Bosanac and Commissioner of Taxation (Taxation)
[2019] AATA 1240
•10 June 2019
Bosanac and Commissioner of Taxation (Taxation) [2019] AATA 1240 (10 June 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2016/3419
Re:Bernadette Bosanac
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Boyle
Date:10 June 2019
Place:Perth
The decision under review be varied such that the shortfall penalty of 75% previously found to be payable by the Applicant be reduced to 60% for the income tax year ended
30 June 2013............................[sgd].............................................
Deputy President Boyle
CATCHWORDS
TAXATION – Taxation Administration Act 1953 (Cth) – remittal from Federal Court – whether the tax shortfall penalty should be remitted in full or in part under s 298-20 of Schedule 1 – broad discretion – particular circumstances of taxpayer – lack of financial understanding – penalty be reduced from 75% to 60%
LEGISLATION
Income Tax Assessment Act 1936 (Cth)
Taxation Administration Act 1953 (Cth) – ss 14ZZ, 14ZZK, Sch 1 – ss 284-90,
284-220(1)(a), 298-20CASES
Bosanac and Commissioner of Taxation [2018] AATA 472
HKYB and Commissioner of Taxation [2018] AATA 4770
Jones v Dunkel (1959) 101 CLR 298
Mangat and Commissioner of Taxation [2018] AATA 3012Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483; [2013] FCAFC 50
REASONS FOR DECISION
Deputy President Boyle
10 June 2019
BACKGROUND
Following a hearing in this matter on 1 November 2017, on 16 February 2018 the Tribunal:
(a)made an order varying the Objection Decision to the effect that there be no increase in the base penalty under s 284-220(1)(a) of the Taxation Administration Act 1953 (Cth) (TAA) and, accordingly, that the shortfall penalty be reduced from 95% to 75% for the income tax year ending 30 June 2013 (2013 year); and
(b)handed down its reasons for decision (Bosanac and Commissioner of Taxation [2018] AATA 472) (Bosanac).
On 14 March 2018 the Applicant lodged an appeal with the Federal Court against the decision of the Tribunal (the appeal).
The Applicant advanced only one ground in support of the appeal; namely, that the Tribunal inadvertently failed to re-exercise the discretion to remit administrative penalties contained in s 298-20 of Schedule 1 to the TAA (reference hereafter to “Schedule 1” is a reference to Schedule 1 to the TAA) (notice of appeal from the Tribunal dated
13 March 2018 (filed 14 March 2018)).On 26 June 2018 the Federal Court made orders on the appeal, relevantly, remitting the matter in part to the Tribunal for consideration of whether the tax shortfall penalty imposed in the 2013 year should be remitted in full or in part under s 298-20 of Schedule 1 (WAD84/2018).
The background to the application and the circumstances giving rise to the Respondent’s assessment of the Applicant’s tax liability for the year ended 30 June 2013 are set out in the decision in Bosanac.
Orders by consent were made by the Tribunal on 23 January 2019 that:
(i)subject to questions of relevance and weight, the Applicant be permitted to tender an eight page bundle of emails as additional evidence;
(ii)the parties file submissions; and
(iii)the Tribunal determine the issue of remission of the 2013 tax shortfall penalty on the papers.
The documents the subject of the above order and the parties’ submissions were duly received.
THE ISSUE
By operation of the order made by the Federal Court in WAD84/2018 (see [4] above), the sole issue for determination by the Tribunal is whether the tax shortfall penalty imposed in the 2013 year should be remitted in full or in part under s 298-20 of Schedule 1.
THE LEGISLATIVE FRAMEWORK
Division 298 of Schedule 1 is headed “Machinery provisions for penalties”.
Section 298-20 of Schedule 1 forms part of Division 298 and is headed “Remission of penalty” and reads as follows:
(1)The Commissioner may remit all or a part of the penalty.
(2)If the Commissioner decides:
(a)not to remit the penalty; or
(b)to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
PARTIES’ SUBMISSIONS
Applicant
The Applicant’s post-hearing submissions dated 13 February 2019 submit that:
(a)the Applicant at all relevant times (presumably after the lodgement of the FY13 tax return) accepted that the capital gains tax (CGT) on the sale of the Hardy Street, South Perth property ought to have been reported in the FY13 tax return;
(b)while the Tribunal’s finding in Bosanac was that 75% base penalty under s 284-90 of Schedule 1 applies because of the Applicant’s tax agent’s intentional disregard of a taxation law, the Tribunal did not make any finding as to the personal culpability of the Applicant herself. There was no need for the Tribunal, having satisfied itself as to the applicable level of culpability on the part of the tax agent, to make any assessment of the Applicant’s personal culpability;
(c)the Applicant refers to her 20 November 2017 submissions which relevantly:
(i)
outlined what the role of the Tribunal was in reviewing a decision under
s 14ZZ of the TAA, including the re-exercise of the discretion to remit all or part of a penalty under s 298-20 of Schedule 1;
(ii)submitted that s 14ZZK of the TAA should not be read as stifling the review power of the Tribunal to re-exercise the discretions of the Respondent, consistent with the overall scheme of the Income Tax Assessment Act 1936 (Cth) and the TAA. The discretion to remit penalties is to be guided by the Full Court decision in Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 (Sanctuary Lakes);
(iii)submitted that the exercise of the discretion to remit the penalty in whole or in part is unfettered; although, the discretion must be exercised without jurisdictional error;
(iv)submitted that in exercising the unfettered discretion to remit the penalty the Tribunal may take into account the Applicant’s own level of culpability;
(v)submitted that in exercising the discretion to remit account should be taken of the Applicant’s knowledge, education, experience, skill and understanding of tax laws and the role played by the Applicant’s husband and the tax agent; and
(vi)submitted the fact that the Applicant was “a passenger in her own tax affairs”;
(d)evidence has come to light after the hearing being four emails from the Applicant’s husband to the tax agent asking the tax agent to correct the failure to include the Hardy Street CGT in the Applicant’s 2013 tax return. These emails are dated from 30 October 2014 to 16 December 2014;
(e)the Applicant concedes that these four emails post-date the lodgement of the Applicant’s tax return, however, according to the Applicant, “inform the Tribunal of the relevant ‘minds’ of Mr Bosanac (and by inference the Applicant) with respect to the filing of accurate returns to the Respondent. They also confirm the Applicant's status as a ‘passenger’ in the journey to complete her tax returns as was put to the Tribunal at trial.” (Applicant’s Outline of Submissions (A2) para 23); and
(f)
in light of the “additional evidence” of the four emails and the Applicant’s role,
in particular in the absence of her deliberately lodging a false tax return, the Applicant submits (Applicant’s Outline of Submissions (A2) para 31, 34):
31.It is therefore submitted that the requirement to re-exercise the discretion on the issue of remitting the Applicant’s penalties presents an opportunity to address the clear injustice that arises from the shortfall penalties for the Property sale income remaining at 75%. It is submitted that it is situations of this very nature for which that discretion is made available under the Act. That is, whilst there might be a finding against Mr Thompson (which is not the subject of the issue now before the Tribunal), there is nevertheless a clear and stark difference, it is submitted, in the level of culpability (if any) of the Applicant.
…
34.The Applicant relied upon her husband and her tax agent to properly report her relevant tax events. Her husband provided the relevant information to the tax agent and even followed up the correct reporting of the key event when he identified it had been missed. The tax agent represented he was addressing the amendment. In error (as opposed to any intentional act),
he failed to do so. The Applicant was, on her own evidence, also assured by those assisting her that all was being properly addressed. That turned out to be incorrect, but even a finding of a failure to take reasonable care seems unduly harsh given the events now confirmed by the Additional Evidence.
Respondent
The Respondent’s submissions identify the relevant law as being set out in Sanctuary Lakes and summarises the effect of the judgment in that case as follows (Respondent’s Supplementary Submissions (R1)):
13.In Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483, Griffiths J, with whom Edmonds J agreed, relevantly considered, at 534 – 535, that:
•the correct question which arises under s 298-20 is simply whether the decision-maker is satisfied having regard to the “taxpayer’s personal circumstances” that it is “appropriate” to remit penalty in whole or in part; and
•the discretion in s 298-20 is “broad”.
In relation to the Applicant’s submissions as to the level of the Applicant’s, as distinct from the tax agent’s, culpability and the four emails referred to in [11(d)] above,
the Respondent submits that underpinning the Applicant’s submissions, it seems,
are assumptions to the effect that:
(a)the four emails somehow confirm that both the Applicant’s “own” or “personal” level of culpability and that of her tax agent was less than the level of culpability found by the Tribunal; and
(b)(at least) the former is a relevant matter to which the Tribunal may, and ought to, have regard in exercising the discretion to remit (Respondent’s Supplementary Submissions (R1) para 20).
The Tribunal does not understand the Applicant to be arguing that the tax agent’s culpability should be less than was found by the Tribunal. That understanding is confirmed by the Applicant’s submissions in response. However, it is the case that the Applicant argues that it is appropriate for the Tribunal to assess the Applicant’s personal culpability in determining whether it is appropriate to exercise the discretion to remit the penalty in whole or in part. The Respondent says that the Applicant’s submissions are misconceived for at least three reasons.
The first reason given by the Respondent is that the Tribunal has determined that the base penalty was 75% of the shortfall because of the tax agent’s intentional disregard. That finding was not appealed. The Respondent says that the Applicant, effectively, now seeks not only to have that finding unravelled, based on an assertion to the effect that her “personal” level of culpability was less than intentional disregard, but also to establish this as a relevant basis for remission and that such an approach would be tantamount to a back-door challenge to the Tribunal’s culpability finding itself. The Respondent says that that approach had, in effect, been rejected at [91] and [92] of the decision in Bosanac wherein the Tribunal found:
91. At paragraph 7(d)(ii) of the Applicant’s closing submissions made after the Second Hearing, the concession is made that “no evidence was led in these proceedings suggesting the (former) tax agent’s level of culpability was less that that [sic] contained in s 284-90(1) Item 1...However, the Tribunal, in its unfettered discretion to remit the penalty, may take into account the Applicant’s own level of culpability...(and) may find that the Applicant’s own culpability was less than ‘intentional disregard’ (Item 1), less than ‘reckless’ (Item 2)...
92.In the Tribunal’s view, the approach proposed by the Applicant ignores the clear wording and intent of the legislation that where a taxpayer uses an agent to file his or her tax returns, it is the agent’s conduct which is relevant. The approach proposed by the Applicant would defeat the purpose of ss 284-25, 284-75 and 284-90(1) of the TAA, all of which make the taxpayer liable for the statements of the agent in the tax return for the purposes of calculating a penalty. As s 284-25 puts it “This Division applies to a statement made by your agent as if it had been made by you”. In other words, the taxpayer may be totally blameless in his or her actual conduct, however, the culpable conduct of the agent, by operation of the identified sections, is the taxpayer’s conduct.
The Respondent submits that even if any of the additional evidence of the four emails did support a conclusion that the Applicant’s “personal” conduct reflected a lesser degree of culpability than already found (which is not accepted by the Respondent) that would be irrelevant to the question of remission.
Secondly, the Respondent points to the fact that the emails, being the further evidence, were sent after the 2013 tax return was submitted.
Thirdly, the Respondent submits that the evidence of the four emails is irrelevant because:
(a)none of the emails appears to have been sent by the Applicant;
(b)the emails were sent by the Applicant’s husband who did not give evidence nor did the tax agent to whom they were sent and there is no evidence going to the Applicant’s knowledge of the content of the emails;
(c)none of the emails, with possibly one exception, appear to have been copied to the Applicant;
(d)no evidence was given by the Applicant about the emails; and
(e)most significantly, according to the Respondent, the Applicant’s position as stated in paragraph 14(b) of her submissions is that she “was entirely unaware of the existence of these emails”.
It follows, according to the Respondent, that there is no material forming part of the additional evidence (emails and attachments) from which any reliable inference may be drawn as to the Applicant’s own state of mind relating to the emails or their subject matter (other than, perhaps, that she knew nothing about them).
In relation to the Applicant’s proposition that the Tribunal should take into account the lower level of culpability of the Applicant compared to that of the tax agent whose intentional disregard attracted to 75% penalty level under s 284-90 of Schedule 1,
in addition to referring to [91] and [92] of Bosanac, the Respondent cites Sanctuary Lakes as supporting the view expressed in those paragraphs and submits (footnote 28):
… See also generally Sanctuary Lakes (above) where one of the principal questions was whether it was a relevant consideration to the exercise of the remission discretion under s298-20 (in relation to a penalty for making a false and misleading statement under s284-75(1) of Schedule 1 to the TAA, imposed at a level of 25 % for failure to take reasonable care), that the Tribunal had also found that the taxpayer’s position was “reasonably arguable” for the purposes of s284-75(2) of Schedule 1 (Griffiths J, [215]). Griffiths J went on to consider that earlier authority was supportive of the view that this was a relevant consideration (Griffiths J, [250], Edmonds J agreeing, [3]. Greenwood J considered that it was “not…an irrelevant consideration”, [157]). In his reasons, Griffiths J went on to say: “Obviously if a penalty is imposed because of a failure to take reasonable care there would be no point in the taxpayer arguing that the penalty should be remitted because the taxpayer did take reasonable care” (emphasis supplied) (Griffiths J, [250], Edmonds J agreeing, [3]). See also Griffiths J’s remarks at [245]. While Griffiths J was not specifically addressing the relevance of the taxpayer’s “own” culpability in circumstances where penalty had been imposed on the basis of the culpability of an agent, the logic remains the same. There is one standard – which applies to conduct by either the taxpayer or their agent.
Hence, it is not a relevant consideration in considering remission that the taxpayer did not have the same level of culpability as his or her agent did. (A fortiori, it cannot be relevant to remission to argue that despite a finding about the agent’s culpability in the imposition of the penalty, the actual culpability of the agent was less than that found.)
Applicant’s response
As noted at [14] above, the Applicant (para 3 of Respondent’s Supplementary Submissions (R1)) does not seek to challenge the Tribunal’s finding as to the culpability of the tax agent, however, notes that the Respondent in his submissions did not contradict the Applicant’s submission that the Tribunal made no finding as to the personal culpability of the Applicant (Applicant’s Responsive Submissions (A1) para 4).
The Applicant submits that the effect of the Respondent’s submissions in response to the Applicant’s submissions is that the parties agree that the re-exercise of the remission discretion is about the Applicant’s own “personal circumstances” where the Tribunal has not previously made any adverse finding as to the culpability of the Applicant (Applicant’s Responsive Submissions (A1) para 5).
In relation to the argument raised by the Respondent that remitting all or part of the penalty based on the Applicant’s lesser culpability (assuming that there is less culpability) would be a “back-door” undermining of the base penalty finding of 75% under s 284-90 of Schedule 1, the Applicant says that the re-exercise of the s 298-20 “broad” discretion will always be capable of being used to reduce the base penalty (and any uplift penalty) – being its sole reason for being in the legislation (it is there only to reduce penalties, not to increase them). If that operation of the discretion is characterised as a “back-door challenge” by the Respondent, then it is submitted that the Respondent must characterise every single exercise of the s 298-20 discretion as a “back-door challenge” to the base penalty: the discretion (where exercised) reduces the statute determined base (or uplift) penalty having respect to the “taxpayer's personal circumstances”. On that basis the Respondent’s argument should therefore be rejected.
The Applicant cites the Tribunal decision in HKYB and Commissioner of Taxation [2018] AATA 4770 wherein the Tribunal of Justice Logan and Deputy President McCabe said
(at [132]):
We accept, as we must in light of Sanctuary Lakes that the Shortfall Penalty regime does not preclude us, in deciding whether or not to exercise the discretion to remit under s 298-20 from taking into consideration a finding that the taxpayer’s position was reasonably arguable in circumstances where a penalty has been imposed for failing to take reasonable care.
The Applicant also cites the Tribunal decision in Mangat and Commissioner of Taxation [2018] AATA 3012 (Mangat). In that case the Commissioner had assessed the relevant base penalty under s 284-90 of Schedule 1 to be 75% but had determined to remit this penalty to the rate of 50% at the objection stage. The argument before the Tribunal was whether there were grounds to further remit the penalty below 50%.
Senior Member Lazanas found:
[97] The Commissioner argued at the hearing that there are no circumstances that would warrant further remission of the administrative penalty below 50% of the tax shortfall. I disagree. Section 298-20 of Schedule 1 to the TAA provides the Commissioner (and the Tribunal standing in the shoes of the Commissioner) with a general and unconstrained discretionary power to remit all or part of the penalty. The question for the Tribunal is whether it is satisfied, having regard to Dr Mangat’s particular circumstances, it is appropriate to remit the penalty in whole or in part: Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 at [249] per Griffiths J.
…
[100] Having regard to all the circumstances set out above, especially the fact that by late 2014, Dr Mangat had embarked on a course of attempting to comply with her taxation obligations which included bringing her tax returns up to date and seeking tax advice, I consider it is appropriate to further remit the penalty below 50% of the tax shortfall. This is because Dr Mangat was not completely indifferent to her taxation obligations as she was engaging, through her tax agent, with the Commissioner in relation to the lodgment of her return for the year ended 30 June 2013. Remission decisions need to consider the fact that a major objective of the penalty regime is to promote consistent treatment of taxpayers by reference to specified rates of penalty and, furthermore, the power to remit penalties must be exercised for a proper purpose in accordance with the objects of the TAA. Relevantly, the base penalty rate of 50% administrative penalty generally applies to taxpayers who act recklessly regarding the operation of the taxation laws while the base rate of 25% generally applies to taxpayers who fail to take reasonable care: see the table at s 284-90(1) of Schedule 1 to the TAA. Dr Mangat’s position with respect to her tax return for the year ended 30 June 2013 fell in between the range of 25% to 50% penalty, towards the higher end.
Her situation was not one of a mere failure to take reasonable care. There was an inordinate delay by Dr Mangat in the lodgment of her tax returns which ultimately impacted the relevant year and this was inexcusable, even taking into account Dr Mangat’s periods of intensive study, work commitments, and travel due to relocations between different teaching hospitals… It is appropriate, in all the circumstances, that the penalty for the tax shortfall in respect of the 2013 year should be further remitted from 50% to 40% of the tax shortfall.
The Applicant argues that, as the Respondent concedes, the s 298-20 of Schedule 1 discretion is about the “taxpayer’s personal circumstances”, the culpability finding against the tax agent is irrelevant to the Tribunal’s role to re-exercise the s 298-20 discretion.
In relation to the Respondent’s submissions on the “additional evidence” of the four emails provided by the Applicant after the hearing (all of which post-dated the lodgement of the Applicant’s erroneous 2013 tax return), the Applicant says (Applicant’s Responsive Submissions (A1) para 15):
15. Rather than seeking to merely make submissions concerning weight and relevance, the Respondent has instead now sought to argue, despite its prior consent, that the Tribunal is somehow constrained from giving, or unable to give, any proper consideration to the Additional Evidence. Despite the discretional power to remit being unfettered, the Respondent has sought to dissuade this Honourable Tribunal from giving any effect to the relevant factual matters of what it is now properly informed.
That claim by the Applicant misstates the Respondent’s submissions which, relevantly, were to the effect that there is no material forming part of the additional evidence from which any reliable inference may be drawn as to the Applicant’s own state of mind (other than, perhaps, that she knew nothing about the emails). As the Respondent points out, none of the emails was sent by the Applicant and none, with possibly one exception, appear to have even been copied to the Applicant. The Applicant herself in her submissions concedes that she knew nothing of the emails. On that basis, the Respondent submits that no inference can be drawn from the emails as to the Applicant’s state of mind. The Tribunal agrees with the Respondent’s proposition in that regard.
The Applicant also makes extensive submissions apparently responding to the Respondent’s submissions on the failure of the Applicant to call her husband as a witness and the inferences that might be drawn from that failure under the principle arising from the case of Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel). In that regard the Respondent in his submission ((R1) at para 35) says that:
To the extent that the Applicant, in her submissions, refers to the Respondent’s reliance on the decision in Jones v Dunkel this is irrelevant in the present context as no reliance was placed on that decision in connection with penalty issues.
Apparently in response to that submission the Applicant submits (Applicant’s Responsive Submissions (A1) at para 17):
…The Respondent further seeks to distance himself from the Jones v Dunkel inferences that were sought in relation to Mr Bosanac at [35] with the self-serving (and it is submitted inaccurate) suggestion that such inferences played no part in the assessment of the penalties.
The Applicant’s submission is misconceived. Quite rightly, in the Tribunal’s view,
the Respondent makes the point that the only reliance by the Tribunal on the principle arising from Jones v Dunkel based on the Applicant’s failure to call Mr Bosanac, or in fact anyone else who could give any relevant evidence, was as to “the provenance, meaning and substance of the tax invoice and the existence of the arrangement to which the tax invoice related” (see [64] of decision in Bosanac). As the Respondent points out, the inference that the Tribunal drew had nothing to do with the Applicant’s state of mind, level of knowledge or culpability.
CONSIDERATION
In the Tribunal’s view the parties’ respective arguments can be distilled to the following:
The Respondent
The Tribunal has determined the Applicant’s relevant level of culpability by reference to the tax agent’s intentional disregard of the tax law attracting a 75% penalty and the Applicant has failed to demonstrate that there is anything in the Applicant’s “personal circumstances” making it “appropriate” for the penalty to be remitted. Reducing the level of the penalty below 75% by exercise of a discretion under s 298-20 of Schedule 1 would be a “back-door” circumvention of the appropriate penalty.
The Applicant
The Applicant’s personal level of culpability, more particularly the Applicant’s lack of intent to mislead or disregard the tax law (as opposed to her tax agent’s deliberate disregard of the law) and her lack of financial knowledge, are relevant considerations in exercising the discretion under s 298-20 of Schedule 1.
In the present case the Applicant’s lack of understanding and knowledge of what was being done and the lack of control that she had over her tax affairs are factors which support an exercise of the discretion under s 298-20 of Schedule 1 to remit part or whole of the penalty.
The Tribunal is bound and guided by the principles spelt out by the Court in Sanctuary Lakes. On that point the parties seem to be agreed. The correct question for the Tribunal as identified by the Court in Sanctuary Lakes is whether it is satisfied, having regard to the “taxpayer’s personal circumstances”, that it is “appropriate” to remit the penalty in whole or in part. The judgment in Sanctuary Lakes, as applied in subsequent cases, also makes it clear that the discretion in s 298-20 of Schedule 1 is broad.
The Respondent concedes that the discretion that the Tribunal has is broad, however, argues, in effect, that it is not open to the Applicant to argue that her personal culpability, as opposed to that of the tax agent, is a matter that can be taken into account for the reasons set out in [20] above. The Tribunal does not accept the Respondent’s argument. The context in which Griffiths J made the comment that “[o]bviously if a penalty is imposed because of a failure to take reasonable care there would be no point in the taxpayer arguing that the penalty should be remitted because the taxpayer did take reasonable care” was a taxpayer trying to argue that its own conduct, found to have been a failure to take reasonable care for the purposes of determining the level of base penalty under s 284-90 of Schedule 1, should be viewed as something less than that for the purposes of s 298-20 of Schedule 1 when it came to exercising the discretion to remit. That is, the taxpayer was asking the same conduct to be viewed differently.
That is not the case with this matter. What the Applicant argues is that while the tax agent’s conduct may correctly have been determined to involve an intentional disregard of the law correctly attracting a 75% penalty for which the Applicant as the taxpayer is liable, the Applicant’s conduct, in particular the level of intent on the part of the Applicant and her lack of financial knowledge, are personal circumstances of the Applicant which it is appropriate to take into account when considering whether a discretion to remit part or all of the penalty under s 298-20 of Schedule 1.
The Tribunal considers that the Applicant’s position is correct. In looking at what the Tribunal considers to be a similar question in Sanctuary Lakes, Griffiths J at [245] said:
…Where penalty is imposed for failing to take reasonable care, why is it not relevant in exercising the separate power of remission under s 298-20 to take into account that the taxpayer nevertheless had a reasonably arguable position?
That consideration, when weighed with other relevant considerations, may not mean that the penalty is remitted in whole (or, in some cases, even in part), but why is the consideration irrelevant? It is not a case of the reasonably arguable position of a taxpayer negating an earlier finding of failing to take reasonable care because the two standards are plainly different, but rather taking that position into account in determining the separate question whether it is appropriate to remit the penalty either in whole or in part.
In the same vein, considering the exercise of a broad discretion to remit part or all of a penalty based on the personal circumstances (conduct) of the taxpayer is a different exercise, a “separate question”, to use the above language of Griffiths J, to determining the appropriate level of penalty under s 284-90 of Schedule 1 based on the tax agent’s conduct. The exercise is not one of reconsidering or altering the level of the penalty under s 284-90 of Schedule 1, and thereby potentially undermining the penalty regime set out in Part 4-25 of the TAA, but rather, having established what the appropriate level of penalty is under s 284-90 of Schedule 1, making a separate call on whether the personal circumstances of the taxpayer warrant the exercise of the discretion under s 298-20 of Schedule 1. The exercise of a discretion specifically provided for in the legislation to reduce the penalty paid by a taxpayer could not be seen as undermining or frustrating the penalty regime under the TAA. It is an integral part of the regime.
The Tribunal accepts that the Applicant was unsophisticated in financial matters.
The Applicant’s evidence (affidavit sworn 7 November 2016 and oral evidence at the hearing) was that she had grown up in a strict Italian family and that her father had dealt with her financial matters including taking care of her tax. She had worked in her family’s furniture business and as a beauty consultant but stopped working once she married her husband when she was 25 years old. Her husband dealt with all financial matters including investments and tax matters. When she separated from her husband she approached Ms Deborah Martens, an accountant, to prepare her tax returns. Ms Martens also gave evidence at the hearing and provided an affidavit. In June 2013 Ms Martens took instructions from the Applicant for the preparation of her tax returns and had a number of contacts with Mr Bosanac’s accountant, Mr Thompson, to obtain details of properties relevant to the Applicant’s tax returns. Those contacts bore little fruit and by about October 2013 it was decided that, as Mr Thompson had the relevant details and was handling Mr Bosanac’s tax returns, it would be more appropriate for Mr Thompson to prepare the Applicant’s tax returns. That is what happened.
Ms Marten’s assessment of the Applicant was that:
…she had very limited knowledge of the higher level information that was necessary to complete her tax returns and, despite her efforts, was unable to obtain that information from David [Thompson] and/or Vlado [Applicant’s husband].
While Ms Marten’s assessment might be correct and it certainly appears to be the case that the Applicant’s husband took control over her affairs, including the preparation of her tax returns, and while the Tribunal accepts that the Applicant was unsophisticated in financial matters, the fact is that the Applicant signed a false tax return which had been prepared by her tax agent. The Tribunal found that the tax agent had intentionally disregarded the tax laws in preparing that return and, accordingly found that the applicable level of penalty was 75%. While the Applicant may, in her mind at least, have done as much as she thought she could to ensure the accuracy of her tax return,
she clearly failed to take sufficient steps to ensure that the tax return that she signed was correct. While she might not have been intentionally disregarding the law, she enabled the tax agent to do that and she was at least reckless in signing a tax return that contained a materially false or misleading statement.
The Applicant’s lack of financial understanding and the lack of actual intent to lodge a false or misleading tax return are personal circumstances making it appropriate to remit,
in part, the penalty. Adopting a similar approach to that taken by the Tribunal in Mangat (see [25] above), the Tribunal considers that only a minor reduction should be made to the 75% penalty determined to be applicable under s 284-90 of Schedule 1. The reduction under s 298-20 of Schedule 1 should not, in the Tribunal’s view, reduce the penalty to a level below the level of base penalty that would have applied had the lower level of culpability on the part of the tax agent been found under s 284-90 of Schedule 1, namely 50%. In the present case the Tribunal considers that an appropriate reduction to recognise the personal circumstances of the Applicant is a reduction of the penalty to 60%.
CONCLUSION
For the reasons set out above, the decision under review be varied such that the shortfall penalty of 75% previously found to be payable by the Applicant be reduced to 60% for the income tax year ended 30 June 2013.
I certify that the preceding 42 (forty-two) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
...........................[sgd].............................................
Associate
Dated: 10 June 2019
Date of hearing: Hearing on the papers
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