The Burden of Proof
It appears that we have been inundated with “burden of proof” cases recently, with some involving taxpayers who didn’t fully understand that the burden is theirs to discharge.
Cases such as:
- CoT v Liang [2025] FCAFC 4 where taxpayers who ran a restaurant business as well as a property development business were not able to explain the source of over $700,000 in deposits; [The ATO won on Appeal]
- Cheung v CoT [2024] FCA 1370 where the taxpayer was able to show that $33 million in funds received from his Vanuatu based sister and wider family were gifts and not income. [Subject to ATO appeal]
- Rusanov v CoT [2024] FCA 777 where the taxpayers failed to prove that funds provided to the taxpayers were gifts and loans from family members.
In fact, in 2024 alone, there were 11 cases heard in the AAT or higher courts specifically on the burden of proof. The ATO was successful in 8 of the 11, with Liang’s 2024 Federal Court win being overturned in January 2025 (above).
The Taxation Administration Act rests the burden of proof with the taxpayer, such that the ATO is able to (and often does) issue default assessments requiring the taxpayer to prove that the assessments are incorrect.
The burden of proof requires the taxpayer, on the balance of probabilities, to prove that an assessment by the Commissioner is excessive. With the ATO’s ever increasing reach in terms of data collection, default assessments can be based on any number of data sources, some of which may not be available to the taxpayer.
Nevertheless, the taxpayer is required to prove, on the balance of probabilities, how and why an assessment is wrong or excessive.
In the Liang case, the taxpayers won at the Federal Court by providing evidence that the funds received were not from services, were not interest, were not dividends, were not rent and were not gains from the sale of assets. However, at the Full Federal Court level, it was decided that the taxpayers had NOT discharged their burden because they did not prove what the deposits were, merely what they were not!
Counsel for the Commissioner stated that the Commissioner did not know what the deposits were but that it was for the Taxpayer to explain, not the Commissioner.
Placing the burden of proof with the taxpayer is indeed a heavy load and clients who may be in receipt of non-assessable funds in the way of loans or gifts must be able to provide sufficient evidence that the funds are indeed loans or gifts.
The ATO has outlined on their website how a taxpayer should seek to document a gift or a loan, specifically from overseas, to satisfy them that the funds are not assessable.
The documentation requirements can include legal deeds of gift or loan, formal identification of the donor or lender, copies of the donor’s bank statements and other financial records of the donor or lender. Whilst these documentation requirements are onerous, when you consider the Commissioner’s win/loss ratio on burden of proof cases, the Taxpayer can never have too much evidence.
In the meantime, if you need to discuss any tax related matter, please contact Ross, Mimi, Linken, Chris or Sean.