A Vanuatuan supermarket matriarch gifted her brother $33 million — then the ATO came calling

December 2, 2024 9:45 pm | Posted in Business News | Share now TwitterFacebook

An elderly supermarket matriarch in Vanuatu sent her Australia-based brother nearly $33 million in gifts over 10 years.

Australia’s tax man claimed the money was “income” and wanted its cut.

But a federal court judge has found otherwise, smacking down the “excessive” assessment in a major win for the wealthy retiree.

Justice John Logan on Friday handed down a scathing decision in the long-running tax case, ruling that the 99 deposits made by Graziella Leong to her younger brother Lin Jum Cheung between 2005 and 2015 were “not income in any sense”.

“They were just gifts of capital voluntarily made by a loving sister who has an acute sense of family loyalty and responsibility and who has enjoyed good fortune in business for [Mr Cheung], a loved brother respected for his business judgement and like sense of family loyalty and responsibility, to invest as he saw fit and to draw upon personally if he saw fit,” Justice Logan said.

“There is nothing unique to this case about such a phenomenon. For example, if by good fortune they can, many parents give money to children for a home deposit, grandparents give money for treats or extra clothes for grandchildren, sometimes for school fees. All this occurs as a matter of routine according to available financial resources and by reason of natural love and affection.”

Mr Cheung, also known as Rene Ah Pow, was born in Port Vila in 1944, one of seven children of parents who moved to the Pacific nation from China where they opened a small bakery.

In 1974, Mrs Leong and her then husband George Leong founded Au Bon Marche (ABM), after inheriting a small grocery business operated by Mr Leong’s parents. But in 1978, Mr Leong abandoned his family, leaving his wife to raise three young children and run the supermarket.

Today Au Bon Marche is the largest supermarket chain in Vanuatu with six stores in Port Vila, a wholesale food facility and four petrol stations.

Since the late 1970s, much of the money generated by the family business has been sent by Mrs Leong to her brother — who was educated at Knox Grammar School — for investment in Australia.

The family investment vehicle Simmattown purchased a Condell Park shopping centre in 1980 and in 1991 bought the Coogee Bay Hotel in Sydney’s east.

“The tenor of Rene’s evidence makes me sure that, albeit in a way not legally enforceable, he regarded himself as under a familial duty to deploy such interest earnings and the principal of funds given to him as, if and when required for the benefit of the wider Cheung/Leong family,” Justice Logan said.

Mr Cheung had helped his sister after her divorce by working in the business, but retired on health grounds in 2000.

In a 2021 decision, the ATO assessed Mr Cheung’s taxable income between 2005 and 2015 as $34,753,210, largely from 99 deposits made by his sister over that period totalling $32,799,580.

In 2010 alone, Mr Cheung received nearly $11 million from his sister.

He contended his taxable income should be just $1,953,631 from interest earned over the 10 years.

Mr Cheung — represented by Australia’s most expensive lawyer, Mark Robertson KC — filed a statutory appeal with the federal court seeking to overturn the eye-watering tax bill.

The case was heard over seven days in October 2023.

Justice Logan on Friday found in Mr Cheung’s favour, ordering the ATO to issue amended assessments reducing his taxable income for the period to $1,953,631, upon which withholding tax of $74,591 was paid, and “making of all necessary and consequential adjustments to penalties and interest charges”.

Justice Logan noted in his ruling that during the relevant period, “as it always had been”, the Au Bon Marche business operated and paid tax in Vanuatu, never in Australia, and Mrs Leong was its sole owner.

During the hearing, counsel for the ATO grilled Mrs Leong’s son Andrew under lengthy cross-examination, suggesting that Mr Cheung had an ownership stake in the Au Bon Marche business.

“Rene is not the owner, it’s my mother,” Andrew told the court.

“So, please, don’t force me. I repeat all this morning it’s my mother and myself, my brother, and my sister. We are the grassroot of this property and all this business, and I feel sad today that you are forcing me. I’ve been going for a couple hours now he’s not the owner, sir, please, understand my feeling. I don’t have a dad since 12 years old.”

Justice Logan said that “to describe this exchange as a dramatic moment in the trial would be an understatement”.

“Andrew’s answers were given with considerable and obvious emotion and, to my observation, absolute and transparent honesty,” he said.

“Perhaps, subversion of Chinese cultural tradition by an oldest son (George) walking away from responsibilities towards family and business deepened the quality of the event but the long and the short of it is that, in 1978, Mrs Leong was left with three young children and a business, which became solely her business, to run. From then on, and up to and including all the relevant period … it was always her business.”

Justice Logan accepted that the meaning of “income” under tax law “does not vary according to cultural or family values”.

“But whether, on particular facts, a sum received or paid by direction is income may fall for determination against taxable facts which reveal that the character of the payment in the hands of the recipient is a gift, because the occasion for its payment is wholly explained by a cultural or family norm, not an income producing activity,” he said.

Justice Logan comprehensively rejected every one of the ATO’s arguments.

“The Commissioner’s case that the payments were returns in respect of an ownership interest by Rene in the ABM business fails on the facts,” he said.

“So, too, does an alternative submission that they were payments in the nature of a return for services rendered. It was, I apprehended, also submitted that some of the payments were in the nature of rent in respect of sites in which, directly or indirectly, Rene had an interest. On the facts, none were.

“Neither were the payments in the nature of a pension in respect of past services to the ABM business. They were not income in Rene’s hands in any sense.”

He concluded, “It consequentially follows that related penalties are excessive.”

Determination on costs will be made at a later date.

The ATO said it was “considering the decision of the federal court and whether there are any grounds for an appeal”.

“The ATO therefore does not propose to make any further comment on this case at this time while it is within the appeal period,” a spokeswoman said.

Mr Cheung has been contacted for comment.