SYDNEY, July 18 -- The Federal Court of Australia issued the following judgment:
Appeal from:
Rusanova v Commissioner of Taxation [2023] AATA 2782
File number(s):
QUD 414 of 2023
Judgment of:
DOWNES J
Date of judgment:
18 July 2024
Catchwords:
TAXATION - appeal from Administrative Appeals Tribunal (AAT) in which the AAT affirmed two objection decisions made by the Commissioner of Taxation - burden of proof imposed on taxpayer by s14ZZK Taxation Administration Act 1953 (Cth) - where applicants failed to discharge burden of proof - no error of law shown - no procedural unfairness - appeal dismissed
Legislation:
Administrative Appeals Tribunal Act 1975 (Cth) s 44
Income Tax Assessment Act 1936 (Cth) s 167
Taxation Administration Act 1953 (Cth) s 14ZZK
Cases cited:
Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576
Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gashi v Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30
Rusanova v Commissioner of Taxation [2023] AATA 2782
Tsvetnenko v United States of America (2019) 269 FCR 225; [2019] FCAFC 74
Division:
General Division
Registry:
Queensland
National Practice Area:
Taxation
Number of paragraphs:
45
Date of hearing:
26-27 June 2024
Counsel for the Applicants:
The First Applicant appeared in person for the Applicants
Counsel for the First Respondent:
Ms C Conway
Solicitor for the First Respondent:
McInnes Wilson Lawyers
Counsel for the Second Respondent:
The Second Respondent did not appear
ORDERS
QUD 414 of 2023
BETWEEN:
MAXIM RUSANOV
First Applicant
LIUDMILA RUSANOVA
Second Applicant
AND:
COMMISSIONER OF TAXATION
First Respondent
ADMINISTRATIVE APPEALS TRIBUNAL
Second Respondent
order made by:
DOWNES J
DATE OF ORDER:
18 July 2024
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The decision of the Administrative Appeals Tribunal in file numbers 2021/1732-40 and 2021/1742-47 dated 1 September 2023 be affirmed.
3.The applicants pay the first respondent's costs of this proceeding.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DOWNES J:
1The applicants, Mr Rusanov and Ms Rusanova, appeal against the decision of the second respondent (the Tribunal) in Rusanova v Commissioner of Taxation [2023] AATA 2782 (decision). By the decision, the Tribunal affirmed two objection decisions dated 26 February 2021 made by the first respondent (the Commissioner).
2For the following reasons, the appeal should be dismissed.
BACKGROUND
3The applicants did not lodge tax returns for a number of income years.
4On 10 August 2017, the Commissioner issued default assessments for relevant income years to the applicants under s 167 of the Income Tax Assessment Act 1936 (Cth) on the basis of covert audits conducted in 2017. Those audits used a bank account analysis methodology to attribute taxable income to the applicants based on unexplained deposits and expenses in their bank statements.
5The applicants objected to the assessments on 25 June 2019, and the objections were partly allowed by the Commissioner in two objection decisions dated 26 February 2021. On 8 March 2021, the Commissioner issued amended assessments for particular income years.
6On 16 March 2021, the applicants applied to the Tribunal seeking review of the objection decisions and contesting the assessments issued for the income year ending 30 June 2011 through to the income year ending 30 June 2016.
7The applicants claimed that the majority of the deposits were gifts from Ms Rusanova's father, Mr Vladimir Rusanov (Mr V Rusanov), or were loans from their friend Mr Boris Varvulev.
8On 1 September 2023, the Tribunal affirmed the objection decisions made by the Commissioner on the basis that the applicants had not discharged their burden of proving what their actual taxable income was in the relevant years so as to demonstrate that the assessments were excessive, which burden is imposed by s 14ZZK of the Taxation Administration Act 1953 (Cth) (TAA): see Gashi v Commissioner of Taxation (2013) 209 FCR 301; [2013] FCAFC 30 at [61] (Bennett, Edmonds and Gordon JJ) citing Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623 (Brennan J).
CONSIDERATION
9By the notice of appeal, the applicants raised eight "Questions of law and findings of fact that the Court is asked to make". However, these eight purported questions did not state any findings of fact which were sought. Further, some were irrelevant to this appeal (being questions 4 and 5) or relate to administrative penalties (being questions 2 and 3) about which topic the applicants made no submissions.
10The notice of appeal also listed 21 "grounds", many of which were submissions rather than grounds of appeal. These grounds were then addressed by the parties as, in effect, four "grounds of appeal" by reference to the subheadings used in the notice of appeal. It is convenient for me to do the same.
11The following grounds of appeal will therefore be addressed in the order in which they appear in the applicants' outline of submissions filed on 1 March 2024:
(1)ATO guidelines on documenting gifts or loans from related overseas entities / Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212;
(2)financial gifts from Mr V Rusanov;
(3)loans from Mr Varvulev; and
(4)the Tribunal failed to afford the applicants procedural fairness.
Ground 1
12By their submissions, the applicants raise two substantive issues under the guise of ground 1.
13First, the applicants refer to guidelines issued by the Australian Taxation Office (ATO) concerning documenting gifts or loans from related overseas entities. The applicants submit that the material they relied on before the Tribunal, being:
(1)declarations from the donor about the nature of amounts transferred;
(2)copies of the donor's bank statements or financial records showing the gift; and
(3)evidence about the source of the funds,
is consistent with those ATO guidelines and with the information available to the applicants.
14In the decision, the Tribunal accepted that money was transferred by Mr V Rusanov, and that Mr V Rusanov said that the transfers were "truly gifts": [48]. At [49]-[50] of the decision, the Tribunal stated that there were no contemporaneous records to substantiate the nature of the payments, such as emails or texts, and found it implausible that no communications of that sort existed. After considering other evidence, the Tribunal found at [57] that the "actual sources of the funds, whether from personal wealth or from a company, was not clear". At [61] of the decision, the Tribunal again referred to the lack of emails or texts to indicate the nature of the transfers, how they were initiated, or even to acknowledge receipt, describing it as a "curious feature".
15It is therefore apparent from the decision that the Tribunal considered the evidence which the applicants claim should have led it to conclude that the transfers from Mr V Rusanov were gifts and found that it was insufficient. That the Tribunal formed this view does not raise a question of law within s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth).
16Whether the evidence adduced by the applicants could be said to have complied with the ATO guidelines does not alter this conclusion. Those guidelines are not prescriptive, and they provide an inclusive list of the types of supporting documentation which could be used to support the characterisation of the transfer as a gift or loan. As the guidelines themselves make clear, however, the Commissioner can form a view based on all available evidence and may make further inquiries. Similarly, the guidelines did not fetter the Tribunal's ability to assess the evidence and form its own conclusions. No error of law has been shown.
17Second, the applicants contend that, as a result of the decision in Cassaniti, the Commissioner does not make out his case merely by asserting that the evidence of the taxpayer, supported by the taxpayer's financial records, is not accepted. They submit that, based on Cassaniti, if authenticity is not challenged then, absent evidence to the contrary, authenticity should be assumed.
18However, this contention is misconceived. In Cassaniti, there was a dispute as to whether certain amounts had been withheld from a taxpayer. Documents including business records were produced by the taxpayer to evidence the amounts which had been withheld, but the authenticity of those documents was challenged by the Commissioner. The Full Court found that it could be inferred that those documents were authentic, and that the primary judge was correct to admit them into evidence.
19That is different to the circumstances of this case in which the authenticity of the documents, and the transactions which they record (such as a transfer of funds) was not challenged by the Commissioner. Rather, it is the characterisation of the transactions recorded in the documents which was in dispute before the Tribunal, with the overarching question being whether the evidence adduced by the applicants was sufficient to discharge the burden imposed by s14ZZK of the TAA.
20The bases upon which the Tribunal determined that the burden had not been discharged by the applicants did not include a finding that any of the documents relied upon by the applicants was not authentic. Rather, the Tribunal considered the evidence adduced by the applicants in relation to the characterisation of the deposits in the accounts but did not accept that there was adequate evidence to support a conclusion that they were in fact loans or gifts, primarily because of the lack of documentation: see [36], [44], [46], [49], [50], [54], [61] and [64] of the decision. The Tribunal also considered that the evidence of one witness was not satisfactory: see [39] of the decision. The Tribunal also found that the applicants had been selective in their evidence: [64].
21The applicants' submission also betrays their misunderstanding as to which party bore the burden of proof below. In this case, the Commissioner was not required to "make out [any] case"; however, he did submit that the applicants had not discharged their burden, as he was entitled to do.
22For these reasons, there is no inconsistency between the principles stated in Cassaniti and the approach taken by the Tribunal. No error of law has been shown.
23For these reasons, ground 1 must fail.
Ground 2
24By this ground and by their submissions, the applicants repeat their argument in reliance on Cassaniti, which argument fails for the reasons given above.
25The applicants also refer to the conclusion reached by the Tribunal at [62] of the decision that it was not satisfied that the transfers (from Mr V Rusanov) were not remuneration for services provided or made in connection with business activities and they submit that this conclusion is unreasonable. They submit that this is, in effect, a finding that the transfers were remuneration. They submit that this finding was "not supported by any evidence" and rely upon aspects of the evidence before the Tribunal in support of the claim that it was unreasonable.
26However, the finding in [62] is not a finding that the transfers were remuneration; rather, it is a finding that the Tribunal was not satisfied that the transfers were not remuneration. In other words, the Tribunal was recognising that the transfers could be remuneration, or another form of income.
27That this is the case is supported by the finding at [63] that "[a]bsent any reliable evidence., there is no proper basis to make any findings as to whether the deposits constitute part of the applicants' taxable income or not". That is, read together, [62] and [63] of the decision express the Tribunal's findings that the applicants had not established that the transfers were gifts, as they contended, but could in fact be taxable income.
28The Tribunal made the following findings before the findings were made in [62] and [63]:
(1)at [45]:
Maxim Rusanov has been a director of several Australian companies, Vistion Pty Ltd, Sprint Design Group Pty Ltd, Maxmil Pty Ltd and MRM Australia Pty Ltd.
(2)at [47]-[48]:
Maxim Rusanov said one of the companies, Vistion Pty Ltd (which I understand changed its name to Deadliest Catch Pty Ltd) was a seafood wholesaler. It sold produce which his father-in-law's company supplied. A company associated with his father-in-law was Sea Lion LLC.
Mr Rusanov said that in 2010 to 2016 he was trying to develop his father-in-law's business. .
(3)at [59]-[61]:
It is clear Vladimir Rusanov had access to significant amounts of money which he transferred to his daughter and/or son-in-law during the relevant years. .
. [in] at least some of the relevant years Maxim Rusanov says he was trying to assist his father-in-law's business. It seems unlikely that Maxim would go unrewarded for his efforts.
It is a curious feature, in respect of the transfers, that no emails or texts are available to indicate the nature of the transfers, how they were initiated, or even to acknowledge receipt.
29As the applicants bore the burden of proving what their actual taxable income was in the relevant years so as to demonstrate that the assessments were excessive, the conclusion reached by the Tribunal at [62] was not unreasonable having regard to these findings.
30In any event, the threshold for legal unreasonableness is very high, and it has not been met in this case in circumstances where (with respect) the decision provides an intelligible justification for the result: see Tsvetnenko v United States of America (2019) 269 FCR 225; [2019] FCAFC 74 at [84] (Besanko, Banks-Smith and Colvin JJ).
31For these reasons, ground 2 must fail.
Ground 3
32By this ground and by their submissions, the applicants repeat their argument in reliance on Cassaniti, which argument fails for the reasons given above.
33They also submit that the applicants discharged their onus to establish that the loan did not have the character of income and refer to evidence which they adduced in the hearing before the Tribunal.
34However, the applicants do not grapple with, or overcome, critical findings of the Tribunal, including an adverse credit finding. In relation to the alleged loans from Mr Varvulev, the Tribunal found at [38] that it was "implausible that the payments from Mr Varvulev to Maxim Rusanov were all truly loans"; and at [39] that "Mr Varvulev's evidence was not satisfactory. I thought he deliberately kept his dealings with Mr Rusanov vague. At times he was dismissive of the questions. I am not at all satisfied I was given the true story concerning their dealings".
35Further, that the Tribunal reached a different conclusion to that sought by the applicants below on the basis of the evidence before it, including its assessment of a witness called by the applicants, does not raise a question of law.
36For these reasons, ground 3 must fail.
Ground 4
37The applicants submit that they were denied procedural fairness due to the Commissioner providing them with an affidavit of Ms Laura Anderson (a solicitor acting for the Commissioner) on 4 August 2023, which was one business day before the hearing commenced on 7 August 2023 in the Tribunal. They complain that, by doing this, the Commissioner failed to comply with directions which required the Commissioner to file and serve any evidence by 17 July 2023.
38The applicants submit that they could not properly assess the information or respond to Ms Anderson's affidavit, that it caused medical issues and that Mr Rusanov "had to spend a lot of time seeking legal advice". The applicants also rely upon an email received from the Commissioner's solicitors dated 29 February 2024 which complained that the applicants had not complied with the orders of the Court.
39In Commissioner for Australian Capital Territory Revenue v Alphaone Pty Ltd (1994) 49 FCR 576 at 591-592 (Northrop, Miles and French JJ), the Full Court observed:
. a person likely to be affected by the decision is entitled to put information and submissions to the decision-maker in support of an outcome that supports his or her interests. That entitlement extends to the right to rebut or qualify by further information, and comment by way of submission, upon adverse material from other sources which is put before the decision-maker.
40The following matters provide relevant context to this complaint:
(1)there was no material lodged on behalf of the Commissioner pursuant to directions made by the Tribunal as the Commissioner was not running a positive case but was putting the applicants to proof. There was therefore no breach of any direction by the Commissioner;
(2)the email from the Commissioner's solicitor dated 29 February 2024 is unrelated and therefore irrelevant to the issue at hand;
(3)in preparation for the hearing, certain searches were undertaken and it was decided that the results of those searches might be used in cross-examination of the applicants' witnesses. The results of those searches were then exhibited to Ms Anderson's affidavit which was served on 4 August 2023 so as to provide notice to the applicants (who were self-represented by that stage) of documents which might be used in cross-examination;
(4)this was done in circumstances where there is no obligation on a party to reveal to the other party the documents which will be used to cross-examine the other party's witnesses;
(5)the hearing below proceeded over four days, from 7 to 10 August 2023, and some (but not all) of the search results were referred to during the cross-examination of Mr Rusanov on 10 August 2023. Relevantly, the only documents referred to in cross-examination were the search results at pages 64-83 of exhibit LA-1 which are extracts from a publicly available database of Russian organisations including Sea Lion LLC, a company related to Mr V Rusanov;
(6)the applicants were given an opportunity by the Tribunal to file written submissions about Ms Anderson's affidavit, which they did on 14 August 2023, being more than a week after the affidavit was served.
41Having regard to these matters, no procedural unfairness has been established. This is especially as the applicants were not deprived of an opportunity to put any argument or information before the Tribunal. Various factual assertions are made at paragraph 16 of the 'Applicants' Opening Submission' about the impact upon Mr Rusanov by the service of Ms Anderson's affidavit, but there is not sufficient evidence to establish these assertions, and so I do not accept them.
42The balance of the submissions by the applicants in relation to ground 4 includes another merits-based attack on the decision, which does not raise a question of law and so is not accepted.
43The applicants also submit that the Tribunal ignored various items of evidence which were relevant to the wealth of the donor (being Mr V Rusanov). However, the Tribunal found at [59] of the decision that Mr V Rusanov had access to significant amounts of money, stating that "[i]t is clear". The evidence which the applicants contend was "ignored" was relevant to the finding that was made at [59] of the decision, being one which was made in favour of the applicants. It appeared from the decision that the Tribunal accepted that the companies associated with Mr V Rusanov were a source of his wealth, and the potential source of the money which had been transferred, but that this was not conclusive as to the characterisation of the transfers.
44For these reasons, ground 4 must fail.
DISPOSITION
45It follows that the appeal should be dismissed with costs, and the decision should be affirmed.
I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes.
Associate:
Dated:18 July 2024
Disclaimer: Curated by HT Syndication.
