by Paul Cutler | Apr 30, 2025 | Uncategorized
Advising on tax deductions and tax law generally is not something that I usually do. However, I recently came across the Full Federal Court case of Commissioner of Taxation v La Rosa [2003] FCAFC 125. In the best traditions of this blog, I was actually looking for the contact details of a suburban accountant with the same name when google decided to give the tax case the number one ranking.
Tax deduction for stolen money
Anyway the issue in the case was whether Mr La Rosa, who hadn’t lodged his tax returns for 7 years was entitled to a deduction of $220,000 for money which had been stolen from his business. There is nothing particularly remarkable about that proposition. In Charles Moore & Co v FCT (1956) 95 CLR 344 money stolen at gunpoint from an employee who was taking money from a retail store to the bank was allowed as a deduction.
What made this case unusual was that Mr La Rosa’s business was trafficking drugs and he was a convicted heroin and amphetamine dealer. The money had been buried in a suburban backyard and Mr and Mrs Mahoney (the owners of the back yard) were witnesses at the hearing. The money was apparently withdrawn (dug up) in preparation for a drug deal which went awry and the money was stolen. Mr La Rosa represented himself and was serving a prison sentence at the time at the time of the hearing.
The legal position is that when a taxpayer systematically engages in an illegal activity, and the elements of a business such as organisation, repetition, regularity and view to a profit are present, then the proceeds from that activity will be income according to ordinary concepts.
The Judgment
Although Hely J gave the main judgment, Carr J (although agreeing with Hely J) did so with a degree of hesitation. Some extracts from that judgment:
[5] These are transactions at the extreme end of the spectrum of illegality. The older cases which seem to form the foundation for the proposition that the proceeds of crime are taxable started with liquor bootlegging, illegal gambling and the like. When, for the purposes of this appeal, I reviewed those cases, I thought, at first, that they formed too slender a basis upon which to give a literal interpretation to the word “income” so as to include the proceeds of sale of heroin and amphetamines. I thought that this was criminal activity of such a degree of evil as to remove it from the categories of business which might generate “income” according to the common understanding of that term. ….. But I think that the analysis contained in Hely J’s reasons shows that “income” has been accepted as including the proceeds of criminal activities for too long for it to be appropriate for a court at this level to rule otherwise. Furthermore, the appeal was conducted on that assumption. ….
[6] If “income” has to be so interpreted, as I think it must for the reasons just given, I think that s 51(1) must also be interpreted literally and that the usual principles should be applied to allow the loss of cash in the present matter as a deduction. In my opinion, it would be an extraordinary public policy which permitted the Commissioner to bring the retail proceeds of heroin and amphetamine sales into the calculation of assessable income, but to deny the loss here claimed as an allowable deduction. ….
[7] I acknowledge that the two concepts of income and allowable deduction are not always in symmetry….
[8] There is a degree of unreality in a statutory expectation that drug dealers will file returns of their income. Their financial affairs are only likely to come to the Commissioner’s attention following, as in this case, criminal proceedings and convictions….
And also [55] as per Hely J ….”There should not be a higher burden of taxation imposed on those whose business activities are unlawful than that imposed in relation to lawful business activities. Punishment of those who engage in unlawful activities is imposed by the criminal law, and not by laws in relation to income tax“.
Postscripts
There are two interesting postscripts to this case. Firstly, the Income Tax Assessment Act was amended to change the law after this case and secondly, Mr Larosa and his wife were found murdered in 2008!
Creative commons acknowledgment for the photograph.
by Paul Cutler | Apr 14, 2025 | ADR
An anchoring effect is a cognitive bias which is very important to recognise in negotiation.
This phenomenon involves the tendency to rely heavily on the first piece of information (the “anchor”) presented when making decisions. The first piece of information serves as a reference point, significantly influencing subsequent judgments and decisions. This is even if that first information is irrelevant or arbitrary.
Understanding how anchoring works in negotiations can give negotiators a crucial advantage, allowing them to either exploit or mitigate the effect depending on the situation.
The Power of the First Offer
At its core, the anchoring effect occurs when the first piece of information presented in a negotiation—such as a price, salary, or deadline—sets the stage for all subsequent discussions. This initial figure, whether it is a high or low offer, tends to anchor the negotiation in ways that subtly influence the parties’ expectations and judgments.
Research in behavioural economics has demonstrated how anchoring affects decision-making. In one well-known study, participants were asked to estimate the percentage of African nations in the United Nations after being exposed to an arbitrary number (e.g., 10 or 65). The results showed that those who saw a higher anchor (65) estimated a much higher percentage than those exposed to the lower anchor (10), despite the number being irrelevant to the task. This illustrates how the first piece of information can distort perceptions and decision-making.
In a negotiation context, the anchoring effect works similarly. If one party makes the first offer, it can set the tone for the entire negotiation. A high anchor, for instance, might nudge the final agreement toward a higher price, even if the opposing party believes the true value is lower. Conversely, a low anchor can drive the outcome downward, potentially leading to a deal that’s more favourable for the party making the offer.
How to Use Anchoring Effectively
For negotiators looking to gain an advantage, using anchoring strategically can lead to more favorable outcomes. The key is to make the first offer, which allows you to set the anchor. By offering a high price or favorable terms, you position the negotiation in your favor. However, it is crucial that your anchor is realistic and based on solid data. An anchor that is too extreme can backfire, making the other party feel manipulated or alienated.
Effective negotiators also understand that anchoring isn’t just about the numbers. Language, tone, and timing are also critical components in setting the anchor. A well-delivered, confident opening statement can have just as much influence as a numerical figure, priming the other party to think in a certain direction.
Mitigating the Anchoring Effect
On the flip side, negotiators who are aware of the anchoring effect can take steps to counter its influence. The most effective way to do this is to remain calm and skeptical when faced with an initial offer. It is essential to resist the temptation to accept the first number presented and to instead reframe the discussion based on the merits of the deal. Asking for more information, challenging assumptions, or simply taking a step back to reassess can help counteract the bias introduced by an anchor.
In addition, research suggests that being aware of anchoring can diminish its impact. By consciously recognizing that the first offer may not reflect the true value, negotiators can recalibrate their expectations and avoid being swayed by irrelevant figures.
Final Thoughts
The anchoring effect is a double-edged sword in negotiation. Mastering its use and defense can significantly enhance your bargaining power and help you achieve more favorable outcomes. Whether you’re haggling over a car, negotiating a business deal, or discussing your salary, anchoring can set the stage for success. By understanding this psychological principle, you’ll be better equipped to make strategic decisions and avoid falling into cognitive traps.
In the world of negotiation, the right anchor can mean the difference between a good deal and a great one.
Creative commons acknowledgment for the photograph.
by Paul Cutler | Mar 28, 2025 | Uncategorized
The so‑called ‘prosecutor’s fallacy’ describes the risk that the fact finding tribunal will reason that evidence of the match probability or the likelihood ratio expresses the probability that an incriminating DNA sample was the DNA of the accused (Wark v WA [2023] WASCA 66). If you want a more succinct definition (from Xie v R [2021] NSWCCA 1) it’s “a fallacious mode of reasoning that transposes the conditional in a likelihood ratio“.
Lies and statistics
Why am I writing about this? Like many ideas for this blog over the years, I came across a case about the prosecutor’s fallacy (which I hadn’t ever heard of) when I was researching something else. I am having flashbacks to studying second year statistics in the early 1980’s when I actually knew something about Baye’s Theorem. In case you’re wondering, Baye’s Theorem is a means of refining probability calculations when more information comes to hand.
Prosecutor’s fallacy – examples
Statistics aside, the best way to describe the prosecutor’s fallacy is with a few examples. In R v Galli [2001] NSWCCA 504, the answer to the question: “What was the probability of the accused having the … DNA of the father compared to a person taken at random?” was 2.4 million to one.
However, the question for the jury was: “What was the probability of the accused being the father?”. Speigleman CJ noted that:
84 One means of committing the Prosecutor’s Fallacy is a reasoning process which treats the answer to the first question as if it was an answer to the second question, i.e. that the probability that he was the father was 2.4 million to one. That is not a permissible form of reasoning.
85 Given the size of the male population in Australia, on the basis of a probability of 2.4 million to one, there would be three or four males in Australia who share the DNA profile of the father of the foetus. A statement in the form that the “odds are 2.4 million to 1 that the accused is the offender” or that the “odds are 1 in 2.4 million that the accused is innocent”, overlooks the number of people who could have committed the offence.
Another example from the English case of R v Adams where the treatment of the evidence was that ‘[o]nly one person in a million will have a DNA profile which matches that of the crime stain” as demonstrating that “there is a million to one probability that the defendant left the crime stain and is guilty of the crime‘. His Lordship observed that the fallacious nature of that statement becomes clear when it is appreciated that the statement that one person in a million has the DNA profile which matches that obtained from the crime scene means that the suspect will be 1 of perhaps 26 men in the United Kingdom who share that characteristic (presumably assuming a population of 52 million with an equal division in gender). Hence, based on those figures alone, the odds of its being the accused are not a million to one. The prosecutor’s fallacy has a defence counterpart which ignores the statistical significance of the other evidence connecting the accused to the crime.
In case you are still awake and want to follow this further you could have a look at: An introduction to statistical ‘evidence’ — (2003) 23 Aust Bar Rev 239.
The image was generated using the AI tool DALL-E
by Paul Cutler | Jan 30, 2025 | Uncategorized
Character cancellation of permanent residence visas is a topic that I have blogged about before. Attempting to get character cancellation decisions revoked in the ART is one of my areas of practice. Usually the odds are stacked against success. In my matter this week the Minister’s lawyers actually conceded the factors were “finely balanced” (fingers crossed).
The ART proceedings are generally conducted politely and professionally and without some of the heat which is often present in commercial litigation. I was very surprised to find a matter where the member unleashed against the lawyers. This is how the decision in Leo’o Olo and Minister for Immigration [2024] AATA 2774 started:
- A non-citizen who commits serious offences in Australia should expect to be removed. Mr Leo’o Olo is a non-citizen who inflicted grievous bodily harm on a stranger, hit his young son so hard it caused welts and bruising, and threw his ex-partner down with such force that she bounced into a wall. He should not expect to remain in Australia. [So far, so good – difficult to cavil with that]
- However, there is money to be made from non-citizens who are desperate to avoid deportation, and whose loved ones are prepared to contribute their savings to pay a lawyer or migration agent to take their case to the Tribunal. There is much less money, but a good measure of integrity, in competently assessing a non-citizen’s prospects of overturning a visa cancellation, and where their prospects are futile, advising them to keep their money. Where a non-citizen’s prospects are not futile, a lawyer or migration agent who takes their case should present an honest case that focusses on matters that favour the non-citizen and carefully deals with matters that do not. Witnesses should be proofed properly to elicit relevant information and drive home their duty to be truthful. Poor proofing leads to contrived or deficient evidence and creates a risk that information that favours the non-citizen will remain unknown unless a curious Tribunal uncovers it. [There is no reasonable prospects of success requirement and no costs orders in this jurisdiction]
- Mr Leo’o Olo did not benefit from the efforts of his lawyers and lay witnesses to manipulate the Tribunal. The Tribunal is concerned with credible evidence and reasonable inferences. It is not persuaded by lies, speculation or exaggeration. Mr Leo’o Olo is going back to his country of origin. It is not a country that is poor, unstable, war torn, barbaric or oppressive. It is New Zealand. [Manipulating the Tribunal is a big call]
I half expected there to be a judicial review bias case subsequently. If there is one there is no decision published yet. I am also thinking about representation generally and representation without fear or favour to the best of your ability? Although I am poking fun at this decision, I hope the underlying conduct of the lawyers didn’t deserve this criticism. Of course I have one last barb….reasonable minds may differ on NZ.
Creative commons acknowledgment for the photograph.
by Paul Cutler | Dec 19, 2024 | ADR
The Process of Mediation: An Overview
Mediation is a structured, voluntary, and confidential process in which an impartial third party, the mediator (hopefully me), facilitates communication between disputing parties to help them reach a mutually acceptable resolution. The mediation process is flexible and can be adapted to suit the needs of the parties involved, but it generally follows a series of defined steps to ensure effectiveness and fairness.
If you undertake mediation training in Australia you will probably be taught about the seven steps in the process.
Preparation and Agreement to Mediate
Most of the mediations I do involve parties who are already involved in litigation (and usually in commercial disputes). They sometimes come to mediation willingly and sometimes they come as a matter of case management and sometimes they are forced to mediate against their will.
The first step in mediation is often called “intake”. This is effectively an assessment of suitability for mediation. I will sometimes (but not always) have a conference with the parties to explain the process, establish ground rules, and outline my role.
I also have a mediation agreement and a standard form confidentiality agreement which will be provided to the parties.
The mediation agreement emphasises neutrality, confidentiality, and the voluntary nature of the process. All parties must agree to participate in good faith, ensuring they are willing to explore potential resolutions.
All people present at the mediation will be asked to sign the confidentiality agreement on the day.
Setting the Framework
Once the parties agree to mediate and a place and time for mediation is set I usually ask for some information about the dispute.
Typically, I would request a copy of the pleadings in the litigation. Large volumes of affidavits and documents are rarely helpful. I also ask the parties to prepare an “interests statement”. Many lawyers will write a “position statement” cementing in place their adversarial position. It is much better if the parties to identify key issues and think about their goals for the mediation.
Opening Session
The mediation process formally begins with an opening session. I introduce myself and everyone present. I explain the structure of the session, and reiterates the principles of mediation, including neutrality, confidentiality, and the focus on collaborative problem-solving.
Each party is then invited to present their perspective on the dispute without interruption. This step allows the parties to express their concerns, feelings, and interests while giving the mediator and other participants a clearer understanding of the issues at stake.
Identifying Issues and Interests – exploration
During the opening session, the mediator works with the parties to identify the specific issues that need resolution. This agenda which is agreed to by the parties forms the framework for further discussion.
The national model of mediation provides for exploration and discussion where I will encourage the parties to speak to each other about their perspective on the agenda items. Information and views are exchanged.
This often involves separating positions (what each party says they want) from underlying interests (the reasons behind those positions). By focusing on interests rather than positions, the mediator helps the parties uncover common ground and opportunities for collaboration.
In court directed mediation t is common practice for agenda setting and exploration to be skipped in favour of early private sessions between the mediator and the parties.
Private Sessions
Private sessions with the parties are chance to recap and review where a party is at. It allows some reality testing and the opportunity for some confidential discussions about constructive options going forward.
Although this happens in court directed mediation, the process is then one of “shuttle mediation” where I might be asked to convey offers or issues to the other party.
Generating Options – brainstorming
I enjoy this part of the process. I facilitates brainstorming sessions to explore possible solutions. Creativity and open-mindedness are encouraged at this stage, with all suggestions being considered without immediate judgment. The goal is to create a list of potential options that address the interests of all parties. I try to ensure that the discussion remains constructive and focused on problem-solving rather than blame or criticism.
This can be done with the parties present (the national model) but is often done by the mediator relaying (shuttle) offers and ideas back and forth.
Negotiating and Reaching Agreement
Once the parties have generated options, the mediator guides them in evaluating and refining these solutions. This step often involves compromise, as parties weigh the feasibility and fairness of different proposals. I work with the parties to gradually work toward a mutually acceptable agreement.
Drafting the Agreement
If the parties are represented by lawyers, the task of drafting a settlement agreement (or a deed) will fall on them. Sometimes my assistance is sought or sometimes “mechanical issues” arise that need to be resolved.
It is my practice that parties should not leave the mediation until there is a binding settlement agreement reached. When I negotiate on behalf of a party (not in my role as mediator) I will often say to the other party “there is no agreement until it’s in writing and signed by both of us”.
Overnight buyers remorse or even worse, a dispute about whether settlement has occurred at all should be avoided at all cost!
If the parties reach a resolution, I can assist in drafting a written agreement that outlines the terms. This document serves as a clear record of the commitments made and may be legally binding if the parties wish. The agreement reflects the consensus of all parties and is reviewed thoroughly to ensure clarity and mutual understanding.
Closing and Follow-Up
In the final stage, the mediator concludes the session by summarizing the outcomes and addressing any remaining concerns. If needed, the mediator may suggest follow-up sessions to monitor the implementation of the agreement or address unresolved issues. The process ends on a positive note, emphasizing the progress made and the commitment to maintaining harmony.
Conclusion
Mediation is a highly effective process for resolving disputes in a collaborative and constructive manner. By fostering open communication, promoting mutual understanding, and focusing on interests rather than positions, mediation empowers parties to create solutions tailored to their unique circumstances. Its flexibility, confidentiality, and emphasis on voluntary participation make it a preferred alternative to adversarial dispute resolution methods such as litigation.
Creative commons acknowledgment for the photograph.
Advising on tax deductions and tax law generally is not something that I usually do. However, I recently came across the Full Federal Court case of Commissioner of Taxation v La Rosa [2003] FCAFC 125. In the best traditions of this blog, I was actually looking for the contact details of a suburban accountant with the same name when google decided to give the tax case the number one ranking.
