of the statement of account between the applicant and the Commissioner. HELD: The applicant is entitled to a credit by virtue of s 18-15(1) of Sch 1 to the TAA but only for the amounts actually withheld from the payments of salary or wages actually paid to the applicant. HELD: The quantification of the credit on a notice of assessment is not a particular of the assessment and is not protected by s 177(1) of the ITAA 36. Legislation: Taxation Administration Act 1953 (Cth) Pt 2-5 of Sch 1, s 18‑15(1) Income Tax Assessment Act 1936 (Cth)s 177(1), Div 2 of Pt VI Income Tax Assessment Act 1997 (Cth) s 995-1 Income Tax Assessment Act 1947 (Cth)s 221H Income Tax Assessment Act (No. 2) 1947 (Cth)ss 221H, 221Q Income Tax Rates Act 1986 (Cth) Evidence Act 1995 (Cth) Income Tax Regulations 1936 (Cth) Taxation Laws Amendment Bill (No. 3) 1995 (Cth) Explanatory Memorandum to the Income Tax Assessment Bill 1947 (Cth) cl 30 Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 3) 1995 (Cth) Cases cited: Constantinidis v Federal Commissioner of Taxation (2004) 55 ATR 348 applied Cooke v Federal Commissioner of Taxation (2002) 51 ATR 223 referred to Deputy Commissioner of Taxation v Sargon (1985) 16 ATR 355 applied Federal Commissioner of Taxation v Barnes (1975) 133 CLR 483applied Federal Commissioner of Taxation v Ryan (1998) 82 FCR 345 applied Fox v Percy (2003) 214 CLR 118 applied Taylor v Federal Commissioner of Taxation (1987) 16 FCR 212 distinguished Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation (1991) 29 FCR 93 applied Date of hearing: 21 April, 20, 21 August and 1 October 2008, 7, 8 and 9 September 2009 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 201 Counsel for the Applicant: Mr DB McGovern SC with Mr AJ O'Brien Solicitor for the Applicant: Proctor & Associates Counsel for the Respondent: Mr PS Hastings QC with Mr RS Quinn Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2489 of 2005 BETWEEN: DAVID SALVATORE CASSANITI Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: EDMONDS J DATE OF ORDER: 24 JUNE 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The applicant be granted leave to file an amended application dated 9 September 2009 in the form handed up in Court on that day. THE COURT DECLARES THAT: 2. The applicant is entitled to a credit, pursuant to s 18-15 of Sch 1 to the Taxation Administration Act 1953 (Cth), in the sum of $27,022.76 in respect of the year of income ended 30 June 2002. 3. The applicant is entitled to a credit, pursuant to s 18-15 of Sch 1 to the Taxation Administration Act 1953 (Cth), in the sum of $26,393.50 in respect of the year of income ended 30 June 2003. 4. The applicant is entitled to a credit, pursuant to s 18-15 of Sch 1 to the Taxation Administration Act 1953 (Cth), in the sum of $19,990.00 in respect of the year of income ended 30 June 2004. THE COURT ORDERS THAT: 5. The applicant pay the respondent's costs (including reserved costs) as taxed or agreed. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2489 of 2005 BETWEEN: DAVID SALVATORE CASSANITI Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: EDMONDS J DATE: 24 JUNE 2010 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 This is one of two applications I heard seeking, inter alia, declaratory relief that each applicant in each proceeding is entitled to a credit equal to the total of amounts said to be withheld from withholding payments (being salary or wages) said to have been made to each applicant during relevant years of income within the meaning of s 18-15(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) ('the TAA'). 2 I commenced hearing this application on 21 April 2008. The hearing was adjourned that day at the request of the respondent ('the Commissioner') to enable him to consider evidence which had only come to his notice four days before. The adjournment was not opposed subject to the Commissioner agreeing to pay 75% of the applicant's ('the taxpayer') costs thrown away, with the remaining 25% of the taxpayer's costs thrown away to be costs in the cause. The hearing resumed on 20 August 2008. At the commencement of the second day of the resumed hearing, senior counsel for the taxpayer sought an adjournment to adduce evidence in response to issues arising for the first time, out of the cross-examination of the taxpayer the day before. I granted the adjournment and adjourned the hearing to 1 October 2008. On that occasion, senior counsel for the Commissioner sought an adjournment to enable the Commissioner to carry out a forensic examination of information on a computer server, the location of which had only been identified since the second adjournment, said to be information relating to the business of Reliance Financial Services Pty Ltd ('RFS'), the taxpayer's employer. I again granted the adjournment and stood the matter over for mention two weeks hence. For reasons which I need not detail, but which include the time it took to access and download the information on the computer server and subject it to forensic examination, the availability, or rather the lack of availability, of counsel on both sides, as well as my other hearing commitments, it was not possible to resume the hearing until 7 September 2009. I continued to hear the application to completion over three days. On the fourth day, I commenced hearing the second application, Patricia Cassaniti v Commissioner of Taxation [2010] FCA 642, but following a grant of leave to allow the second applicant to rely on further evidence filed and served out of time, I granted the Commissioner an adjournment to enable him to file and serve any evidence in response. The hearing of the second application resumed on 28 October 2009 and was completed the following day. On that occasion, I indicated that I would defer delivering judgment in this application until I was in a position to deliver judgment in the second application. No objection was taken to this course and I am now in a position to deliver judgment in both applications. 3 In this application, the taxpayer sought, inter alia, a declaration that he is entitled to credits for the years ended 30 June 2002, 2003 and 2004 ('the relevant years of income') in the amounts of $55,963.00, $55,843.00 and $55,299.00 respectively, being the amounts said to be deducted by his employer, RFS, as trustee for the Reliance Services Trust ('the Trust'), from salary or wages paid to the taxpayer. RFS was a company which, during the relevant years of income, was associated with and, at times, provided services to the accounting firm, Cassaniti & Associates (formerly SP Cassaniti & Associates), a firm in which the taxpayer's cousin, Mr Sam Cassaniti, was the controlling principal or partner. 4 The taxpayer's originating process mistakenly claimed the relief sought in reliance on s 221H(2) of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 36'), whereas the relief sought should have been claimed in reliance on s 18-15(1) of Sch 1 to the TAA. That mistake was acknowledged and corrected at the outset of the hearing. 5 On the last day of the hearing of this application, senior counsel for the taxpayer sought the leave of the Court to file an amended application, dated 9 September 2009, claiming alternative relief, namely, credits for the taxpayer for lesser amounts in each of the relevant years of income. The leave application was opposed by the Commissioner and I indicated that I would defer ruling on it until I delivered judgment. I have decided to grant the taxpayer leave to file the amended application. My reasons for doing so are set out at [195] to [200] below. The Issue 6 As indicated in [1] above, the issue before the Court is whether the taxpayer is entitled to a credit equal to the total of amounts said to be withheld from salary or wages said to have been made to him in each of the relevant years of income within the meaning of s 18-15(1) of Sch 1 to the TAA. 7 The case advanced by the taxpayer is that during the relevant years of income, he was employed by RFS, as trustee of the Trust; that in the relevant years of income he is entitled to a credit for the respective amounts set out in [3] above in reliance upon what is said to be a MYOB record of payroll advice recording amounts withheld from payments of salary or wages made to him, albeit only for the 2002 and 2003 years of income (annexure 'C' to the affidavit of the taxpayer sworn 26 May 2006: Ex 1, 106-132) ('Annexure C'). It lies at the heart of the taxpayer's case, in particular his reliance upon Annexure C, that all that is necessary for a withholding to be made is that there be a mathematical subtraction of amounts from his gross salary or wages so that what is paid to him is a net amount; in other words, the word 'withhold' in s 12-35 of Sch 1 to the TAA involves no more than the words 'make a deduction' in s 221C(1A) of Div 2 of Pt VI of the ITAA 36, and does not specifically require the retention of the amounts so withheld/deducted in any identifiable form: see Deputy Commissioner of Taxation v Sargon (1985) 16 ATR 355 per Ormiston J at 358. 8 The case advanced by the Commissioner is that the amounts of Pay As You Go ('PAYG') alleged to have been withheld as shown in the taxpayer's income tax returns for the relevant years of income are fictional, inflated or both, and that the central document relied upon by the taxpayer to show that a withholding was in fact made, namely, Annexure C, is unreliable. 9 The taxpayer submitted that there is no advantage to him in overstating his salary as it merely means that the excessive tax credits are set off against his overstatement income. That, the Commissioner responded, is not the point; it is the ratio between the gross salary and wages (less allowable deductions) and the inflated PAYG which is the key factor. According to the Commissioner, the ostensible purpose of the inflated amounts of PAYG is to ensure that a refund is generated in each of the relevant years of income at the expense of the Revenue; as long as the PAYG is inflated to a sufficient level there would be no exposure of the taxpayer to tax on the gross amount, even if that is inflated. 10 The Commissioner relies on the following table to illustrate his point: Year of Income Gross Amount of Salary PAYG Deduction stated in Return Gross Tax payable as per Master Tax Guide Tables Difference 2002 $130,959 $55,963 $48,930.73 $7,032.27 2003 $130,501 $55,843 $48,715.47 $7,127.53 2004 $130,500 $55,299 $48,142.00 $7,157.00 11 The Commissioner accepts that a net amount was paid on a weekly basis into the taxpayer's Commonwealth Bank account on account of salary or wages. The Commissioner does not accept that the amount paid was a reduced amount, that is, a net amount resulting after withholding of a PAYG amount from a gross amount of salary or wages. Legislative Scheme Legislative History 12 A legislative scheme which provided for deductions of tax from salary and wages was first introduced into the ITAA 36 in 1940 by the Income Tax Assessment Act (No. 2) 1940 (Cth). In the Second Reading speech, Mr Fadden, the then Treasurer explained that the provisions of the Bill were: 'To facilitate the collection of the tax from salary and wage-earners and, at the same time, to ease the burden of meeting the payment of the tax in a lump sum, the Government proposes to introduce a scheme for the deduction of the tax from salaries and wages, and earnings of that character, by instalments spread throughout the year.' 13 The legislative scheme provided for the payment of income tax by instalment deductions from the salary and wages of employees, either by the purchase of tax instalment stamps by the employer or by means of cash-instalment deductions made under approved group schemes. The scheme which was introduced required that the employer hand to the employee concerned a tax instalment stamp or stamps equal in denomination to the deductions made. The employee was required to affix the stamp to a page in his stamp book and to cancel it by writing thereon his name or initials and the date. Pursuant to s 221H, when the employee received his notice of assessment, the book of stamps was then forwarded to the Commissioner where the face value of the stamps was applied in payment of his tax and if the value was greater than the tax payable, the difference was payable to the employee. 14 Under the initial scheme, employers of large numbers of employees who did not wish to use tax stamps could obtain the Commissioner's approval for the formation of a group. Under this arrangement, the employer was required to make prescribed deductions on pay days and pay the aggregate amounts deducted to the Commissioner. When the employee received his notice of assessment he would then obtain from his employer a certificate of the deductions made. The certificate was then presented to the Commissioner and the necessary credit was given to him for the amount of the deduction paid through the group. It was therefore a system where a credit was provided by the Commissioner on presentation of a group certificate or a tax stamps sheet. 15 There were obvious vulnerabilities in a system where a credit was provided on the basis of a group certificate. Section 221H was amended by the Income Tax Assessment Act 1947 (Cth) which introduced subs 221H(7). Subsection 221H(7) was in the following terms: 'If the Commissioner has reason to believe that any group certificate produced to him is incorrect in any particular, he may retain that group certificate for such period as he thinks fit and shall not apply the amount shown in the certificate in payment of any tax, or make any payment or issue any interim stamps receipt in respect of the certificate, until he is satisfied as to the correctness of the certificate.' 16 Subsection 221H(7) was to remain in the ITAA 36 (although in a slightly amended version) for the next 48 years until 1995. The Explanatory Memorandum for the Income Tax Assessment Bill 1947 (Cth) states at cl 30: 'CLAUSE 30. APPLICATION OF DEDUCTIONS IN PAYMENT OF TAX. The proposal to insert a new sub-section (7.) in section 221H of the Principal Act arises from cases in which employers have issued group certificates to employees for amounts in excess of the deductions actually made. Cases have occurred in which employers have advised the Department that group certificates have been issued for excess amounts and have requested the Department to ensure that credit for the excess amount is not given to the employee upon production of the group certificate. The Crown Solicitor has expressed the opinion that the Commissioner is not empowered by the Act to refuse credit to the employee for the full amount stated in the group certificate produced by him. The insertion of the sub-section which is proposed, is designed to correct this position.' 17 Division 2 of Pt VI of the ITAA 36 was repealed by the Income Tax Assessment Act (No. 2) 1947 (Cth) and replaced by a new Div 2 which remained substantially in the form in which it was substituted until 1995. Section 221H of the new Div 2 required the Commissioner to provide a credit against tax payable where he received a tax stamps sheet or a group certificate although subject to subs 221H(7) and a discretion in subs 221Q(1). Subsection 221H(7) provided that: 'If the Commissioner has reason to believe that a group certificate received by him for the purposes of this section is incorrect in any particular, he may retain that group certificate for such period as he thinks fit, and shall not deal with the certificate as required by the foregoing provisions of this section until he is satisfied as to the correctness of that certificate.' 18 In addition, subs 221Q(1) provided: 'Where the Commissioner is satisfied that an employer has made deductions from the salary or wages of an employee and has failed to issue a group certificate or to deliver a tax stamps sheet in respect of those deductions to the employee within the period prescribed by this Division, the Commissioner may – a. apply an amount equal to the amount of the deductions in satisfaction of any tax payable by the employee; or b. issue an interim stamps receipt or make a payment in respect thereof, in the same manner as if a group certificate in respect of the deductions had been received by the Commissioner.' 19 Until 1995 the tax instalment deduction provisions relied to a large extent upon the integrity of the group certificate to establish that a deduction had been made, although subject to the Commissioner's right under subs 221H(7) to decline to provide a credit on the basis of the certificate until he was satisfied as to the correctness of the certificate and also the discretion under s 221Q. 20 Division 2 of Pt VI was amended by the Taxation Laws Amendment Act (No. 3) 1995 (Cth). The amendment brought about the following changes: (1) An abandonment of the tax stamps system; (2) an abandonment of the entitlement to a credit on the basis of the presentation of a group certificate, that being considered an inappropriate basis for allowing a credit; and (3) the introduction of a tax instalment system where an entitlement to a credit would only arise on establishment of the fact that a deduction was made. 21 In addition, consistent with the above changes, subs 221H(7) and s 221Q were repealed. The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 3) 1995 (Cth) stated as follows: '6.15 The provision of original group certificates to the ATO necessitates amendments to the PAYE crediting provisions. At present entitlement arises from presentation to the Commissioner of a group certificate. This is no longer appropriate given the employee will only be issued with copies of the certificate and not the original. The amendments will make the basis of entitlement to credit the fact of deductions having been made. This places the PAYE provisions on a similar footing to other more recently enacted collection systems, such as the prescribed payments system. [Item 24 – new subsection 221H(2)] 6.16 Existing subsections 221F(9) to (11) provide for a situation where the Commissioner allowed credit, on the basis of what was shown in a group certificate, in excess of the tax instalments that were actually deducted from the employee's pay. The subsections allowed the Commissioner to recover the discrepancy from the employer and then the employer to recover the amount from the employee. The subsections are removed as inappropriate with the new basis of allowing credit [item 15]. Wrongly credited amounts will now be recovered from the employee who received the benefit under new subsection 221H(5). [Item 24]. 6.17 The definition of 'group certificate' in subsection 221A(1) is amended to remove the reference to section 221S. Section 221S allows the Commissioner to enter into arrangements with Australian based authorities of other countries for PAYE purposes in respect of any locally engaged staff. Under such an arrangement a group certificate was not necessarily issued to an employee, however, the Commissioner was obliged to apply the crediting arrangements as if one were. This is no longer appropriate because of the basis of entitlement to credit no longer being tied to the group certificate. [Items 1 and 34] 6.18 The amendments repeal section 221Q that allowed the Commissioner, not having received a group certificate from an employee because their employer did not issue one, to allow credit for tax instalments deducted if he was satisfied that the deductions had been made. The provision is no longer necessary because of the new basis of allowing credit [items 33, 39 and 41]. Similarly, subsection 221F(8) permits the Commissioner, where he has released an employer from the obligation to issue a group certificate in certain circumstances, to apply the crediting provisions in respect of the relevant employee as if a group certificate had issued for the purposes of allowing credit. The provision is being amended to reflect the new basis for allowing credit [item 15].' 22 Clearly the effect of the above amendments was to make the entitlement to a credit to depend upon a question of fact of whether or not a deduction was made. Section 221A is the definition section of Div 2 relevantly defining 'deduction', 'employee', 'employer', 'group certificate' 'PAYE deduction obligation', 'PAYE obligation' and 'salary and wages'. 23 A deduction made for the purposes of the ITAA 36 must satisfy subs 221C(1A) of that Act, which is in the following terms: 'Where an employer pays to an employee salary or wages before I July 2000, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed in accordance with subsection (1) as is applicable.' 24 Subsection 221C(1) provided that the rate of deductions for 'the purpose of enabling the collection by instalments of income tax' is prescribed by the regulations. In particular, Div 2 of the Income Tax Regulations 1936 (Cth) fulfilled this function. In addition, the Income Tax Rates Act 1986 (Cth) declared the rates of income tax and each year PAYE schedules with explanatory notes setting out the tax instalment deductions to be made by employers from salary or wages of employees were available from the Australian Taxation Office ('the ATO'). 25 Whether a deduction had been made under subs 221C(1A) was a question of fact. In Federal Commissioner of Taxation v Barnes (1975) 133 CLR 483, Barwick CJ, Mason and Jacobs JJ, in considering the priority the Commissioner formerly enjoyed under s 221P (in respect of group tax), said, at 494, in relation to deductions under s 221C: 'The amount of the deductions may be identifiable or may be unidentifiable in his hands. It does not matter. In the first case, the identifiable deductions should have been handed over. In the second case, the deductions are represented by property which the employer would have had to realize in order to pay over the deductions to the Commissioner of Taxation or would not have been able to purchase if he had paid the deductions over.' 26 In Sargon, Ormiston J concluded at 358 that: '"[D]eduction" within the meaning of the word used in the division involves the arithmetic subtraction of instalments of income tax at the prescribed rates from the gross income of employees and the payment to them of only the resulting remainder of their wages, that is their net pay. The division does not specifically require the retention of the amounts so deducted in any identifiable form.' 27 Subsection 221H(2) provided as follows: 'If: (a) an employer has made any deductions in respect of an employee under this Division during a year of income; and (b) an assessment has been made of the tax payable, or the Commissioner is satisfied that no tax is payable, by the employee in relation to the of income; the employee is entitled to a credit equal to the sum of the deductions.' 28 At the end of the day, under the PAYE system which operated until 30 June 2000 it was a question of fact as to whether a deduction was in fact made. In terms of administering the ITAA 36, in the usual case the Commissioner would allow a credit for a tax instalment deduction on provision by the employee taxpayer or the employer, as the case may be, of: (1) An employee's copy of a group certificate lodged with the relevant tax return; and/or (2) on the basis of counterpart copies of the group certificates required to be lodged with the Commissioner pursuant to s 221F(5J)(a) by the employer; and/or (3) on the basis of an annual reconciliation of the total deductions required to be lodged with the Commissioner pursuant to s 221F(5J)(b). 29 That approach was efficacious and sensible in terms of administration of the ITAA 36 having regard to the resources available to the Commissioner and was congruent with a self-assessment regime. However, it did not displace or supplant the requirement under subs 221H(2) that, in order to be entitled to a credit amount, it was necessary for an employee, if challenged by the Commissioner, to show as a matter of fact that the sum of deductions made on the employee's account was equal to the amount of the credit. Part 2-5 of Schedule 1 to the TAA 30 The provisions of Div 2 of Part VI of the ITAA 36 operated until 30 June 2000 when they were replaced by the PAYG systems in Pt 2-5 of Sch 1 to the TAA. Both the PAYE deduction and the PAYG withholding systems provide respectively for a deduction or withholding at source on account of an employee taxpayer. When a deduction or withholding is made, a counterbalancing credit is given to the employee even though remission of the amounts deducted or withheld by the payer may have yet to occur. 31 Section 12-35 of Sch 1 to the TAA provides as follows: 'An entity must withhold an amount from salary, wages, commissions, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).' It is clear from s 12-35 that the obligation to withhold is one that falls on the payer of salary and wages, although that entity may not necessarily be the employer. 32 Pursuant to s 15-10 of Sch 1 to the TAA the amount to be withheld from a withholding payment is to be worked out under the withholding schedules made under s 15-25. Section 15-25 empowers the Commissioner to make one or more withholding schedules. The amount to withhold will also depend upon the information provided in the TFN declaration and a Withholding declaration. 33 Section 16-5 of Sch 1 to the TAA provides that an entity required to withhold under Div 12 must do so when making the payment. This timing requirement was previously embodied in s 221C(1A) of Div 2 of Pt VI of the ITAA 36. Section 16-20 provides that an entity that withholds an amount as required by Div 12 is discharged from all liability to pay or account for that amount to any entity except the Commissioner. The amount that the entity must withhold in accordance with the tax tables, regulations or under the terms of a variation, is the only amount that the entity is discharged from any liability to pay to any other entity. 34 If during the financial year an entity made one or more withholding payments such as in this case a payment covered by s 12-35, within 14 days after the end of the financial year, the payer must provide a payment summary to the recipient: s 16-155(1)(a). Section 16-170 deals with the form and content of the payment summary and s 16-175 deals with the penalty for not providing a payment summary. 35 In the relevant years of income, s 18-15 of Sch 1 to the TAA relevantly provided: '18-15 Tax credit for recipient of withholding payments (1) A person is entitled to a credit equal to the total of the amounts withheld from withholding payments made to the person during an income year if: (a) an assessment has been made of the income tax payable by the person for the income year; or (b) the Commissioner is satisfied that no income tax is payable by the person for the income year.' 36 Entitlement to a credit in a particular income year depends in the first instance upon the satisfaction of either of the two pre-conditions in s 18-15(1), first, that an assessment has been made for the income year, or secondly, that no income tax is payable for that income year. The evident policy reason for these conditions was to ensure that there was quantification by assessment of any impending tax payable in a particular income year before an entitlement to a credit would arise. 37 If either of the two conditions referred to in s 18-15(1) is met, then a taxpayer will be entitled to a credit 'equal to the total of the amounts withheld'. It follows that if no amount was withheld there will be no entitlement to a credit amount. 38 According to the taxpayer's employment contract he 'requested an upwards variation to his PAYG withholding of an extra one hundred dollars per week from his gross salary'. A consideration of the amounts which the taxpayer claims were withheld in the relevant years of income shows that they are more than what was required to be withheld under the tax tables: Year Gross salary Amount said to have been withheld annually Average Amountswithheld weekly* Gross Tax payable as per Master Tax Guide Tables Weekly amount as per tax tables 2002 130,959 55,963 1076 48,930.73 982.51 2003 130,501 55,843 1073 48,715.47 978.24 2004 130,500 55,299 1063 48,142.00 967.23 * Calculated from the annual amount, i.e., column 3 divided by 52. 39 Pursuant to s 15-50 of Sch 1 to the TAA an individual may give to the payer a declaration in the 'approved form', in this case a Withholding Declaration - Upwards Variation. An amount withheld by an entity from a withholding payment includes amounts withheld under a withholding upwards variation as provided for in the withholding declaration process set out in s 15-50. The effect of this provision is that the amounts withheld under a variation upwards become amounts 'required to be withheld' under Div 12. 40 The Commissioner pointed out that there is no evidence that the taxpayer gave a declaration in the 'approved form' and accordingly even if it were found that an amount was in fact withheld for the purposes of s 12-35, the taxpayer would only be entitled to a credit for an amount no greater than what is specified in the withholding schedules made under s 15-25. 41 In other words, in these circumstances, the only amount that the taxpayer could be entitled to a credit for under s 18-15(1) is the amount that the payer was required to withhold under Pt 2‑5. If a declaration has not been made, any amount withheld in excess of that amount is not an amount 'withheld from withholding payments'. The Evidence The Taxpayer's Evidence 42 The taxpayer gave oral evidence and was cross-examined. The taxpayer held the role of the practice manager in the accounting firm of Cassaniti & Associates and in that capacity said he ran the taxation side whereas Sam Cassaniti ran the administrative side of the practice. The taxpayer distanced himself from the administrative side of the practice and claimed that he was not familiar with the structure of the partnership Cassaniti & Associates and was not aware of any management group within the practice. He said that he used to do a fee budget which would be given to Sam Cassaniti but did not get any feedback from him or at most would have a two minute informal conversation. He said he was aware of the activities of RFS in relation to lending but did not have a role in that. 43 The Commissioner observed that this evidence was not consistent with two management reports dated 26 January 2002 and 25 January 2003 prepared by the taxpayer and addressed to Ms Kim Thorn of RFS; those reports suggest that the taxpayer was directly involved in the administrative side of the practice. 44 The taxpayer said he had prepared his employment contract with RFS (annexure 'B' to the affidavit he swore on 13 December 2005: Ex 1, 19-34) and had requested an upward variation of an extra $100 per week in respect of PAYG withholding to cover rental property income. 45 The employment contract had been signed on 15 October 2001 by Ms Thorn as a director on behalf of RFS. According to a company search, at the time Ms Thorn signed this document she was not a director, having only been appointed on 20 December 2001. The taxpayer, in response to the request made by the Commissioner under s 167 of the Evidence Act 1995 (Cth), has suggested that Ms Thorn and a person identified on an ASIC search for RFS as Sally Anne Thorn were one and the same person. The ASIC search shows very different details. Name Role Date Appointed Date Ceased Born Address Sally Anne Thorn Director and Secretary 17/1/2001 10/12/2001 25/10/1964 Sydney Mannara Road Fairview Park SA Kim Marie Thorn Director and Secretary 20/12/2001 4/11/2005 1/1/1971 Camperdown 62 Shenstone Road Riverwood 46 The Commissioner observed that from the extent of the differences in the details appearing on the ASIC search the suggestion that they relate to the same person is extraordinary. A director of a company that is not remitting amounts of PAYG withheld (as was the case with RFS) is liable for a penalty equal to the amount which the company failed to remit under Div 9 of Pt VI of the ITAA 36. The Commissioner further observed that a director who cannot be found or does not exist would present obvious difficulties for the Commissioner in pursuing any penalty arising. 47 The taxpayer said he 'had no idea' what Ms Thorn's function was in the practice and said he knew her not to be an accountant. He claimed that he saw Ms Thorn working on a regular basis, but said that she had nothing to do with the professional side of the practice. Nor could he recall her doing any administration. He had not taken any steps to ascertain why she was there, or what she did. He said that he did not have any role in her appointment to that position and did not know if she was paid any money. He said that he thought she got a copy of his annual budgets. The taxpayer agreed that he had a general role in relation to the management of the practice in terms of setting up systems and the deployment of staff but did not involve Ms Thorn in finalising those arrangements. 48 Again, the Commissioner observed that this evidence was inconsistent with the two management reports (referred to at [43] above) in which the taxpayer raised issues within the accounting practice in relation to his own goals of improving the efficiency of the practice and showed an appreciation of the role of Ms Thorn. When the taxpayer was reminded of this he said that he had done these reports for Ms Thorn and Sam Cassaniti. The Commissioner observed that it was clear from these reports that the evidence the taxpayer had given, that he had no idea what Ms Thorn did in the practice was false; the reports clearly contemplated Ms Thorn being part of the management team responsible for putting into effect the taxpayer's requirements. 49 Notwithstanding this evidence, the taxpayer when he was asked whether Ms Thorn was an 'administrator' of the practice, said the following: 'I don't remember her role. She worked in the firm for a period of time on a – I don't know if it was a full-time basis but she was there quite often for a period of time. Whether she was doing an administration role there or not, I don't know. I don't recall'. 50 The taxpayer annexed personal payment summaries for the years ended 30 June 2002 and 2003 to the affidavit he swore on 13 December 2005 (Ex 1, 35 and 36) which had been signed by Ms Thorn but were undated. He said that these had been given to him at the end of each of those years of income. Those payment summaries bore the ABN of the Trust but had not been lodged with the Commissioner and nor had an annual payment summary statement. 51 The taxpayer was asked why he had not annexed a copy of the payment summary for 2004 to the affidavit he had sworn on 13 December 2005. He said that he did not recall why but claimed he would have had the payment summary at the time he swore the affidavit. He said that he did not have proper counsel at that stage. The Commissioner observed that it was clear from the application which was dated the same day as the affidavit was sworn that the taxpayer was represented by Leonard Legal and further that the affidavit was sworn in front of Jenny Ly who was a solicitor at that firm; the taxpayer on his own testimony was an accountant specialising in tax and it was self evident that the payment summary for 2004 was relevant to the claim he sought to make on the Commissioner. It was apparent from a facsimile dated 26 May 2005 (Ex C) sent by the taxpayer to Mr John Robinson, the accountant who prepared his 2004 return, that the payment summary for 2004 had been in his possession as at that date. 52 The taxpayer then suggested that: 'Maybe I couldn't find the 2004 file at the time'. The taxpayer then claimed he had separate tax files for each year, yet it was clear from evidence given earlier that there was only one tax file. 53 The taxpayer was taken to a second payment summary for 2004 that had been produced in response to a subpoena issued by the Commissioner to RFS. That payment summary bore his correct name and address but disclosed a different gross salary ($129,525) and a different amount of PAYG withholding ($47,204). The taxpayer was unable to shed any light on the existence of this second payment summary. The tax file number on that payment summary however was not the taxpayer's but was Mr Gino Cassaniti's. Nevertheless, other details on the payment summary were referrable to the taxpayer and a separate payment summary for 2004 had been produced in answer to the subpoena in respect of Gino Cassaniti. 54 Annexure C showed a deduction described as a salary sacrifice when in fact it was being deducted from post tax income. The taxpayer confirmed that the putative salary sacrifice was in respect of a Mitsubishi Verada motor vehicle registration XSR 191 and was in respect of the payment of a lease with Macquarie Leasing which was paid by the accounting firm. The recording of the details in respect of the lease payments from 6 July 2001 was entirely inconsistent with documentation subpoenaed from Macquarie Leasing. The taxpayer was not able to give an explanation as to why the details were recorded on Annexure C from that date when the commencement date of the lease on the Macquarie leasing documents was 17 December 2001. Further, the summary in respect of 2002 appearing at page 106 of Annexure C also indicated an amount paid in respect of the car lease of $10,742 ($206 x 52) was for the full year. 55 The taxpayer said that he had asked Sam Cassaniti for Annexure C. In this respect he contradicted the evidence he had given on a previous occasion when he had said that he had asked Patricia Cassaniti to print off Annexure C. 56 It was clear from the affidavit of Mr Rodney McKemmish (a forensic computer expert called by the Commissioner) sworn 31 March 2009 (Ex F) that there were two versions of the taxpayer's wage records in respect of each of the relevant years of income. Those records were held on a file server which was obtained by the Commissioner (see [126] below). The taxpayer was not able to provide a satisfactory explanation as to why there should exist two versions of such records. He said: '[A]sk Sam Cassaniti .... I don't know why – what they've done, or how they've done it'. 57 The taxpayer suggested that the 'admin staff' may not have been updated on the changes which had occurred in respect of his employment arrangements when he had agreed to certain terms and conditions 'as per his employment contract dated 15 October 2001'. The Commissioner said that this was not a credible explanation; it would have been expected that the new conditions would have been settled at least by the commencement of the 2003 or 2004 years. 58 Further, the Commissioner observed that, as noted at [33] above, an entity must withhold at the time of making the payment. The only contemporaneous record recording that withholding would be those records recording the lower amount and a revisiting of those records by the administrative staff at later date could not alter that fact. 59 When asked if it had not come to his attention that his wages and salary were not being correctly recorded in the system the taxpayer said 'No'. He denied that he had caused a second set of records to be made to justify a gross salary of $2,500. 60 Exhibit H comprised a number of documents which had been extracted from the file server by the Commissioner. The Commissioner's forensic computer expert, Mr McKemmish, confirmed that those documents were located on the file server. Exhibit H contained direct evidence of different amounts of gross income and PAYG withholding. According to the Commissioner, it brought into question the reliability of Annexure C and strongly supported the view that the details of gross income and PAYG withholding in the relevant years of income on the latter were concocted. 61 The taxpayer was asked about a letter dated 27 October 2003 addressed to him setting out his superannuation deductions for the quarter ended 30 September 2003 of $1,799.98. He said that he did not recall receiving this letter. That letter was from Kim Thorn Administrator and was consistent with what appeared on Ex 'RDM4' (Ex F). 62 The taxpayer was also asked about a letter dated 11 April 2003 addressed to Westpac which stated that he had been employed by RFS since October 1992 and that he was at the date of the letter earning a gross income of $100,000 per year which included a car allowance of $15,000. The taxpayer volunteered that the purpose of the letter was for a lease on a Land Cruiser but claimed that he was earning more than the $100,000 stated in the letter. He denied that he had arranged for Ms Thorn to inflate the figures of gross income or that his gross income at that time was more like $80,000. 63 The taxpayer was taken to other documents in Ex H in particular a document headed 'Wage Summary 2002 Cassaniti and Associates' which contained entries which seemed to indicate a gross income of $130,959.88 and a PAYG withholding deduction of $55,963. On the line beneath the gross income was an amount in brackets: '(50,000)' with the description of 'extra'. In relation to the PAYG withholding the same feature was apparent except the amount in brackets was ($29,450). The taxpayer agreed that the appearance of figures in brackets would normally indicate a negative. The effect of those entries was that in relation to gross income an amount of $50,000 was to come off. This was consistent with the subtotals that appeared at the foot of that document. Similarly, the same approach is found in relation to PAYG withholding such that the amount of PAYG withholding was $26,513 (i.e. $55,963 – $29,450). There was a notation next to the extra amounts: 'nb1 – submitted on RFS GC'. The taxpayer was asked whether this note meant that the figures had been submitted on Reliance Financial Services Group Certificate and said in response: 'Possibly. I don't know'. The taxpayer was not able to provide any explanation in relation to these matters. 64 The Commissioner observed that the document was revealing as on its face it suggested that a higher figure for PAYG withholding had been used on the group certificate for 2002 while the internal records recorded a different amount of withholding. If the lower amount were correct, then for accounting purposes RFS needed to know the precise amount which was paid to the taxpayer by way of salary and this record, according to the Commissioner, was clearly not intended to be seen by him. According to the Commissioner, the existence of documents showing amounts of gross income and PAYG withholding that were different from what was disclosed on Annexure C brought into question the reliability of that document. 65 Such an analysis was consistent with a similar document produced by RFS in answer to a subpoena which became Ex K. The records in Ex K in respect of 2002 did not show any amount in brackets or any notation in the form of 'nbl - submitted on RFS GC' such as had appeared in Ex H. 66 The taxpayer was taken to another document in Ex H which was headed 'Wage Summary 2003 Reliance Financial Services Pty Ltd'. The Commissioner observed that the same submissions may be made about this document. Again, similar terminology appears on the same line as the figures in brackets: 'Includes extra payment'. Again, the taxpayer was not able to provide any explanation other than to maintain that his salary was $130,000. 67 According to the Commissioner, these details suggested that this was a record for internal use only and not expected to see the light of day. A similar document was produced by RFS in answer to a subpoena which again did not show a negative amount in brackets or the designation 'Includes extra payment'. The details for the other employees were identical to the document for 2003 within Ex H except for the addition on the former of full details in respect of Sam Cassaniti and Patricia Cassaniti and similar features as described above for Gino Cassaniti. 68 The Commissioner observed that the consistency in respect of the other details suggested that there had been a manipulation of the records which had been produced by RFS in response to the subpoena in order to support the claim the taxpayer had made for credits. 69 The taxpayer was taken to another document in Ex H, which was headed 'Wage Summary 2004 Reliance Financial Services Pty Ltd'. On this occasion the gross income stated in this document was $79,709. The taxpayer was unable to provide an explanation why this document recorded that figure and maintained that his gross income for that year was $130,000. 70 Again, a similar document was produced by RFS in answer to a subpoena, which was headed 'Summary of wages for Reliance Financial Services Pty Ltd'. Again, the details for the other employees were identical to the document for 2004 within Ex H, except for the addition on the former of full details in respect of Sam Cassaniti and Patricia Cassaniti and inflated amounts of gross income and PAYG withholding in respect of Gino Cassaniti. 71 The Commissioner observed that the documents in Ex H warranted a full explanation from the taxpayer which was not forthcoming. According to the Commissioner, the Court is left in a position where other contemporaneous business records of RFS as found on the file server suggested a very different picture in relation to the taxpayer's gross income and PAYG withholding from that advanced in his affidavits. The taxpayer, who fulfilled a central role in the accounting practice, had access to this material and RFS failed to provide it in response to the subpoena. According to the Commissioner, it leaves open the inference that the taxpayer has not put an honest account of his position to the Court. Evidence of Mr Sam Cassaniti 72 Mr Sam Cassaniti said he was not involved in the compilation of the MYOB records for the practice. He said that several staff were involved in putting the information into the computer and that 'Kim or Patricia would keep an eye on it all'. He said that he did not have any specific recollection of Annexure C being created. He agreed that Ex 'RDM7' (Ex F), which was one of the documents recording lower amounts of gross income in respect of the taxpayer, appeared to be part of the records of the practice. 73 Mr Cassaniti was asked in cross-examination if he was able to explain the differences between different versions of MYOB records exhibited to Mr McKemmish's affidavit. He surmised that on several occasions the staff of the practice were to have a pay rise in July which had not eventuated 'until September, October, whatever'. He said: 'Maybe they've gone back and fixed it, I don't know'. 74 The Commissioner observed that this was evidence given by a person who was the principal in the accounting practice; it was in effect his business and the affidavit he swore contained a surprising paucity of detail from him about the events in question. In particular, the Commissioner observed, he had not sworn any further affidavit responding to Mr McKemmish's evidence notwithstanding an ample opportunity to do so since the service of Mr McKemmish's evidence. The Commissioner observed that if there was a credible explanation to be provided for the differences then it should have been forthcoming at an early stage. 75 It is of relevance that Mr Cassaniti said: 'Look, I owe David a pay rise. I promised him that a long time ago. I always promised that he would get the money. The busier it got, the more expenses I had. It was on the never – but I always promised to pay him the money. I still owe him money, that's the truth. I still intend to pay him, like I still owe my barristers money, you know. They're a bit – they press a little bit more than David.' 76 The Commissioner observed that it appeared that Mr Cassaniti was about to say that the pay rise was on the 'never never plan'; if the pay rise never eventuated until some unspecified time later then the higher amounts in the taxpayer's tax returns could not be sustained. 77 On this point he was then asked: 'Are you saying that whilst Mr David Cassaniti may have an entitlement to a salary of $2500, he didn't get that money?---I don't think he got all of it at the time, but he was still owed the money. That was the agreement, he would get that money from that day, 1 July, whatever it was. Because he was always whingeing that I was only paying him X amount.' 78 The Commissioner observed that this evidence suggested that the amounts of gross weekly income detailed in Annexure 'C' were arbitrary and unreal if payment was to be made at some unspecified time later. As noted at [33] and [58] above, according to s 16-5 of Sch 1 to the TAA an entity must withhold at the time of making the payment and PAYG withholding was to be calculated pursuant to s 15-10 under the withholding schedules made under s 15-25. The Commissioner observed that it would suggest also that the calculation to be made was to be based on the lower amount of gross weekly income paid although there was no evidence before the Court to conclude what that lower amount should be apart from what was in some of the exhibits to Mr McKemmish's affidavit which the taxpayer had not embraced. 79 Mr Cassaniti was asked about an arrangement whereby it was said the taxpayer left some of his salary as a loan arrangement for Mr Cassaniti. He was asked in particular whether any record was kept of those amounts. He said: '[The taxpayer] kept the record, he shows it to me all the time, plus interest.' 80 This statement was in direct conflict with the taxpayer who had said: 'Did you keep a record of the money which was being held in trust by Sam, pursuant to this arrangement?--- No, I left it up to the payroll to do it for me. I knew it wasn't a difficult calculation, so I wasn't too worried about it.' 81 Mr Cassaniti was asked as to what was physically happening with the money said to be withheld from employees' wages, and he said that it was his understanding that it does not have to be retained and that 'we did not have the money to remit'. The Commissioner observed that this evidence pointed to the central crux of the taxpayer's case, namely, that the evidence which was relied upon in the proceedings to demonstrate that a withholding was made was documentary only. Mr Cassaniti then gave evidence about the difficulty of identifying what had been remitted to the ATO. Again, the Commissioner observed, this was evidence from an accountant in respect of the records of his own business. Nor was he able to assist as to whether BAS summaries were done throughout the period of 2002 to 2004. 82 Mr Cassaniti was asked about the role of Kim Thorn. He said that '[s]he would help with the running of the wages and kept an eye on things for me'. When asked about the absence of her name on the wage records, Mr Cassaniti claimed she was only paid a small amount of casual money 'like, it was about two or three grand'. He said she would only work 'three or four hours, five hours a week, six hours a week, depending on when she could come in'. He said that he did not think it was fair to describe her as 'the administrator of the practice'. The Commissioner observed that that this was the epithet which appeared on the business records of the practice. 83 Mr Cassaniti confirmed that Kim Thorn and Patricia Cassaniti were responsible for the MYOB system overall. He was asked who Sally Ann Thorn was and said that it had been a mistake by the Australian Securities & Investments Commission ('ASIC'). 84 Mr Cassaniti confirmed that he had been convicted of offences of dishonesty and that one allegation was that he had defrauded the ATO in circumstances where refunds were claimed to which there was no entitlement. Evidence of Kim Thorn 85 Ms Thorn, according to her testimony, received cash of about $2,000 per year in the hand in respect of her employment with RFS. She was paid by Mr Sam Cassaniti. She did not appear in the wage books of RFS. She said that she was 'shocked' that her tax returns had not been lodged for the time she had worked as a director between 2001 and 2005. In the period from 2001 to 2005 she was also receiving Centrelink benefits. 86 Ms Thorn apparently worked between 3 to 7 hours per week. She claimed that part of her role was to ensure that the wages for staff were made up each week. On any view she was there for a limited time each week and her knowledge of the practice was circumscribed by this fact. 87 She had no specific recollection of signing the taxpayer's payment summaries. She agreed that she generally signed the payment summaries relying upon the work of others. It is clear from the taxpayer's payment summaries and the payment summaries in Ex K that they were invariably signed without a date. According to the Commissioner, this was a suspicious feature of the payment summaries relied upon in the taxpayer's case and an odd thing for a firm of accountants to do on a consistent basis; it goes to the reliability of the payment summaries. 88 Ms Thorn was taken to the MYOB records attached to Mr McKemmish's affidavit and was asked to explain the differences between the lower and higher amounts of gross wages. The explanation that was given by her in respect of the 2002 year was that it was probably due to error on the part of the staff who worked for her and that she had 'made sure that they went back and adjusted the records to the correct amounts'. 89 The Commissioner observed that the difficulty with this explanation was that the MYOB records exhibited to Mr McKemmish's affidavit showed lower amounts of gross income in each of the relevant years of income and if a mistake had occurred it had apparently endured undetected for a period of in excess of three years: see, for example, Exs 'RDM7', 'RDM16' and 'RDM4' and the following table which discloses the sum of gross salary and PAYG withholding in each of the three years: Year Gross salary PAYG Exhibit 2002 77,882.92 27,022.76 'RDM7' 2003 80,862.52 26,393.50 'RDM16' 2004 77,954.78 19,990.00 'RDM4' 90 The explanation that was given by Ms Thorn in relation to the 2003 year for the two sets of records exhibited to Mr McKemmish's affidavit was that they had experienced some computer problems and some viruses. She said that they had all their computers re-done and it might have been due to the fact that the information had been re-entered and there were errors. 91 The explanation that was given by Ms Thorn in relation to the 2004 year for the two sets of records exhibited to Mr McKemmish's affidavit was that the taxpayer 'got his pay rise and Sam Cassaniti was relentless for not doing them on time, so there would be adjustments made, they would be back-dated and implemented'. The Commissioner observed that the difficulty with this explanation was that the taxpayer's contract of employment which was effective from 1 July 2001 stipulated that the agreed salary of $130,000 was set for a period of four years and, accordingly, there was no need to go back through the records to make any adjustments to the taxpayer's salary. 92 In answer to questions from me as to which of the two versions of the wage records was right or wrong, Ms Thorn initially opted for the lower set of figures for gross salary as the correct version of the wage records of the taxpayer. However in re-examination she resiled from this answer and indicated that the higher set of figures was the correct version. 93 This left her evidence in a position where at the end of the day she had adopted the higher figures for gross salary for the taxpayer. Identity of Payer 94 The identity of the payer of the respective amounts of $130,959.00, $130,501.00 and $130,500.00 said to have been paid to the taxpayer as salary and wages in the relevant years of income is said by the Commissioner to be a relevant matter. The taxpayer's own evidence (and his Statement of Facts Issues and Contentions ('SFIC')) is inconclusive on this point and discloses a number of possible payers of his salary: (1) Reliance Financial Services Pty Ltd: According to the affidavit he swore on 13 December 2005 (Ex 1, 6-11) the taxpayer entered into a written agreement relating to his employment on 15 October 2001 with RFS which, at some point, became the 'service company' to Cassaniti and Associates - see paras 5 and 8. See also paras 2 and 3 of the affidavit sworn by the taxpayer on 18 June 2007 (Ex 1, 133 – 135). On the taxpayer's Payment Summaries for the relevant years of income the payer is also identified as RFS. Also the relief sought pursuant to the application filed 13 December 2005 is that the taxpayer be allowed credits for amounts deducted 'by the taxpayer's employer Reliance Financial Services Pty Ltd'. (2) Cassaniti & Associates previously known as SP Cassaniti & Associates: The taxpayer claims he was employed by Cassaniti & Associates, then known as SP Cassaniti and Associates, from about 10 October 1992. See para 2 of the affidavit of the taxpayer sworn 26 May 2006 (Ex 1, 75); para 10 of the affidavit of the taxpayer sworn 13 December 2005 (Ex 1, 8) where he says that in 2003 year he earned wages from Cassaniti & Associates. (3) Reliance Service Trust: para 2 of the taxpayer's SFIC. In his tax returns for the relevant years of income the taxpayer has identified the payer's ABN as 87 054 916 612 which is an ABN issued to the Trust. The affidavit of Mr Sam Cassaniti sworn 19 August 2008 (Ex 4) also asserts that the taxpayer was an employee of the Trust as does the affidavit of Kim Thorn sworn 19 August 2008 (Ex 6). (4) An Accounting Firm: para 1 of the taxpayer's SFIC. (5) Exhibit J contained a number of payment summaries which showed different ABNs in respect of the payer. Those ABNs corresponded to either RFS or the Trust. 95 It seems clear from the evidence that the payer for the period 1 July 2001 to 1 July 2002 was Cassaniti & Associates, and for the period from 8 July 2002 to 30 June 2004 the payer was RFS. The taxpayer said that he had not noticed that there were different payers of his salary and wages on his bank statements and notwithstanding the fact that the contract of employment was with RFS. Annexure C 96 Since the commencement of this proceeding the taxpayer's version of events has evolved. The initial version of events given by the taxpayer in his affidavit sworn 13 December 2005 in respect of the 2002 and 2003 years was that a 'net amount of approximately $1,000 was transferred weekly to my bank account less my car payment to Macquarie Leasing Ltd'. That affidavit made no mention of any other deductions/withholdings in reduction of the gross amount. It was only on Annexure C becoming available that the detail of the particular deductions/withholdings made was revealed. 97 According to the taxpayer, the events that led to the production of Annexure C were as follows. On 5 April 2005 the Commissioner had by letter requested evidence that a PAYG withholding was in fact made in relation to the 2002 and 2003 years. Apparently in response to this letter the taxpayer had obtained a MYOB Payroll Advice printout which bore the date 25 April 2005 for the period 1 July 2001 to 30 June 2003 and which became annexure 'C' to an affidavit sworn by the taxpayer on 26 May 2006 to demonstrate that a withholding had in fact been made. The taxpayer however did not provide this to the Commissioner at that time, and failed to attach Annexure C to the copy of the affidavit sworn on 26 May 2006 when it was served on the Commissioner. The first occasion that the Commissioner saw this document was on 17 April 2008 when it was delivered to the office of the Australian Government Solicitor. The service of this document occasioned the first adjournment of the hearing at the request of the Commissioner. 98 Annexure C comprised what purported to be a MYOB Payroll Advice printout for the period 1 July 2001 to 30 June 2003. This record showed that a number of deductions/withholdings were made to reach the net amount that was paid into the taxpayer's account at the Commonwealth Bank. For example, in respect of the amount of $882.59 paid to that account for the pay period ended 6 September 2002, gross pay is stated to be $2,500. This has been reduced (or in one instant increased in the case of SGC Advance) by the following amounts: Description Amount YTD Type Base hourly 2,500.00 121,687.50 Wages Loan -405.52 -20,547.79 Deductions Salary Sacrifice-Car- DC -206.58 -10,742.00 Deductions PAYG Withholding -1,060.00 -$55,843.00 Tax SGC Advance Asset SF 240.75 11,745.04 Expenses 99 The Commissioner observed that the amount described on Annexure C as a Salary Sacrifice-Car-DC is an anomaly, as a true salary sacrifice is an amount deducted from pre-tax income. Tax is then paid on the reduced salary and wages. This aside, the Commissioner further observed that there is a more significant problem concerning this deduction. 100 In his first affidavit (13 December 2005) the taxpayer stated as follows: 'During the tax year ending 30 June 2002 my gross wage from the firm was $130,959. A net amount of approximately $1000.00 was transferred weekly to my bank account less my car payment to Macquarie Leasing Ltd. ' 101 The Commissioner, on receipt of this affidavit, issued a subpoena to Macquarie Leasing Ltd for documents in relation to this arrangement. These records were subsequently tendered and became Ex L. In a further affidavit sworn on 15 August 2008 the taxpayer confirmed that in December 2001 he had entered a Hire Purchase arrangement with Macquarie Leasing. The monthly amount according to those documents was $895.16 and the weekly amount was ($895.16 x 12)/52 = $206.57. This figure corresponds with what appears on Annexure C and is consistent for each weekly pay period detailed on that document in the period 6 July 2001 to 27 June 2003. The problem for the taxpayer is that the deduction for the car commences from the pay periods for 6 July 2001 when, according to the taxpayer's evidence, the Hire Purchase arrangement was not entered into until December 2001. 102 According to the Commissioner, that evidence strongly suggests that the deduction appearing on Annexure C in respect of the car from 1 July 2001 to December 2001 has been concocted; and by that anomaly, Annexure C is also inevitably compromised, as one of the integers in the calculation reducing the gross amount to the net amount is fictitious. 103 According to the taxpayer, his salary was received by direct deposit. Annexure C suggests that in the 2002 and 2003 financial years the payer of the salary and wages was RFS. This can be seen from the heading of each page of that document as well as the individual entries for each pay period. On the other hand, the bank statements for the account into which the taxpayer's wages were deposited is in conflict as it shows that in the 2002 year the payer of the salary and wages was another entity, that is, Cassaniti & Associates. 104 As to the discrepancy in relation to the identity of the payer in the 2002 year, the taxpayer said he was 'just an employee ... which entity paid me, it wasn't my concern'. He said that he had not made any inquiries as to how the system worked to generate that result. He had no further information as to why Annexure C were records payments in the name RFS whereas the bank statements recorded the payments coming from Cassaniti & Associates. 105 In the affidavit he swore on 26 May 2006 the taxpayer claimed at para 4 that Annexure C had been provided to him by RFS. In cross-examination the taxpayer said that he had asked Patricia Cassaniti to provide him with a payroll advice and that 25 April 2005 (which was Anzac Day) was the date when that document was printed. According to the taxpayer, Patricia Cassaniti would often work public holidays. The taxpayer said that he was not present when that document was generated but he understood that she had printed out the document specifically in response to his request. He said that he himself did not have access to the records and did not know how to use MYOB. 106 The taxpayer was asked questions as to the whereabouts of the server from which Annexure C was produced and said that he did not know and that in any event he was now on his second server. He said that he had introduced his first server in June 2006 and the second one in February 2008. The taxpayer agreed that he would have needed to carry forward client data and tax programs from the old server to the new server and said that the computer engineers would have done that. He said that in June 2006 he had taken over the accounting firm and that he would have preserved the data from the old server separately on a hard drive rather than transferring it to his new server. He did not recall where the hard drive was but thought it could have been in the computer room. 107 This evidence was inconsistent with the response the taxpayer had given to a request made by the Commissioner under s 167 of the Evidence Act for production of the computer from which Annexure C was produced. The answer supplied by the taxpayer through his solicitors was that he was not the owner of the computer and was unaware of its whereabouts. The taxpayer claimed he had not seen the letter containing the s 167 request but was sure his solicitor would have gone through it with him. 108 When this inconsistency was pointed out to the taxpayer he claimed that he was more concerned with the computer upgrade than with preserving the information that was contained on the hard drive. He gave this evidence notwithstanding the fact that the current proceedings had commenced at that time and that the information as set out in Annexure C was contained on that hard drive. He was asked in cross-examination whether he was concerned that such data be preserved to substantiate his claims in the present proceedings and had said that, firstly, RFS data was not his data and, secondly, that it was not on his mind. 109 As noted in [7] above, Annexure C contained information only in respect of the 2002 and 2003 years and the taxpayer had not attached a similar MYOB record in respect of the 2004 year. The taxpayer was asked why this was so and said that 'he must have forgot [sic] at the time'. When he was asked why he had not gone to Patricia Cassaniti who had assisted in producing the MYOB records for 2002 and 2003 and asked her to do the same in relation to 2004 the taxpayer said: 'I don't recall'. 110 On 11 July 2005 the Commissioner had sent a letter to the taxpayer requesting evidence that a PAYG withholding had in fact been made in the 2004 year, so the taxpayer was on notice of the need to provide such evidence. The taxpayer said that on receiving the letter he had asked Sam Cassaniti for the records but he said he did not know or did not think he produced anything. He claimed he had pressed Sam Cassaniti for the records but had not received anything. 111 The Commissioner observed that this is simply not a credible explanation. The taxpayer was indebted to the Commissioner for a significant sum of money for which he was contending he was not liable; he fulfilled a central role in the accounting practice and was Sam Cassaniti's cousin; there was a close appreciation within the Cassaniti accounting practice which had been involved in a number of matters of the same type of the need to demonstrate the 'arithmetic subtraction' referred to in Sargon in the payer's business records. 112 The Commissioner further observed that, on any view, a wage record is of considerable importance to any business, let alone an accounting practice, which had a lengthy history of litigation with the Commissioner. If a contemporaneous record existed it should have been readily available and produced to the Commissioner when it was first requested. 113 The taxpayer, in response to a request under s 167 of the Evidence Act that he call Gino Cassaniti, has declined to do so and the Commissioner did not have the opportunity of cross-examining him about the provenance of Annexure C. 114 The Commissioner observed that the taxpayer has not advanced any credible explanation as to why the wage records were not first produced when the Commissioner sought them. In a letter dated 17 August 2005 from Stoikovich Macri, the taxpayer had advised the Commissioner the documents would be provided 'shortly'. When asked about this in cross-examination the taxpayer said that the documents had been promised by Sam Cassaniti but they had never come. When the taxpayer was asked why he could not have gone to the computer system himself he claimed that he did not know how to use MYOB and did not have access to the computer system, a surprising assertion, according to the Commissioner, given he was the Practice Manager and the obvious utility of MYOB software for an accountant. The taxpayer said that Sam Cassaniti had authorised the release of the MYOB information in relation to the 2002 and 2003 years of income. In this regard, para 8 of the affidavit of Rodney McKemmish sworn 17 April 2009 (Ex G) is to be noted wherein he deposes that a 'link file' to the MYOB program was located on the desktop profile of a user 'David'. 115 The taxpayer said that at the time he had sworn the affidavit dated 26 May 2006 he did not think he had asked anyone for the 2004 MYOB records and had assumed that they were lost. The taxpayer was asked why he was now suggesting that the information was now lost when he had earlier given evidence that as far as he was aware the hard drive had been preserved with the information on it. He then said the opposite that he was quite sure that the data was in existence. 116 The taxpayer was taken in cross-examination to the Payroll record within Annexure C for the pay period 21 September 2001 where it was apparent that the amount of PAYG withheld had increased by $100 from $974 to $1,074. He was asked whether this marked the commencement of an increased amount of PAYG in accordance with the request contained in his employment contract and said 'I assume so'. From 1 July 2002 the PAYG amount as shown in Annexure C decreased to $1,060, but the taxpayer was unable to provide any explanation why this had occurred. It was suggested to the taxpayer that the reason for this was that the information in Annexure C was created after a rate change which took place on 1 July 2003, so that the program calculated a withholding at a lower rate. When this proposition was put to the taxpayer he disagreed but did not have an explanation for it. The taxpayer was asked whether he was aware that MYOB Version 12, which was effective from 1 July 2003, had built into it scales applicable from 1 July 2003 but said he did not know. 117 The Commissioner engaged a forensic accountant, Mr Rodney Ferrier, to examine the MYOB records in Annexure C. 118 Mr Ferrier concluded in an affidavit affirmed on 24 September 2008 (Ex E) that: (1) The Payroll Advice report for the period 1 July 2001 to 30 June 2002 was prepared using MYOB accounting software Version 11 which was issued in April 2002; (2) the Payroll Advice report for the period 1 July 2002 to 30 June 2003 was prepared using MYOB accounting software Version 12 which was issued in May 2002, or Version 13 which was issued in March 2003. 119 Mr Ferrier then checked the personal income tax rates which were applicable in the period 1 July 2002 to 30 June 2003 and noted that there had been no change to those rates in that period. However, according to Annexure C the PAYG withheld from the taxpayer's pay period for 5 July 2002 (and in the succeeding periods for that financial year) was reduced from $1,074 to $1,060. For this reason Mr Ferrier concluded that the calculations of PAYG withholding in Annexure C were arrived at using the PAYG Withholding tables for the year ended 30 June 2004. That evidence suggested that the record had been created after the 2003 year and was therefore not contemporaneous. According to the Commissioner, it also suggested that Annexure C was a concocted record which had been created using a later version of MYOB which had automatically applied rates which were not applicable in the pay period for 5 July 2002. Loans to Sam Cassaniti 120 Annexure C also recorded a deduction which is described in each pay period as a 'Loan'. The taxpayer was asked about the amounts which had been held in trust as a loan to Sam Cassaniti. According to the summaries at pages 106 and 119 of Annexure C this had amounted to $17,213.54 and $20,547.79 in the 2002 and 2003 years of income respectively. Curiously the weekly amounts which were said to be loans were odd amounts, for example: Amount Pay Period Amount Pay Period 338.14 6/7/2001 429.83 22/02/2002 395.20 24/8/01 77.52 22/03/02 238.14 21/09/01 405.52 5/07/02 187.94 28/09/01 440.83 23/8/02 205.59 12/10/01 423.17 25/10/02 187.94 19/10/01 245.02 1/11/02 1,204.10 14/12/01 793.89 20/12/02 610.13 19/12/01 307.22 14/02/2003 394.52 11/01/2002 522.47 7/03/03 507.31 11/02/02 289.57 14/3/03 121 The Commissioner observed that a closer examination of these amounts reveals that what is described as a 'Loan' varies when there is an increase or decrease in gross salary and a corresponding variation in the amount deposited into the taxpayer's bank account. 122 The taxpayer gave evidence that the 'Loan' was a term of his employment contract which stipulated that the employer was to hold in trust part of his net salary: 'Then, paragraph 2 stipulates that the employee here has requested that the employer hold in trust part of his net salary. That was obviously inserted at your request; was it not?---It was a discussion we had with Sam. And what was the effect of that to be?---Say I required money - quite a few legal cases and required funds. I was quite happy to – for him to, more or less, loan him money back this way, and as long as --- when I needed it, I could get it back. There was no specification of any amount or regularity with which that was to be done?---Yes. I just specified that I needed $1000 a week to cover my bills. That was the basic agreement, was it not, that you would receive $1000 a week?---Yes, about a $1000 was enough to cover my bills, and I was fine with that. And was the arrangement that money above that, which would be [net of] tax, as you would say, would be available to Sam, if he required it?---Yes. Was that to be a continuing arrangement, or dependant upon a specific request from Sam, for--- ?---I was--- Those moneys to be left in?---It wasn't meant to be continuous. Just for a short period of time, because I was going to – I was going [to] build a house, a new house, and so, I was going [to] build it, I would have needed the funds back. Did you keep a record of the money which was being held in trust by Sam, pursuant to this arrangement?--- No, I left it up to the payroll to do it for me. I knew it wasn't a difficult calculation, so I wasn't too worried about it. I'm sorry?---I knew it wasn't a difficult calculation, so I wasn't too worried about it. Why was it not difficult?--Because my net pay – I knew what my net pay should have been. I knew what I had, what I got, what I received, so the difference is what I was owed.' 123 The Commissioner observed that the Court would be entitled to be circumspect about this evidence. Apart from the improbability of such an arrangement and the lack of detail, the taxpayer showed a level of insouciance in his evidence about the money that was being loaned. The taxpayer was asked how much he had left in trust for Sam Cassaniti pursuant to that arrangement – he said that he had not worked it out yet. 124 According to the Commissioner, a more likely explanation was that the 'Loan' was used as a device to falsely make up the difference in any pay period between the gross amount stated on Annexure C and the net amount that was deposited into the taxpayer's bank account. Other deductions which were more likely to be fixed amounts such as the 'Salary Sacrifice-Car-DC' ($206.58), the 'PAYG Withholding' (which would be calculated according to a formula) and 'SGC Advance Asset SF' ($225) did not offer the same mutability. This can be seen in the pay period for 21 September 2001 where 'PAYG Withholding' increased from $974 to $1,074 and the 'Loan' decreased from $338.14 to $238.14. 125 In addition, the taxpayer, in relation to a request made under s 167 of the Evidence Act, had said that he had been unable to locate any loan documentation. Evidence of Mr Rodney McKemmish 126 In September 2008 a solicitor employed by the Australian Government Solicitor, became aware of a computer server which was the subject of a subpoena issued by the liquidator of RFS. At that time the server and an Encase copy of the information contained on the server were held by Mr Robert Moodie of Rodgers Reidy, the Provisional Liquidator of RFS. The Commissioner subsequently issued a subpoena and obtained access to the data on that server. Pursuant to orders of the Court the computer server was forensically imaged, a process whereby a copy is made of the entire contents of the hard disk drive located within a computer system. The data was forensically examined by Mr Rodney McKemmish, a computer forensic specialist, who swore two affidavits in relation to that data, one on 31 March 2009 (including Exs 'RDM1' to 'RDM21' inclusive) (Ex F) and one on 17 April 2009 (including Exs 'RDM22' to 'RDM24' inclusive) (Ex G). 127 In Ex F, Mr McKemmish outlines his method of forensically examining the data. Mr McKemmish identified a number of documents of interest including MYOB data files which have been exhibited to his affidavit. 128 Exhibit 'RDM4' is a printout of a MYOB record for the period 4 July 2003 to 9 July 2004 in respect of various persons one of which is the taxpayer. The taxpayer claimed in an affidavit sworn 18 June 2007 (Ex 1, 133) that he had not been provided with copies of the payroll activity statements for the financial year ended 30 June 2004. It appears that this document was held on computer and was always available to the taxpayer – see the reference to 'Admin/admin old system/Staff' at para 12 of Ex F. Mr McKemmish also concludes at para 13 that the file was copied from a previous location which suggests that the records may have been transferred when there was a server upgrade. 129 According to Ex 'RDM4' the taxpayer was paid in most weeks a gross salary of $1,538.48. The total annual salary in the 2004 year according to Exhibit 'RDM4' amounted to $77,954 and the total PAYG withheld was $19,990. A number of deductions were made from the weekly gross figure as is exemplified by the relevant details for the week 4 July 2003: Debit Credit Electronic Clearing Account $927.90 Wages and Salaries $1,538.48 HP - DC Car $206.58 PAYG Withholding Payable $404.00 SGC Exp Advance Super Plus $138.46 SGC Payable Advance Super $138.46 130 Exhibit 'RDM4' shows an amount of PAYG was withheld in the sum of $404. According to the PAYG Withholding Tax Tables published by the ATO in respect of 2004, the correct amount of PAYG which should have been withheld was $496. The amount which was credited to the taxpayer's bank account for the pay period 4 July 2003 was $927.90 which accords with the taxpayer's bank statement No. 43. It is to be noted that there is a deduction in respect of a hire purchase arrangement for a car amounting to $206.58 which is the same amount that appears in Annexure C except it is there described as a salary sacrifice. What is also of note is that there is no deduction in respect of a 'Loan'. 131 It is to be further noted that the amount deducted in respect of superannuation contributions differs in 'RDM4' from what appears in Annexure C. For most pay periods for the year ended 30 June 2003 the taxpayer according to Annexure C had an amount deducted of $225 – see for example the pay period 27 June 2003 and the weeks preceding that period – which differs from what appears in 'RDM4' ($138.46). As a percentage of gross salary paid this translates into the following: Gross Salary Superannuation Percentage Annexure C 2,500.00 225.00 9% 'RDM4' 1,538.48 138.46 9% (8.99979) 132 In a letter dated 27 October 2003 from RFS to the taxpayer which is within Ex H it was confirmed that an amount of $1,799.98 had been paid by way of superannuation for the quarter ended 30 September 2003. As there were 13 pay weeks in that quarter this amount corresponds with 'RDM4' (138.46 x 13 = $1,799.98). 133 Exhibit 'RDM5' is a printout of a MYOB record for the pay periods from 6 July 2001 to 14 September 2001 in respect of the taxpayer and other employees. Exhibit 'RDM-5' has similar details to what appears in Annexure C. In relation to the pay period 6 July 2001 it includes the details identified as a 'Loan' ($338.14) and 'SGC Exp Advance Bank' ($200.00). The amount of superannuation which is paid amounts to 8% of gross salary. 134 What is significant is that it describes a detail in relation to a car hire purchase payment ($206.58) as follows 'HP – XSR 191'. The taxpayer acknowledged that this is the registration plate of the car purchased by the taxpayer in December 2001. Other documents subpoenaed from Macquarie Leasing (now Ex L) confirm that the registration plate corresponded to a Mitsubishi Verada Sedan purchased from Tri-City Trucks Pty Ltd in December 2001. This suggests that 'RDM5' is not a contemporaneous record or reliable given that the taxpayer did not own this car in July 2001. 135 Exhibit 'RDM6' is a printout of a MYOB record for the pay periods from 6 July 2001 to 22 March 2002 in respect of the taxpayer and other employees. Exhibit 'RDM6' has a number of features in common with Ex 'RDM5' and Annexure C. The amount of superannuation paid according to Ex 'RDM6' amounts to $200 which is the same as Annexure C and translates into a rate of 8% of gross salary. It is to be noticed however that the amounts of $206.58 and $338.14 described respectively as 'Loan' and 'HP – XSR 191' have been combined to yield a global amount of $544.72 which has been described as 'Salary Sacrifice'. According to the Commissioner, this document suggests experimentation with alternatives by the taxpayer or persons at his direction in order to falsely account for the difference between an inflated (and fictional) gross amount and the net amount that was paid into the taxpayer's bank account; what is disclosed by Ex 'RDM6' suggests a process of trialling different alternatives to reach what ultimately became Annexure C. 136 The Commissioner further observed that other features also expose the artificiality of that document. A reference to 'HP – XSR191' begins to appear for the pay week for 16 November 2001. It is clear from the documents obtained from Macquarie Leasing that the approval for finance did not occur until 12 December 2001 and vehicle XSR-191 was not sold by Tri-City Trucks Pty Ltd until 12 December 2001 according to the tax invoice, with payment being made by cheque on 17 December 2001. According to the Commissioner, this anomaly suggests that the HP details for the car inserted in the pay week for 16 November 2001 are fictional. 137 Exhibit 'RDM7' is a printout of a MYOB record for the pay periods from 6 July 2001 to 28 June 2002 in respect of the taxpayer and other employees. The details of the record appearing for the pay week 6 July 2001 show Wages and Salaries amounting to $1,442.28 and two items described as PAYG deductions of $461.00 and $115.38 respectively: Debit Credit Elect. Pays - Nab Account $981.28 Wages and Salaries $1,442.28 PAYG Deductions Payable $461.00 Super Guarantee Charge $115.38 PAYG Deductions Payable $115.38 138 It is likely that the second PAYGW amount of $115.38 is incorrectly described as from 31 August 2001 the same amount is described as Super Guarantee Charge. The amount of superannuation paid according to Exhibit 'RDM7' translates into a rate of 7.999% of gross salary. 139 The total annual salary in the 2002 year according to Ex 'RDM7' amounted to $77,882 and the total PAYG withheld was $27,022. According to PAYG Withholding Tax Tables published by the ATO in respect of the 2002 year the amount of PAYG withholding that should have been withheld was $460.58 which accords with the first amount of the PAYG withheld on Ex 'RDM7'. Also Ex 'RDM7' shows that from 19 December 2001 (the taxpayer signed the application for credit on 14 December 2001) deductions were made in respect of the hire purchase arrangement described on Ex 'RDM7' as HP-XSR191. 140 Exhibit 'RDM8' is a printout of a MYOB record for the pay periods from 5 July 2002 to 9 August 2002 in respect of the taxpayer and other employees. The details of that record appearing for the week 5 July 2002 show Wages and Salaries amounting to $1,538.48 and PAYG deductions of $504.00: Debit Credit NAB - Elect Payments Clearing $827.90 Wages and Salaries $1,538.48 HP -XSR 191 $206.58 PAYG Payable $504.00 SGC Exp Advance Super Plus $138.46 SGC Payable Advance Super $138.46 141 According to PAYG Withholding Tax Tables published by the ATO in respect of the 2003 year the amount of PAYG withholding that should have been withheld was $507.23 which is close to the amount of the PAYG deduction on Ex 'RDM8'. The deduction in respect of the car is recorded as HP - XSR 191. 142 The amount of superannuation paid according to Ex 'RDM8' translates into a rate of 8.999% of gross salary. 143 Exhibit 'RDM9' is a printout of a MYOB record for the pay periods from 5 July 2002 to 20 December 2002 in respect of the taxpayer only. It is to be noted that part of the period is the same as the period covered by Ex 'RDM8' yet the gross figures have been inflated. The amounts on this record correspond to what appears on Annexure C, however the description in respect of the car loan appears as HP SXR191 (on other versions the number plate is XSR-191) whereas on Annexure C it is described as Salary Sacrifice-Car-DC. The amount of superannuation paid according to Ex 'RDM9' translates into a rate of 9% of gross salary. The PAYG amounts withheld are described as 'Payroll Liabilities' and appear as two separate amounts as per the details for 5 July 2002: Debit Credit Payroll Cheque Account $827.90 Wages and Salaries $2,500.00 Loan $405.52 HP - XSR 191 $206.58 Payroll Liabilities $1,060.00 Employment expenses $225.00 Payroll Liabilities $225.00 144 Exhibit 'RDM10' is a printout of a MYOB record for the pay periods from 6 July 2001 to 28 June 2002 in respect of the taxpayer and other employees. Exhibit 'RDM10' appears to be very similar to Ex 'RDM7'. The details of Ex 'RDM10' appearing for the week 6 July 2001 show Wages and Salaries amounting to $1,442.28 and PAYG deductions of $461.00: Debit Credit Elect. Pays - Nab Account $981.28 Wages and Salaries $1,442.28 PAYG Deductions Payable $461.00 Super Guarantee Charge $115.38 PAYG Deductions Payable $115.38 145 As was the case for Ex 'RDM7' it is likely that the second PAYG amount withheld, viz., $115.38, is a misdescription, as from 31 August 2001 the same amount is described as Super Guarantee Charge. The amount of superannuation paid according to Ex 'RDM10' translates into a rate of 7.999% of gross salary. According to PAYG Withholding Tax Tables published by the ATO in respect of the 2002 year the amount of PAYG withholding that should have been withheld was $460.58 which accords with the amount of the PAYG deduction on Ex 'RDM 10'. 146 Exhibit 'RDM11' is a printout of a MYOB record for the pay periods from 4 July 2003 to 2 July 2004 in respect of the taxpayer and other employees. This is the same document as Ex 'RDM4' except there is an additional page at the end. The observations in respect of Ex 'RDM4' at [129] – [131] above are applicable. 147 Exhibit 'RDM12' is a printout of a MYOB record for the pay periods from 4 July 2003 to 25 June 2004 in respect of the taxpayer and other employees. This is almost identical to Ex 'RDM4'. The observations in respect of Ex 'RDM4' at [129] – [131] above are again applicable. 148 Exhibit 'RDM13' is a printout of a MYOB record for the pay periods from 6 July 2001 to 19 December 2001 in respect of the taxpayer and other employees and is similar in content to Ex 'RDM7'. Accordingly the observations in respect of Ex 'RDM7' at [137] – [139] above are applicable. 149 Exhibit 'RDM14' is a printout of a MYOB record for the pay periods within the periods 5 July 2002 to 27 June 2003 in respect of the taxpayer only. According to this document the amount which was credited to the taxpayer's bank account for the pay period 5 July 2002 was $827.90 which can be seen from bank statement No. 30. The amounts on this record correspond to what appears on Annexure C, however the description in respect of the car loan ($206.58) appears as HP SXR191 (on other versions the number plate is XSR-191) whereas on Annexure C it is described as Salary Sacrifice-Car-DC: Debit Credit Electronic Clearing Account $827.90 Wages and Salaries $2,500.00 HP -SXR191 $206.58 Salary Sacrifice DC $505.52 Payroll Liabilities $960.00 Employment Expenses $225.00 Payroll Liabilities $225.00 150 It is also to be noted that on this version the alleged PAYG withholding is $960 whereas on Annexure C it is shown as $1,060 and there is an amount described as Salary Sacrifice ($505.52) which appears to replace what is described on Annexure C as a Loan ($405.52). Also what is described on Annexure C as SGC Advance SF ($225) appears above as Employment Expenses ($225). 151 According to the Commissioner, this version again shows what appears to be experimentation by the taxpayer or other persons assisting him with different possibilities to account for the difference between the amount deposited into the taxpayer's bank account and the gross amount which the taxpayer claims he was paid. 152 Exhibit 'RDM15' is a printout of a MYOB record for the pay period 4 July 2003 in respect of the taxpayer and other employees and is similar in content to Exs 'RDM4' and 'RDM 12'. 153 Exhibit 'RDM16' is a printout of a MYOB record for the pay periods from 5 July 2002 to 27 June 2003 in respect of the taxpayer and other employees and is similar in content to Ex 'RDM8' although Ex 'RDM16' is in respect of a longer period. Accordingly the observations in respect of Ex 'RDM8' at [140] – [142] above are applicable. The total annual salary in the 2003 year according to Ex 'RDM16' amounted to $80,862 and the total PAYG withheld was $26,393. 154 Exhibit 'RDM17' is a printout of a MYOB record for the pay periods within the period 4 July 2003 to 25 June 2004 in respect of the taxpayer only. The taxpayer claimed in an affidavit sworn 18 June 2007 that he had not been provided with copies of the payroll activity statements for the financial year ended 30 June 2004. The figures appearing on Ex 'RDM17' invite comparison with Ex 'RDM4' (see [129] – [131] above) which was for the period 4 July 2003 to 9 July 2004. The amounts on Ex 'RDM17' in respect of wages and salaries, payroll Liabilities and SGC Super have all been inflated. There is also an additional amount on Ex 'RDM17' described as Salary Sacrifice ($425.52): Debit Credit Electronic Clearing Account $927.90 Wages and Salaries $2,500.00 HP -SXR191 $206.58 Salary Sacrifice DC $425.52 Payroll Liabilities $940.00 SGC Exp Advance Super Plus $225.00 SGC Payable Advance Super $225.00 155 According to the Commissioner, what this document shows is a juggling of alternatives in respect of the deductions in order to account for the difference between the gross amount of salary and wages ($2,500.00) and the amount that was deposited into the taxpayer's bank account of $927.90. 156 In relation to the amount said to be paid in respect of superannuation ($225) this differs from what is seen on Ex 'RDM4' ($138.46) referred to above. The amount of superannuation paid according to Ex 'RDM17' translates into a rate of 9% of gross salary. For the quarter ended 30 September 2003 according to Ex 'RMD17' a total of $2,925 was paid in respect of superannuation. This figure is inconsistent with what was stated in a letter dated 27 October 2003 from RFS to the taxpayer in which it was confirmed that an amount of $1,799.98 had been paid by way of superannuation for the quarter ended 30 September 2003. 157 Exhibits 'RDM18', 'RDM19', 'RDM20' and 'RDM21' are printouts of MYOB records for the pay periods within the period 4 July 2003 to 2 July 2004 in respect of the taxpayer and other employees, and appear to be the same as Ex 'RDM4'. The observations in relation to Ex 'RDM4' at [129] – [131] above are therefore applicable. 158 In general what this evidence shows, according to the Commissioner, is that a number of versions of wage records were created in respect of the taxpayer. According to the Commissioner, these fall into two categories. The first category are those documents which show a level of gross salary commensurate with what the taxpayer was likely to have been earning having regard to previous years, and where the device of the 'Loan' does not appear, for example: Exs 'RDM4', 'RDM7', 'RDM8', 'RDM10', 'RDM11', 'RDM12', 'RDM13', 'RDM15', 'RDM16', 'RDM18', 'RDM19', 'RDM20', and 'RDM21'. The second category are the remaining exhibits comprising documents which resemble Annexure C, where, according to the Commissioner, the gross amounts of salary and the PAYGW have been inflated and where, according to the Commissioner, it is manifest that there has been an experimentation with different alternatives in a process of refinement to reach the version that is seen in Annexure C. 159 The affidavit of Mr McKemmish (Ex F) reviews the relevant properties of each of the electronic files, hard copies of which are exhibited to his affidavit. In relation to the second category referred to above and comprising Exs 'RDM6', 'RDM9', 'RDM14' and 'RDM17', the 'file location on computer server'' as stated by Mr McKemmish for each of those exhibits includes a detail which is common to all files in that category but is not found in respect of files in the first category: 'D & GC'. For example, Exs 'RDM5' and 'RDM6' have file locations on the computer server as follows: Exhibit File Location RDM5 D:\ShareslHome\patricia\MYOBDATA\C&AGen\Copy of Gen02v11 D & GC wages.dat RDM6 D:\Shares\Home\patricia\MYOBDATA\C&AGen\GenO2v11 D & GC wages.dat 160 The file location describes a path through various folders to the ultimate location of the electronic file. The last folder in relation to Ex 'RDM5' is Copy of Gen02v11D & GC wages.dat and in relation to Ex 'RDM6' is Gen02vl1 D& GC wages.dat. According to the Commissioner, it is to be inferred that the acronym 'D & GC' refers to David and Gino Cassaniti. Analysis of the Submissions What Constitutes a Withholding? 161 While the term 'amount withheld' by an entity from a 'withholding payment', and that term itself, are defined (by s 995-1(1) of the ITAA 97), the word 'withhold' is not defined. Its meaning must be considered in the legislative context in which it exists. The previous (PAYE) system that existed used the term 'deduct'. It was this expression which was considered in Sargon where Ormiston J concluded that a deduction involved an arithmetic subtraction from a gross amount and the payment of a net amount, but did not specifically require the retention of the amount so deducted in any identifiable form: see [26] above. 162 The expression 'withhold' is relevantly defined by the Oxford English Dictionary to mean: 'To keep back; to keep in one's possession (what belongs to, is due to, or is desired by another); to refrain from giving, granting, or allowing. Formerly with dat. of person. (The current sense.)' 163 It is clear that the prevailing sense is one of deprivation, the holding back of something due to the employee, resulting in the reduction of a gross amount to a net amount which is paid to the employee. Accordingly, no credit will be available to the payee if they have received a gross amount. There must be a process by which this withholding takes place. It may be reflected in actual funds held by the payer on behalf of the employee pending payment to the Commissioner; on the other hand, and more usually, it may only be reflected in the wage records and books of account of the payer as an accounting entry. 164 Where an amount has been set aside by the payer and is quarantined in a bank account pending its remission to the Commissioner clearly the presence of the funds so designated will demonstrate that a withholding has been made. Indeed the remission of the amounts withheld will invariably lead to the same conclusion. 165 Where in the usual case the withholding process is represented only by accounting entries the question whether a legitimate process of withholding has ensued will depend upon a close examination of those books and records and the surrounding circumstances to see whether it may be inferred from those records and circumstances that a withholding has occurred. At one end of the spectrum, a mere journal entry in the absence of other evidence may not be sufficient evidence, having regard to the surrounding circumstances, that there has been a payment of salary and wages and a withholding from that payment. The authorities make it plain that entries of this kind, standing alone, are not conclusive evidence of the transaction: see, Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation (1991) 29 FCR 93 at 100 – 103. 166 It is clear that what was said by Barwick CJ, Mason and Jacobs JJ in Barnes at 494 (see [25] above), was predicated on deductions having in fact been made. 167 Where there is a controversy about the occurrence of a withholding the surrounding circumstances may either support or detract from the drawing of an inference that a withholding was in fact made. There are a number of reporting requirements where an employer makes a PAYG withholding. In particular, pursuant to s 16-150 of Sch 1 to the TAA the payer is required to give notification to the Commissioner of the amounts it was required to pay to the Commissioner under s 16-70(1) on or before the day on which the amount is due to be paid (regardless of whether it is paid). 168 The notification must be in the 'approved form' and lodged with the Commissioner. This will usually be by way of lodgement of the Business Activity Statements ('BAS'). Further, pursuant to s 16-153(2) the payer is required to give an annual report to the Commissioner in the 'approved form' being a summary of payments withheld not later than 14 August after the end of the financial year. 169 These provisions govern and describe the obligations of the payer of salary and wages. Compliance with those provisions will constitute contemporaneous documentary evidence from which it may be inferred that a withholding has occurred. Conversely, where there has been little or no compliance with those provisions, it may be an open question whether in fact a withholding was made. 170 In the normal course, it could be expected that a payer of salary of wages who was making withholdings at the required rate would have in its possession, accounting and wage records showing an arithmetic subtraction from a gross amount and payment of the net amount, or alternatively records showing that the amounts withheld had been set aside for payment to the Commissioner. 171 If a payer was to rely upon accounting records to show that a withholding had occurred in relation to a particular employee it would be necessary to show that an arithmetic subtraction had been made in respect of that employee. This follows from the terms of s 12‑35. 172 A payer of salary and wages who was complying with the requirements of the TAA could be also expected to keep records showing a global amount deducted in respect of all employees in a reporting period in order to complete its BAS (s 16-150 of Sch 1 to the TAA), and to keep records enabling it to report annually the total amount of PAYG withholding (subs 16‑153(2)). The absence of such records may inferentially lead to the conclusion that no amount was withheld. 173 In his final written outline of submissions, the taxpayer submitted that the scheme of the legislation is that a withholding (or deduction) is taken to have been made by virtue of the liability of the entity to withhold, regardless of whether any amount was actually withheld or not. I cannot accept that submission; indeed, I reject it. The taxpayer sought to support the submission by reference to what was said in the extract from the joint judgment in Barnes quoted in [25] above, but what was there said does not go that far; in any event, as noted in [166] above, what was there said was predicated on deductions having in fact been made. Reliance was also placed on what was said by Jenkinson J in Taylor v Commissioner of Taxation (1987) 16 FCR 212 at 223: 'Secondly, the legislative scheme, enacted in order to secure the revenue, is yet framed in such a way as to protect the employee against loss in consequence of misfeasance by the employer. The employee is given a credit measured, not by the amount deducted and actually coming into the Consolidated Revenue Fund, nor by the amounts in respect which the employer issues a group certificate and delivers a tax stamps sheet, but by the amount actually deducted by the employer: see ss 221Q and 221H. Thus the crediting in payment of tax may be at the cost of the revenue.' (Emphasis added.) But such reliance is misconceived. It is clear from the emphasised words that an employee is only entitled to a credit to the extent of the amount actually deducted (now withheld) by the employer (now the payer). The Withholding is Outside the Assessment Process 174 Both parties accepted that withholding under the PAYG regime, like deductions under the PAYE regime, did not form part of the assessment process: see Constantinidis v Federal Commissioner of Taxation (2004) 55 ATR 348 at [72] per Hill J. On the back of this common ground, the taxpayer submitted that the Commissioner was not entitled, and does not have the power, to assess the taxpayer (the year of income ended 30 June 2004), or amend the assessment (the years of income ended 30 June 2002 and 2003) of the taxpayer, so as to disallow the credit provided for by s 18-15(1). The credit is not part of the process of assessment, so the argument went, and accordingly is not a matter that the Commissioner may allow or disallow in undertaking that task. Reference was made to what Merkel J (with whom Burchett and French JJ agreed) said in Commissioner of Taxation v Ryan (1998) 82 FCR 345 at 363 – 364: 'As the fixing of the taxable income and the tax payable thereon are two essential ingredients of an assessment made under s 166 the amendment of these particulars will constitute an amendment of the assessment in a "particular" for the purposes of s 170(3). Such an amendment may be contrasted with an amendment of an amount included in the notice of assessment as a credit for a group certificate or provisional tax which might be an amendment of a particular of the notice but is not an amendment of a particular of the assessment: see Webb v Commissioner of Taxation (No 2) at 400-401; Prestige Motors v Commissioner of Taxation (1993) 47 FCR 45 at 145; Commissioner of Taxation v Clyne (1982) 60 FLR 45 and Commonwealth v Opiel (1986) 18 ATR 374; 86 ATC 5013. In essence these cases decide that details such as provisional tax and other amounts standing to the credit of the taxpayer, which are relevant to calculating the taxpayer's liability to pay the tax assessed on the taxable income, are particulars of the statement of account between the taxpayer and the Commissioner but are not particulars of the assessment for the purposes of the Act and, in particular, s 170.' 175 With respect, again the submission is misconceived. It can be accepted that a credit for PAYG withholding which appears on a notice of assessment arises only by reason of the operation of s 18-15(1), and not as part of the assessment process. The credit is not a particular of the assessment; rather, as Merkel J said in Ryan, it is a particular of the statement of account between the taxpayer and the Commissioner. It is a particular which is not protected by the privative provisions of s 177(1) of the ITAA 36; in other words, the production of the notice of assessment is not conclusive evidence that the amount of the credit is correct; and if a person can show that the total of the 'amounts withheld from withholding payments' made to the person during an income year is greater than the amount (if any) of the credit for PAYG withholding shown on the notice of assessment for that year, then the person will be entitled to a credit for the greater amount and nothing contained in the notice of assessment will prevent that outcome. This, in my view, is a complete answer to the taxpayer's submission in relation to the 2004 year. In relation to the two earlier years, while the issue of the notices of amended assessment for the years of income ended 30 June 2002 and 2003 did not complete a process of amendment of the taxpayer's assessments for those years, because the only adjustment in each of those years was on account of the reversal of the PAYG withholding credit included in the original notices of assessment, it does not follow that the issue of the notices was beyond power; all it means is that, contrary to what they purport to be, they are not notices of amended assessment to which objection may be made, but rather notices of restatement of account between the taxpayer and the Commissioner. More importantly, for present purposes, there were assessments in each of the relevant years of income so as to satisfy the para (a) condition of s 18-15(1) and so activate the taxpayer's entitlement to any credit for PAYG withholding, but only to the extent provided for therein, namely, 'the total of the amounts withheld from withholding payments made to the [taxpayer]'. Submissions on the Evidence 176 The taxpayer submitted that the evidence upon which the Commissioner relies is effectively limited to the print-outs produced by Mr McKemmish from the computer server. These print-outs suggest two different versions of the MYOB for the same period, showing different salaries paid to the taxpayer – a salary of $2,500 and one of $1,538.48. The taxpayer relies on that version which reflects Annexure C. 177 The taxpayer submitted that the Court should accept Annexure C and those print-outs from Mr McKemmish's report (Exs 'RDM6' and 'RDM9') which reflect a salary of $2,500 per week being paid to the taxpayer for the relevant years of income. The taxpayer submitted that this is because a comparison of the amounts of net pay being paid into the bank accounts of the taxpayer correspond with those MYOB printouts reflecting the $2,500 salary, and not the other MYOB printouts reflecting a lesser salary; see the bank statements of the taxpayer annexed 'DC 2' to his affidavit sworn on 7 May 2008. 178 This submission must be rejected because it is plainly wrong. The print-outs reflecting the lesser salary (Exs 'RDM7' and 'RDM16') for the same period also correspond with amounts of net pay paid into the bank account of the taxpayer and without the anomalies present in Annexure C and in Exs 'RDM6' and 'RDM9' referred to above. 179 In addition, the taxpayer submitted that the Court should reject the alternative version on the following grounds: (1) The integrity of the disc from which Mr McKemmish obtained the images is open to substantial doubt: Mr Moodie should not have been in possession of the disc and, secondly, the dealings with that disc both in the hands of Mr Moodie and previous holders is entirely uncertain and may have affected the data – oral evidence of Mr McKemmish. (2) Mr McKemmish, although giving evidence, was not the person who actually downloaded the disc (that person being Mr Carl House), and again the chain of custody (and integrity) of the disc is compromised (see Cooke v Federal Commissioner of Taxation 2002 ATC 4937 at [37] where the report was partly prepared by another). (3) The expert for the Commissioner, Mr Ferrier (Ex E), gives an opinion that Annexure C was 'consistent with the reports reflecting a contemporaneous record of payroll transactions': at [7]. (4) A possible explanation for the two versions was given by the taxpayer and Mr Sam Cassaniti; that salaries for each new financial year were not agreed to until later in the year and this lead to the backdating of records to 1 July to reflect the new situation. (This is entirely consistent with the Employment Contract that was executed on 15 October 2001 but expressed as applying from 1 July 2001; see annexure 'B' to the affidavit of the taxpayer sworn on 13 December 2005.) 180 Accepting Mr Ferrier's evidence in (3), which may only reflect the guile with which the information in Annexure C was put together, the other grounds put forward for rejecting the alternative version reflecting a lesser salary cannot be sustained. There is no evidence to suggest that the integrity of the information downloaded from the file server is in doubt by reason of who had possession of the file server or who actually downloaded that information. It is not as if the taxpayer did not have the opportunity to put such evidence on and one can only infer that no such evidence was put on because none existed. 181 The possible explanation for the two versions on the file server given by the taxpayer and Mr Sam Cassiniti referred to in [179(4)] above – that salaries for each new financial year were not agreed to until later in the year and this lead to the backdating of records to 1 July to reflect the new situation – must also be rejected out of hand. According to the evidence led by the taxpayer, his salary of $2,500 per week remained constant throughout the relevant years of income; there were no increases, backdated or otherwise. Indeed, this fixed figure lay at the heart of the taxpayer's case. 182 The Commissioner submitted that neither the taxpayer nor Mr Sam Cassiniti were credible witnesses. There can be no doubt that there are a number of inconsistencies and unexplained anomalies in their evidence which are detailed above and referred to below. According to the Commissioner, neither witness presented as a person whose testimony could be relied upon: the Court would be entitled to reject the evidence each of those persons gave in relation to Annexure C. The Commissioner further submitted that their evidence is also attenuated by an inability or a refusal to produce records showing the provenance of Annexure C which, for a firm of accountants, might be thought to be extraordinary. In the Commissioner's words, the thesis of the taxpayer's case, built as it was around Annexure C, meant that a finding that Annexure C was unreliable infected any evidence that was given in support of the central thesis. 183 Inconsistencies in the taxpayer's evidence are detailed at [43], [46], [48], [49], [51], [52] and [54] above; he was unable to provide a satisfactory explanation in relation to a number of anomalies in the evidence, including those detailed at [53], [54], [61], [63], [66] and [69] above; and he was unable to recall other matters relating to his remuneration, superannuation and taxation affairs which one might have expected him to recall, including those detailed at [59] and [61] above. 184 In my view, by his evidence, the taxpayer intentionally sought to convey the impression that responsibility for, control over and involvement with the deduction or withholding process shown on Annexure C for each weekly pay period was vested in persons other than himself and he, as an employee of RFS, had to accept that the process as shown on Annexure C represented a contemporaneous accounting record of what in fact occurred. Notwithstanding, it was the taxpayer who put Annexure C into evidence; no documentation was put into evidence by any officer of RFS, or any other person responsible for the RFS payroll, to support a finding that the deduction or withholding process shown on Annexure C represented a contemporaneous accounting record of what in fact occurred. It follows, in my view, that if I conclude that Annexure C does not represent a contemporaneous accounting record of the deduction or withholding process that in fact occurred, the taxpayer's original application would have to be dismissed. 185 Inconsistencies and unexplained, or unsatisfactory explanations of, anomalies in Mr Sam Cassiniti's evidence are detailed at [73] and [74] – [80] inclusive above. 186 If it were necessary to a resolution of the issue in dispute in this case, I would have to make adverse findings going to the credit of the taxpayer and Mr Sam Cassiniti. Neither impressed me by the manner in which they gave their evidence and the substantive content of that evidence was even less impressive. On the other hand, I do not think it is necessary to do so. In this regard, I am mindful of what was said in the joint judgment of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy (2003) 214 CLR 118 at [31] for judges to reach their conclusion, as far as possible, by reference to contemporary materials, objectively established facts and the apparent logic of events, rather than by reliance on findings of the credit of witnesses. 187 The Commissioner submitted that the Court should find that Annexure C was not a contemporaneous accounting record but was concocted at a later point in time to support the figures in the taxpayer's tax returns in relation to the gross amount of salary and wages and the PAYGW alleged to have been withheld. The Commissioner submitted that Ex F (the affidavit of Rodney McKemmish sworn 31 March 2009) strongly supports that conclusion. The Commissioner observed that he issued a number of subpoena to RFS for relevant records which were initially rebuffed after considerable delays; the subpoena were then reissued and produced very limited response. According to the Commissioner, it is a fair observation that there has been little enthusiasm from the taxpayer's side to produce documentation showing the provenance of Annexure C when such documentation ought to have been readily forthcoming. 188 I agree with all aspects of the submission in [187] above; and I so find. I also agree with the Commissioner's submission that it is open to the Court to find that the deduction or withholding of amounts as 'Loan' appearing on Annexure C was simply an artifice, albeit not to the exclusion of others, by which the taxpayer sought to account for the difference between the gross figure stated in his return and the net amount that was deposited into his bank account; and so find. Findings on the original application 189 Considering all the evidence, in my view a conclusion that Annexure C is not a contemporaneous accounting record of the amounts of PAYG withheld from payments of salary or wages to the taxpayer during the years ended 30 June 2002 and 2003 is overwhelming, and so find. In my view, the evidence points to Annexure C being brought into existence by one or more of Patricia Cassaniti, Kim Thorn or the taxpayer, and if not the taxpayer, at the behest of the taxpayer, upon the taxpayer being challenged by the Commissioner as to the PAYG withholding credit claimed in his income tax returns for each of those years, and I so find. Implicit in this latter finding, is a finding that the taxpayer was aware that the amounts of gross salary or wages and PAYG withheld therefrom as shown on Annexure C were inflated fictions. 190 What little other evidence exists to support the credit claimed by the taxpayer for amounts of PAYG said to be withheld from payments of his salary or wages during each of the relevant years of income, none of that evidence is in the form of books or records containing accounting entries made at a time contemporaneous with the making of such payments. Neither RFS nor any director of RFS, or any other person responsible for the RFS payroll, produced or put on any such evidence. 191 It follows and I find that the payer of the taxpayer's salary during each of the relevant years of income did not withhold amounts of PAYG from payments of salary or wages to the taxpayer equal to the credit amount claimed by the taxpayer in each of those years, namely, $55,963 (2002), $55,843 (2003) and $55,299 (2004) and that, in consequence, the taxpayer is not entitled to a credit in each of those years for the relevant amount. 192 Absent the amended application, these findings would be sufficient to require me to dismiss the taxpayer's original application; the case that he put, and the evidence he led in support of that case, neither contemplated nor accommodated relief in respect of a lesser amount of credit in each of the relevant years of income. the Amended Application and the Findings Thereon 193 As indicated at [5] above, I propose to grant the taxpayer leave to file the amended application, dated 9 September 2009, that was handed up in Court on the last day of the hearing. The application for leave was opposed by the Commissioner and, in those circumstances, it is appropriate that I set out my reasons for granting leave. 194 Before doing so, I should note that there are, at least, two errors in the terms of the amended application. Paragraph 1B provides: '1B Further or in the alternative to paragraph 1A: (a) a declaration that the Applicant is entitled to credits for the year of income ended 30 June 2002 conformably with the entries recorded as deductions from salary or wages within the account styled "David Cassaniti" reproduced as an exhibit between pages 352 – 301 to the Affidavit of Rodney David McKemmish sworn 31 March 2009. (b) a declaration that the Applicant is entitled to credits for the years of income ended 30 June 2003 and 2004 conformably with the entries recorded as deductions from salary or wages within the account styled "David Cassaniti" reproduced as an exhibit between pages 48 – 230 of the Affidavit of Rodney David McKemmish sworn 31 March 2009.' First, the reference in sub-para (a) to 'pages 352 – 301' should be to 'pages 252 – 301'. Second, the reference in sub-para (b) to 'pages 48 – 230' – those pages only deal with the year ended 30 June 2004, not with the year ended 30 June 2003. That year is dealt with between pages 764 – 924 in another exhibit (Ex 'RDM16') to Mr McKemmish's affidavit. Nevertheless, having regard to the terms of paras 1A and 3 of the amended application, I am prepared to read para 1B as if it correctly identified the page references of the exhibits to Mr McKemmish's affidavit. 195 My decision to grant the taxpayer leave to file the amended application is one which I reached on balance after taking into account competing considerations. 196 On the one hand, right up until the last moment, the taxpayer has run a case founded on the inflated amounts of gross salary or wages and PAYG withheld set out in Annexure C. I have found that he was aware of this (see [189] above) and he must be taken to have understood the upside and the downside of his challenge to the Commissioner's decision to reverse the credits he claimed in his income tax returns based on these amounts of inflated PAYG withholding. If he succeeded, he received a refund of tax in each of the relevant years of income. If he failed, he suffered tax on an amount which overstated his taxable income by the overstatement of his gross salary or wages without receiving any PAYG withholding credit, even for amounts of PAYG withholding actually made from payments of salary or wages paid to him. In other words, failure led to double jeopardy, but that was a function of the form of the relief he claimed in his original application; all or nothing. 197 On the other hand, it is clear, in my view, that the material exhibited to Mr McKemmish's affidavit establishes, and I find, that amounts of PAYG were withheld from payments of salary or wages to the taxpayer during the relevant years of income as follows: Year PAYG Exhibit 2002 $27,022.76 RDM7 2003 $26,393.50 RDM16 2004 $19,990.00 RDM4 198 This evidence was undoubtedly put on by the Commissioner with a view to establishing that the deductions or withholdings shown on Annexure C could not be relied upon; that was its principal purpose. But it was also put on as a default or fallback position, namely, that if I were able to conclude that there had been PAYG amounts withheld from payments of salary or wages to the taxpayer during the relevant years of income, the amount withheld in each year did not exceed the amount detailed in the material contained in Exs 'RDM7', 'RDM16' and 'RDM4' to Mr McKemmish's affidavit. 199 As events have transpired, the evidence put on by the Commissioner from Mr McKemmish has served both purposes, but I do not think I can give effect to the finding at [197] above, with sufficient certainty to do justice between the parties, unless the taxpayer is given leave to file his amended application. It is not my function to deny or stand in the way of a taxpayer's entitlement to a credit arising under statute where the evidence before the Court clearly establishes that entitlement; all the more so where, as in the present case, the taxpayer has incurred the jeopardy of suffering tax on an overstated taxable income. Hence my decision to grant leave. 200 The declaratory relief granted reflects the underlying finding in [197] above, as well as the grant of leave to file the amended application. 201 Notwithstanding the terms of the declaratory relief granted which, at first blush, might suggest that the taxpayer has been successful in part, the taxpayer should pay the Commissioner's costs including reserved costs. His original application should never have been brought. As indicated above, I have no doubt that the taxpayer was well aware from the outset that his claims for credit for PAYG withholding were inflated in each of the relevant years of income. I also have no doubt that had it suited his interests, he and others with whom he was associated at RFS and Cassiniti & Associates were in a position to adduce the evidence that ultimately the Commissioner felt impelled to adduce, at great cost in terms of time, resources and expense. I certify that the preceding two hundred and one (201) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds. Associate: Dated: 24 June 2010