Case: WD &amp; HO Wills (Australia) Pty Ltd v FCT (1996) 65 FCR 298
Outcome: cited
It is perfectly clear that a deponent in seeking to demonstrate (and discharge the onus of proof) that an assessment is excessive having regard to a prediction as to whether an amount might reasonably have been included in the assessable income of the taxpayer, can not simply give evidence that the answer is to be found in the deponent speculating as to what he or she would or would not have done in the absence of the scheme ( WD &amp; HO Wills (Australia) Pty Ltd v FCT (1996) 65 FCR 298). The Commissioner accepted in the course of argument on the appeal that it is perfectly proper for a deponent in the position of Mr McCutcheon to say in evidence that the trustee (controlled by the taxpayers) would not have made distributions of the amounts postulated by the Commissioner to the taxpayers, provided the foundation for that observation or conclusion is given in evidence. In other words, Mr McCutcheon might have said that 'the trustee would never have distributed such a substantial portion to either my wife or I' because (or for that reason that) and then identify factual circumstances which support the proposition. The vice said to exist in Mr McCutcheon's evidence is that it is simply speculative evidence on the ultimate question unsupported by any evidence of material facts from which the conclusion Mr McCutcheon contends for could be drawn. 38 It seems to me that the evidence goes to the question of whether the determinations made by the Commissioner are properly founded upon a prediction that an amount of approximately $1.6m might reasonably have been included in the assessable income of Mr and Mrs McCutcheon had the scheme not been entered into or carried out thus giving rise to a tax benefit being one of the integers upon which s 177F operates. That question seems to me to be an element of the ultimate question. Accordingly, it is not open to Mr McCutcheon to simply swear the issue by providing what he may consider to be a complete answer to the question in issue based on his speculation as to what might have occurred. However, it seems to me that the statement in para 68 needs to be assessed in context. Paragraph 66 also asserts that had the distributions from the P &amp; A Trust not been made in the manner reflected in the transactions comprising the scheme, distributions would not have been made to Mr and Mrs McCutcheon in the ratio 50/50. That paragraph is gathered up in the words objected to in para 68. Both para 66 and the words in para 68 are sought to be explained by two factual contentions. In para 67, Mr McCutcheon says that the first reason that no such distributions would have been made is that OSPL as trustee of the PGUT was also a vendor of the retail business and was, as a result, entitled to a part of the proceeds of sale and thus a substantial part of the stream of income received by NOPL as trustee of the P &amp; A Trust was, in any event, due and payable to OSPL as trustee of the PGUT. Whether that statement is correct or incorrect it nevertheless represents a contended reason or material fact said to support a conclusion that the P &amp; A Trust distributions would not otherwise have gone equally in their totality to Mr and Mrs McCutcheon. The second factual contention is contained in para 68 to the effect that the largest amount of income ever distributed to Mr and Mrs McCutcheon by the P &amp; A Trust was $25,000.00 to Mr McCutcheon and $13,000.00 to Mrs McCutcheon in the income year ending 30 June 1997. Mr McCutcheon goes on to say that the history of distributions by the trustee of the P &amp; A Trust shows that the bulk of the trust's income has been distributed to particular entities and only very small amounts have historically been distributed to Mr and Mrs McCutcheon or their daughters Sally and Claire McCutcheon. Moreover, Mr McCutcheon says that the P &amp; A Trust has a history of distributing large amounts of income to the trustee of the PGUT. 39 It seems to me that the Tribunal is entitled to receive into evidence the statement objected to by the respondent provided foundation facts are given in evidence which support what would otherwise be a bald speculative statement. Those foundation facts would in the ordinary course of events be detailed and comprehensive and seek to explain why the prediction could not reasonably be entertained in the context of a full understanding of the matrix of fact. Such an approach would be consistent with principle and enable the taxpayer to state a position derived from a factual foundation. In this case, the foundation facts are confined to the matters identified. However, factual matters were deposed to which were said to support the excluded evidence. Although of course the Tribunal by s 33 of the AAT Act is not bound by the rules of evidence but may inform itself on any matter in such manner as it thinks appropriate, the Tribunal might usefully be guided by the foundation rule in relation to the relevance of evidence contained in s 55(1) of the Evidence Act 1995 (Cth) in these terms: 'The evidence that is relevant in a proceeding is evidence that if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding'. The excluded statement by itself, could not possibly rationally affect directly or indirectly the assessment of the probability of the existence of a fact in issue. However, it seems to me that the excluded evidence ought to have been admitted by the Tribunal as a statement to be contextually understood having regard to the evidence of material facts (although put in controversy by the respondent) in paras 67 and 68 of the affidavit said to support the excluded evidence. Those material facts were admitted by the Tribunal. 40 Accordingly, the Tribunal erred in refusing to admit the evidence of Mr McCutcheon identified by the italicised words above. Because the italicised words were simply given meaning by the statements identified, the exclusion of the italicised words made no difference to the deliberations of the Tribunal. 41 The appellants contend that the Tribunal erred in determining whether a taxpayer had obtained a tax benefit. As to the contended equal distribution to Mr and Mrs McCutcheon of an amount totalling $3,232,813.00, the appellants contend that the Tribunal applied an incorrect methodology. The appellants say that the Tribunal disregarded the history of previous determinations; concluded that there was no evidence before the Tribunal upon which it could act in order to determine what the appellants would have done if the scheme had not been entered into or carried into effect; and concluded that it would be speculative to adopt the submissions of the appellants as to what might have happened had the scheme not been implemented. The appellants contend that there was no evidence before the Tribunal admissible or otherwise to support the conclusion that there would have been or might reasonably be expected to have been a distribution by the trustee of the P &amp; A Trust to Mr and Mrs McCutcheon equally. It follows, it is said, that since there was no evidence to support that conclusion, no tax benefit in connection with the scheme has been identified and thus the determination is invalid.