Automotive Invest Pty Ltd and Commissioner of Taxation (Taxation)
[2022] AATA 673
•24 March 2022
Automotive Invest Pty Ltd and Commissioner of Taxation (Taxation) [2022] AATA 673 (24 March 2022)
Division:GENERAL DIVISION
File Number: 2020/4838-9
Re:Automotive Invest Pty Ltd
APPLICANT
AndCommissioner of Taxation
RESPONDENT
Decision
Tribunal:Honourable Justice Thawley
Date of Decision: 24 March 2022
Date of Publication: 7 April 2022
Place:Sydney
The parties confer and submit agreed orders to give effect to these reasons within 7 days after receipt of a written version of the reasons.
...................................[sgd].....................................
Honourable Justice Thawley
Catchwords
TAXATION –application for review of an objection decision under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953) – administrative penalties – proceeding heard together with Federal Court proceeding – where evidence in one proceeding was evidence in the other – where Commissioner conceded in the Federal Court proceeding that assessments were excessive to a limited extent, but taxpayer otherwise unsuccessful – whether taxpayer and agent took reasonable care within the meaning of s 284-75(5) of Sch 1 to the TAA 1953 – whether safe harbour in s 284-75(6) of Sch 1 applied – whether penalties should be remitted – application for review allowed in part
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) s 43
A New Tax System (Goods and Services Tax) Act 1999 (Cth) s 69-10
A New Tax System (Luxury Car Tax) Act 1999 (Cth) s 9-5(1)
Taxation Administration Act 1953 (Cth) Pt IVC, ss 14ZZE, 14ZZJ, 284-75(1), 284-75(5), 284-75(6), 284-80(1), 284-85, 284-90, 284-90(1), 298-20(1)
Cases
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) (2011) 196 FCR 457
Hart v Commissioner of Taxation (2003) 131 FCR 203; 53 ATR 371; [2003] FCAFC 105
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
Sole Luna Pty Ltd as Trustee for the PA Wade No 2 Settlement Trust v Commissioner of Taxation [2019] FCA 1195; (2019) 110 ATR 307
Secondary Materials
ATO Guide To Luxury Car Tax NAT 3394
REASONS FOR DECISION
Honourable Justice Thawley
24 March 2022
This proceeding is an application for review of an objection decision made by the Commissioner of Taxation on 15 July 2020. The application is brought under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953). It was heard together with a proceeding in the Federal Court of Australia being an “appeal” under Part IVC of the TAA 1953. Evidence in one proceeding was evidence in the other. Before the hearing, the applicant withdrew its request under s 14ZZE for the hearing to be held in private. It follows that s 43 of the Administrative Appeals Tribunal Act 1975 (Cth), as modified by s 14ZZJ of the TAA 1953, does not operate to require the Tribunal to “ensure, as far as practicable, that its reasons for the decision are framed so as not to be likely to enable the identification of the person who applied for the review”.
The applicant was largely unsuccessful in the Federal Court appeal, although the Commissioner agreed that the assessments were necessarily excessive to a limited extent – see: Automotive Invest Pty Ltd v Commissioner of Taxation (Gosford Classic Car Museum) [2022] FCA 281 at [97]. These reasons adopt the same terminology as found in Gosford Classic Car Museum and assume familiarity with that judgment.
Penalties were assessed by the Commissioner under s 284-75(1) of Schedule 1 to the TAA 1953 (Sch 1) on the basis that the applicant had made false or misleading statements by understating its net amount in 11 of its Business Activity Statements for various tax periods from June 2016 to November 2017. Penalties were assessed on the basis that the applicant had shortfall amounts under s 284-80(1) for each of the relevant tax periods and that those shortfall amounts resulted from a failure by the applicant or its agent to take reasonable care to comply with a taxation law such that the base penalty rate was 25%, under item 3 of the table in s 284-90(1).
The Commissioner subsequently exercised his discretion under s 298-20(1) to remit 50% of the penalties applicable to each of the relevant tax periods.
The applicant’s case concerning penalties was as follows:
·First, the applicant contended it was not liable to a penalty because it and its agent took reasonable care in connection with making the statements such that the exception in s 284-75(5) was engaged.
·Secondly, the applicant contended that, in relation to four tax periods in which its registered tax agent lodged its Business Activity Statements, it gave its registered tax agent all relevant taxation information and the false or misleading nature of the statements did not result from intentional disregard or recklessness by the registered tax agent such that the safe harbour provision in s 284-75(6) was engaged.
·Thirdly, the applicant contended that, if the first two arguments failed, the Tribunal should further exercise the discretion to remit contained in s 298-20(1).
The Commissioner contended that neither s 284-75(5) nor s 284-75(6) applied and that there was no basis warranting further remission under s 298-20(1).
The Facts
As noted earlier, the relevant facts are set out in the reasons in Gosford Classic Car Museum. It is necessary, however, to refer to further facts, relevant particularly to penalties.
The applicant sought and obtained advice from external advisers, Fortunity Group Pty Ltd (Fortunity) and PricewaterhouseCoopers (PwC) on its luxury car tax (LCT) obligations. Mr Denny engaged Fortunity and PwC before the applicant was incorporated in January 2015. Mr Denny engaged with Mr Ryan Smith from PwC in November 2014 and met with Mr Paul Bolton from Fortunity in November 2014. In his witness statement, Mr Denny stated:
8 In those early discussions with Paul Bolton from Fortunity and Ryan Smith and Paul Brassill [sic] from PwC, I spoke about every aspect of my proposed business model in Australia in relation to trading luxury cars – what my intentions were, what I was trying to achieve, and who the key players were, in the automotive business. I also gave a detailed explanation of the business model moving forward.
9I instructed Ryan Smith and Paul Brassill [sic] from PwC to provide general oversight of my and my entities’ tax affairs and Paul Bolton from Fortunity to oversee all internal accounting procedures to ensure that the business would fulfil all of its tax and accounting obligations; to assist our accounting staff; and if there were mistakes or occasional incorrect calculations, for example, in relation to GST, to adjust the amounts accordingly in the BAS returns, which they were to oversee. At all times, I instructed my external advisers that I wished to adopt a very conservative tax position in relation to my activities. I wanted to be completely sure that the tax position adopted in relation to the applicant’s business, including LCT and GST, was absolutely correct.
…
19On or around November 2015, I instructed Ryan Smith from PwC, in his role generally overseeing my and my entities’ tax affairs, to also advise on the operation of LCT (among other matters) in relation to the applicant’s business. At this time, I understood that Paul Brassill [sic] was no longer employed at PwC. As was the case with Fortunity, the advice sought from PwC, and received by the applicant, was in the context of the business model I wanted to operate in Australia for selling cars; namely, the sale of vehicles under a “museum” concept. As was the case with Paul Bolton from Fortunity, I had discussed with Ryan Smith the entire proposal, including the museum concept and that an admission fee would be charged.
Mr Denny informed Fortunity and PwC of what he called the “museum concept” before the “Gosford Classic Car Museum” opened on 28 May 2016. Mr Denny gave evidence that he discussed the fact that admission fees would be charged with both Mr Bolton and Mr Smith. Mr Bolton gave evidence that he was told about the proposed charging of admission fees, although, in cross-examination, he could not be sure about whether he was told that before he provided his advice of 30 June 2015. No person from PwC was called to give evidence. The Commissioner submitted that Mr Denny’s and Mr Bolton’s evidence in this respect should not be accepted. There is contemporaneous documentary evidence that Fortunity knew in January 2016 that admission fees would be charged. Indeed, it advised the ATO of this fact. It is likely that PwC was also aware of this fact at least before the museum opened and probably at the time it gave its advice on 19 November 2015. There is no good reason why Mr Denny would inform Fortunity about the proposal to charge admission fees, but not inform PwC.
The applicant received written advice from Fortunity on 30 June 2015, which stated that there was no taxable importation if “the importer quotes its ABN, for example, where a registered dealer imports a car that it uses as trading stock”. The advice concluded: “Therefore no LCT will need to be paid on importations if they are to be trading stock”.
Mr Bolton accepted that he did not, at that time, consider the possibility that the use of the cars in the museum might constitute a use for a purpose other than or additional to a use of the cars as trading stock. I accept his evidence.
PwC also gave the applicant written advice on LCT. Its advice, entitled “Luxury Car Tax” and dated 19 November 2015, stated that, where the applicant purchased a luxury car in Australia or imported a luxury car, LCT would not be paid “on the basis your ABN is quoted (provided) and [the] car will be held as trading stock”. The advice included the comment:
Where an ABN is quoted on the purchase or import of a luxury car, the payment of the LCT can be deferred until the sale of the car or until the car comes to be used for a quotable purpose. The vehicle stops being used for a quotable purpose should it become a capital asset of the business (eg not for sale) or you start using the vehicle for private purposes.
The advice also included PwC’s explanation of luxury car tax adjustments, including that increasing adjustments could result from a change in use. The advice contained no active consideration about whether the museum activities in which the applicant proposed to engage would mean that existing cars might cease to be held only for the purpose of holding them as trading stock or whether cars to be purchased in the future might be purchased for a purpose which included something other than a purpose of holding the cars as trading stock. A number of PwC employees were involved in giving the advice. I think it unlikely that it did not occur to anyone at PwC at the time that the use of the cars in the proposed museum might constitute a use of the cars for a purpose other than trading stock within the meaning of s 9-5(1) of the LCT Act. This is perhaps particularly so given the conclusion I have reached that the applicant informed PwC that admission fees would be charged.
On 22 January 2016, some months before the Gosford Classic Car Museum opened, Ms Turner of Fortunity emailed Ms Carter of the applicant stating:
LCT
As discussed, I believe the only situation in which Auto Invest might be liable for LCT will be where they import a vehicle and then sell it within two years of import to a private buyer (who does not quote an ABN). Another situation is where Auto Invest does not import the car themselves but they purchase it from a registered business who has imported the car within two years of Auto Invest selling it to a private buyer. These situations may not occur frequently. …
The attachments to Ms Turner’s email were extracts from the CCH commentary about liability for LCT. The CCH commentary in turn referred to the ATO Guide to Luxury Car Tax NAT 3394. That guide includes:
If you are a retail car dealer and you purchase a car to use only as a demonstrator vehicle for potential customers to see or test drive, you are holding the car as trading stock and can quote on the purchase of the car.
If you are a business and import a luxury car with the intention of restoring and selling it, you are holding it as trading stock. Provided you do not intend to use the car for any other purpose, you are entitled to quote.
You are considered holding a car for purposes other than trading stock and will not be entitled to quote for it if you intend to use the luxury car for any of the following reasons:
Ÿfor personal use
Ÿfor rally or race driving
Ÿfor staff salary packaging
Ÿfor promotion or sponsorship purposes
Ÿfor an executive vehicle, or
Ÿas a capital asset
This applies even if you intend to sell the car at a later date.
There was no evidence that Mr Denny or any of the applicant’s employees read or relied on the ATO Guide at any material time. However, the part of the ATO Guide set out above, was at least in broad terms summarised in the CCH commentary and is likely to have been read.
In May 2016, Fortunity resent the advice from Ms Turner, after the applicant employed a new finance manager, Ms Karen Evans. : In May 2016, shortly before the museum opened, PwC resent a copy of its advice of 19 November 2015. After the museum opened on 28 May 2016, the applicant continued to engage PwC.
The applicant kept a physical file of material to support its position, which Mr Denny called the “LCT defence file”, which was said to be based on Mr Denny’s understanding of the advice received. Mr Denny’s witness statement included:
25 Having received the advice from Paul Bolton from Fortunity and Ryan Smith from PwC, I started a physical file with material to support the applicant’s position based on my understanding of the requirements for LCT which I referred to as the “defence file”. As part of the way I run my businesses, I usually create what I call a “defence file” being a file of material for any potentially contentious area within the business. This particular file was started at around the time I was establishing the business of the applicant after I had spoken to other car dealers who told me that LCT could be an area of contention. I wanted to ensure that the applicant was in a position to demonstrate that it was in compliance with any tax laws. In that file, I kept screenshots from the website of the advertisements for sale of the cars from the dealership, invoices, any invoices relating to any national and international advertising, adding to it from time to time ….
Ms Evans’ witness statement included:
22The applicant maintained a folder of documents which Tony referred to as the “LCT defence file”. I recall that the defence file included materials such as purchase invoices, advertising material, print outs of where cars were being advertised, and importation documentation. The file was organised on a vehicle-by-vehicle basis, subject to whether they met a certain threshold (for example, if they were valued above a certain dollar amount) …
Mr Denny met with representatives of PwC on 16 June 2016 and walked them around the museum. Mr Denny’s evidence included:
40 On 16 June 2016 I had a meeting with PwC at the dealership and I walked with the team around the site. I do not recall precisely the conversations at the meeting on 16 June 2016 but the agenda for the meeting included LCT. I was not given any advice that the applicant should treat LCT any differently to the earlier PwC advice …
I infer from: (a) the existence of the LCT defence file and Mr Denny’s evidence referred to above, including that he started keeping a file with material to support his position in relation to LCT which could be “potentially contentious”; (b) the fact of PwC’s visit, that PwC was aware that the view might be taken that the use of the cars in the museum might have the consequence that there would be an increasing adjustment in relation to cars put into the museum and that cars purchased in the future might not be considered to be acquired only for the purpose of acquiring the car as trading stock.
There is no evidence that PwC in fact advised on this issue or, if it did, what the advice was.
Fortunity lodged the applicant’s Business Activity Statement for the period 1 April 2016 to 30 June 2016 on 1 September 2016.
PwC lodged the applicant’s Business Activity Statement for 1 November 2016 to 30 November 2016 on 21 December 2016.
On 1 March 2017, Mr Russell of PwC sent an email to Ms Evans, copied to Mr Barry, Mr Smith and Mr Dever of PwC. He stated that “the [ATO] concern regarding museum vehicles having a dual use is somewhat surprising”. The concern raised by the ATO was raised in an email from Mr John Noonan of the ATO to Ms Evans sent on 28 February 2017. In the absence of evidence from PwC, I am not prepared to conclude from this email that no person at PwC was aware of the “dual use” issue. Such a conclusion is unlikely given that PwC representatives had visited the museum on 16 June 2016 and previously given advice on LCT and that Mr Denny kept an LCT defence file – see: [18] above. Given that Mr Denny considered that LCT might be “potentially contentious”, the probabilities favour that he consulted PwC on the topic and PwC gave advice. As mentioned, it is not known what the advice was.
The Business Activity Statement for the period 1 February 2016 to 28 February 2017 was lodged by PwC on 22 March 2017. PwC also lodged an amended BAS for the period 1 September 2017 to 30 September 2017 but this can be put to one side because the relevant false or misleading statement was made in a different Business Activity Statement and the amendment was on an unrelated issue.
Section 284-75(5)
The administrative penalty scheme is contained in Div 284 of Sch 1. Subsections 284-75(1) and (5) of Sch 1 provide:
Liability to penalty
(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; and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
Note:This section applies to a statement made by your agent as if it had been made by you: see section 284-25.
…
Exceptions to subsections (1) and (4)
(5) You are not liable to an administrative penalty under subsection (1) or (4) for a statement that is false or misleading in a material particular if you, and your *agent (if relevant), took reasonable care in connection with the making of the statement.
The reference to “agent” in subsection (5) is likely to be a reference to a common law agent (including but not limited to a tax agent), given that subsection (6) refers to a “registered tax agent or BAS agent”. The Commissioner submitted that, in so far as subsection (5) requires reasonable care on the part of agents, it is only directed to reasonable care in connection with the Business Activity Statements lodged by those agents and not to the question whether the agents took reasonable care in the advice they gave to the applicant in respect of the Business Activity Statements lodged by the applicants. The applicants accepted that proposition and I proceed on that basis.
Section 284-80(1) of Sch 1 provides:
284-80 Shortfall amounts
(1)You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.
Items 1 and 2 in the table relevantly provide that a taxpayer has a shortfall amount in the following situations:
·where a tax-related liability for an accounting period or for a taxable importation worked out on the basis of the statement is less than it would be if the statement were not false or misleading; and
·where an amount that the Commissioner must pay or credit to the taxpayer under a taxation law (other than the Excise Acts) for an accounting period worked out on the basis of the statement is more than it would be if the statement were not false or misleading.
Section 284-85 of Sch 1 calculates the amount of the penalty imposed, which starts with an amount constituting the “base penalty amount” calculated in accordance with s 284-90. Section 284-85 provides:
284-85 Amount of penalty
(1)Work out the *base penalty amount under section 284-90. If the base penalty amount is not increased under section 284-220 or reduced under section 284-225, this is the amount of the penalty.
(2)Otherwise, use this formula
BPA + [BPA x (Increase % Reduction %)]
Where:
BPA is the *base penalty amount
increase % is the percentage increase (if any) under section 284-220.reduction % is the percentage reduction (if any) under section 284-225.
Section 284-90 of Sch 1 defines the base penalty amount. Relevantly, Item 3 of the table provides for a base penalty amount of 25% of the taxpayer’s shortfall amount or part in the following situation:
You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts)
The applicant referred to Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) (2011) 196 FCR 457 at [38] and [39] where Greenwood J stated (emphasis in original):
[38] It follows as a matter of principle that the reasonable care test calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer’s tax obligations. The test looks to whether such a person would have foreseen, as a reasonable probability or reasonable likelihood, the prospect that the action or step or the failure to act or take an affirmative step would result in a shortfall amount and in determining that question, a relevant factual enquiry is whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law. At para 1.75 of the Explanatory Memorandum, the observation is made that a taxpayer who prepares his or her own Business Activity Statement would usually be taken to have exercised reasonable care if the taxpayer relies upon the advice of an accountant or lawyer (or both) whom the taxpayer could reasonably expect to provide competent advice on the relevant matter in issue.
[39] At para 1.76, the observation is made that a taxpayer would be at risk of a penalty if the taxpayer was careless (that is to say, did not act reasonably) in presenting all of the relevant facts to an adviser and such a failure materially affected the advice upon which the taxpayer sought to rely.
The Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No 2) 2000 (Cth), referred to by Greenwood J in those passages states:
1.75 A taxpayer who prepares his or her own return or BAS would usually be taken to have exercised reasonable care if in doing so the taxpayer relies upon the advice of a registered tax agent, accountant or lawyer or other person whom the taxpayer could reasonably expect to provide competent advice on the relevant matter. On the other hand, where such advice is not followed this would usually mean that the taxpayer did not exercise reasonable care.
1.76If a taxpayer seeks to rely upon the wrong advice, and the taxpayer’s skill and education was such that the taxpayer could reasonably be expected to have known or suspected that the advice was wrong, the taxpayer would risk penalty. A taxpayer would also risk penalty if the taxpayer was careless in presenting all of the relevant facts to the adviser and this had materially affected the advice on which the taxpayer sought to rely.
The applicant also referred to the decision of Steward J in Sole Luna Pty Ltd as Trustee for the PA Wade No 2 Settlement Trust v Commissioner of Taxation [2019] FCA 1195; (2019) 110 ATR 307. At [125], after noting there was no dispute about the applicable principles, Steward J applied the test as articulated in Aurora at [38], stating (emphasis in original):
The reasonable care test “calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer’s tax obligations”: Aurora Developments Pty Ltd v FCT (No 2) (2011) 196 FCR 457; 83 ATR 363; 2011 ATC 20-280 at [38] per Greenwood J.
At [126], his Honour noted that care needs to be taken not to confuse the reasonable care test with a consideration as to whether an application of law was reasonably arguable, whilst acknowledging that, as a practical matter, there might some overlap between the two tests.
His Honour then stated:
[128]The Commissioner submitted that the taxpayers had not shown that proper consideration of the deductibility of the foreign exchange loss and the capital loss had been made at the time of the lodging of the returns and that because Mr Skoglund had not been called to give evidence, it had not been shown that reasonable care had been taken by the taxpayer or their agents. …
[129]I respectfully disagree with this submission. … This is not a case where a taxpayer had failed to take reasonable care because, for example, it negligently and mistakenly miscalculated an integer of a tax return. This is a case concerning a view taken of the law and an application of that view to facts reasonably perceived. In that respect, for the purpose of making a claim in a tax return, ordinarily a taxpayer is not required in exercising reasonable care to have capacity to know what might or might not be admissible in court or be probative as a matter of the law of evidence. All that is required is that a taxpayer should form a view of the taxable facts underpinning a statement made in a return in a reasonable way and at a standard suitable for that taxpayer. …
[130]In my view, Mr Wade and the trustee of the Wade Trust also took reasonable and prudent steps to retain a qualified tax agent and took reasonable and prudent steps to seek tax advice about the application of the 1936 and 1997 Act from suitably qualified tax experts. Migrating a group of companies and a trust structure from overseas to Australia is a complex process and calls for a deft hand. This judgment shows that the decision to claim the deduction and capital loss was wrong. But it would not follow from that conclusion that reasonable care had not been taken.
[131]… It was the view reached by the taxpayers and their advisers about the application of the 1936 and 1997 Acts to the perceived facts that was causative of both the statement and the shortfall. In my view, the taxpayers took reasonable care in forming and then applying that view of the law. They did so by engaging qualified tax advisers. …
The applicant submitted:
[T]he applicant (and its registered tax agents) took “reasonable care” in connection with the making of the statements in the BAS. It made a genuine attempt to meet the applicant’s obligations by engaging and following the advice of its external advisers. The position the applicant adopted was informed by the advice received by its advisers. …
The advice provided by each of Fortunity and PwC reflected a considered position in relation to the application of LCT to the applicant’s circumstances. The advice was given with the knowledge of the applicant’s proposed business model of selling the cars through the “museum” where potential customers could buy the cars. Notably, that advice was entirely consistent with the opinion of the Hon Ian Callinan QC provided to the respondent during the course of the audit. …
The applicant did not merely engage external advisers for ‘one off’ advice but continued to work with its external advisers in an attempt to ensure ongoing compliance. Representatives from the applicant continued to meet with Fortunity and PwC employees after each had provided their written advice. The applicant also implemented record keeping procedures to ensure the applicant continued to comply with its obligations. …
The opinion of the Hon Ian Callinan QC dated 28 February 2018 referred to in those submissions was obtained during audit, for the purpose of providing it to the ATO. The Commissioner objected to it being tendered. Mr Callinan QC’s opinion is irrelevant to the question of whether the applicant took reasonable care by obtaining advice at the relevant time. However, as a matter of principle, it does have potential relevance to remission of penalties and I therefore admit the opinion.
So far as concerns the applicant, I have concluded that it knew there was a potential issue and that the probabilities favour that it obtained advice on the issue from PwC. The “issue” to which I refer is the question whether the use or intended use of the cars in the museum might have the consequence that the cars were not being held only as trading stock. The issue was so obvious it is unlikely to have been missed by each of the PwC advisers and the probabilities favour that the issue was discussed by them with the applicant. In reaching that conclusion, I am conscious of the fact that the issues have now been the subject of detailed evidence and argument and that hindsight can, if not consciously corrected, distort an assessment of the events at the relevant time. Without proper evidence from PwC on the topic, it is not possible to reach a positive persuasion that PwC gave advice that the applicant’s position was reasonable or arguable or that the better characterisation of the applicant’s activities was that the cars were being held only as trading stock and for no other purpose. Whilst there will be cases where the failure to call the adviser will not result in a failure to discharge the onus, Sole Luna being an example, there will be cases where the failure does have that consequence – see: Sole Luna at [132(b)], citing Federal Commissioner of Taxation v White (No 2) [2010] FCA 942; (2010) 80 ATR 373 (Gordon J). In my view, the present case is in the latter category for the reasons given.
So far as concerns PwC, and although not strictly necessary to reach a conclusion on the point, the applicant has failed to discharge its onus of establishing that PwC took reasonable care in respect of the Business Activity Statements it lodged. It may be accepted that the “dual use” issue is one which requires characterisation of the applicant’s purpose or purposes and that minds often differ in relation to such questions. The difficulty is that one does not know what PwC considered or advised the applicant or the reasons why. In the circumstances of this case, one cannot properly infer these matters from the arguments which PwC put to the ATO in the context of the dispute and audit. These are arguments advocating the applicant’s case as best PwC could, and it is not possible in the circumstances of this case to infer from the arguments that they also express PwC’s view about the correct answer.
Relevantly to whether the applicant took reasonable care, it is not possible to infer that the arguments put to the ATO were part of advice given earlier to the applicant. For all the Tribunal knows, PwC might have advised the applicant that its position was highly unlikely to succeed if the ATO took issue with it or that it gave such advice once the ATO had taken issue with it. It should be recalled that, at the relevant times, PwC was proceeding on an understanding that the relevant test was, in substance, a sole purpose test.
It is not necessary to reach a concluded view about whether Fortunity took reasonable care in connection with the statements it made in the Business Activity Statement it lodged, because I have concluded that the applicant has failed to establish that it took reasonable care in that regard.
It is relevant in relation to those Business Activity Statements lodged after 6 April 2017 that the applicant had received comments from Mr Cavasini who apparently had some expertise in LCT. As was said in Gosford Classic Car Museum at [50]:
Mr Frank Cavasini, a tax agent who for a time communicated with the ATO on the applicant’s behalf in relation to the present dispute, and apparently had some expertise in LCT, sent an email to Mr Denny on 6 April 2017 which stated that he had recently met with the ATO in relation to Mr Denny’s affairs. In the email, Mr Cavasini reported that he had spent the afternoon at the museum walking through the premises with Ms Karen Evans. He stated that there were issues which obviously needed to be addressed before a scheduled ATO inspection. Mr Cavisini stated that Mr Denny should “remove the bulk of signs which stated [that] … cars are not for sale”. These were said to be “the majority of cars in the centre display area”. Mr Cavasini advised: “you should put in this area, more signs stating, that cars are for sale!!!” He advised: “You … need more signs scattered around the place on stands stating the same”. He stated that the problem he and Ms Evans had found was that it was “clear … that the cars in the centre area were not for sale”, but “it was more than clear” that the cars in the caged area ( which I infer to be the Eastern part of the site) were for sale. In the caged area there were, according to the email, multiple signs and prices on each car. The email also noted that there was a large wall sign with an arrow to the caged area which had the cars for sale and suggested it be relocated at the entrance to the left of the counter such that it would indicate that the cars in the museum were for sale.
This email was forwarded by Ms Evans on 6 April 2017 to Mr Smith, Mr Barry and Mr Russell of PwC. If PwC had not earlier given advice on the issue of “dual use” (which for the reasons given earlier I consider unlikely), it is most unlikely that it did not provide advice soon after the issue was raised by the ATO.
It should also be noted that several of the applicant’s shortfall amounts resulted wholly or partly from the applicant’s over-claiming of input tax credits by reason of its failure to correctly apply s 69-10 of the GST Act. None of the advices relied on by the applicant deal with this aspect of the applicant’s liability to GST.
For these reasons, s 284-75(5) is not engaged with respect to any of the Business Activity Statements.
Section 284-75(6)
The applicant contended that s 284-75(6) of Sch 1 applied such that it was not liable to an administrative penalty in respect of the following Business Activity Statement periods:
·1 April 2016 to 30 June 2016 (Fortunity), lodged on 1 September 2016;
·1 November 2016 to 30 November 2016 (PwC), lodged on 21 December 2016;
·1 February 2017 to 28 February 2017 (PwC), lodged on 22 March 2017; and
·1 September 2017 to 30 September 2017 (amended BAS) (PwC). The amended Business Activity Statement can be put to one side because the relevant false or misleading statement was made in a different Business Activity Statement and the amendment was on an unrelated issue.
Subsections 284-75(6) and (7) of Sch 1 provide:
(6) You are not liable to an administrative penalty under subsection (1) or (4) if:
(a) you engage a *registered tax agent or BAS agent; and
(b) you give the registered tax agent or BAS agent all relevant taxation information; and
(c) the registered tax agent or BAS agent makes the statement; and
(d) the false or misleading nature of the statement did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a *taxation law (other than the *Excise Acts); or
(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).
(7) If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b).
In Hartv Commissioner of Taxation (2003) 131 FCR 203; 53 ATR 371; [2003] FCAFC 105at [43] Hill and Hely JJ observed about the meaning of “recklessness”:
Recklessness is a concept well known to the law, particularly in the fields of tort and criminal law. In those fields, recklessness will usually be found to have been established if the person’s conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. In some contexts a subjective test is applied, but in others the test is objective. In BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) ATC 4111 at 4129 Cooper J made the following observations in relation to recklessness in the context of s 226H;
‘Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.’
Mr Bolton’s evidence was that, at the time of preparing the June 2016 Business Activity Statement, Fortunity had access to the applicant’s accounting system (Xero) and the reports from the Easy Cars Dealer Management System. It was submitted that “Fortunity was intimately aware of the applicant’s business, having had an employee [Ms McMahon] at the applicant’s premises a few days a week”. Ms McMahon assisted in bringing the financial records up to date and had access to the applicant’s software and paper files while at the applicant’s premises.
The applicant also noted that, at the time of lodging the Business Activity Statements, Mr Bolton had also discussed with Mr Denny the proposed business model of operating the car showroom using the “museum concept”. I conclude that, by the time of lodging the 1 April 2016 to 30 June 2016 Business Activity Statement on 1 September 2016, Mr Bolton was fully aware of the extent of the museum operations and had effectively been given all relevant taxation information – see: 284-75(6)(b).
Mr Bolton gave evidence, consistently with what I otherwise would have inferred, to the effect that Fortunity was the local adviser, but had a subsidiary advising role to that of PwC. Mr Bolton gave evidence that he would consider the cars were used only for a trading stock purpose despite the use of the cars in the museum. I infer this was his view at the time of lodging the BAS in December 2016. The Federal Court, having the benefit of detailed evidence and argument on the issue, has concluded that view is not the better view. Mr Bolton’s view, however, is one which is principally based on a characterisation of the applicant’s activities, about which minds often differ. I do not consider that either Mr Bolton or Fortunity was reckless or acted with intentional disregard in connection with any statement in the Business Activity Statement lodged by Fortunity. Therefore, s 284-75(6) applies to the Business Activity Statement for the 1 April 2016 to 30 June 2016 tax period.
The applicant submitted that “PwC was … intimately involved in the applicant’s business”. Ms Evans evidence included that PwC had access to the applicant’s documents and accounting system. I infer that PwC was aware of the full extent of the museum operations at the time it lodged the two relevant Business Activity Statements and had effectively been given all relevant taxation information – see: 284-75(6)(b).. The applicant submitted that PwC was not reckless and that it did not act with intentional disregard in making the statements.
I have earlier concluded that PwC was aware that there was an issue created by the use of the cars in the museum and that it is likely to have advised in relation to that issue before 28 February 2017, indeed before the museum opened. If it had not advised on the issue earlier, it is even more likely that it would have advised on the issue after 28 February 2017. What view PwC took is not revealed by the evidence. In the circumstances of this case, one cannot properly infer these matters from the arguments which PwC put to the ATO in the context of the dispute and audit. The applicant has failed to discharge its onus of establishing that PwC was not reckless. I would emphasise that this conclusion is not a conclusion that PwC acted recklessly; rather – as I have said – it is simply a conclusion that the applicant has failed to prove that PwC did not act recklessly.
Section 284-75(6) does not apply to the Business Activity Statements lodged by PwC.
Section 298-20(1)
Section 298-20(1) of Sch 1 provides that the respondent may remit all or part of the penalty. The discretion is broad – see generally: Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483.
The applicant submitted that the Tribunal, standing in the shoes of the respondent, should remit any penalty to some amount lower than that imposed by the respondent, preferably all of the penalties. As mentioned, the Commissioner remitted penalties by 50%. Although the discretion is to be re-exercised by the Tribunal, the Commissioner accepted that penalties should be remitted by at least 50%.
The applicant noted that it sought advice from two different external advisers before the respondent’s audit which led to the notices of assessment of shortfall penalty. The applicant submitted that it gave detailed instructions to its advisers and instructed its advisers to take a conservative tax position. The applicant submitted that, after obtaining written advice from one adviser as to the implications of LCT and input tax credits (Fortunity), the applicant sought to verify that advice by seeking the advice of the second adviser (PwC). It was submitted that there was nothing in the advice that suggested that Fortunity or PwC held different views as to the applicant’s LCT obligations, and there was nothing from Fortunity or PwC to suggest that their views subsequently changed.
The applicant sought and obtained general advice before the museum opened. The probabilities favour that advice was given by PwC on the question whether there might be an issue about whether the cars were being used only for the purposes of holding the cars as trading stock before or around the time the museum opened and, if not then, certainly in early 2017. The terms of any such advice are not known.
The applicant submitted that there was no judicial or ATO guidance on the issue. The applicant submitted that there was no authoritative judicial guidance on the phrase “for no other purpose” in s 9-5(1) of the LCT Act. I accept the main thrust of these submissions.
The applicant submitted that the only material that was available “aligned with the position adopted by the applicant”, referring to the ATO Guide which it contended indicated that demonstrator vehicles would fall within s 9-5 of the LCT Act. It was submitted that, the ATO Guide implicitly suggested that using a vehicle for a purpose consistent with holding the vehicle for “trading purposes” was permissible. I do not accept this submission. The ATO Guide, which no-one appears to have read at the relevant time, simply identifies examples of uses which would result in the sole purpose test being failed. In describing the test as a “sole purpose test”, I do so for the sake of brevity. As the applicant correctly pointed out, the legislation does not use the word “sole” or the phrase “sole purpose”. I accept, to the extent it is relevant, that Mr Bolton is likely to have read the summary of the ATO Guide in the CCH commentary.
As to the applicant’s submission that its construction aligned with the legislative purpose and ordinary meaning of the statutory language, it should be noted that this construction was not the construction which the applicant or its advisers apparently considered was the correct construction at all relevant times. This construction was one which occurred to the applicant’s legal team only on the weekend before this hearing. Before that time, the applicant and its advisers, including its current legal team, approached the matter on the basis that the test was a sole purpose test.
The applicant submitted that it acted consistently with the advice it had received. I do not know sufficient about the advice the applicant was given by PwC to accept that proposition.
It submitted that, if there were failures on the part of each of its advisers, the applicant should not be penalised for its advisers’ shortcomings. This submission might have weight if more was known about the advice which I have concluded, on balance, that PwC is likely to have given.
The applicant also relied on Mr Callinan QC’s advice dated 28 February 2018 prepared for the purposes of submitting it to the ATO during the audit. So far as Mr Callinan QC’s opinion discloses, he was given an incomplete account of the relevant facts. The opinion is therefore of little weight in demonstrating that it was reasonable to characterise the applicant’s activities as one of holding the cars as trading stock and “for no other purpose”.
Taking all these matters into account I would not remit penalties any more than 50% which is what the respondent has already done.
Conclusion
For these reasons, the applicant’s application for review should be allowed in part, including to reflect the Commissioner’s concession in the Federal Court proceeding that the relevant assessments were necessarily excessive to some extent – see: Gosford Classic Car Museum at [97].
The Tribunal directs that the parties confer and submit agreed orders to give effect to these reasons within 7 days after receipt of a written version of the reasons.
I certify that the preceding 68 (sixty-eight) paragraphs are a true copy of the reasons for the decision herein of the Honourable Justice Thawley
...............................[sgd].........................................
Associate
Dated: 1 April 2022
Date of hearing: 21 - 24 March 2022 Counsel for the Applicant: D Bloom QC, D McInerney QC, K Josifoski Counsel for the Respondent: C Burnett SC, D Lewis Solicitors for the Applicant Kind and Wood Mallesons Solicitors for the Respondent: McInnes Wilson Lawyers
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