ANDRIOPOULOS and COMMISSIONER OF TAXATION
[2010] AATA 148
•1 March 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 148
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/0663
TAXATION APPEALS DIVISION ) Re ANGELA ANDRIOPOULOS Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr S E Frost, Senior Member Date1 March 2010
PlaceSydney
Decision The objection decision under review is affirmed. ..................[sgd]............................
S E Frost
Senior Member
CATCHWORDS
TAXATION AND REVENUE – goods and services tax – GST shortfall – objection to penalty assessment – whether administrative penalty is excessive – whether the shortfall amount or part of it resulted from intentional disregard of a taxation law by the taxpayer or her agent – whether a statement was made to the Commissioner which was false or misleading in a material particular – whether the applicant’s husband was acting as her agent – whether penalty ought to be remitted in whole or in part – relevance of evidence of applicant’s psychiatric condition – objection decision is affirmed
Taxation Administration Act 1953 s 14ZZK, Schedule 1 ss 284-75, 284-90, 284-225, 298-20
REASONS FOR DECISION
1 March 2010 Mr S E Frost, Senior Member Introduction
1. Angela Andriopoulos, the taxpayer, operates, as a sole trader, what could be described as a health and beauty salon on the outskirts of Sydney. As the owner of the business, she is registered for GST purposes. She is required to lodge Business Activity Statements (BASs) quarterly. She accounts for GST on a cash basis.
2. Towards the end of 2005, the taxpayer owed the Commissioner a little over $87,000 in unpaid tax liabilities. Then, on 5 December 2005, two BASs were lodged with the Commissioner in the name of the taxpayer’s business. The first one, for the quarter ended 30 June 2005 (the June BAS), showed that the business owed the Commissioner $13,994. The second one, for the quarter ended 30 September 2005 (the September BAS), claimed a net amount of $104,473 owed to the taxpayer by the Commissioner. As a result of the lodgment of that second BAS, the taxpayer’s outstanding debt was entirely extinguished.
3. In due course the taxpayer, through her legal representative, informed the Commissioner that the September BAS was wrong. Instead of being entitled to a refund of over $100,000, the taxpayer actually owed the Commissioner more than $11,000. The difference between the refund claimed and the true liability constitutes a “shortfall amount” which is subject to an administrative penalty. In the circumstances the Commissioner took the view that the shortfall amount had been caused by the intentional disregard of the law by the taxpayer or her agent, and he assessed the administrative penalty at 75%, but reduced it by 20% on account of the taxpayer’s voluntary disclosure. The resultant penalty amount was $69,361.20.
4. The taxpayer objected against the penalty assessment but the Commissioner disallowed the objection. The Tribunal has now been asked to review that objection decision.
The issues
5. The Commissioner has identified the issues as:
(a) whether the administrative penalty assessed by the Commissioner is excessive;
(b) whether the penalty ought to be remitted in whole or in part.
6. Issue (a) depends on whether the shortfall amount or part of it resulted from intentional disregard of a taxation law by the taxpayer or her agent (s 284-75(1) and item 1 in the table in s 284-90(1) in Schedule 1 to the Taxation Administration Act 1953 (the TA Act)). (It appears to be common ground between the parties that it was appropriate to reduce the base penalty amount by 20% for the taxpayer’s voluntary disclosure – s 284-225(1) in Schedule 1 refers.)
7. Issue (b) depends on whether it is appropriate, pursuant to s 298-20(1) in Schedule 1 to the TA Act, to exercise the discretion to “remit all or a part of the penalty”.
8. Section 14ZZK of the TA Act casts upon the taxpayer the burden of proving that the assessment of penalty is excessive, and that the decision not to remit the penalty further “should not have been made or should have been made differently”.
The September BAS
9. The written material before the Tribunal comprised:
(a) the documents lodged by the Commissioner under s 37 of the Administrative Appeals Tribunal Act 1975 (the T documents);
(b) the applicant’s additional documents (Exhibit A1);
(c) the statement of Richard Morley dated 6 July 2009 (Exhibit A2);
(d) the report of Dr Nicholas Cassimatis dated 17 June 2009 (Exhibit A3);
(e) the Statement of Facts provided to the District Court of New South Wales in connection with the prosecution of an officer of the Australian Taxation Office (Exhibit A4) – see [13] below;
(f) the Commissioner’s supplementary documents (marked as Exhibit R1);
(g) a document entitled “Financial institution account details” signed by the applicant on 20 December 2005 (marked as Exhibit R2).
10. Dr Cassimatis was cross-examined by Mr Kasep, counsel for the Commissioner.
11. Neither the taxpayer nor her husband made a written statement or gave oral evidence in these proceedings.
12. The parties agree that:
· the original figures included in the September BAS were wrong;
· the taxpayer, through her solicitor, provided the correct figures to the Commissioner on 22 October 2007, after the taxpayer had been notified that her affairs were to be audited.
13. The critical point of dispute between the parties concerns the way in which the incorrect figures came to be included in the September BAS and then communicated to the Commissioner.
The prosecution of the ATO officer
14. The following material is taken from Exhibit A4:
Prior to the lodgement of the [September BAS] on 5 December 2005, Angela Andriopoulos account with the Tax Office was in debt in the amount of $101,043.74. This debt had progressively increased from 28 February 2003 when it was recorded as $3,581.15 and had come about as a result of unpaid taxes, late lodgement penalties and accumulating interest.
In this BAS, Angela Andriopoulos declared she made Purchases/Acquisitions in the amount of $1,331,617. The GST on this amount was $121,056. This is an amount owed by the Tax Office to Angela Andriopoulos.
After processing the BAS, and taking into account other amounts owed to the Tax Office by Angela Andriopoulos resulting from this BAS ($16,583), the net result was a credit in the amount of $104,473.
The residual amount of $2,566.23 ($104,473 cr - $101,906.77 dr = $2566.23) was paid by electronic transfer into the business’s nominated bank account with the National Australia Bank.
…
The Tax Office Verification process
The Client Verification Centre (CVC) of the Tax Office is responsible for verifying BAS’s lodged by clients. Tax Office employees working in the CVC conduct their duties from their work point. Not all BAS’s are verified (e.g. those with a nil return). BAS’s lodged by business entities are initially recorded onto a computer and enter through a risk rating engine. This process brings to the attention of CVC operatives certain BAS’s that need checking or verifying. This is done by creating a report/notification called a ‘work item’. This is by way of a Tax Office computer system called ‘Automated Work Allocation’ (AWA) system. Effectively, AWA is a recording and processing system for BAS’s that require verification. The detection of a high refund is one such reason for a work item to be raised. The raising of this work item would then facilitate a verification to be conducted.
When CVC staff undertake a verification, information is recorded in the related work item in the AWA system. This is done through notes on the system, and what is referred to as an ‘Electronic Case Report’ (ECR). This report is attached to the work item and reports the operative’s findings and the inquiries/actions they have made in relation to their verification of the BAS.
Verifications are conducted by various means such as phone conversations, examination of documents, and contact with third parties to confirm expenses, etc.
For example, in relation to a property development, a staff member may ask the client to fax through documents relating to:
· a contract for sale
· proof of purchase
· invoices; as well as
· contacting the vendor and asking related questions.
Effectively, the CVC operative must satisfy themselves from supplied documentation and conversation/s that the figures presented in the BAS are legitimate.
Operatives are required to look at each case requiring verification in a process called phase 1, and phase 2 verification. This is a security measure introduced by the Tax Office to ensure that at least two operatives undertake the important task of BAS verification. The phase 1 operative’s role is to make initial contact and to request documentation for verification, as well as initiating the ECR. The phase 2 operative reviews the documentation and completes the verification process. Work commitments/resources can however, have one operative complete both phase 1 and 2.
…
Fadi DWAYHI (DWAYHI) was one such CVC operative who was employed at the APS4 level in the Hurstville office of the Tax Office to carry out verifications.
…
The [September BAS]
…
The Tax Office records that on 18 November 2005, the bank account associated with this business was revoked. On 21 December 2005, a new account was added to Tax Office records, being National Australia Bank account [number …] in the name of [the business]. The signatory to this account is Angela Andriopoulos.
…
Gertos Savell Katos Pty Ltd – electronic lodgement of the BAS
This BAS was electronically lodged from the office of accountant Gertos Savell Katos Pty Ltd (the firm) for the GST reporting period 1 July 2005 to 30 September 2005.
Constantine Savell, accountant and owner of the firm Gertos Savell Katos Pty Ltd, electronically lodged the two BAS’s with the Tax Office on behalf of [the business]. He provided a statement in which he states:
· Up until 5 December 2005, the firm acted for [the business].
· He always received instructions on behalf of the business from Mrs Angela Andriopoulos, who he understood to be the manager and the person having control of the day to day activities of the business.
· The said activity statements were prepared from documents brought to the office by Angela Andriopoulos.
· Any business decisions having an effect on [the business] were made and authorised by Angela Andriopoulos.
15. This is not an entirely accurate reflection of Mr Savell’s statement, which was provided to the Tribunal after the hearing. The written statement made by Mr Savell on 3 March 2008 in connection with the prosecution of the ATO officer includes this, at [15]-[16]:
[15]The firm [that is, Gertos Savell Katos Pty Ltd] lodged activity statements for [the business] for the periods Apr-Jun 2005 and Jul-Sep 2005. The said activity statements were prepared from documents provided by [the business]. …
[16]The documents were brought into the office by Mr Jon Andriopoulos. … [my emphasis]
16. Exhibit A4 continues:
DWAYHI’s verification of the [September BAS]
Fadi DWAYHI used his position in the Tax Office to improperly process the [September BAS].
At 12:20pm on 5 December 2005, the [September BAS] reached the Tax Office via electronic lodgement. At 1:55pm it was viewed by Dwayhi and at 2:09pm it (being work item raised in relation to the BAS) was allocated to him for verification at his request. It is Tax Office procedure that BAS are verified by two separate Tax Office verification officers. DWAYHI stated that the client requested that he verify the BAS without recourse to another Tax Office operative. In a note inputted by him on Tax Office computer systems, he states:
“The client has requested that I do phase 1 & 2 as they need their refund a.s.a.p. Confirmed this with my team leader who advised that it is a quite (sic) time and this arrangement is ok.”
The work item relating to the BAS had been assigned to the Adelaide CVC office for verification. DWAYHI, being aware the BAS had arrived for verification contacted [the team leader in CVC Adelaide] and had the work item assigned to him.
DWAYHI subsequently recorded in the ECR the following information:
Date & Time Details 05 Dec 05 10:30 am
Downloaded case from AWA. Research undertaken in CVoC. Comparisons of activity statements for previous periods undertaken. Paper activity statement viewed. Allocation note added to AWA.
05 Dec 05 11:28 am Phone call – Client.
Rang and spoke with Mrs Andriopoulos. She has advised me of the main activities of the business and of the main activities in this period. I have requested documentation from her which she advised she would fax in today.
05 Dec 05 12:59 pm Fax – Client.
I have received all the requested documentation from the client. I will verify the documentation and conduct any necessary third party checks.
05 Dec 05 01:36 pm Phone call – Third party.
I have contacted 2 third parties to verify the major claims in this BAS period. Both third parties have verified that these purchases were validly made and that [they] received payment for the amounts claimed. The third parties have also remitted the GST to the tax office.
05 Dec 05 02:42 pm Phone call – Client.
I have rang [sic] and advised the client that all the documentation has been received and that the review has been completed. I advised the client that the refund has been released and to allow 3-5 working days for the refund to process. I also reminded the client to update her bank account details as they are not on our system.
05 Dec 05 03:03 pm
CMU cover sheet completed, documents attached and given to team member for despatch.
05 Dec 05 03:05 pm
Work item finalised. Case report attached to AWA.
Phone records were obtained relating to:
· the mobile phone associated with Jon Andriopoulos – [number]
· mobile phones associated with Fadi Dwayhi – [numbers]
· the home phone of Fadi Dwayhi – [number], and
· Fadi Dwayhi’s desk phone at the Hurstville tax office – [number]
The phone records identify:
· 14 calls made between Jon Andriopoulos and Fadi Dwayhi – the first being on 17 November 2005 when the [sic] Jon Andriopoulos made a call to Dwayhi.
· 8 calls made to each other on 5 December 2005, the day the BAS was lodged – 3 before the BAS was lodged and 5 subsequent to that.
· 27 further calls to 20 April 2006, and
· 3 calls in 2007, the last on 21 May 2007.
On 8 February 2008 Fadi Dwayhi took part in a tape recorded interview during which he indicated [footnote references omitted]:
· In November 2005, Jon Andriopoulos asked him for advice in relation to a tax debt his wife had with the Tax Office.
· Jon Andriopoulos offered him money if he (DWAYHI) could “… speed things up”.
· He did not conduct a verification as he was required to.
· He had not met Angela Andriopoulos.
· He did not ask for any invoice or other document to prove purchase of property as claimed by Jon Andriopoulos.
· After the BAS had been finalised, Jon Andriopoulos came to Dwayhi’s home and left three to four thousand dollars in cash on the table before leaving, stating “… that’s – that’s for the assistance that you’ve given”.
· He later thought it was odd that Jon Andriopoulos did this.
· He used the money to offset arrears owing on his unit.
…
Enquiries made with New South Wales Land Titles show that no purchase of land or property in New South Wales was undertaken by Angela or Jon Andriopoulos since she and Jon Andriopoulos purchased their residential property situated at [address] in 1996.
17. That document, Exhibit A4, was handed up to the Tribunal at the hearing on 5 November 2009. The taxpayer’s solicitor, who represented her at the Tribunal hearing, had not previously seen the document, but his reaction to the document was (Transcript, page 65):
Well – yes, well, this is extremely helpful and I would be seeking the tender of this document.
18. I note, in addition, that the taxpayer and her solicitor were aware, in broad terms, of the Commissioner’s understanding of the factual background to the lodgement of the September BAS and of the contentions being made by the Commissioner based on that background. Indeed, included in the Commissioner’s reasons for the objection decision (dated 23 December 2008) was the following statement (at T2:86):
Information available indicates that a corrupt Tax Office verification officer colluded with your husband to lodge and have verified the BAS containing false information. The corrupt officer has pleaded guilty to the charge.
19. The taxpayer’s principal contention in her penalty submission dated 3 February 2008 (T1:24-26) was that her bookkeeper made the errors in the BAS, and that she, the taxpayer, because of some psychological problems she was experiencing, did not properly check the draft BAS before it was lodged.
20. As mentioned above, neither the taxpayer nor her husband gave evidence. Nor did the bookkeeper.
Findings
21. It is hardly surprising, given the scanty evidence tendered on behalf of the taxpayer, that the version of events reflected in Exhibit A4 has not been displaced by the taxpayer. That version, taken together with an accurate account of Mr Savell’s statement, invites the inference that it was Jon Andriopoulos, acting either alone or with others, who incorporated the fictitious figures in the September BAS, and I make a factual finding to that effect. I find that he delivered the figures to Gertos Savell Katos (GSK) so that GSK could lodge the return through the tax agents’ portal. This is, after all, what Mr Savell said GSK did.
22. Those figures had no reasonable basis to support them. They were included, as I find, so as to achieve an extinguishment of the taxpayer’s outstanding tax liability. The law which required an accurate declaration of the taxpayer’s input tax credits was intentionally disregarded in favour of the declaration of a fanciful input tax credit claim.
Two remaining questions
23. There are, however, two questions that still need to be answered:
(a) Whether the actions of the taxpayer’s husband amounted to “[making] a statement to the Commissioner … [which was] false or misleading in a material particular”; and
(b) If the answer to (a) is yes – whether the husband was the taxpayer’s “agent”.
24. As to the first of those questions, I infer that the husband’s expectation when he delivered the fictitious figures to GSK was that GSK would not provide any further input to the September BAS (because it had no information on which it could base any such input), and that, as a result, the figures in the draft BAS would be the figures reported to the Commissioner. In circumstances where a person includes figures in a draft BAS and delivers those figures to a third party who acts simply as a conduit to the Commissioner’s office, it must be concluded that the person’s actions amounted to the making of a statement to the Commissioner for the purposes of s 284-75(1)(a) in Schedule 1 to the TA Act.
25. As to the second question, the inference is available that the husband acted on his wife’s behalf, and for her benefit. The extinguishment of her tax debt occurred as a direct consequence of his actions, and the remaining refund of around $2,500 was deposited into the bank account of the business, which she controlled. It could hardly be argued that the husband did these things for himself; he stood to gain no material advantage from his actions, while the financial benefit accrued entirely to his wife. The taxpayer has failed to displace the inference that in doing what he did, the husband was acting as his wife’s agent.
26. It follows from this that the penalty was correctly imposed at the 75% base amount on account of intentional disregard of a taxation law (although, as already mentioned, the Commissioner reduced the penalty by 20% because of the taxpayer’s voluntary disclosure of the misstatement).
Is further remission of the penalty justified?
27. The taxpayer’s case for further remission of the penalty under s 298-20 in Schedule 1 to the TA Act is based on her assertion, supported by Dr Cassimatis, that she was “suffering from a psychiatric condition which resulted in diminished responsibility to carry out her duties” (Exhibit A3). Dr Cassimatis also states that the taxpayer reported to him that she had discussed with her bookkeeper the draft BAS that the bookkeeper had prepared (which was presumably materially different from the BAS as finally lodged), but that she did not have knowledge of:
· The identity of the party that lodged the September BAS;
· Who was the person that made alterations to the draft BAS;
· How it was lodged.
28. In that context it is not clear how her psychiatric condition should bear on the question of remission. On this version, the taxpayer would presumably say that the figures she “discussed” with the bookkeeper were the correct ones, which of course would give rise to no penalty at all. If, as she asserts, an unknown party interfered with the correct figures, then that is an action of which she was not aware at the time, and in that event, her psychiatric condition is beside the point.
29. The taxpayer has not discharged the burden of proving that the remission decision should not have been made or should have been made differently.
Decision
30. The objection decision is affirmed.
I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Senior Member
Signed: ..............[sgd]..................................................................
AssociateDate of Hearing 5 November 2009
Final submissions received 23 December 2009
Date of Decision 1 March 2010
Solicitor for the Applicant Mr I. J. Kalaf
Counsel for the Respondent Mr B. Kasep instructed by Mr B Upex, ATO
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