'Intense but rewarding': accountant recounts taking the stand in City Beach case

Speaking to Accounting Times, Exant Advisory partner Nathanael Lee recounted what it was like to testify during the Commissioner of Taxation (CoT)’s tax avoidance case against City Beach founders Carmelo Ierna and Melville Hicks.

The case, which concerned the firm’s 2016 restructure, resulted in a win for the taxpayers after the High Court rejected the CoT’s appeal and clarified that section 45B and Part IVA anti-avoidance provisions did not apply.

Lee, who has been with Exant Advisory since 2008, has worked with City Beach founders Ierna and Hicks since the start of his tenure. Having been centrally involved in the 2016 restructure that triggered the ATO’s court case, he was called to testify as a witness.

He described the experience as intense but ultimately rewarding, especially after the court ruled in favour of his client.

“All the way through, we were quite confident that they’d done nothing wrong, and that our advice that we had given in respect to the restructure originally was sound and in accordance with the law. But, yeah, that doesn’t mean anything until you win in court,” Lee told Accounting Times.

“It certainly was very rewarding professionally to have the courts sign in favour of the taxpayers and vindicate our advice and what we’ve done for the client as being correct and in accordance with the tax law.”

The process had also been incredibly drawn-out, he noted. The ATO’s initial audit commenced in 2017, meaning the entire process had taken just under a decade to resolve. The Federal Court trial first commenced in May 2023, almost three years before the matter was finally closed in April 2026.

“It is a long process. It’s quite stressful, especially for business owners. Where, you know, it is privately owned, and their name and their reputation is involved, and they’re having to fund the defense, which runs into the millions of dollars,” he said.

Lee added that the case affirmed the fact that the ATO was taking an “aggressive” approach to tax enforcement, which led to uncertainty for tax advisers.

“I think it certainly highlights the fact that we have a very active ATO,” he said.

“[Advisers] need to make sure their clients are fully aware of the very real prospect that the ATO will review the transaction and significant amounts, and that the ATO may well try to find some way to apply tax.”

Lee added that it was difficult for advisers to give their clients a “definite opinion” on tax matters, and that advice would need to depend on each client’s risk appetite. In some cases, he said it was worth getting the opinion of a barrister to attain a higher degree of certainty.

For risk-averse clients, Lee noted that their best bet was to simply follow the ATO’s public and private rulings, although he noted that there were cases where these rulings had been challenged in court.

“ATO rulings obviously have some value. And if you are risk-averse, then definitely just follow the ATO rulings,” he said.

In the Bendel case, the taxpayer has chosen not to follow the ATO’s ruling, and so far, the taxpayer has been proven correct, while the ATO ruling is incorrect. But certainly it comes down to the client’s risk appetite. If they want little to no tax risk, then maybe a private ruling is the way to go.”

Looking forward, Lee noted that advisers were “facing a great deal of uncertainty” regarding the interpretation of tax laws.

“My wish would be that we would get more certainty. And I think legislation could be the answer to clearing up some uncertainty, and then, obviously, we can also gain certainty from the courts,” he said.

“But as this case illustrates … it takes a very long time to get that. It can take a decade, so in the meantime, yeah, it does make life difficult. So I think, just in a nutshell, more certainty on the interpretation of tax law would be very welcome.”