Allan and Commissioner of Taxation

[2011] AATA 860

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 860

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2011/0058

TAXATION        APPEALS        DIVISION		)
Re		KENNETH ALLAN

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

TribunalDr G Hughes, Member

Date5 December 2011

PlaceMelbourne

DecisionThe Tribunal affirms the decision under review.

.....................[sgd].........................

Member

Remission of penalty imposed under section 284-75(3) – late lodgement of tax return – correspondence sent by Commissioner to tax agent's personal address – taxpayer's difficulties in obtaining information – failure to respond to Commissioner's correspondence – whether penalty should be further remitted beyond 25%  

Taxation Administration Act 1953 Schedule 1 Section 284-75(3)

Taxation Administration Act 1953 Schedule 1 Section 284-90(1)

Taxation Administration Act 1953 Schedule 1 Section 298-20(1)

Income Tax Regulations1936 Regulation 40(1)(b)

Kakavas v Commissioner of Taxation [2011] AATA 48

Cody and Federal Commissioner of Taxation [2007] AATA 1342

Hobart Central Child Care Pty Ltd and Federal Commissioner of Taxation (2005) 60 ATR 1314

Otway Pty Ltd and Federal Commissioner of Taxation CT (2005) 60 ATR 1092

REASONS FOR DECISION

1.This is an application for review of a decision by the respondent as to the extent of a remission of a penalty imposed under section 284-75(3) of Schedule 1 to the Taxation Administration Act 1953. The penalty related to the late lodgement of the applicant's income tax return for the year ended 30 June 2006.  The applicant contended that a remission from 75% to 25% was inadequate.

Background

2.The applicant was required to lodge his tax return for the year ended 30 June 2006 by 31 March 2007. 

3.The respondent sent the applicant a reminder letter on 30 August 2007. A further notice was sent to the applicant on 21 September 2007. The respondent received no response and raised a default assessment under section 167 of the Income Tax Assessment Act 1936 on 23 October 2007.

4.The default assessment included a net capital gain of $665,000 and a shortfall of $307,649.31. On 24 October 2007 the respondent issued a notice of assessment to pay a penalty of $230,736.95, being 75% of the shortfall, pursuant to section 284-75(3) of the Taxation Administration Act 1953 (the 1953 Act).

5.On 16 July 2008, the applicant filed an objection to the capital gains assessment of 23 October 2007. 

6.The respondent requested further information on 21 August 2008. When no response was received, a reminder letter was sent on 24 September 2008.  On 24 October 2008, the applicant asserted that he had incurred capital losses which should be taken into account.  The respondent requested further information on 18 November 2008. When no response was received, the respondent sent a further letter on 16 December 2008.

7.On 16 January 2009, the applicant wrote to the respondent, foreshadowing the provision of further information by 21 January 2009. This information did not materialise.

8.On 23 January 2009, the respondent issued a Notice of Decision on Objection, allowing the applicant's objection in part and reducing the tax shortfall to $291,999.33, but still subject to a 75% penalty.

9.The respondent issued a Notice of Amended Assessment on 26 February 2009 to reflect these adjustments.  The applicant then objected to the imposition of the penalty on 29 April 2009.  This objection was disallowed.

10.On 3 December 2010, the applicant lodged an application for review of the decision not to remit the penalty. The respondent reduced the penalty to 25% of the shortfall, the adjusted amount being $72,999.83.

11.The applicant contended that correspondence from the respondent had been addressed incorrectly.  It had been sent to his tax agent's personal post office box address, which the applicant contended was not the address provided to the respondent by the tax agent.  The respondent disputed this contention.

Legislation

12.Section 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 states:

You are liable to an administrative penalty if:

(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given;

(b)that document is necessary for the Commissioner to determine a tax-related liability of yours accurately; and

(c)the Commissioner determines the tax-related liability without the assistance of that document.

13.Section 284-90(1) of Schedule 1 to the 1953 Act provides, relevantly, that the taxpayer is liable to an administrative penalty under section 284-75(3) of 75% of the tax-related liability concerned.

14.Section 298-20(1) of Schedule 1 to the 1953 Act provides that the Commissioner may remit all or part of the penalty.

15.Regulation 40(1)(b) of the Income Tax Regulations 1936 provides that the Commissioner may serve a document on a person for the purposes of the Act by posting a copy to a preferred postal address  provided by that person.

Discussion

16.Because the applicant did not lodge a tax return for the year ended 30 June 2006, it was necessary for the respondent to determine the amount of tax which the applicant was required to pay in respect of the capital gain which he made upon the disposal of a property which he owned in Queensland.

17.The respondent was required to determine the amount of tax without the assistance of the applicant's tax return. Accordingly, the administrative penalty was initially imposed at the rate of 75%, in accordance with section 284-90(1) of Schedule 1 to the 1953 Act. The penalty was subsequently reduced by the respondent to 25% pursuant to section 298-20(1).

18.The applicant's tax agent provided an explanation to the Tribunal as to why the applicant had been under the mistaken belief that the sale of the property in Queensland had not been subject to capital gains tax.  The point of the explanation was to emphasise that the applicant had not intentionally engaged in tax evasion.  The Tribunal accepts the tax agent’s explanation. 

19.The applicant's tax agent did not deny receiving the notices to lodge the relevant tax return. Rather, he asserted that the address to which they were sent was not the preferred address for service of correspondence from the respondent as required by regulation 40(1)(b) of the Income Tax Regulations 1936.

20.The applicant's tax agent was adamant that the address to which correspondence had been sent was not the address he had advised the respondent of.  He acknowledged that, being a personal post office box, he received mail which was directed to it but stated that he cleared the box infrequently.  He considered that, for an unexplained reason, the respondent must have changed his address for service as recorded on their files and that he had not been notified of this change.

21.The respondent explained, however, that the address matched the respondent's record of notification by the tax agent as to the preferred address for service. Therefore, the service had been in accordance with Part 4A of the Income Tax Regulations 1936.  The respondent produced in evidence screen shots displaying the applicant's address as it appears in its computer records.  All the tax agent’s clients had their correspondence from the respondent directed to the same address. 

22.The respondent also pointed out that there was an obligation on the applicant to lodge the relevant tax return by 31 March 2007 in any event.  The penalty was imposed in respect of the applicant's failure to lodge a return and the raising by the respondent of a default assessment. 

23.The respondent's decision to reduce the penalty from 75% to 25% was based upon a number of factors: that certain information was provided to the Australian Taxation Office at the objection stage which assisted the Commissioner; that the applicant had voluntarily disclosed some further income at the objection stage; and that the applicant had entered into a payment arrangement with the Australian Taxation Office in respect of his primary tax liability for the relevant year.

24.The respondent contended that there was no basis for a further remission, given that the applicant had engaged a tax agent to attend to his lodgement obligations and no adequate explanation had been given as to why the tax agent was not in a position to prepare and lodge the applicant's return for the 2006 income year. 

25.The respondent pointed to the fact that the applicant had a poor lodgement history, with only one of his last nine income tax returns lodged by the due date.  The applicant's tax agent explained that this was due to problems extracting information from the applicant's family's accountant, along with other family issues. It was not evidence of an intentional disregard by the applicant of his obligations or part of any strategy to delay the lodgement of returns. 

26.The tax agent also emphasised that the returns which had been lodged late in most cases documented an entitlement by the applicant to a tax refund. Therefore, it was the applicant, not the respondent, who had been disadvantaged. The respondent countered that whether the tax payer was entitled to a refund in respect of a late lodgement was not to the point.

27.The respondent emphasised that there had been no obligation on the respondent to send reminder letters.  It had been in essence a courtesy, and there could be no expectation that the respondent should have telephoned the applicant's tax agent, as contended by the applicant, to inquire about the reason for the tax agent's failure to respond to correspondence.

28.The respondent referred the Tribunal to the Explanatory Memorandum to the A New Tax System (Tax Administration) Act No 2 2000. The memorandum states, at paragraph 1.49, that the rationale for the introduction of a penalty under section 284-75(3) in relation to a failure to provide information was to provide a measure of fairness:

Otherwise, a taxpayer who makes a statement that is false or misleading, or is not reasonably arguable, is subject to a penalty, but a taxpayer who does not make a statement at all would not be subject to a penalty.

29.In Otway Pastoral Pty Ltd and Federal Commissioner of Taxation (2005) 60 ATR 1092, Senior Member Pascoe observed, in the context of section 298-20 that:

Whilst the section does not contain any guidelines as to appropriate circumstances in which the discretion should be exercised, it is clear that remission should be granted only where special circumstances existed, failure to lodge was due to factors outside the control of the taxpayer and all reasonable mitigating steps were taken by the taxpayer. 

30.Similarly, in Hobart Central Child Care Pty Ltd and Federal Commissioner of Taxation (2005) 60 ATR 1314, the Tribunal observed that there would clearly need to be circumstances that could be regarded as mitigating the tax payer's behaviour in some way.

31.In Cody and Federal Commissioner of Taxation [2007] AATA 1342, the Tribunal cited both Otway and Hobart and observed that:

The fact that a taxpayer is busily occupied with his or her own affairs cannot, of itself, justify a failure to comply with obligations arising under taxation legislation.  Similarly, the fact that a taxpayer was overseas at the time lodgement was due, thus resulting in some inconvenience in complying with lodgement obligations, cannot excuse any such failure to comply. 

In Cody, the Commissioner's decision to reduce the penalty from 75% to 25% was affirmed. 

32.In Kakavas v Commissioner of Taxation [2011] AATA 48, Senior Member Fice affirmed a decision to reduce a penalty from 75% to 25% but no further, on the basis that:

[W]hile there were some mitigating factors which should be taken into account when calculating the penalty rate, there are also factors on the other side of the ledger suggesting it should not be reduced.  In the circumstances, I am satisfied that the Commissioner's reduction of the base penalty rate to 25% was correct. 

33.The respondent contended that it had taken into account all relevant factors in favour of partial remission.  A remission of penalty to 25% reflected the applicant's provision of information during the objection as well as his willingness to enter into a payment arrangement. The applicant had not undertaken any other mitigating conduct to warrant a further remission.  The remission to 25% was, in the respondent's contention, a generous remission and no further remission could be justified. 

34.The applicant maintained that the reduction from 75% to 25% was inadequate.  There had been no intentional disregard for the law and the applicant had now put his affairs in order. 

Decision

35.The Tribunal finds in favour of the respondent.  The Tribunal affirms the decision under review.   

36.The applicant failed to lodge a tax return in respect of the year ended 30 June 2006.  The respondent was required to determine the amount of tax payable without the assistance of the applicant's tax return and accordingly it was appropriate for a penalty to be imposed.

37.The Tribunal is not persuaded by the applicant's assertion that correspondence from the respondent was directed to an incorrect address.  The evidence is that correspondence was sent to the address which had been conveyed to the respondent by the tax payer as the preferred address for service.

38.Even if the correspondence had been directed incorrectly – which the Tribunal does not find to have been the case – the fact remains that it was sent to the tax agent's personal post office box.  The tax agent admitted receiving the correspondence, infrequently because he only checked the mailbox infrequently. There was ample opportunity to read and respond as appropriate. There is no evidence that the fact of the correspondence being sent to an incorrect address (if the Tribunal was to accept the applicant’s contention) contributed in any way to the applicant's failure to lodge his tax return.

39.The Tribunal accepts the respondent's submission that the remission from 75% to 25% which has already been granted to the applicant is appropriate.  The remission suitably acknowledges the cooperation provided by the applicant to the respondent at the objection stage.

40.The Tribunal has consistently decided that a remission should only be granted in special circumstances, involving factors outside the control of the taxpayer; and only after all reasonable mitigating steps were taken by the taxpayer.  There is no evidence here that the circumstances were outside the control of the taxpayer or his tax agent.  The taxpayer may well have been distracted by business and family matters. He may well have had difficulty in communicating with his family's accountant. But that does not constitute special circumstances which justify a failure to respond to correspondence from the Commissioner or a failure indeed to lodge his tax return on time.  The misdirected correspondence (if it was misdirected, which the Tribunal finds it was not) to the tax agent may well have been an inconvenience but it was nothing more than that – the correspondence was received nonetheless. 

41.In the circumstances, there is no case for a further remission of the penalty as sought by the applicant.

I certify that the forty-one [41] preceding paragraphs are a true copy of the reasons for the decision herein of:
Dr G Hughes, Member

Signed: .....................[sgd].............................................
  Associate

Date of Hearing  11 November 2011
Date of Decision  5 December 2011

Representative for the Applicant   Graeme Hughes

Solicitor for the Respondent              Arisva Tawadros