In PQBZ v Commissioner of Taxation, the Applicant failed to prove he was not a tax resident of Australia but was, however, able to prove the amended assessments made by the Commissioner were excessive by approximately $3.66 million.

The background

The Applicant was born in Malaysia, but was a citizen of Papua New Guinea (PNG). The Applicant first came to Australia in 1997 on a student visa and married an Australian citizen in 2000. After the birth of the Applicant's first son in 2008, he and his family moved back to PNG for a couple of years. The Applicant had two other children who were born in Australia in 2012 and 2015, respectively. In 2008 the Applicant was granted permanent residency in Australia.

After an assassination attempt on the Applicant's father's life and the ongoing threat of harm to the family, they relocated to Australia. The Applicant chose to stay in PNG to oversee his father's business operations. The Applicant frequently visited family in Australia, but still considered PNG as his place of residence.

The Applicant lodged all tax returns from 2013 to 2016 as a non-resident of Australia for tax purposes.

The Applicant received numerous gifts and loans from his father. These were used to maintain a particular lifestyle and acquire various assets such as vehicles and properties. Assets included a Lamborghini Gallardo, Mercedes C65 and a Cabo Speedboat.

The Commissioner concluded that the Applicant had not declared his true income, actively and knowingly omitted his income from his income tax returns. The Commissioner amended the Applicant's assessments using what is known as the "Asset betterment methodology" to determine the correct taxable income.

The Commissioner has the power to amend an assessment under s 166 of the Income Tax Assessment Act 1936 (ITAA 1936) where it is believed that a taxpayer has failed to include all their taxable income in their tax return lodgement.

The Asset betterment methodology

The Asset betterment methodology is adopted in situations where the taxable income lodged does not correspond to changes in the overall net position of an entity from one year to the next. Where there is a positive variance in the taxable income from one year to the next, this amount can be used to determine the taxable income for an income year.

An example of this is when a taxpayer has reported a taxable income of $100,000 however there has been an increase in the net value of assets by $400,000 from one year to the next. Although this, in and of itself, does not conclude that there is an untoward increase in the asset value of the taxpayer, it can lead to an amended assessment, and an increase in the taxable income.

The issues before the Tribunal were whether, for each of the income years from 2013 to 2016, the Applicant:

  1. Was a resident of Australia for income tax purposes;
  2. Lodged the correct taxable income; and
  3. Whether the taxable income that the Commissioner had amended in each of the income tax returns was excessive.

In determining the above, the Applicant had the burden of proof to show that the amended assessments were excessive and what the correct taxable income would be. It was not enough for the Applicant just to show that the amended assessments were excessive.1

There is no obligation on the Commissioner to provide evidence that supports the correctness of the amended assessments.

The Applicant was required to prove on the balance of probabilities that the amended assessments were excessive and what the correct taxable income should be, being the civil onus of proof. The difficulty is that there is no specific method on how this onus of proof can be met. 2

The rules of evidence do not apply to a Tribunal, which means that the Tribunal can have regard to material that would not be admissible in Court. This was advantageous for the Applicant, who in arguing his position, was not obligated to depend solely on contemporaneous information or to provide every piece of information concerning an issue. Instead, he could utilise general evidence of financial transactions to illustrate the reasoning behind the excessive nature of the amended assessment and to determine the correct taxable income. 3


Australian tax residents are taxed on worldwide income. This means that even if you are paying tax in another tax jurisdiction, you may still be subject to tax on income or assets you derive or own overseas. By contrast, a non-resident will only pay tax on Australian sourced income.

In determining an individual's residency, you must consider:

  1. The person's domicile (domicile test); or
  2. Whether the person has been in Australia for more than one-half of the income year (185-day test); or
  3. Whether the person is a member of, or eligible to join, a Commonwealth superannuation scheme.

The Commissioner contended that the Applicant qualified as an Australian tax resident, citing the Applicant's frequent visits to Australia from 2013 to 2016, notably exceeding 185 days in 2015 and 2016. Despite the taxpayer claiming his residence and abode was maintained in PNG, on various occasions from 2013 to 2016 the Applicant completed a resident return visa declaring his residential address was one of the properties owned in Australia. In outgoing passenger cards completed by the Applicant between July 2012 to June 2016, the Applicant sometimes declared he was an Australian resident and at other times declared he was a resident of PNG. At the hearing the Applicant explained that from November 2015 in outgoing passenger cards the Applicant always noted he was not an Australian resident departing temporarily because he did not have an intention to live in Australia for longer than 12-months.

The Applicant's position

The primary issue for the Applicant was whether the inflow of $2.6 million from 2013 to 2016 was assessable income. The Applicant argued these amounts weren't assessable as they were gifts used to purchase various residential properties and assets. In addition, the Applicant made various loans to friends and received various amount of money on behalf of family members.

The Commissioner disputed this issue, emphasising the lack of commercial viability and plausibility regarding the Applicant's multiple loans and financial assistance with little or no commercial benefit.

However, the Applicant demonstrated that considering his culture, background and capability, these actions were not implausible, a point the Tribunal concurred with.

The Applicant was heavily involved in his father's business and due to concerns related to his family's health and safety, could no longer live in PNG. Many of the payments made to the Applicant were from his father, either as a contribution to maintaining a certain level of safety and security, but also to hedge fluctuations in the currency by making transfers from PNG to Australia.

A strong factor benefiting the Applicant's case was the use of a forensic accountant. The forensic accountant was able to correlate the inflows and outflows to and from the Applicant's bank accounts and substantiate the Applicant's assertions.

The Commissioner attempted to taint the credibility of the Applicant's evidence by drawing correlation to the Cassaniti decision, making reference to the lack of substantiation by witnesses called to provide evidence.4 However, the Applicant's counsel was quick to show the Commissioner's power was not wide enough to use the lack of corroboration and evidence provided by witnesses called to provide evidence on behalf of the Applicant, to degrade the evidence provided by the Applicant, who substantiated most assertions.

Tribunal findings

  1. The Applicant was an Australian tax resident for the income years from 2013 to 2016;
  2. The Notice of Amended Assessments were excessive; and
  3. The Applicant was able to prove what the correct taxable income was.

Although the taxpayer failed to prove that he was not an Australian tax resident for the income years in question, it was definitely a win for the Applicant and future taxpayers seeking clarity on handling an appeal in the Tribunal where the Commissioner has amended an assessment on the basis of the asset betterment methodology.

Key takeaways

  1. When dealing with the Asset betterment methodology, you need to have substantial evidence. It does not need to be contemporaneous or mathematically correct, but it must demonstrate the legal narrative you are conveying; and
  2. Incoming Passenger cards can be used as factor to establish tax residency.


1 Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614.

2 McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284, 301.

3 Allard v Commissioner of Taxation (1992) 24 ATR 493 at [499]; Justice Hill states, "Furthermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider, not only of the Applicant, but also his independent and unchallenged witnesses, simply because the effect of the evidence was to support his accountant's generalisations about double-counting rather than to hit upon a precise figure, was to fall into an error of law."

4 Cassaniti v Commissioner of Taxation [2020] AATA 3447.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.