Bootlis and Commissioner of Taxation (Taxation) - [2024] AATA 2723

Bootlis and Commissioner of Taxation (Taxation) [2024] AATA 2723 (2 August 2024)
Division: Taxation and Commercial Division
File Number(s): 2023/6162-3
Re: Lisa Bootlis
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Deputy President Ian Hanger AM KC
Date:2 August 2024
Place:Brisbane

The Tribunal affirms the decisions under review.
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Catchwords
Where applicant’s tax agent lodged tax returns for relevant years – where applicant filed amended tax returns containing sizable deductions without tax agents knowledge in respect of a trust that did not exist – where applicant accepted statements made in the amended tax returns were incorrect – whether Commissioner has correctly imposed a penalty for recklessly making a false and misleading statement – whether Commissioner’s decision to not exercise discretion to remit penalties should have been made differently – whether claimed hardships enliven discretion to remit – whether applicant has discharged her burden of proof pursuant to section 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth).
Legislation
Taxation Administration Act 1953 (Cth)
Cases
Bosanac v Commissioner of Taxation [2018] FCA 946
Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54
Federal Commissioner of Taxation v Dalco [1990] HCA 3
Secondary Materials
Law Administration Practice Statement 2012/5-Administration of the false or misleading statement penalty-where there is a shortfall amount
Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

REASONS FOR DECISION

This matter involves an appeal against a decision not to remit administrative penalties imposed by the respondent following the lodging of false amended income tax returns made by the applicant in respect of a family trust that did not exist for the years ended 30 June 2020 and 30 June 2021 (the relevant period).
The applicant lodged income tax returns for these years through her tax agent. Her return for the year ending 30 June 2020 was lodged on 29 July 2020. Her return for the year ending 30 June 2021 was lodged on 9 August 2021.
On 15 September 2022 the applicant, using the ATO online portal, lodged amended income tax returns to claim a deduction under the item “Other deductions”, with the description “TRUST 0009 1480” for the periods ended 30 June 2020 and 30 June 2021. She did not consult her tax agent prior to doing so.
The amended return for 2020, claimed a deduction of $60,766.[1]
[1] T11, p 406.
The amended return for 2021 claimed a deduction of $75,782.[2]
[2] T 14, p 603.
The amended returns were cancelled by the Commissioner prior to being processed and refunds for the relevant periods were intercepted before being paid to the applicant.
On 16 November 2022 the Commissioner sent the applicant a notice advising her of a proposal to undertake an audit of her amended returns and asked that she provide any documents and an explanation for her claims.
On 21 November 2022 the applicant wrote to the respondent requesting she be provided the definition of ‘income’, asserting that income tax was voluntary, requesting a refund of all tax paid in the last 10 to 20 years, and disputing the existence of the Australian Taxation Office and the legality of all taxation laws.
The audit was conducted and on 4 January 2023 .The respondent issued a decision to the applicant finding that she had no entitlement to the deductions claimed and that she had made a false or misleading statement in her amended tax returns leading to a shortfall amount.[3] A 50% base rate penalty in respect of the shortfall for each of the 2 years was imposed and no uplift penalty was applied.[4]
[3] T16.
[4] T18.
On 10 January 2023, the Commissioner issued Notices of Assessment for Shortfall Penalty. For the year ending 30 June 2020, there was a shortfall amount of $17,607.80 and an administrative penalty assessed at $8803.90.[5] For the year ending 30 June 2021 there was a shortfall amount of $12,833.20 and an administrative penalty assessed at $6416.60.[6]That made a total shortfall amount of $30,441 and an administrative penalty of $15,220.50.
[5] T18, p 727 and T20.
[6] T 18, p 726 and T19.
On 15 January 2023 the applicant objected to the assessed penalties. She asserted that:
(a)She had amended her assessments to “… add a[family] trust with my live birth certificate to hopefully have some of this voluntary tax returned”. She elected not to proceed with the creation of a family trust because it was too expensive and no documents could be provided as a result.[7]
(b)She and her husband were experiencing financial difficulties due to Covid-19 and the loss of employment.[8]
(c)The Commissioner should have requested from her material to substantiate her deductions claimed prior to accepting the amended returns.
(d)In her view the payment of income tax in Australia is voluntary.
[7] T25.
[8] T25.
She provided no documentation whatsoever which supported the possible creation of a family trust and said she had none.[9]
[9] T26.
On 25 May 2023, the Commissioner issued his Objection Decision and his reasons, which disallowed in full, the Applicant’s Objection.[10]
[10] T2.
The issues to be determined by the Tribunal are whether the Applicant has discharged her onus of proof[11] in respect of the administrative penalty imposed for recklessly making a false and misleading statement by showing that it was excessive or otherwise incorrect; and if so, whether the Commissioner’s decision to not remit the administrative penalties for the relevant period should have been made differently.
[11] Pursuant to section 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (‘TAA’).
The Commissioner relies on section 14ZZK(b)(i) of the TAA, which as explained by Logan J in Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2022] FCA 971 at [115] is justified on the basis that ‘the Commissioner unlike a participant, is a stranger to transaction forming the taxable facts’.
The High Court at [89] in Federal Commissioner of Taxation v Dalco [1990] HCA 3 explained that where the issues for determination had not been narrowed, ‘the Commissioner is entitled to rely on any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment’. It therefore follows that where a taxpayer fails to retain records which evidence the course of a business, they will face a great difficulty in demonstrating excessiveness.[12]
Was the administrative penalty for each of the relevant periods excessive or otherwise incorrect, and if so, what should it be?
[12] See Bosanac v Commissioner of Taxation [2018] FCA 946 at [9] which was affirmed by the Full Court in Bosanac v Commissioner of Taxation [2019] FCAFC 116 and cited with approval by the High Court in Bosanac v Commissioner of Taxation [2019] HCA 41 at [10].
Before this tribunal, the applicant did not argue that the payment of income tax is voluntary.
Before this tribunal, the applicant admitted having made a mistake and said that the Commissioner in effect should have realised it and that she had got nothing out of it. It is true that her claim was unsuccessful in that it was rejected before any money was paid to her. That does not alter the fact that she tried in a very blatant way to obtain a deduction to which she was not entitled. As noted in Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 at [22]-[5]:
it is clear that, whether or not the Commissioner suffers a financial detriment by reason of the fact that there is a shortfall amount has nothing to do with the imposition of administrative penalties or their remission.
It must follow, therefore, that, for the purposes of the exercise of the discretion to remit, it can be of no consequence whether a taxpayer’s false statement was detected before the Commissioner allowed or paid an input tax credit to a taxpayer, on the one hand, or whether, on the other hand, the Commissioner detected the overpayment after an input tax credit had been paid and recovered the amount, together with an amount in respect of the general interest charge.
The general interest charge must be taken to be an accurate approximation of the loss suffered by the Commissioner for not having received a relevant amount or for having paid an amount that should not have been paid. The Commissioner will be compensated for any harm, if any harm has been occasioned. It therefore does not matter, in the context of the exercise of the discretion to remit a penalty, whether or not any harm has been done. The mere fortuity that a false statement has been detected by the Commissioner before any harm is done is a matter that may not be taken into account in the exercise of the discretion to remit the penalty.
The Commissioners Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard provides guidance as to how the Commissioner forms their opinion in relation to administrative penalties for ‘recklessness’ pursuant subsection 286 75 of schedule 1 of the TAA 1953. It provides:
The legislative context apparent from a reading of items 1, 2, 3, 3A, 3B and 3C of the table in subsection 284-90(1) indicates that 'recklessness' connotes conduct that is more culpable than a failure to take reasonable care to comply with a taxation law but less culpable than an intentional disregard of a taxation law. The scheme of the uniform penalties regime is to impose the higher penalty in response to conduct that goes beyond mere carelessness or inadvertence by displaying a high degree of carelessness.
100. Like the test for determining whether reasonable care has been shown, a finding of recklessness depends on the application of an essentially objective test. There must be the presence of conduct that falls short of the standard of a reasonable person in the position of the entity. Similar to the position with a failure to take reasonable care, dishonesty is not an element of establishing recklessness. The actual intention of the entity is of no relevance.
101. Behaviour will indicate recklessness where it falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. Although the test for determining whether recklessness is shown is the same as that applied for testing a want of reasonable care, it is the extent or degree to which the conduct of the entity falls below that required of a reasonable person that underscores a finding of recklessness.
102. Recklessness assumes that the behaviour in question shows disregard of or indifference to a risk that is foreseeable by a reasonable person. The Full Federal Court in Hart v. FC of T (2003) 131 FCR 2003; [2003] FCAFC 105 (Hart) at paragraphs 33 and 43 endorsed^[8] the following comments of Cooper J in BRK (Bris) Pty Ltd v. Federal Commissioner of Taxation [2001] FCA 164; 2001 ATC 4111; (2001) 46 ATR 347 (BRK) at paragraph 77:
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 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.
103. This was the same approach to interpreting the notion of recklessness as was taken in Shawinigan Ltd v. Vokins & Co Ltd [1961] 2 Lloyd's Rep 153 at 162; [1961] 1 WLR 1206 at 1214; [1961] 3 All ER 396 at 403 where Megaw J said:
Recklessness is gross carelessness - the doing of something which in fact involves a risk, whether the doer realises it or not; and the risk being such having regard to all the circumstances, that the taking of that risk would be described as 'reckless'. The likelihood or otherwise that damage will follow is one element to be considered, not whether the doer of the act actually realised the likelihood. The extent of the damage which is likely to follow is another element...
104. Megaw J noted further that the degree of the risk and the gravity of the consequences need to be weighed in forming a conclusion about whether conduct is reckless. He observed at 403:
If the risk is slight and the damage which will follow if things go wrong is small, it may not be reckless, however unjustified the doing of the act may be. If the risk is great, and the probable damage great, recklessness may readily be a fair description, however much the doer may regard the action as justified and reasonable. Each case has to be viewed on its own particular facts and not by reference to any formula.
Having used tax agents to lodge the income tax returns she did not even seek their advice about lodging the amended returns. If her amended returns were processed, they would have effectively reduced her income for the relevant years to almost nil. The Tribunal agrees with the respondent that even if the trust did exist, the applicant has not advanced any basis upon which she would have been entitled to those deductions – there is no taxation law which permits the entirety of ones tax obligations be discharged merely because a family trust had been established. It cannot be said that a reasonable person would believe they were making a reasonable and genuine attempt to comply with their tax obligations when they made an amended tax return claiming deductions in respect of a trust they knew did not exist on the basis they believed they did not have to pay tax.[13] A reasonable person in the applicant’s position, who had in the past made at least 20 tax returns, would have been aware of this or sought the advice of their tax agent if they believed their tax obligations could be entirely discharged.
[13] See Law Administration Practice Statement 2012/5-Administration of the false or misleading statement penalty-where there is a shortfall amount, p 4.
The conduct of the applicant was, at its best for her, reckless. The base penalty amount applicable to an administrative penalty is dealt with under Section 284-75 and is set out under section 284-90 of Schedule 1 to the TAA 1953 and is fixed at 50% of the shortfall. I find that in lodging her amended tax returns without the knowledge of her tax agent, the applicant did not take reasonable care and that as a result, the Applicant has not discharged her burden of proof pursuant to section 14ZZK of the TAA 953 which required her to prove the of the imposition of the administrative penalty was excessive or otherwise incorrect.
Should the Commissioner’s decision to not remit the administrative penalties for the relevant period have been made differently?
The Commissioner has the power to remit all or part of a penalty. The applicant submits that he should do so. She says that she was advised by other people to embark on the course of conduct which she did; she has a son at university; she is on the pension.
The factors considered by the Commissioner in determining whether to remit shortfall penalty are set out in Law Administration Practice Statement 2012/5-Administration of the false or misleading statement penalty-where there is a shortfall amount.
Relevant factors to be considered in determining whether remission is appropriate include
·that the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations
·that the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty; this objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and
·that the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer’s particular circumstances.
Matters which would not usually be considered include the fact that there is no harm to the revenue such as when the refund has been stopped, or an incapacity to pay the penalty. The Tribunal finds it was open to the Commissioner to not remit the administrative penalties and there is no evidence to indicate the decision should have been made differently. Capacity to pay and hardship may be dealt with through payment arrangements, compromise, release and insolvency and under other taxation or insolvency provisions, and not remission of penalties.
The applicant has not established any circumstances which would support remission of the penalties imposed.
DECISION
The decision under review is affirmed.

28. I certify that the preceding 28 (thirty) paragraphs are a true copy of the reasons for the decision

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Associate
Dated: 2 August 2024
Date of hearing: 18 June 2024

Applicant: Appeared by video

Respondent: Mr Joseph Keilly