A N L and F Khoury and Commissioner of Taxation
[2009] AATA 612
•31 July 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 612
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/6279
TAXATION APPEALS DIVISION ) Re A N L and F KHOURY Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Senior Member M D Allen Date31 July 2009
PlaceSydney
Decision For the reasons given orally at the conclusion of the hearing of this matter on 31 July 2009, the decision under review is AFFIRMED. ...................[sgd]...........................
M D Allen
Senior Member
CATCHWORDS
TAXATION: Penalties imposed on Applicants as a partnership – Business Activity Statements failed to disclose sales of residential properties which were taxable supplies – further uplift penalty imposed due to Applicants obstruction – decision not to disclose made deliberately by Applicants – discretion to reduce penalties not exercised – decision under review affirmed.
CASE LAW
Dixon and Federal Commissioner of Taxation (2008) 167 FCR 287
Sharkey v Federal Commissioner of Taxation (2007) ATC 2218
LEGISLATION
Taxation Administration Act 1953: Schedule 1; s 284-75, 284-220, 298-20(1)
REASONS FOR DECISION
31 July 2009 Senior Member M D Allen 1. At the conclusion of the hearing of the above matter the terms of the decision intended to be made and the reasons therefore were stated orally. After service upon the Applicant and Respondent of a copy of the decision that was in fact made, the Applicant, pursuant to subsection 43(2A) of the Administrative Appeals Tribunal Act 1975, requested that the Tribunal furnish to them a statement in writing of the reasons of the Tribunal for the decision.
2. The oral reasons for decision have been transcribed by Auscript, the Commonwealth Reporting Service. Whereas those oral reasons may reflect the inelegance of an extempore decision, they are in fact the reason for the said decision.
3. The said transcript is annexed hereunto and furnished to the Applicant and to the Respondent as it is the reason for the Tribunal’s decision.
I certify that this and the following paragraphs are a true copy of the reasons for the decision herein of Senior Member M D Allen
Signed: ...........................[sgd]....................................................
M. Corcoran, AssociateDate of Hearing 31 July 2009
Date of Decision 31 July 2009
Counsel for the Applicant Mr N Parsons
Counsel for the Respondent Mr B C Kasep
EXTRACT OF TRANSCRIPT OF PROCEEDINGS
MR ALLEN: By application made the 18th day of December 2007, the partnership of Anthony Khoury, Nayam Khoury, Lor Khoury and Fiona Khoury sought review of that part of an objection decision by the Respondent disallowing in part an objection to penalties imposed against the partnership. The penalties amounted in total to $194,886.00 imposed pursuant to sections 284-75 and 284-220 of Schedule 1 to the Taxation Administration Act 1953 (“TAA”), as amended.
The penalties were imposed because an audit of the partnership made in June 2006 disclosed that Business Activity Statements (“BAS”) lodged by the partnership in the period 1 February 2005 to 31 August 2005 had not disclosed the sales of residential apartments which were taxable supplies for the purposes of the A New Tax System (Goods and Services Tax) Act 1999. Penalties in the sum of $162,405.00 were imposed pursuant to section 284-75 of the TAA because of a failure to disclose taxable supplies, and a penalty of $32,481.00, being an uplift penalty, pursuant to section 284-220 of Schedule 1 to the TAA was imposed because the taxpayer obstructed the Commissioner of Taxation (“COT”) during the course of the audit.
The details of the obstruction were set out at document T5 of the documents prepared for the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and it was stated in the following dot points:
· You did not give correct information to your tax agent relating to the sales of the units
· You did not attend to the meeting even though you were specifically asked to attend the meeting
· You refused to give the information when you were contacted by the Tax Office to confirm the sales of the units.
Counsel for the Applicants clearly admitted that the members of the partnership did not disclose the sales of the residential units in their BAS return as they did not have the money to pay the amounts of goods and services tax (“GST”) that would be levied. In other words, the decision not to disclose was deliberately made. No attempt was made by the partners to contact the COT and seek any accommodation with the Commissioner. It was stated that they intended to make payment when enough of the units had been sold so that they had the available cash. I note, however, that it was the 2006 audit that revealed the sales.
As I understand the case for the Applicant, they admit to not making the required returns, but seek the exercise of the discretion that exists in section 298-20(1) of Schedule 1 of the TAA to reduce in whole or in part the administrative penalties imposed by the Respondent. The manner in which such a discretion should be exercised was discussed by the Full Court of the Federal Court in Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287. At page 290, commencing at line 15, the Court said:
“ The Tribunal did not regard the search for mitigating circumstances as restricted to the taxpayer’s conduct, but considered that the decision-maker must have regard to all the circumstances, and must weigh the importance of preserving the deterrent value of penalties against the hardship that would be imposed on a particular tax payer. The Tribunal held that a penalty may be remitted wholly or in part in order to avoid a harsh outcome.”
At paragraph 17 the Court said:
“If, by that reasoning, the Tribunal was expressing its discretion on the basis that in all of the circumstances of the taxpayer the penalty was harsh, it would be difficult to discern any question of law raised by its reasoning.”
The Court continues at page 291, paragraph 21:
“ To the extent that the primary judge concluded that it is necessary that there be special circumstances before the discretion to remit can be exercised, her Honour was in error. There is nothing in the legislative scheme to suggest that special circumstances must be established.”
The Applicants pointed to various factors which mitigated against the imposition of the full amount of penalties for both recklessness in the completion of returns and for non-cooperation. These factors included the fact that at the time the residential units had come on the market, sales of such units in New South Wales had slumped due to factors such as the imposition of a tax upon vendors and investment units, the imposition of land tax upon all second dwellings irrespective of value and the raising of interest rates. All of these factors resulted in the units being sold at cost with no profit. In addition, the Applicant’s financier had, as a condition of making further advances available, imposed a condition that upon settlement all sale moneys were to be transferred to it regardless of other outlays.
I accept that the partnership was in financial hardship, and the partners had difficult decisions to make in order to keep their business, which supported two families, viable. Mitigating against leniency, however, is the fact, conceded by the Applicant’s counsel, that the partnership had been found by an audit conducted in 2003 to have a shortfall in reported sales of $17,269.00. In other words, the current proceedings were a repeat offence. Other audits finalised in 2007 found further undisclosed taxable supplies for the period 1 March 2006 to 27 February 2007 and January 2007 to March 2008.
As was pointed out by the Respondent in submissions, this is not a case where the Khoury partnership has a good compliance history, and should therefore be encouraged to remain compliant by treating it more leniently than entities which do not have a good compliance history, citing as an authority Case 3/2008 (2008) AATA 415. I realise the imposition of the penalties may have a crushing effect upon the individuals who comprise the partnership. One of the members is apparently suffering from a psychiatric illness as a result of his business failures and is receiving social security benefits. These factors are, however, individual to him, and more properly the subject of a relief application.
As far as I am concerned, the answer to the matter before me was given by Senior Member Taylor SC in Sharkey v Federal Commissioner of Taxation (2007) ATC 2218 at 2229. There the learned Senior Member said:
“That selective response will often be able to be characterised as one in which the practical benefits or imperatives of the taxpayer’s business activities have been accorded priority over their legal obligations and the public interest that the proper operation of the taxation system is intended to serve and which the existence of the statutory administrative penalties for non-compliance are presumably intended to emphasise. They are likely to require particularly compelling circumstances before it would be proper to exercise a discretion to remit lodgement if penalties in favour of a taxpayer who was responsible for a substantial period of knowing and prolonged non-compliance of their lodgement obligations.”
I find that the Applicants partnership by its members made a deliberate decision to give false information to the Commissioner. No mitigating factors exist. In particular they could have always negotiated with the Commissioner regarding the payment of tax. Plus, they had a prior history of making false and misleading statements. The decision under review is affirmed.
END OF EXTRACT [12.38pm]