FEDERAL COURT OF AUSTRALIA Agius v Commissioner of Taxation [2015] FCA 707 Citation: Agius v Commissioner of Taxation [2015] FCA 707 Appeal from: Agius and Commissioner of Taxation [2014] AATA 854 Parties: ROBERT AGIUS v COMMISSIONER OF TAXATION File number: NSD 1327 of 2014 Judge: GRIFFITHS J Date of judgment: 14 July 2015 Catchwords: TAXATION – appeal from the Administrative Appeals Tribunal ('Tribunal') – where the appellant had lodged objections to default assessments under s 167 of the Income Tax Assessment Act 1936 (Cth) – whether the Tribunal failed to apply the relevant tests in concluding that the appellant's income had an Australian source – whether there was evidence to support the Tribunal's findings that the appellant received amounts other than in the categories identified by the appellant – whether the Tribunal misconstrued the appellant's burden of proof under s 14ZZK of the Tax Administration Act 1953 Legislation: Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1936 (Cth) s 44(1), 92(1)(b), 128D, 167, 190(b) Income Tax Assessment Act 1997 (Cth) s 6-5, 6-5(3), 995-1 Taxation Administration Act 1953 (Cth) s 14ZZK Cases cited: Agius and Commissioner of Taxation [2014] AATA 854 Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 Commissioner of Taxation v Glennan [1999] FCA 297; (1999) 90 FCR 538 Dalco v Commissioner of Taxation (1988) 88 ATC 4131 Dalco v Federal Commissioner of Taxation (1988) 82 ALR 669 Esquire Nominees Ltd v Federal Commissioner of Taxation [1937] HCA 67; (1973) 129 CLR 177 Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 164 Federal Commissioner of Taxation v French [1957] HCA 73; (1957) 98 CLR 398 Federal Commissioner of Taxation v Mitchum [1965] HCA 23; (1965) 113 CLR 401 Commissioner of Taxation v Rigoli [2013] FCA 784 George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183 Haritos v Commissioner of Taxation [2015] FCAFC 92 Kumagai Gumi Company Ltd v Federal Commissioner of Taxation [1999] FCA 235; (1990) 90 FCR 274 Ma v Federal Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 May v Military Rehabilitation and Compensation Commission [2015] FCAFC 93 Nathan v Federal Commissioner of Taxation [1918] HCA 45; (1918) 25 CLR 183 Rigoli v Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529 Tariff Reinsurances Limited v The Commissioner of Taxes (Victoria) [1938] HCA 21; (1938) 59 CLR 194 Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54 Watson v Commissioner of Taxation 1930 HCA 28; [1930] 44 CLR 94 Date of hearing: 28 April 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 63 Counsel for the Applicant: Mr N Kulkarni Solicitor for the Applicant: Butlers Business Lawyers Pty Ltd Counsel for the Respondent: Mr D McGovern SC with Mr A O'Brien Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1327 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: ROBERT AGIUS Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: GRIFFITHS J DATE OF ORDER: 14 July 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant is to pay the respondent's costs as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1327 of 2014 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: ROBERT AGIUS Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: GRIFFITHS J DATE: 14 july 2015 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 This appeal, which is brought under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act), concerns the operation of relevant provisions of taxation legislation dealing with source of income and a taxpayer's burden of proof. The appeal is from a decision of the Administrative Appeals Tribunal (the AAT), Agius and Commissioner of Taxation [2014] AATA 854, which was delivered on 17 November 2014. 2 It is convenient to summarise the relevant reasons of the AAT before considering the questions of law and grounds of appeal. AAT's decision and reasons summarised 3 The AAT outlined the relevant background facts as follows. The appellant is a citizen of Vanuatu. In 2012 he was convicted in Australia of conspiring with another accountant, the late Owen T Daniel, and others to defraud the Commonwealth/dishonestly cause a loss to the Commonwealth between 1997 and 2006. He is currently serving a term of imprisonment. 4 The Commissioner assessed the appellant to Australian income tax for the income years 1997 to 2006 inclusively. The assessments were default assessments under s 167 of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936). The assessments were based on the Commissioner's opinion that, although the appellant was not a resident of Australia during those years, he had derived Australian-sourced income. Under s 6-5 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997), a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income. Section 6-5(3) relevantly provided: (3) If you are a foreign resident, your assessable income includes: (a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and … (The asterisked terms are defined terms.) "Australian source" was defined in s 995-1 as follows: *ordinary income or *statutory income has an Australian source if, and only if, it is *derived from a source in Australia for the purposes of [the ITAA 1936]. (The asterisked terms are defined terms). 5 The Australian-sourced income which the Commissioner considered that the appellant had earned related to dealings which the appellant had had with Mr Daniel and his clients and related transactions. The notices of assessment for the 2001 to 2006 years included administrative penalties at a rate of 75 per cent. 6 The appellant lodged objections against the default assessments. He was partly successful in respect of some of the relevant years but, in other years, the Commissioner increased his taxable income by reference to other amounts which the Commissioner considered to represent the appellant's Australian-sourced income. Amended assessments ultimately issued. 7 The appellant sought a review by the AAT of the objection decisions. 8 One of the primary issues raised in the review was whether the appellant was a resident of Australia during the relevant years. The AAT found that he was not. That finding is not challenged in the appeal and nothing more needs to be said about it. 9 The second primary issue related to how much, if any, of the appellant's income during the relevant years was from Australian sources. This issue needed to be determined in considering whether the appellant had discharged his burden under s 14ZZK of the Taxation Administration Act 1953 (Cth) (the TA Act) of proving that the assessments were excessive. 10 At the relevant time, s 14ZZK provided: 14ZZK Grounds of objection and burden of proof On an application for review of a reviewable objection decision: (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the applicant has the burden of proving that: (i) if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or (ii) if the taxation decision concerned is a franking assessment – the assessment is incorrect; or (iii) in any other case – the taxation decision concerned should not have been made or should have been made differently. 11 The AAT noted that the relevant provisions of the ITAA 1936 and the ITAA 1997 relating to income from Australian sources were substantially similar. 12 The AAT's reasoning in support of its conclusion that the appellant failed to discharge the burden imposed by s 14ZZK of the TA Act may be summarised as follows. 13 The AAT outlined the Commissioner's methodology in assessing the appellant's Australian-sourced income for the relevant years. The methodology began with the fact that the appellant attended meetings in Australia with clients of Owen T Daniel & Co (OTD), usually at OTD's business premises. Mr Daniel would introduce the appellant to a client and the appellant would provide certain information, which the Commissioner characterised as "tax consultancy services" concerning "offshore opportunities". Any clients who were interested in taking advantage of such "offshore opportunities" would then send money to either Vanuatu or New Zealand for the implementation of an offshore arrangement, which included the incorporation of a company in Vanuatu. That money – less a fee or commission – would often find its way back to the client or related entity in Australia. In some instances, the money transferred overseas from Australia was directed to a New Zealand bank account in the name of International Finance Trust Company Limited (IFTC), which was based in Vanuatu and in respect of which the appellant was both a director and shareholder. It might also be noted at this point that the appellant was a partner of a Vanuatu-based chartered accountancy practice, known as Moore Stephens/PKF (PKF), and earned fees for professional services provided in Vanuatu by PKF, which fees predominantly related to preparing annual financial statements for Vanuatu international corporations. 14 The Commissioner's methodology involved calculating the net amount involved in the arrangements, being the sum of money sent overseas by clients who wished to implement an "offshore opportunity", less the sums returned to Australia – and to assess that entire amount as the appellant's Australian-sourced income. As the AAT noted at [62], this methodology operated notwithstanding that the payments were not made to the appellant personally, but to various companies, including IFTC, which the Commissioner considered were owned and controlled by, or otherwise connected with, the appellant. The Commissioner considered that the income was properly attributed to the appellant as income earned by him in Australia from tax consultancy services that he provided. The AAT stated that the Commissioner basically adhered to this methodology in defending the appeals but that the Commissioner also considered that there were "very likely additional amounts that might be included" in the appellant's Australian-sourced income for the relevant years. This was significant to the question whether the appellant had shown the amended assessments to be excessive (see [63]). 15 The AAT then analysed various cases relating to both a taxpayer's burden under s 14ZZK of the TA Act and relevant provisions relating to the source of an item of income. On the former matter, the AAT quoted extensively from the first instance decision of Pagone J in Commissioner of Taxation v Rigoli [2013] FCA 784 (Rigoli) (which was upheld on appeal in Rigoli v Commissioner of Taxation [2014] FCAFC 29; (2014) 141 ALD 529). Justice Pagone held that a taxpayer who seeks to establish that a s 167 assessment based upon the asset betterment method of calculation is excessive had to positively prove his or her "actual taxable income" and demonstrate that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer (citing Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 164 (Dalco) at 623-625 and Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 (Trautwein) at 88). 16 Paragraph 10 of Pagone J's reasons for judgment in Rigoli was one of the passages upon which the AAT relied: A taxpayer seeking to challenge an assessment under s 167 will not succeed merely by proving error by the Commissioner: George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183; Dalco. The task for the taxpayer on objection is not to prove that the Commissioner erred but to prove, albeit on the balance of probabilities (see Ma v Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225), the correct amount upon which tax should be levied. The subject matter of challenge to an assessment under s 167 of the 1936 Act is "the amount" upon which the Commissioner has determined tax ought to be levied. The subject matter of challenge in such cases is not to the individual elements of assessable income and deductions which together would have made up taxable income to the assessment if it had been made under s 166. 17 The AAT concluded at [73] that the authorities established: … that to prove the Commissioner's assessments excessive, Mr Agius must prove what his actual taxable income was in each of the relevant years. That requires him not only to identify those categories of income (if any) that generated Australian-sourced income, but also to prove that there were no others that did so. Having done that, he must satisfy me as to the quantum of income attributable to those Australian-source categories. The sum of all such amounts would equal his "actual taxable income". (Emphasis added.) 18 On the issue of determining the "source" of an item of income, the AAT referred to the High Court's decisions in both Nathan v Federal Commissioner of Taxation [1918] HCA 45; (1918) 25 CLR 183 (Nathan) at 189-190 and Federal Commissioner of Taxation v French [1957] HCA 73; (1957) 98 CLR 398 (French) at 417 per Kitto J. The AAT expressed its conclusion on this matter at [76]: The focus is not on the origin of the money but on the activity, event or thing which led to its receipt in other words, the question is not "Where did the money come from?" but "Where was the income earned?". (Emphasis added.) 19 The AAT noted the appellant's acceptance that his share in PKF's Vanuatu practice together with the director's fees he received from IFTC were income but he maintained that none of it had an Australian source. The AAT found at [80] that the appellant's income also included the dividends he received from IFTC. 20 The AAT then summarised in [81] of its reasons for decision the appellant's submissions concerning the issue of source. Because of their significance in the appeal, it is desirable to set out [81] in its entirety: In relation to the issue of source, and in amplification of his position summarised at [78] and [79] above, Mr Agius submits that: (a) IFTC is a Vanuatu trust company that is registered to carry on business in Vanuatu, and the director's fees derived by Mr Agius did not have an Australian source; (b) fees paid to IFTC by the Australian participants were for professional services rendered in Vanuatu in relation to the incorporation, registration and administration of Vanuatu international corporations, and did not have an Australian source, and accordingly, no part of the dividends paid by IFTC were paid out of profits having an Australian source for the purposes of s 44(1)(b) of the ITAA 1936; (c) Moore Stephens/PKF is a Vanuatu-based chartered accountancy practice that carried on business in Vanuatu and earned fees for professional services provided in Vanuatu (predominantly for preparing the annual financial statements of the Vanuatu international corporations); (d) fees paid to Moore Stephens/PKF were paid for professional services rendered in Vanuatu to the Vanuatu international corporations, and did not have an Australian source, and accordingly, no part of the partnership's net income was attributable to sources in Australia and no part of Mr Agius' "partner salary" or his share of the partnership profits was assessable; (e) the insurance companies carried on business in Vanuatu, and premiums earned by the insurance companies did not have an Australian source, and any payments by the insurance companies to Moore Stephens/PKF for services, or distributions made to IFTC, by the insurance companies did not have an Australian source. 21 The AAT then noted that the appellant provided detailed worksheets which purported to establish his actual taxable income (noting the burden which he carried under s 14ZZK of the TA Act). The worksheets were predicated on an assumption (which was contrary to the appellant's primary contention that income earned by IFTC and PKF was not Australian-sourced income) that there was Australian-sourced fee income of IFTC and PKF. The worksheets also used invoices issued by IFTC or PKF in respect of the 19 identified Australian clients who participated in the "offshore arrangements". 22 The AAT emphasised that one of the assumptions underpinning the appellant's worksheets was that the only income of PKF that was Australian-sourced was represented by the fees charged in respect of the offshore arrangements relating to those 19 Australian participants. The AAT described this in [86] as "an unsafe assumption" for two reasons. 23 The first reason was that, while the AAT accepted the appellant's claim that there were no services performed by him in Australia relating to the affairs of IFTC or PKF which were undertaken on his own account, the appellant's explanation to prospective clients of how the offshore arrangements operated "was an essential and significant step, in what became the impugned tax avoidance schemes" and the fees relating to the appellant's activities were the fees of either IFTC or PKF ([88]). 24 The AAT then noted that, in his witness statement prepared for the AAT proceeding, the appellant referred to the fact that he had been appointed receiver and administrator of various companies by Westpac, which appointments required him to make many trips to Australia for discussions with potential buyers of relevant businesses. The AAT noted that the appellant provided no greater level of specificity about these activities and that he was cross-examined about some aspects of them. 25 The AAT concluded at [93]: The generation of fees by a Vanuatu-based partnership, where the work to which those fees relate is performed in Australia, in my view undoubtedly constitutes the derivation of income with an Australian source. The difficulty for Mr Agius, and the evident gap in his worksheets, is that there has been no attempt to quantify the proportion of Moore Stephens/PKF's fees that this Australian-sourced income represents. 26 The AAT found that Watson v Commissioner of Taxation 1930 HCA 28; [1930] 44 CLR 94 (Watson) was distinguishable on the basis that the taxpayer there was paid a set fee for producing a result, whereas here remuneration was paid on an hourly charge-out rate for the work actually done. Reference was also made by the AAT at [95] to s 92(1)(b) of the ITAA 1936, which provided that the assessable income of a partner in a partnership includes: … so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia. 27 The AAT noted at [96] that it was not possible to quantify the relevant amount because the appellant had failed to provide comprehensive information about the proportion of PKF's net income which was attributable to Australian sources. 28 The second reason given by the AAT as to why the appellant's worksheets were not decisive related to its finding that the appellant failed to establish that the income was confined to the 19 identified Australian participants. The AAT noted the appellant's evidence that his meetings in Australia were usually, but not always, with clients of OTD: he was sometimes asked by other accountancy firms in Sydney to discuss "offshore opportunities" for their clients. The AAT stated in [98] that it inferred from the appellant's evidence given under cross-examination that similar structures were put in place in respect of those other clients, which would have included some involvement on the part of IFTC or PKF and the payment to them of fees on the same basis as the arrangement with OTD's clients. The AAT noted at [98] that these fees had not been identified and their quantum had not been included as an integer in any of the worksheet calculations. 29 Finally, the AAT noted at [99] that there was at least one additional category of income derived by the appellant through either PKF or IFTC and which had an Australian source. It related to the activities of a firm of chartered accountants based on the Sunshine Coast known as MSAN Woodward, which had been owned by either PKF or IFTC since about 2001. The AAT found at [99] that: There is no evidence as to the earnings of the firm (largely, if not exclusively, one must assume, sourced in Australia) or the extent to which its profits, if any, were distributed to either of the Vanuatu entities and ultimately to the persons, including Mr Agius, who controlled them. Mr Agius has failed to exclude the very strong likelihood that there is a further category of income derived by him and having an Australian source. The "appeal" to this Court 30 In his notice of appeal, the appellant identified the following four questions of law (in which the appellant is identified as "the Applicant"): 1. Whether the Tribunal applied the wrong legal test in reaching the conclusion that the income earned by the Moore Stephens/PKF Vanuatu partnership and by International Finance Trust Company Limited (IFTC) had an Australian source. 2. Whether there was any evidence to support the Tribunal's finding that the Applicant had received amounts other than amounts in the categories of income identified by the Applicant and amounts in the form of dividends from IFTC found by the Tribunal. 3. Whether the Tribunal misconstrued the nature of the burden of proof in section 14ZZK of the Taxation Administration Act 1953 (Cth) in circumstances where there was no evidence that the Applicant had received any amounts other than those identified by the Applicant and found by the Tribunal. 4. Whether the Tribunal erred in law in falling to exclude from the assessments those categories of income in respect of which it was not reasonably open to conclude that the income had an Australian source. 31 The Commissioner did not claim that these questions as formulated did not raise valid questions of law for the purposes of s 44 of the AAT Act (as to which see the recent decisions of the Full Court in Haritos v Commissioner of Taxation [2015] FCAFC 92 (Haritos) and May v Military Rehabilitation and Compensation Commission [2015] FCAFC 93). 32 The appellant raised the following grounds of appeal: 1. The Tribunal applied the wrong legal test at [92] and [93] in reaching the conclusion that the income earned by the Moore Stephens/PKF Vanuatu partnership and by IFTC had an Australian source. 2. The Tribunal should have determined the question of source by reference to where the contracts generating the income of the Moore Stephens/PKF Vanuatu partnership and IFTC were negotiated and concluded, where the services pursuant to those contracts were provided and where the payments under those contracts were made and not simply where some portion of the work was performed. 3. There was no evidence before the Tribunal to support the findings made at [96], [98] and [99] that the Applicant had received amounts other than amounts in the categories of income identified by the Applicant at [77] and amounts in the form of dividends from IFTC found by the Tribunal at [80]. 4. The Tribunal erred in making the findings at [96], [98] and [99] that the Applicant had received amounts other than amounts in the categories of income identified by the Applicant at [77] and amounts in the form of dividends from IFTC found by the Tribunal at [80] because those findings were not open on the evidence. 5. The Tribunal misconstrued the nature of the burden of proof in section 14ZZK of the Taxation Administration Act 1953 in circumstances where the Respondent fixed the amount of the assessments on grossly erroneous bases (including multiple counting of alleged amounts of income) and there was no evidence that the Applicant had received any amounts other than those identified by the Applicant at [77] and found by the Tribunal at [80]. 6. The Tribunal misconstrued at [73] what the Applicant needed to establish in order to discharge that burden of proof on the balance of probabilities in circumstances where the calculation of the assessments by the Respondent was erroneous and there was no evidence that the Applicant had received any amounts other than those identified by the Applicant at [77] and found by the Tribunal at [80]. 7. The Tribunal erred in failing to exclude from the amount of the assessments those amounts in the categories of income in respect of which it was not reasonably open to conclude that the income had an Australian source. Consideration (a) Wrong legal test on source of income? (Grounds 1 and 2) 33 The appellant argued that the AAT failed to apply the relevant tests in concluding that income earned by IFTC and PKF had an Australian source. While accepting that it is well settled that whether or not income has an Australian source is a question of fact (see Nathan at 189-190), the appellant argued that the AAT misapplied "long established" principles in determining the source of income. In particular, in the case of business income, the appellant submitted that: … the critical question is "what the [business entity] does in order to obtain the profits in questions" [citing Tariff Reinsurances Limited v The Commissioner of Taxes (Victoria) [1938] HCA 21; (1938) 59 CLR 194 at 205 per Latham CJ] and the relevant criteria include where the contracts generating the income were negotiated and concluded, where the services pursuant to those contracts were performed and where payments under those contracts were made [citing inter alia French at 422 per Taylor J; and Esquire Nominees Ltd v Federal Commissioner of Taxation [1937] HCA 67; (1973) 129 CLR 177 (Esquire Nominees) at 224-225 per Stephen J]. None of these criteria compel a particular conclusion as to source in a given case and do not establish absolute rules of law [citing inter alia Esquire Nominees at 192 per Gibbs J]. It is for the tribunal of fact, having considered and applied those tests, to draw the ultimate conclusion on source. However, a finding on source without applying those tests involves an error in principle [citing Kumagai Gumi Company Ltd v Federal Commissioner of Taxation [1999] FCA 235; (1990) 90 FCR 274 (Kumagai Gumi) at [47] per Hill J]. 34 The appellant argued that the AAT incorrectly focused on his personal activities rather than the business activities of PKF and failed to give any consideration to the agreements with Westpac Vanuatu which gave rise to PKF's income, including such matters as where they were negotiated and concluded, where they called for performance and where payments were to be made under them. He argued that the AAT failed to consider any of the other elements of source apart from the fact that the appellant carried out some work in Australia in connection with the offshore arrangements. 35 The appellant argued that the AAT also failed to apply the relevant principles in determining the source of IFTC's profits and, in particular, that the relevant contracts were concluded in Vanuatu, the place of performance of IFTC's services was in Vanuatu and it obtained payment, by deducting its fees from the amounts received, in either Vanuatu or New Zealand. The appellant added that the director's fees he earned from IFTC were paid pursuant to a service contract which was entered into and performed in Vanuatu. 36 For the following reasons, I reject the appellant's submission that the AAT failed to apply the relevant tests in concluding that the appellant earned income from an Australian source. 37 First, while the appellant correctly accepted that the question whether or not a certain income has an Australian source is a question of fact, he argued that certain "principles" governed the exercise of determining that fact such that if any of the principles were not applied in a particular case, there was an error of law. 38 The appellant's approach demonstrates the danger of elevating so-called "principles" into binding rules of law. The correct approach was stated by Barwick CJ in Federal Commissioner of Taxation v Mitchum [1965] HCA 23; (1965) 113 CLR 401 at 407: The conclusion as to the source of income for the purposes of the Act is a conclusion of fact. There is no statutory definition of "source" to be applied, the matter being judged as one of practical reality. In each case, the relative weight to be given to the various factors which can be taken into consideration is to be determined by the tribunal entitled to draw the ultimate conclusion as to source. In my opinion, there are no presumptions and no rules of law which require that that question be resolved in any particular sense. (Emphasis added.) 39 The emphasised words in that extract highlight the fact that, contrary to the appellant's primary contention, there are no "mandatory factors" which have to be taken into account in every case in which the issue of source falls to be determined. Rather, there is potentially a range of factors which may be relevant in any particular case, but it is ultimately a matter for the factfinding tribunal to determine which of those factors is relevant and how any competing factors should be weighed having regard to the nature and strength of the evidence before it. 40 I accept that the factors which may need to be assessed in a particular case could include the nature of the activities which are carried out to generate the relevant income, where the relevant contract was negotiated, where services are physically to be performed and where payment is made. That does not mean, however, that the factfinder errs in law if it does not take all these matters into account. In particular, there can be no error of law where the Tribunal undertakes the weighing process in determining the source of any given income by only taking into account those matters upon which there is reliable evidence. As a director of IFTC and a partner in PKF, it was open to the appellant to provide the AAT with admissible documentary evidence relating to the matters which he now describes as "mandatory", but he elected not to do so. I reject his submission that, notwithstanding what might be assumed to have been a considered decision on his part not to provide the AAT with copies of the contracts between PKF and/or IFTC and Westpac Vanuatu, the AAT ought to have inferred from evidence given by him that those contracts were negotiated and concluded in Vanuatu, called for their performance in Vanuatu and required payments under them to be made in Vanuatu. 41 In my view, the AAT was not obliged to draw such inferences from secondary evidence as the effect of those contracts where the appellant elected not to put the relevant contracts into evidence. Nor do I accept that the AAT ought to have made similar inferences in respect of the relevant contracts under which IFTC earned fees in establishing, managing and maintaining Vanuatu international companies. The appellant elected not to provide the AAT with copies of any of those contracts, nor a copy of the service contract which apparently existed between him and IFTC under which he earned director's fees. (b) AAT's finding of fact (Grounds 3 and 4) 42 Grounds 3 and 4 of the notice of appeal claim that there was no evidence to support the AAT's findings that the appellant had received amounts other than amounts in the categories of income identified by the appellant and as referred to in [77] of the AAT's reasons and that such findings were not open on the evidence. In particular, the appellant challenged the AAT's findings at [99] in relation to income by MSAN Woodward. 43 For the following reasons, I reject those claims. First, for the appellant to make good a claim of "no evidence" to support a finding of fact, it is necessary for him to demonstrate that there was a complete paucity of evidence to support the relevant finding. If there was some evidence to support the finding, the appellant's challenge based on "no evidence" must fail (see Australian Broadcasting Tribunal v Bond [1990] HCA 33; (1990) 170 CLR 321 at 356-357 per Mason CJ). Where the AAT fails to give proper consideration to the evidence before it normally involves an error of fact and not law (see the recent observations of the Full Court in Haritos at [192] and [197]). It is well settled that there is generally no error of law in making a wrong finding of fact: see Waterford v Commonwealth [1987] HCA 25; (1987) 163 CLR 54 at 77 per Brennan J. For the reasons given above, there was some evidence to support the AAT's findings in both [77] and [99]. 44 Secondly, even if the appellant were to establish that there was no evidence to support a relevant finding, for this ground of review to attract relief he must also demonstrate that the error was material in the sense of affecting the outcome (see Kumagai Gumi at [53] per Hill J). 45 In oral address, the appellant's counsel focused on the AAT's finding in [99] that there "is no evidence as to the earnings" of MSAN Woodward. It was argued that the AAT had overlooked the evidence before it which established that MSAN Woodward was a business name which was owned by MSAN Pty Ltd and that the appellant had given unchallenged evidence before the AAT that, although he was a director of that company, the company did not trade profitably and he earned no income from it. Furthermore, the appellant argued that even if MSAN Woodward had distributed profits to IFTC or PKF final withholding tax would have applied to any dividends and, by operation of ss 44(1) and 128D of the ITAA 1936, no amount would have been treated as assessable income of IFTC or PKF or the appellant. The appellant acknowledged that this argument had not been run below. 46 The critical issue is whether there was absolutely no evidence to support the AAT's finding in [99] that the appellant had failed to exclude "the very strong likelihood" that there was a further category of Australian-sourced income derived by him by reference to the operations of MSAN Woodward. There was some evidence to support that finding, which included the evidence that MSAN Woodward was a firm of chartered accountants which was owned by MSAN Pty Ltd, of which company the appellant was a director. There was also evidence that, from about 2001, MSAN Woodward was owned by either PKF or IFTC. The appellant was cross-examined below in respect of statements he made in 2003 in support of an application for a temporary business entry visa for him to come to Australia. In the section of the visa application form dealing with "business activities", the appellant wrote: I travel to Australia as a member of PKF International to attend meetings and discussions. PKF Vanuatu also owns a firm in Sunshine Coast called – "MSAN WOODWARD Chartered ACCOUNTANTS" – trips to supervise and meet staff etc will need to be undertaken from time to time. 47 Although the appellant stated in cross-examination below that he did not in fact ever lodge that form, he confirmed that it was his intention in 2003 to travel to the Sunshine Coast for those purposes and that he had been there a few times previously to supervise staff. 48 As the Commissioner pointed out in oral address, there was other evidence before the AAT which cast doubt on the appellant's oral evidence in the AAT that MSAN Pty Ltd did not trade profitably and that he earned no income from it. In his closing submissions below, senior counsel for the Commissioner drew the AAT's attention to the fact that, contrary to the appellant's claim that MSAN Woodward did not trade profitably, there was evidence before the AAT which suggested that MSAN Woodward was entitled to $23,150 as at 31 December 2001 and it had made a "disclosure" to ING of $40,000 a month. Although it appears that evidence in support of those submissions was before the AAT but not on the appeal, the evidence contradicts the appellant's claim that MSAN Pty Ltd did not trade profitably. The evidence below may well have been incomplete and undeveloped, however, in my view it was sufficient to ground the AAT's central finding that there was a very strong likelihood that the appellant derived a further category of income in relation to the activities of MSAN Woodward, which the appellant failed to rebut. Accordingly, the appellant's no evidence grounds must be rejected. 49 Moreover, having regard to the evidence which was before the Tribunal on the relevant matters, limited though it may have been, it was open to the AAT to make the findings which it did. 50 Senior counsel for the Commissioner also referred to additional evidence before the AAT which indicated that MSAN Woodward was operating profitably. For example, he referred to the notes to the financial statements of PKF for the year ended 31 December 2001, which recorded an amount of $61,200 in respect of the item "MSAN Woodward Ltd Goodwill". The evidence was unclear as to whether this was a reference to MSAN Woodward Chartered Accountants. The notes to the financial statements of PKF for the subsequent year also recorded an amount in respect of this item of $852,372.26. In addition, the notes to the financial statements of PKF for the year ended 31 December 2005 referred to an item under the heading "Creditors & Borrowings" of $4,995.51 in respect of what was recorded as "MSAN-AMU LOAN". The Commissioner acknowledged in oral address that this evidence before the AAT was "rather undeveloped", but even with those limitations, he submitted that this was a further demonstration of the fact that there was some evidence before the AAT to support its finding in [99]. I accept that submission. 51 In essence, the appellant's case on this issue boils down to a claim that the AAT should have preferred his oral evidence and drawn inferences from it rather than prefer other evidence which suggested that there was a "very strong likelihood" that there was an additional category of Australian-sourced income derived by the appellant through the operations of MSAN Woodward. It was a matter for the AAT to determine which evidence it preferred in making its findings of fact in the context of the appellant carrying the burden of proof imposed by s 14ZZK of the TA Act. 52 The Commissioner accepted that withholding tax would have applied to any dividends payable by MSAN Pty Ltd to its owner, but emphasised that this issue had not been raised below. The Commissioner submitted that the AAT could scarcely have fallen into legal error if it failed to deal with a point which was not argued. Reliance was placed on the Full Court's decision in Commissioner of Taxation v Glennan [1999] FCA 297; (1999) 90 FCR 538, where the Full Court (Hill, Sackville and Hely JJ) stated at [82]: As a matter of general administrative law, it has long been accepted that it is no part of the duty of the decision-maker to make out a case for the applicant: Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 at 170, per Wilcox J. In a statutory context in which a taxpayer seeking to challenge an assessment is required to specify the grounds of his objection, and bears the burden of proving that it is excessive, as a general rule it cannot be said that the AAT is bound to make findings of fact and rulings on issues not relied upon by the taxpayer in the proceedings before it. It follows that, as a general rule, there is no error of law if the AAT fails to address issues of fact and law not the subject of argument by the taxpayer. 53 There is force in this submission noting, in particular, that there is a distinction between an applicant in a s 44 appeal seeking to raise an error of law for the first time, as opposed to an argument that the AAT erred in not deciding a particular matter when it was presented with no argument on that matter. It is unnecessary, however, to express a concluded view on this issue because even if, contrary to the above, the appellant had made good his challenge to the AAT's factfinding, I would have held that any such error was immaterial to the outcome below. The AAT's findings in respect of MSAN Woodward all related to an additional category of Australian-sourced income, which indicated that the appellant had failed to discharge his burden of proof. For any such error to be material, the appellant would also need to demonstrate appellable error in relation to the AAT's separate findings that there was other Australian-sourced income from other activities, including the appellant's work for Westpac as receiver and administrator for various companies, as well as Australian-sourced income from other Australian participants apart from clients of OTD. No such error was established. (c) Burden of proof (Grounds 5 and 6) 54 Grounds 5 and 6 of the notice of appeal raise for determination whether the AAT misconstrued the appellant's burden of proof. In particular, he contended that the AAT misapplied s 14ZZK of the TA Act in requiring him not only to identify any categories of income which generated Australian-sourced income, but also to prove that there were no others that did so. 55 The appellant accepted that, in the context of a s 167 assessment, a taxpayer will not necessarily discharge the burden of proof by showing an error in an integer of the Commissioner's opinion as to the appropriate amount of the assessment, but that account had to be taken of the different types of errors and the consequences which ensue (citing Ma v Federal Commissioner of Taxation [1992] FCA 359; (1992) 37 FCR 225 (Ma) at 232 per Burchett J). However, he contended that the Tribunal erred in not accepting the evidence in his worksheets which, he said, demonstrated that the amended assessments had erroneously included such matters as: (a) amounts that were transferred by Australian clients to IFTC to be held on deposit by or otherwise to the benefit of the Vanuatu international companies that had been established for those clients; (b) amounts that were remitted to the Australian clients but not recorded by the respondent; and (c) remittances that Australian clients purported to make but which did not reach the destination bank account. 56 The appellant submitted that the errors in relation to sub-paragraphs (a) and (b) were such as to deny the character of income to those amounts because neither IFTC nor he had any entitlement to these moneys. In the case of sub-paragraph (c), the appellant contended that the error denied the very receipt of the relevant amounts. 57 There might be some force in the appellant's contentions if the Commissioner had agreed in the AAT proceeding to confine the debate to the question whether or not there were errors in the various integers. That is effectively what occurred in Ma, where the Commissioner and the taxpayer conducted the proceeding on the basis that the outcome should turn on whether there was extra income representing the deposits which were made to the bank account in circumstances where the taxpayer was asserting that they were merely redeposits and therefore capital and not income. In the absence of any such agreement here, however, I accept the Commissioner's submission that the conventional approach to the taxpayer's burden of proof applies (see, for example, George v Federal Commissioner of Taxation [1952] HCA 21; (1952) 86 CLR 183 at 189 per Kitto J and, on appeal, at 201 and 204 per Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ). 58 That conventional approach is also reflected in Dalco. The High Court held there that in an appeal or review under Pt V of the ITAA 1936 in respect of an assessment made under s 167 of that Act, the effect of s 190(b) (which relevantly was in similar terms to s 14ZZK of the TA Act), was that a taxpayer does not establish that an assessment is excessive merely by demonstrating that the Commissioner had erred in a way in which he attributed income to the taxpayer such that his taxable income was less than the amount shown in the assessment. At first instance (Dalco v Commissioner of Taxation (1988) 88 ATC 4131), Yeldham J had held at 4142 that: It is plain from the authorities that the onus is upon the taxpayer to demonstrate that the Commissioner's figures in relation to taxable income were excessive, by showing the sources of that income year by year and excluding all sources of income other than those which he admits. That onus has not been discharged as there were funds available to him from unexplained sources year by year and shortages of income in each year that were and are unexplained in this satisfactory manner. (Emphasis added.) 59 On appeal, a majority of the Full Court held that it was sufficient for the taxpayer to demonstrate that the Commissioner had proceeded on the wrong basis in making the relevant assessment (see Dalco v Federal Commissioner of Taxation (1988) 82 ALR 669). 60 On further appeal, the High Court held that that approach was wrong and that the dissenting judgment of Wilcox J in the Full Court was correct. The relevant principles are reflected in Brennan J's judgment in Dalco at 625: The majority of the Full Federal Court in the present case treated the error which they held to infect the Commissioner's assessment of the amount of the taxpayer's taxable income as concluding the question whether that amount was excessive. It did not. If this were a case where all the material facts were known and the amount of taxable income depended on the legal complexion of those facts, the taxpayer would succeed upon establishing that the Commissioner erroneously included in the assessed taxable income an amount which, on those facts, ought not to have been included. But where, as here, the taxpayer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong. A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. If it were not for s.190(b), the process of assessment might have to be repeated whenever on appeal an error affecting the amount assessed were found. But s.190(b), coupled with s.200, brings to finality the ascertainment of the taxpayer's liability in respect of the income period to which the assessment relates. Unless the amount of the assessment is found to be excessive in the sense of being greater than the taxable income on which tax ought to have been levied, the taxpayer fails on his appeal. 61 The fundamental difficulty with the appellant's case on this issue is that it was open to the AAT to find, as it did, that he failed to discharge his burden of proof of negating that there were other Australian sources of income which were earned by either IFTC or PKF (and ultimately by the appellant) relating to the receiverships or administrations conducted by him, the fees concerning implementation of offshore arrangements for Australian clients and the strong likelihood of derived income being earned by him in respect of MSAN Woodward's operations in Australia. (d) Failure to exclude amounts (Ground 7) 62 Ground 7 raises the question whether the AAT erred in failing to exclude from the assessments amounts which the appellant contended could not be income. This claim substantially reflects the claims made above under grounds 5 and 6 in relation to burden of proof and relies primarily on the principles established in Ma. However, Ma is distinguishable for the reasons set out above. In particular it is significant that the Commissioner did not agree with the appellant's position as advanced below that the Australian-sourced income was limited to fees related to consultancy services provided to OTD clients (to which the appellant's worksheets related). The difficulty with the appellant's case, again, is that the AAT found that there were other Australian sources of income which had not been dealt with or explained by the appellant. It was open to the AAT to make those findings and no appellable error has been demonstrated. Conclusion 63 The appeal should be dismissed and the appellant ordered to pay the respondent's costs. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths. Associate: Dated: 14 July 2015