Case: McCormack v Commissioner of Taxation [1979] HCA 18 ; (1979) 143 CLR 284
Outcome: cited
In its Notice of Appeal, the applicant linked this question of law with paras 27-30 and para 35 of the Reasons for Decision of the Tribunal. In these paragraphs, in the context of considering whether the loss the applicant sought to carry forward was more appropriately characterised as a capital or income loss, Senior Member McCabe said as follows: 27. Section 14ZZK(b) says the taxpayer has the burden of proving the objection decisions should have been made differently. The Commissioner's decision effectively creates a presumption the applicant must rebut if he or she is to succeed in an appeal: see, for example, McCormack v Federal Commissioner of Taxation [1979] HCA 18 ; (1979) 143 CLR 284 at 314-315 per Jacobs J. That may be a difficult task where the taxpayer does not call any witnesses to explain a paper trail that does not speak for itself, or which is consistent with the Commissioner's view or even ambiguous. 28. The Commissioner has asked me to draw adverse inferences against the taxpayer in light of the fact the applicant has not called Mr D to give evidence. Mr D was in the best position to explain the transactions into which the applicant entered. His evidence would probably have been of assistance to the Tribunal. Mr Hack, for the Commissioner, says the rule in Jones v Dunkel [1959] HCA 8 ; (1959) 101 CLR 298 should apply. That rule permits me to draw an adverse inference from the failure to call the witness in appropriate circumstances. One of the circumstances in which I may not draw an adverse inference is where there is a reasonable excuse for the failure to call the witness. I think there is a reasonable excuse in this case. That excuse can be gleaned from the submissions made in relation to the application for a suppression order: see A Taxpayer and Commissioner of Taxation [2004] AATA 398. Mr D has apparently declined to answer questions on the basis he might expose himself to a criminal prosecution. There is little point in calling a witness in those circumstances. 29. While I decline to draw an adverse inference from Mr D's failure to appear, that failure inevitably makes it harder for the applicant to show the Commissioner's decision was wrong. 30. The starting point of the analysis is the well-established rule that the proceeds from the 'mere realisation' of a capital asset will not give rise to income according to ordinary concepts and any loss incurred on the disposal of the asset will not lead to a loss that can be offset against other income of the taxpayer: see Federal Commissioner of Taxation v NF Williams (1972) 72 ATC 4188 per Gibb J at 4195. If the asset was more like trading stock that was bought and sold (or bought, developed, sub-divided and sold) as part of a business of developing and dealing in land, the law might treat the proceeds of the sale as income : see, for example, Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1982) 82 ATC 4031. ... 35. I have already observed the applicant would have difficulty establishing the Commissioner's objection decisions were wrong the task required of the applicant by s 14ZZK of the TAA in circumstances where the taxpayer did not call any witnesses and relied instead on inferences drawn from the evidence. I do not think the applicant has discharged that burden. The applicant has not persuaded me the land was anything other than a capital asset. The proceeds of the sale of the land should therefore be regarded as the proceeds of a mere realisation of a capital asset. The loss on that sale was a capital loss. The objection decisions under review ought to be affirmed in that respect. 51 Like in the case before me, the applicable legislation in Deledio was not silent on issues of proof. In relation to the first issue in this case with respect to onus of proof, it is clear in light of s 14ZZK(b)(i) TA Act that the taxpayer in this case bore the onus of proof that the amended assessment was excessive. The nature of the onus of proof in the context of this legislation has been recognised in numerous decisions, including McCormack v Commissioner of Taxation [1979] HCA 18 ; (1979) 143 CLR 284 (although McCormack was decided under predecessor legislation), Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 and Vu v Commissioner of Taxation [2006] FCA 889. Further, it is clear on the authorities that the taxpayer, in its application before the Tribunal, must prove its case affirmatively on the balance of probabilities: McCormack 143 CLR at 303 per Gibbs J, Munro 97 ATC 5041, Vu v Commissioner of Taxation [2006] FCA 889 at [8] . 53 In my view, this misconceives the obligation of the taxpayer when challenging a determination of the Commissioner under the legislation, and the onus borne by the taxpayer as a result of s 14ZZK(b)(i) TA Act . As Jacobs J explained in McCormack 143 CLR at 314, there is, by virtue of the section, a rebuttable presumption of law that an assessment is not excessive, and the onus is on the taxpayer to rebut that presumption. This means, for example, that where the evidence is equivocal the applicant in an appeal before the Tribunal against an assessment fails to discharge its onus : Mason J in Gauci v Federal Commissioner of Taxation [1975] HCA 54 ; (1975) 135 CLR 81 at 89-90, approved in McCormack 143 CLR by Gibbs J at 303-304, Stephen J at 306, Jacobs J at 314 and Murphy J at 323. Contending that the onus of proof under s 14ZZK(b) only arises in the limited circumstances submitted by the applicant misstates the effect of that provision. In my view no error of law appears in this respect from paras 27-30 and 35 of the Tribunal's Reasons for Decision.