The difficulty in discharging the onus of proof in tax disputes

Difficulty in discharging onus of proof in tax disputes

What's your income? Can you prove it? Sarah Dunn and Annemarie Wilmore look at a recent decision of the Full Federal Court highlighting the importance of positive proof.


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The Full Federal Court decision in Rigoli v Commissioner of Taxation [2016] FCAFC 38 serves as a reminder of the importance of the taxpayer having evidence to positively discharge the burden of proving an assessment is excessive.

In Rigoli, the Commissioner issued assessments under section 167 of the ITAA36 relying upon an expert accountant’s report to estimate the taxpayer’s partnership income over the relevant period. The taxpayer was prepared to accept the estimation of income but wished to challenge the assessments on the basis that depreciation expenses should have been taken into account.

The taxpayer sought to discharge his evidentiary onus by relying on the Commissioner’s expert report and did not seek to adduce further evidence as to his income.

While the expert report was very detailed and based upon numerous primary financial documents including statements, invoices, receipts and witness statements from suppliers and creditors, all relevant source documents had not been available to the expert in preparing the report. Accordingly, while the report was a ‘reasonable reconstruction’ sufficient to found the 167 assessments, it represented only the expert’s ‘best estimate’ as to the financial position of the partnership.

While it is open to the Commissioner to agree to confine issues in dispute, in this case he did not, and he put the taxpayer to strict proof.

The Tribunal below found that the taxpayer had not discharged that onus in relying upon the report as it did not establish his actual income from all sources, not solely the partnership, for the years in question.

The Full Federal Court dismissed the taxpayer’s appeal on the basis that that finding was open to the Tribunal.

The decision highlights the importance of maintaining contemporaneous records to support tax positions, as the failure to produce such evidence can ultimately be fatal.

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