Anjum’s Air-conditioning & Refrigeration Service Pty Ltd and Commissioner of Taxation (Taxation)
[2016] AATA 433
•28 June 2016
Anjum’s Air-conditioning & Refrigeration Service Pty Ltd and Commissioner of Taxation (Taxation) [2016] AATA 433 (28 June 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2014/4879
2014/4880
2014/4881Re
Anjum's Air-conditioning & Refrigeration Service Pty Ltd
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms G Lazanas, Senior Member
Date 28 June 2016 Place Sydney The Tribunal affirms the objection decisions.
......................[sgd]..................................................
Ms G Lazanas, Senior Member
CATCHWORDS
TAXATION AND REVENUE – administrative penalties – undisclosed income in income tax returns – undisclosed taxable supplies in Business Activity Statements – whether voluntary disclosure made about the shortfall amounts – question of remission – objection decisions relating to administrative penalties affirmed
LEGISLATION
Taxation Administration Act 1953 (Cth) ss 14ZZK, Sch 1 ss, 284-75, 284-80, 284-90,
284-225, 298-20CASES
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164
Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287
Hart v Commissioner of Taxation [2003] FCAFC 105
Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
SECONDARY MATERIALS
Miscellaneous Taxation Ruling MT 2012/3: Administrative penalties: voluntary disclosures
REASONS FOR DECISION
Ms G Lazanas, Senior Member
INTRODUCTION
This case is solely about issues to do with the imposition and remission of administrative penalties pursuant to the Taxation Administration Act1953 (TAA 1953) with respect to both income tax and GST shortfalls.
It is common ground that the Applicant had failed to disclose amounts of income from its solar panel installation work in its income tax returns for two years, namely, the years ended 30 June 2011 and 2012. Additionally, it is common ground that the Applicant failed to disclose taxable supplies in its Business Activity Statements (BASs) for the quarterly tax periods 1 July 2010 to 30 June 2012 from the same business activities. The Applicant accepted that it had income tax and GST shortfalls.
The Applicant contends that these errors were honest mistakes and that the penalties should not have been imposed or, if properly imposed, should be remitted in their entirety or to a greater extent than already remitted. The Applicant further contends that it made voluntary disclosures to the Commissioner and, accordingly, that it deserves a reduction of penalties, in accordance with the provisions of the TAA 1953.
The Applicant, as the taxpayer, bears the burden of proving that the assessments of penalty are excessive and that the decisions not to remit the penalties should not have been made or should have been made differently: s 14ZZK of the TAA 1953.
I was not convinced that the penalties imposed at the rate of 50% on the basis of recklessness were excessive nor that they should be remitted to any extent. Additionally, I was not satisfied that the Applicant made voluntary disclosures. Accordingly, I have decided to affirm the objection decisions made by the Commissioner. Therefore, the penalties stand at 50% of the income tax and GST shortfalls.
THE FACTUAL BACKGROUND AND EVIDENCE
The facts were not in dispute. The following findings of fact are based on the evidence of the Applicant, including the written evidence filed with the Tribunal, the oral evidence of Mr Muhammad Anjum at the hearing, and the T-Documents filed by the Commissioner. Mr Anjum, the sole director of the Applicant, was the only person who gave evidence at the hearing.
The Applicant, Anjum’s Air-conditioning & Refrigeration Service Pty Ltd, carries on an enterprise of air-conditioning and refrigeration repairs and installations. Additionally, during the period 1 July 2010 to 30 June 2012 (the relevant period), the Applicant was also carrying out solar panel installation work.
The Applicant was registered for GST since 2000 and accounts on a cash basis and lodges its BASs on a quarterly basis.
Mr Anjum stated that his wife assisted him with some administrative tasks including record keeping and preparing the Applicant’s BASs. The income tax returns for the Applicant were prepared and lodged by a former tax agent, based on the BASs and other information that Mr Anjum provided to the tax agent.
On 14 March 2013, an ATO officer contacted Mr Anjum by telephone and advised that the Applicant had been selected for a review of its tax affairs due to the Applicant’s reported income being outside the “small business benchmarks”.[1] After asking various questions about the Applicant’s business, the ATO officer suggested that Mr Anjum check the Applicant’s records and if the Applicant had not disclosed income that should have been disclosed, or claimed a deduction that it was not entitled to, a voluntary disclosure should be made, in which event, the Applicant could receive a reduction on any penalties imposed. The ATO officer requested a response by 18 March 2013.[2]
[1] Broadly, small business benchmarks are calculated by the Australian Taxation Office (ATO) from income tax returns and BASs lodged by over 1 million small businesses and are used by the ATO to compare and identify businesses that may be avoiding their tax obligations.
[2] T13-70 to 73.
On 18 March 2013, the ATO officer telephoned Mr Anjum again, on two separate occasions. In the first phone call, the ATO officer enquired how the Applicant had managed to make significant payments on its mortgage with respect to a residential property at St Clair purchased by the Applicant. In the second phone call, the ATO officer indicated to Mr Anjum that she had been reviewing the Applicant’s income tax returns since the 2004 income year and was trying to reconcile amounts of rent that the Applicant had reported. The ATO officer said that she would require documents to be provided and that the request for documents would be sent in writing.[3]
[3] T13-73 to 75.
On 19 March 2013, the Commissioner wrote to the Applicant referencing the telephone discussions on 14 and 18 March 2013 between the ATO officer and Mr Anjum. The Commissioner also requested that the following documents and information be provided by 5 April 2013:
(a)Directors loan account from 1 July 2009 to 30 June 2012;
(b)Mortgage statements for the St Clair property from 1 July 2009 to 30 June 2012;
(c)Evidence of ownership for the St Clair property and the date of purchase;
(d)Details of sources of funds for the purchase of the St Clair property and evidence of transfer of funds from the Applicant;
(e)Lease documents for the Inverell farm and the St Clair property.[4]
[4] T14-76.
On 25 March 2013, Mr Anjum wrote to the Commissioner and provided the requested documents. This was the first occasion when Mr Anjum provided some meaningful information to the Commissioner about the tax shortfalls. The relevant parts of Mr Anjum’s covering letter are set out below:
I am writing to clear up the confusion regarding the income from solar related sources as per our telephone conversation.
I have discovered the problem that I deposited the income from solar work directly into the company loan account for [the St Clair property], instead of first putting it through the [company’s] bank account. The solar work related to sep 2010 to jun 2012. Amounts relating to financial year 2010-2011 are 34k from solar sources. For financial year 2011-2012 the amount is 94k. Any remainder relates to 2012-2013.
I have spoken to my accountant in this regard and we will amend the tax returns for the financial years of 10-11 and 11-12. Any remainders will be included in the tax for financial year 12-13. As a result of these amendments the directors loan will be cancelled out.
All requested information is enclosed.[5]
[5] T15-77.
Mr Anjum admitted that there were unreported sales from an additional business activity that the Applicant conducted in the relevant period, specifically, solar panel installation work. Mr Anjum went on to inform the Commissioner that the income relating to the unreported sales from the solar panel installation work had been deposited into the Applicant’s loan account. He also prepared a summary of deposits into that loan account and provided this to the Commissioner. Mr Anjum advised the Commissioner that the amounts of the Applicant’s unreported sales were $34,000 and $94,000, for the 2011 and 2012 income years, respectively.
On 2 April 2013, the Commissioner notified the Applicant in writing about the finalisation of the review and, additionally, about the commencement of a tax audit. In that letter, the Commissioner refers to the fact that the Company “made a disclosure in your letter …on the 25th March 2013 that you had discovered a problem. You advised that income from the “Solar work” was directly deposited into the company loan account… and as such was not included as reported income”.[6] In the same letter, the Commissioner stated:
Disclosure
We recommend you take this opportunity to review your records. If you find that you have made an error or omission and notify us before enquiries have begun, any penalty that you may be liable for could be reduced to reflect this voluntary disclosure.
[6] T16-105.
Further, on 10 April 2013, the Commissioner advised the Applicant that a cash economy audit would be commenced in respect of the period 1 July 2007 and 30 June 2012 and confirmed arrangements for an interview of Mr Anjum. Amongst other things, the Commissioner asked for records of all income received for the solar panel work and for the personal bank statements of Mr Anjum. The Commissioner’s 10 April 2013 letter also stated, as follows:
Disclosures
We recommend you take this opportunity to review your records.
If you find that you have made any further errors or omissions and volunteer this information before or at the initial audit interview and it saves us significant time and resources, and enables us to correctly adjust your tax related liability, we may reduce any penalties that could apply.
On 9 May 2013, a few ATO officers interviewed Mr Anjum as part of the tax audit. He was accompanied at the meeting by his former tax agent. The documents requested in the letter dated 10 April 2013 were also provided to the ATO at that meeting including, relevantly, the bank statements for Mr and Mrs Anjum. A summary record of the interview prepared by the ATO officers in attendance at the meeting, which was not challenged by Mr Anjum, reveals the following:
Asked Muhammed why he did not report the income received from solar panel installations and he stated that as the money was received into his personal accounts and then transferred to the mortgage account, the income was missed…
When asked, [the tax agent] stated he was unaware of the solar income when he prepared the income tax returns. He simply prepares them from the figures reported on BAS which is prepared by the taxpayer…
Muhammed confirmed he issued a tax invoice for every job and GST was charged on every job...
Muhammed advised that the actual amount of the solar work completed was higher than the amounts previously advised to Therese. He provided a spreadsheet for the 2011 and 2012 income years detailing the actual amounts including total of invoices issued, income received and reported, income received and not reported, balance of accounts receivable and expenses paid…
Finalised the interview. Taxpayer provided the following documents at conclusion of the interview:
…
-Summary of solar income for 2011 and 2012 income years.
-Tax invoices for all solar panel work completed in the 2011 and 2012 income years.[7]
[7] T18-112 to 114.
On 27 June 2013, there was another telephone discussion between an ATO officer and Mr Anjum. The file note prepared by the ATO officer, which was not challenged by Mr Anjum relevantly states the following:
Advised tax payer (sic) the case will be referred to audit. Advised not to revise the 2011 and 2012 ITR. Advised tax payer he could make a disclosure. Tax payer stated he has already made a disclosure. He had made a mistake and deposited the money to the private account when it should have gone through the company.
Tax payer stated he has no other income to disclose.[8]
[8] T19-117.
On 8 August 2013, the Commissioner wrote to the Applicant advising his interim findings from the audit in respect of both income tax and GST issues. The letter is comprehensive in that it corroborates the numerous interactions between the ATO officers and Mr Anjum referred to above. It also references third party enquiries made by the Commissioner as part of the audit indicating that the Commissioner had sought to verify information provided by the Applicant.
On 16 October 2013, the audit was finalised with the total unreported sales from the solar panel installation work being calculated by the Commissioner as follows:
(a)$167,754 for the year ended 30 June 2011; and
(b)$176,697 for the year ended 30 June 2012.
Accordingly, the Commissioner assessed the Applicant on the additional GST and income tax liabilities as well as administrative penalties set out in the tables below:
Business Activity Statements
Audit Position (Assessed GST Liability)
Penalty Amount (75% plus 20% increase in base penalty amount)
1 July 2010 to 30 June 2012
$26,235.00
$23,176.20
Income Tax Returns
Audit Position (Assessed Income Tax Liability)
Penalty Amount (75% plus 20% increase in base penalty amount)
Year ended 30 June 2011
$20,609.70
$18,548.70
Year ended 30 June 2012
$40,060.50
$36,054.40
Total
$60,670.20
$54,603.10
On 13 December 2013, the Applicant lodged an objection to the assessments including for the penalties and asked the Commissioner “to waive all the penalties and interest charges … in full on this occasion”.[9]
[9] T30-219.
On 7 February 2014, the Commissioner issued his objection decision. The Applicant’s tax liabilities and penalties were amended in respect of the unreported solar panel installation work, as set out below:
Business Activity Statements
Objection Decision (GST Liability)
Penalty Amount (50%)
1 July 2010 to 30 June 2012
$19,025.00
$9,512.50
Income Tax Returns
Objection Position (Assessed Income Tax Liability)
Penalty Amount (50%)
Year ended 30 June 2011
$20,113.80
$10,056.90
Year ended 30 June 2012
$30,210.60
$15,105.30
Total
$50,324.40
$25,162.20
Relevantly, the Commissioner reduced the penalties from 90% to 50% of the income tax and GST shortfalls.
On 2 October 2014, the Applicant lodged with the Tribunal an application for review of the Commissioner’s objection decisions.
At the hearing, Mr Anjum explained that in relation to all solar panel installation work, the Applicant had issued invoices to customers showing the bank details for his and his wife’s personal bank account instead of the Applicant’s bank account as was the case for all other invoices issued in respect of air-conditioning work. The payments deposited into the personal bank account of Mr and Mrs Anjum were later transferred by Mr Anjum into the Applicant’s loan account to pay off a loan that the Applicant had in respect of a residential property at St Clair. In this way, the Company’s bank account was effectively bypassed.
Mr Anjum gave various explanations as to why the Applicant’s income from the solar panel installation work was not banked into the Applicant’s bank account. Mr Anjum said he had wanted to keep track of cash flows from this business activity by separating it from the receipts for the air-conditioning work. Mr Anjum also said he had allowed some customers to pay for solar panel installation work by instalments, on an interest-free basis, and he wanted to be able to reconcile the instalment payments made by those customers.
Mr Anjum’s evidence was that as the receipts from the solar panel installation work were not showing in the Applicant’s bank account statements they had been overlooked by him and his wife when preparing the Applicant’s BASs. That is, eight BASs had been lodged without taking into account any taxable supplies involving the solar panel installation work because of mere oversights. Additionally, as the income tax returns were in turn prepared by the tax agent primarily by reference to the BASs, Mr Anjum stated that his former tax agent had also missed these amounts.
Mr Anjum was cross-examined at the hearing by Mr Jordan Mundell, an ATO officer. Mr Anjum was specifically asked whether the monies from the solar panel installation work had been banked into the personal account of Mr and Mrs Anjum, in order for the Applicant to avoid tax. Mr Anjum stated that it was a genuine mistake on his part in not including those receipts in the Applicant’s income tax returns and that he was not dishonest. He also stated that he was uncertain as to whether repayments of the Applicant’s loan were capital amounts and, therefore, not income. He said he did not have proper knowledge of accounting principles and relied on his tax agent. However, Mr Anjum also said that his former tax agent was not competent because had the tax agent advised that the Applicant was going beyond the small business benchmarks, the Applicant would have promptly fixed any errors. Mr Anjum further pointed out that the Applicant had kept comprehensive records including a complete paper trail of all the invoices issued to customers and all bank statements and, additionally, had a good compliance history.
I do not accept Mr Anjum’s evidence that the Applicant had made a genuine mistake or that the failure to report these amounts was due to a lack of accounting knowledge. Mr Anjum failed to give a plausible reason as to why substantial income from the solar panel installation work was treated differently to income from the air-conditioning work carried out by the Applicant. If there had been some uncertainty as to the nature of these receipts, the Applicant could have sought advice from the tax agent. Instead, the evidence suggests that the Applicant concealed the income from the solar panel installation work.
My conclusion is supported by the size of the unreported sales (more than $160,000 in the 2011 income year and in excess of $170,000 in the 2012 income year), especially when considered against the backdrop of the Applicant’s financial information as reported in the tax returns for the relevant period. For example, in the tax return for the 2011 year, the Applicant reported total sales of $297,788 and taxable income of $6,144, in respect of which $1,843 tax was payable.[10] In the 2012 income year, the Applicant reported total sales of $120,636 and taxable income of $15,750, in respect of which $4,725 tax was payable.[11] I find it particularly difficult to accept Mr Anjum’s version of events when the unreported sales in the 2012 year were well in excess of the reported sales. The Applicant should have known that the BASs and income tax returns were false and misleading at the time that they were lodged. I find that, at the very least, the Applicant was reckless and indifferent as to whether its BASs and income tax returns were accurate.
[10] T7-34 to 47.
[11] T12 56 to 69.
A careful consideration of the sequence of events with respect to the ATO’s investigation, in particular, the delayed disclosure of information by Mr Anjum, confirm my reservations about the unreliability of Mr Anjum’s evidence. Specifically, Mr Anjum was asked by the ATO officer to make any disclosures by 18 March 2013 but he did not immediately take up that opportunity. When he did make disclosures to the ATO officer, he only provided information which the ATO officer had already asked for. That is, his concessions were in each case limited to what the ATO officer was about to discover for herself. For example, as noted above at [13], Mr Anjum made a disclosure to the ATO officer on 25 March 2013 about unreported sales in the relevant period, but only after Mr Anjum had been asked to produce the Applicant’s loan statements by letter dated 19 March 2013. Most tellingly, at that stage, Mr Anjum only revealed the amounts banked into the Applicant’s loan account and did not disclose the true extent of the understated sales until the audit interview on 9 May 2013. Again, that disclosure was reactionary because the ATO officer had already asked Mr Anjum to provide copies of his personal bank accounts by letter dated 10 April 2013. Mr Anjum must have realised that it was futile not to tell the ATO officer the complete picture relating to the Applicant’s solar panel installation receipts because he had already been asked for the relevant records.
THE ISSUES
There are essentially three issues, as follows.
First, whether the Applicant is liable to pay an administrative penalty at the rate of 50% for recklessly making a false or misleading statement resulting in GST liabilities for the quarterly tax periods 1 July 2010 to 30 June 2012 and income tax liabilities for the years ended 30 June 2011 and 2012 pursuant to ss 284-75(1) and 284-90(1) of Schedule 1 of the TAA?
Secondly, whether the Commissioner should have reduced all or part of the respective penalties imposed on the Applicant pursuant to ss 284-225(1) or 284-225(5) for any voluntary disclosure made by the Applicant?
Thirdly, whether the Commissioner should have exercised his discretion to remit all or part of the respective penalties imposed on the Applicant pursuant to s 298-20(1)?
IS THE COMPANY LIABLE TO PENALTIES AT THE RATE OF 50%?
The Commissioner formed the view in his objection decision that the Applicant was liable to pay penalties at the rate of 50% on the basis that there had been recklessness as to the operation of the tax laws, that is to say, in respect of both the income tax and GST laws. I was not persuaded by the Applicant that the penalties imposed at the rate of 50% were excessive. I explain my reasons below, after first setting out a summary of the relevant legislative provisions.
Division 284 of Schedule 1 to the TAA 1953 sets out the uniform administrative penalty regime that applies to matters required to be reported in income tax returns and BASs. Relevantly, s 284-75(1) provides as follows (omitting the note):
(1) You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
A statement is false or misleading in a material particular if it affects a decision regarding the calculation of an entity’s tax liability or entitlement to a credit or refund. Most items of information provided in an income tax return and BAS will be material particulars.
Section 284-75(5) relevantly states that a taxpayer is not liable to an administrative penalty under s 284-75(1) for a statement that is false or misleading if the taxpayer took reasonable care in connection with the making of the statement. The Applicant is not entitled to avail itself of this exception as it did not take reasonable care at the time of lodging its BASs and income tax returns.
Subsection 284-80(1) of Schedule 1 to the TAA 1953 states that you have a shortfall amount if an item in the table in the subsection applies to you. A shortfall amount arises where:
·a taxpayer’s tax liability worked out on the basis of the false statement is less than it would have been if the statement was not false or misleading; or
·the amount that the Commissioner must pay or credit a taxpayer worked out on the basis of the false statement is more than it would be if the statement was not false or misleading.
The Applicant’s false and misleading statement resulted in:
(a)a GST shortfall amount for the assessments raised by the Commissioner in respect of the BASs for the quarterly periods 1 July 2010 to 30 June 2012; and
(b)a tax-related liability for income tax years ended 30 June 2011 and 2012.
Section 284-90 of Schedule 1 to the TAA 1953 sets out a table for the determination of the base penalty amount as a percentage of the shortfall amount, depending on the taxpayer’s behaviour applicable at the time the shortfall occurred. As noted above, the Commissioner determined in his objection decision that the rate applicable to the Applicant was 50% of the shortfall amount on the basis that the shortfall resulted from recklessness as to the operation of the taxation laws.
“Recklessness” in this context means gross carelessness, or a disregard for, or indifference to, a risk that was reasonably foreseeable: BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 per Cooper J at [77]. A finding of dishonesty is not necessary for a taxpayer to be subject to a penalty for recklessness: see Hart v Commissioner of Taxation [2003] FCAFC 105 per Hill and Hely JJ at [44] where the former s 226H of the Income Tax Assessment Act 1936 dealing with recklessness was considered.
I agree with the Commissioner’s submission that the Applicant showed recklessness in failing to report the taxable supplies and income from the solar panel installation work because it disregarded and or was indifferent to the risk and potential consequences of not reporting the true position. In so doing, the Applicant behaved in a manner which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the Applicant. This was not a simple case of a failure to take reasonable care.
I do not accept the Applicant’s submission that the non-reporting of the income of the sales from the solar panel installation work was overlooked by it and was an honest mistake. The Applicant did not account for substantial income in the income tax returns lodged for the 2011 and 2012 years. It also did not account for significant GST on its taxable supplies in its quarterly BASs with respect to the relevant period. It is unlikely that the Applicant would have ever accounted for these amounts except that it was detected upon audit as a consequence of claiming deductions which were disproportionate to its sales. I also took into account the following factors:
(a)The unreported taxable supplies and income were not isolated errors but occurred repeatedly in eight quarterly BASs and in two income tax returns.
(b)When compared to the income that the Applicant did declare when lodging its income tax returns, the income from the unreported solar panel installation work was a sizable proportion. In fact, the unreported sales amount exceeded the reported sales for the 2012 income year.
(c)The Applicant retained a tax agent to assist in relation to the preparation of its income tax returns but all the BASs were prepared by Mr Anjum and his wife. They did not tell their former tax agent about the income from the solar panel installation work. The Applicant made false and misleading statements to the Commissioner in the BASs and income tax returns.
Having regard to those factors, I was not satisfied that the Applicant’s statements did not result from recklessness of both the income tax and GST laws.
DID THE COMPANY VOLUNTARILY DISCLOSE THE TAX SHORTFALLS?
Section 284-225(1) of Schedule 1 to the TAA 1953 relevantly entitles a taxpayer to a 20% reduction of the base penalty amount in certain circumstances, including where the Commissioner tells the taxpayer that an examination is to be made of its taxation affairs, and, after that time, the taxpayer voluntarily tells the Commissioner about the shortfall, the part of the shortfall or the false or misleading nature of the statement. Additionally, it is a requirement that the taxpayer’s disclosures to the Commissioner can reasonably be estimated to have saved the Commissioner significant amounts of time or significant resources in the examination.
Section 284-225(5) states that if the taxpayer voluntarily tells the Commissioner about the shortfall amount, part of it or the false or misleading nature of the statement after the Commissioner tells you that an examination is being conducted, the Commissioner may treat you as having done so before being told about the examination if the Commissioner considers it appropriate to do so. Broadly, the effect of the exercise of the discretion in
s 284-225(5) is that the penalty is reduced by 80%. In Miscellaneous Taxation Ruling, MT 2012/3 Administrative penalties: voluntary disclosures, the Commissioner explains at paragraph 44 that one of the purposes of this discretion is to ensure that a taxpayer is not improperly denied the benefit of the 80% reduction because of a literal application of the phrase ‘examination … of your affairs’.Mr Anjum submitted that the Applicant deserved a reduction of penalties as set out in the TAA as the ATO officer had repeatedly procured him to make voluntary disclosures as an incentive for reduced penalties, even after the audit had commenced, and the Applicant had willingly co-operated. In my view, the Applicant’s factual circumstances do not warrant a reduction of the penalty under either s 284-225(1) or s 284-225(5). In reaching this decision, I have considered the sequence of events described in [10] to [17] above. Specifically, the Applicant only made disclosures after the Commissioner had already asked for the specific information and documents which would have revealed the understated amounts from the solar panel installation work. Therefore, the disclosures were not voluntary to start with.
Furthermore, I find that the information provided by the Applicant on 25 March 2013 did not save the Commissioner a significant amount of time or resources so as to satisfy s 284-225(1). As noted above at [50], when these disclosures were made, the Commissioner had already requested records that would reveal the unreported income and taxable supplies and the information provided did not result in the examination being resolved. On the contrary, the Commissioner commenced a cash economy audit on 10 April 2013 which revealed that there were further amounts of unreported income and taxable supplies.
SHOULD THE PENALTIES BE REMITTED?
The Commissioner has the discretion to remit all or part of an administrative penalty pursuant to s 298-20 of Schedule 1 to the TAA 1953. The discretion recognizes that there is a wide variety of factual circumstances in which penalties may apply and although a penalty will be appropriate in most cases where there is a tax shortfall, there will be cases in which a penalty is inappropriate. The discretion is at large and it is not necessary for a taxpayer to show special circumstances before a penalty can be remitted: Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 at [21]. More recently, in Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 90 ATR 762 it was also held by Griffiths J (at 247), that “there is no warrant for reading into the broad discretion … a requirement that the decision-maker must be satisfied that the outcome is ‘harsh’ for the particular taxpayer in his or her individual circumstances unless penalty is remitted”.
The discretion to remit penalties should, like all statutory discretions, be exercised consistently with the object of the relevant legislative provisions. The object of the penalty regime, is to encourage voluntary compliance with the tax laws and discourage tax avoidance, in order that the overall objective of the tax system, the collection of revenue, is met. By its very nature, the application of the remission discretion requires a careful analysis of the factual circumstances.
Mr Anjum and his current tax agent, Mr Saeed, advanced a number of propositions as to why the penalty should be remitted. It was submitted that the Applicant’s mistake was not deliberate and Mr Anjum did not spend the funds on his personal lifestyle. Mr Anjum had also offered to rectify the mistake by revising the Applicant’s BASs and tax returns in March 2013 when the tax investigation commenced and the errors were detected, but his request to do so was ignored. Mr Anjum stated that the Applicant’s business was slow, particularly in the winter months, and the Applicant would suffer financially. Furthermore, this was said to be the first tax mistake in 20 years of the Applicant running a small business.
In my view, the Applicant’s factual circumstances do not warrant a remission of penalties. In reaching this conclusion I have taken into account the fact that the Commissioner had already significantly reduced the penalties from 90% to 50% in his objection decision. This is in circumstances where the evidence suggests that the Applicant was, at the very least, reckless as to the operation of the income tax and GST laws. I have also considered the Applicant’s compliance history and the financial impact of 50% penalties on the Applicant. In all the circumstances, no further remission of penalties is appropriate.
CONCLUSION
The Applicant failed to discharge the onus that it bore pursuant to s 14ZZK of the TAA 1953. Accordingly, I affirm the Commissioner’s objection decisions as to the 50% rate of penalty in respect of both the GST and income tax shortfalls. I also affirm the Commissioner’s decisions not to remit the penalty for each of the tax shortfalls.
I certify that the preceding 56 (fifty-six) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member
........................[sgd]................................................
Associate
Dated 28 June 2016
Date(s) of hearing 29 April 2016 Date final submissions received 30 May 2016 Advocate for the Applicant Mr Saeed, AUS T.A.G.S. - Taxation & Accounting Solicitors for the Respondent ATO Review and Dispute Resolution
Key Legal Topics
Areas of Law
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Tax Law
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Administrative Law
Legal Concepts
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Remedies
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Procedural Fairness
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Statutory Construction
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Appeal
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