Hua-Aus Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 195 of 2009)
Judgment date: 14 April 2010
Date published: 25 May 2011

Summary of decision:
Outlines the ATO's response to this decision to set aside the AAT's decision, confirming the decision under review, which was based on a rejection by the AAT of the evidence of the taxpayer's director, despite the fact that his evidence had not been explicitly impugned.

Overview of facts:
The Tribunal had made the following findings of fact that were not in dispute and were accepted by Edmonds J in the Federal Court: a) The taxpayer carried on a business as a provider of escort services. b) Mr Mike Hua was the sole director of the taxpayer. c) The taxpayer supplied delivery and advertising services to escorts used in its enterprise. d) The escorts were in the position of contractors to the taxpayer. | a) The taxpayer carried on a business as a provider of escort services. b) Mr Mike Hua was the sole director of the taxpayer. c) The taxpayer supplied delivery and advertising services to escorts used in its enterprise. d) The escorts were in the position of contractors to the taxpayer. | At issue was whether two amounts were sourced from consideration for taxable supplies made by the taxpayer. | Issues before the Federal Court | Whether the Tribunal had erred in law in deciding against the taxpayer by: a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. | a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. | Issues decided by the Federal Court

Issues decided:
Whether the Tribunal had erred in law in deciding against the taxpayer by: a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review.

ATO view of decision:
The outcomes for issues (a), (b) and (d) are consistent with the Commissioner's submissions to the Court. | The ATO respectfully accepts that, on the facts of the case, the outcome for issue (c) was open to the Court. The ATO also acknowledges that, where it is sought to impugn the credit of a witness, it is necessary to make it absolutely clear through cross-examination that their credit is in issue.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Taxation Administration Act 1953 (Cth) A New Tax System (Goods and Services Tax) Act 1999 (Cth) Income Tax Assessment Act 1936 (Cth)
Case references: Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 [2008] HCA 41 69 ATR 357 2008 ATC 20-045 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 20 ATR 1370 90 ATC 4088 Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 37 ATR 249 Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 [1975] HCA 54 5 ATR 672 75 ATC 4257 Ma v Commissioner of Taxation (1992) 37 FCR 225 23 ATR 485 92 ATC 4373 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 9 ATR 638 79 ATC 4133 McCormack v Federal Commissioner of Taxation (1978) 143 CLR 284 [1979] HCA 18 9 ATR 610 79 ATC 4111 Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 [1936] HCA 77 Vu v Federal Commissioner of Taxation 2006 ATC 4387 [2006] FCA 889 2006 ATC 4387 63 ATR 341
Subject references: Goods & Services Tax Assessment of GST net amount Burden of proof Construction and application of s 14ZZK of Taxation Administration Act 1953 (TAA) Whether onus is discharged where taxpayer's evidence is not impugned and there is no adverse finding as to credit Whether taxpayer denied procedural fairness