Four taxpayers have been unsuccessful in their appeals before the Full Federal Court, in which they challenged assessments that dramatically increased their assessable income for certain income years. The central issue in each case was whether, in circumstances where the Commissioner has issued an amended assessment out of time on the grounds of "fraud or evasion", the taxpayer in question bears the onus of proving the absence of fraud or evasion"". One case also concerned the issue of whether the Commissioner could issue assessments after the death of the taxpayer (in respect of income earned before their death), and another also concerned the issue of whether the taxpayer had been denied procedural fairness.

Margaret Binetter v FCT

This matter involved amended assessments issued to the taxpayer for the 2002 to 2007 income years which increased her assessable income by some $1.5 million (plus penalties). In this case, the Commissioner had formed the opinion that "evasion" had occurred which justified issuing the amended assessments out of time. In Re Bennett and FCT [2015] AATA 455 (proceedings conducted under a pseudonym), the AAT had ruled that the taxpayers had not discharged the onus of proving that assessments made against them were excessive, and that this included the taxpayer's failure to prove there had been no "fraud or evasion". In dismissing the taxpayer's appeal from that decision, the Full Court unanimously confirmed that it was for the taxpayer to discharge the onus that that there was no fraud or evasion and that it did not matter that the assessments were raised as default assessments.

Andrew Binetter v FCT

This matter likewise involved amended assessments issued to the taxpayer out of time, except that in this case the Commissioner did so on the basis that there had been "fraud or evasion" (not just "evasion"). However, the Full Court unanimously ruled, on the arguments before it, that there was no difference to amended assessments raised out of time on the basis of "evasion" alone or "fraud or evasion". Accordingly, it likewise determined that the taxpayer had failed to establish the onus of proving that the assessments were excessive, including in respect of the "fraud or evasion" issue.

Margaret Binetter for estate of Erwin Binetter v FCT

This matter involved the issue of whether a taxpayer could be liable for tax on income that is earned during their lifetime, but is not assessed until after their death. The Full Court unanimously ruled that a taxpayer could be liable for tax in these circumstances and that, as a result, amended assessments issued to the estate of the deceased taxpayer in respect of income earned during the deceased's lifetime were effective (again, despite some of them being issued out of time on the basis of "fraud or evasion").

In short, the Full Court concluded that an "outstanding tax-related liability" (as defined in the tax law and relevant to the matter) includes tax on income earned by a deceased person but not assessed during their lifetime – even though the debt itself is not recoverable until the assessment that sets out the specific amount owing and its due date for payment has been issued to the estate of the deceased taxpayer.

In any event, the Full Court found that the Commissioner had complied with the procedures contained in s 260-145 of Sch 1 to the Taxation Administration Act 1953 (TAA) for the recovery of tax from "unadministered estates" (as in this case) and therefore it was not strictly necessary to consider whether an "outstanding tax-related liability" encompasses an as-yet unassessed tax liability.

The requirements in s 260-145 require the Commissioner to determine the "outstanding tax-related liability" of the deceased and to publish notices in daily newspapers that the liability existed. These notices then are conclusive evidence of the liability, unless it is challenged by a person with an interest in the estate or by a person who has been granted probate. In this case the notice was challenged by the deceased' taxpayer's wife, but her objection and later application to the AAT were dismissed.

FCT v Tao Bai

This matter involved an amended assessment being issued to the taxpayer out of time on the basis of "fraud or evasion" which increased her taxable income for the 2005 year from $13,000 to $1.1 million (plus 50% shortfall penalties). Before the AAT in Re Bai and FCT [2013] AATA 612, the taxpayer had been only partly successful in arguing that the bank deposits which gave rise to the amended assessment were not income. However, in Bai v FCT (No 2) [2015] FCA 1083, the Federal Court found that the AAT had wrongly applied the "criminal standard of proof" (in view of the AAT statement, "I am not satisfied that evasion was not present"), and consequently remitted the matter for rehearing.

The current matter was the Commissioner's appeal against that decision, and also involved the taxpayer arguing (again) that she had been denied "procedural fairness" – she claimed that records had been seized which were necessary for her to discharge the onus of proving that the assessments were excessive. The taxpayer also argued that it was for the AAT to form its own view about the existence of "fraud or evasion".

In relation to the "procedural fairness" issue, the majority of the Full Court found that the taxpayer had not been denied procedural fairness, mainly because her affidavit evidence before the AAT did not rely on the records seized and it was only when she "went off piste" from this affidavit evidence that such records were relevant. In any event, the Court noted, the ATO indicated that the relevant records would have been made available to her if she had informed it she would be relying on them in her case. Siopis J dissented, essentially on the basis of the adverse effect for the taxpayer arising from the absence of documentary evidence to corroborate the "assertions" she made in her oral evidence.

In relation to the "criminal standard of proof" issue, the Full Court unanimously agreed with the Commissioner that "the reasons of an administrative decision-maker should not be examined minutely" to find error. It also agreed that even if the AAT had impermissibly applied a higher standard of proof, this was immaterial – the relevant AAT statement arose from its earlier conclusion that it did not accept the taxpayer's explanations of the deposits' source, and that therefore the taxpayer had not discharged the onus of proving, on the balance of probabilities, that the assessment was excessive.

Finally, in relation to the "fraud or evasion" issue, the Full Court again unanimously confirmed that the onus was on the taxpayer to show that there was no fraud or evasion.

Binetter v FCT [2016] FCAFC 163, Full Federal Court, Siopis, Perram and Davies JJ, 2 December 2016,