Commissioner of Taxation v Liang [2025] FCAFC 4
Following a taxpayer win last year, the full Federal Court has recently ruled (31 Jan 2025) that the taxpayers hadn't discharged their burden of proof in relation to unexplained deposits.
In the Liang case, the taxpayers ran restaurant businesses (in trading trusts) and conducted a property investment business (property trust). The property trust received seven large unexplained deposits ($735,825) which the taxpayers used to purchase property. The Australian Taxation Office (ATO) amended the property trust's assessments to include the deposits as assessable income.
The Federal Court held on appeal that despite the credibility of the taxpayers' evidence, the Tribunal remained obliged to determine whether, on the material before it, the deposits constituted income under ordinary concepts.
The Federal Court found that based on the material before the Tribunal, including concessions of the Commissioner (that the trust ran a property investment business), the deposits were not income from services, were not interest, were not dividends, were not rent and were not opportunistic profit-making gains.
'The material before the Tribunal ought, in my view, to have led the Tribunal inexorably to a conclusion that whatever these Deposits might be, they were not, in the hands of the Property Trustee Company, income.'
In ruling in favour of the Commissioner, the full Federal Court essentially found that though the Commissioner agreed that the trust ran a property investment business, he did not concede that was the only thing the trust did and so every amount entering the trust must come under that business. Counsel for the Commissioner noted that in fact and the crux of the matter was that he did not know what the amounts were and it was for the Taxpayer to explain. As such, the onus remained with the taxpayers to prove that the amounts were not-assessable amounts.
With reference to the lack of credibility of the taxpayers' evidence, the Full Federal Court ruled that it didn't consider that it was open to the Tribunal to conclude that the taxpayers had discharged their onus of proving the Deposits weren't receipts of ordinary income in the hands of the trustee of the property trust.
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