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The AAT has held that the taxpayer, a partner of a Vanuatu based partnership, although not being a resident of Australia, had not discharged the onus of proof required to establish that he had not derived income from Australian sources. As a result, the AAT upheld the Commissioner's objection decisions, and declined to remit the penalties imposed by the Commissioner for the failure to lodge income tax returns.

The AAT described the Commissioner's methodology in raising the assessments was follows (see paras 60-62):

"The Commissioner started with the fact that Mr Agius attended meetings in Australia with clients of Owen T Daniel & Co (OTD). The meetings usually took place at OTD’s business premises. Mr Daniel would introduce Mr Agius to the client. Mr Agius would provide information to the client. The Commissioner characterised the content of the information provided by Mr Agius as 'tax consultancy services'; Mr Agius says that all he did was explain 'how offshore worked'...and Mr Daniel was the one who provided tax advice. Any clients who were interested in taking advantage of what they had been told about offshore opportunities would then send money to either Vanuatu or New Zealand for the implementation of an offshore arrangement, which would include the incorporation of a company in Vanuatu. That money – less a fee or commission – would often find its way back to the client or a related entity in Australia...

Put simply, the Commissioner’s methodology was to calculate the net amount involved in these arrangements – the sums sent overseas, less the sums returned to Australia – and to assess that entire amount to Mr Agius as his Australian-sourced income. This was despite the fact that the payments were not made to Mr Agius personally, but to one or other...companies, which the Commissioner considered were owned or controlled by or otherwise connected with Mr Agius."

In finding that the taxpayer had failed to discharge the onus of proof, the AAT said at para 101:

"It is not to the point that the amount on which the Commissioner has fixed in the assessments is almost certainly wrong; that will invariably be so in the case of a default assessment under s 167 of the ITAA 1936: see Trautwein v Federal Commissioner of Taxation [1936] HCA 77; (1936) 56 CLR 63 at 87. What matters is that, because of the shortcomings identified in...these reasons, Mr Agius has not established what his actual taxable income was in each of the relevant years."

Agius and FCT [2014] AATA 854 (AAT, Frost DP, 17 November 2014).

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