Mid-August Tax Update

This article provides an update on key developments in taxation law for accountants and participants in the tax advice industry for mid-August. This update in summary covers:

1. Federal Court's rejection of Taxpayer's claim for approximately $20m in deductions;
2. Whether payment for Long Service Leave incurred in Income Year;
3. Businessman failed to prove assessments were excessive for failing to keep proper records; and
4. Successful Poker Player failed to account for $9.25m in deposits were not assessable income.

Further, these cases highlight the importance of record keeping, and unfortunately for some of these taxpayers, their credibility in the Tribunal and Federal Court.

1 – South Seas Holdings Pty Ltd v Federal Commissioner of Taxation [2025] FCA 848 – Taxpayer's Claim for Interest and Management Fees Denied.

A group of companies controlled by Vanda Gould were denied deductions for interest and management fees by the Federal Court. These companies included:

• South Seas Holdings Pty Ltd (acting as trustee for the VR Gould Family Settlement Share Trust)
• Southsea Nominees Pty Ltd (acting as trustee for the Gould Family Trust);
• Education Corporation of Australia Pty Ltd (acting as trustee of the Educational Gold Trust); and
• Philadelphia Investments Pty Ltd.

The disputed deductions included interest of $18,478,736, and, management fees totalling $1,142,000 between 2001 and 2014. These payments were made to entities that were effectively controlled by Vanda Gould. The taxpayers argued that:

• There was a proper legal basis for deductions through valid contractual arrangements;
• The interest payments were made in respect of genuine loans made in the course of trade and commerce and the amount of interest paid was reasonable;
• The management fees were charged for actual services provided; and
• The entries in the accounting records reflected relevant arrangements.

The Federal Court found the evidence provided by Vanda Gould lacked any credibility, noting that "the account of Mr Gould as to these two matters to be entirely unconvincing and one which exposed Mr Gould's own past contrivances as to his financial affairs in the context of family law proceedings... the following matters provide further support for the conclusions I have reached as to the lack of credibility in Mr Gould's evidence based upon those parts of his testimony that concerned the interest and management fee deductions claimed by the taxpayers".

The Court noted that the taxpayer did not incur the interest and management fee obligations and that their books of accounts did not reflect the commercial reality of the underlying transactions. Rather, they said that Mr Gould had merely directed the flow of the funds through companies that he controlled to minimise his tax liabilities. The deductions for the interest were framed in a way that produced little or no taxable income for the companies.

2 – Bennetts v Federal Commissioner of Taxation [2025] ARTA 1092 – Interest for contributions from Long Service Leave not derived prior to Taxpayer being Beneficially Entitled

The issue in this case was the timing for tax purposes in regard to the taxpayer deriving interest on contributions made pursuant to the Construction Industry Long Service Leave Fund. The payments were made on 6 July 2021, however the taxpayer did not include the payment for his returns in the 2021-22 income years. However, the ATO amended the assessment and included the payment in his amended assessment. The taxpayer argued that the relevant statutory provisions, Trust Deed and Rules of the Fund operated so that the interest payments (for the purpose of s 6-5(4) ITAA97) were derived in the 1988, 1989 and early 1990s, with many of those years being time barred per s170 ITAA36.

The Tribunal rejected the taxpayer's argument and said that under the governing documents, the taxpayer did not have an absolute entitlement to any income not the right to call for payment in the prior income years. He merely had an expectation of the payments in the prior years. Further, the taxpayer became absolutely entitled to said payments when certain conditions were met and those conditions were met during the 2021-22 income years. As a result, the payments were derived in the 2021-22 income years.

3 – Dalby v Federal Commissioner of Taxation [2025] ARTA 1060 – Businessman failed to keep Proper Records for Amended Assessments

The taxpayer here was a businessman from QLD whose range of businesses included the construction and rental of student accommodation, delivery of workplace machinery training and trading in scrap gold. He returned no assessable income for the 2013 to 2016 income years, his declared expenses was higher than his declared income for those years. Following this, the ATO commenced an audit into the taxpayer's affairs and amended his assessment with his additional income tax liability and penalties totalling approximately $3m.

The issues here consisted of the following:

• Whether funds (approx. $4.4m) the taxpayer withdrew from a company he controlled, Mango Reef, and allegedly (according to the taxpayer) was used to fund the day to day running of another company the taxpayer owned;
• Whether a property he sold constituted a main residence and exempt from capital gains tax; and
• If the taxpayer was liable for penalties for having made false and misleading statements.

The Tribunal upheld the amended assessments given the taxpayer had failed to keep proper records, issue tax voices for work he had done, keep receipts for the expenses he incurred. The ART had commented that:

• Even after the statement that the withdrawals from Mango Reef were used to fund his other company, that in itself was insufficient to prove the returns filed by him and, as at the date of the case, his assessable income remained unknown.
• The ART was not satisfied that all the money from Mango Reef was used to fund his other company; and
• The taxpayer's lifestyle which included extravagant overseas and other expenses was inconsistent with his declared income and his assertion that he lived frugally.

As a reminder, taxpayers always have the burden of proving that their assessment were either excessive or incorrect, or that the taxation decision should have been made differently per section 14ZZK of the Taxation Administration Act 1953.

4 – Tran v Federal Commissioner of Taxation [2025] ARTA 1036 – Poker Player assessed for $9.25m in addition to Penalties

Ti Ke Tran, the taxpayer, and also known as "Lucky Eddie", a successful amateur poker player has recently been assessed with a significant income tax liability, in addition to penalties, for failing to explain where several deposits, totalling $9.25m, came from.

In 2017, the ATO audited the taxpayer for failing to lodge income tax returns in the 2014, 2015 and 2016 income years. This had resulted in the ATO issuing an amended assessment for those years for unexplained deposits into his bank account totalling approximately $9.25m. The taxpayer attempted to argue that these deposits were from his poker winnings and repayments of loans he provided to friends and family. Further, he had assumed that his poker winnings were from his hobby and were not assessable so kept no records.

Despite the Tribunal agreeing that the taxpayer was a successful poker player, the taxpayer had failed to show that the deposits into his account were loan repayments. There were several deficiencies in the taxpayer's case of which included:

• His witnesses' evidence suffered from his interference in the preparation of their statements. Many of the evidence provided by his witnesses was unsupported by corroborating records and lacked several essential details about the transactions in question;
• The taxpayer was largely a difficult and evasive witness. The evidence he provided about the monies lacked corroboration, inconsistent in several places with the evidence of his witnesses. There were also very few corroborating records to account for the monies which passed through his hands and into his account.

Should you wish to discuss the above, please contact Tony Pointon and Andrew Pointon of our Taxation Team.

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.