David Moore and Commissioner of Taxation

[2014] AATA 631

[2014] AATA 631  

Division	TAXATION APPEALS DIVISION
File Number(s)	2013/2632
Re	David Moore
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Ms G Lazanas, Senior Member
Date	2 September 2014
Place	Perth

The Commissioner’s objection decision under review is affirmed.

...(Sgd) G Lazanas......................

Ms G Lazanas, Senior Member

CATCHWORDS

TAXATION – penalty – recklessness – taxpayer complained that Commissioner of Taxation responsible – objection decision affirmed – decision not to remit penalty affirmed

LEGISLATION

Taxation Administration Act 1953 (Cth) ss 14ZZK; Sch 1 ss 284-75, 284-80, 284-90, 284-220, 298-20

CASES

BRK (Bris) Pty Ltd v FCT [2001] FCA 164

Hart v Commissioner of Taxation [2003] FCAFC 105

REASONS FOR DECISION

Ms G Lazanas, Senior Member

2 September 2014

INTRODUCTION

1. Mr David Moore is a carpenter by trade. The Commissioner of Taxation audited Mr Moore in relation to his Business Activity Statements (BASs) for the period 1 January 2007 to 30 June 2010 (the Relevant Period) and found some serious and ongoing mistakes with respect to his GST affairs. After allowing part of Mr Moore’s objection to the assessments, the tax shortfall was approximately $130,100, comprising of over claimed input tax credits (ITCs).

2. Mr Moore stated that while he was prepared to accept responsibility for the tax shortfall, which he was not disputing, he argued that he was not responsible for the penalties imposed and, therefore, sought review of the decisions in relation to the penalties aspects. The penalties at stake are $65,104, calculated at the rate of 50% of the tax shortfall on the basis of recklessness.

3. Mr Moore maintained that he was personally blameless for the penalty. He stated that it was the Commissioner who was mostly responsible because it was the Commissioner’s officers that represented that he was entitled to claim ITCs for the purchase of his family home and, additionally, it was the Commissioner that allowed the situation to go on for so long without him being audited. Separately, the car salesman had represented to him that he could claim back the entire GST on the purchase of his cars. He further stated that he had lost a lot of information about his purchases when his old computer died and that many other receipts that he had stored had faded and were illegible.

4. The issues before the Tribunal are, first, whether Mr Moore is liable for an administrative penalty at a base rate of 50% on the basis of recklessness and, secondly, whether the penalty should be remitted. Mr Moore, as the taxpayer, bears the burden of proving the assessment of penalty is excessive and that the decision not to remit the penalty should not have been made or should have been made differently: s 14ZZK of the Taxation Administration Act 1953 (TAA).

5. I was not convinced that the penalty imposed at the rate of 50% on the basis of recklessness was excessive nor that it should be remitted to any extent and, accordingly, I have affirmed the Commissioner’s objection decision.

   THE FACTUAL BACKGROUND

6. The primary facts were not in dispute. The only key difference in the versions of events between Mr Moore and the Commissioner is with respect to what Mr Moore says his wife was told by the Commissioner’s officers about his entitlement to claim certain ITCs, which I discuss below.

7. Mr Moore is a subcontractor in the construction industry with some 30 years’ experience in that industry. He is a sole trader with no employees. He is registered for GST and lodges his BASs on a monthly basis.

8. In broad terms, Mr Moore’s BASs for the Relevant Period contained the following information:

   (a)Sales in the amount of $284,645;

   (b)GST payable in the amount of $26,145;

   (c)Capital purchases in the amount of $252,029;

   (d)Non-capital purchases in the amount of $1,295,983;

   (e)ITCs in the amount of $141,116.

9. It is immediately apparent from the summary in [8] above that Mr Moore’s claims for ITCs exceeded his GST payable and, in fact, in all but 6 out of the 42 BASs lodged in the Relevant Period, Mr Moore claimed a GST refund. That is to say, the Commissioner was paying money to Mr Moore virtually every month over a period of at least some three and half years. It transpired that this was money to which Mr Moore was not entitled, but Mr Moore claimed that he did know that he had made any errors in his BASs until after the Commissioner’s audit.

10. The Commissioner’s audit of Mr Moore’s BASs began by letter dated 8 July 2010. The Commissioner advised Mr Moore that he would be the subject of an activity statement audit covering the tax periods 1 July 2006 to 31 May 2010. The focus of the audit would be the substantiation of the ITCs claimed by him. The Commissioner asked Mr Moore to initially provide records and documents used to prepare his BAS for a single tax period, namely, the month of August 2009.

11. By letter, dated 23 July 2010, the Commissioner advised Mr Moore that he had not received a response and he requested information to be provided by 6 August 2010.

12. By letter, dated 5 August 2010, Mr Moore provided some documentation. In his letter Mr Moore relevantly stated that he had received the Commissioner’s audit notification letter “a few months ago...but the letter said not to reply if the information was correct”. He also stated that he and his wife purchased a house in 2009 and “were told that [he] could claim a portion of it because it was used for a home office”. The following documentation was enclosed with Mr Moore’s letter dated 5 August 2010:

    (a)Cash books for the month of August 2009;

    (b)Various tax invoices;

    (c)Hire purchase statements;

    (d)Bank statement;

    (e)

    Your Activity Statement Refund – Completed Questionnaire for the period

    
    

    1-31 August 2009;

    (f)Completed Your Activity Statement Refund – Property and construction questionnaire.

13. By letter, dated 9 August 2010, the Commissioner requested further documentation from Mr Moore. Specifically, the Commissioner sought records and documentation used to prepare his BASs for the periods from 1 July 2008 to 31 May 2010.

14. On 15 October 2010, Mr Moore provided some cash books, tax invoices and an Esanda Chattel Mortgage in relation to two vehicles that he had purchased.

15. By letter, dated 18 October 2010, the Commissioner advised Mr Moore that he had increased the scope of his audit to include all periods from 1 October 2006 to 30 June 2010 and requested further records and documents used to prepare his BASs for the period 1 July 2008 to June 2010.

16. On 23 November 2010, Mr Moore provided various documentation, including his trade certificate, the settlement statement with respect to the purchase of his home and various receipts, invoices and bank statements. It is noted that the settlement statement for the purchase of the home did not show any GST having been charged by the vendor to Mr Moore and his wife as the purchasers.[1]

    [1] T51-218

17. By letter, dated 25 January 2011, the Commissioner advised Mr Moore that he had completed the audit of his BASs and that his BASs for the period 1 January 2007 to 30 June 2010 would be revised. The Commissioner determined that Mr Moore was not entitled to claim any of the ITCs for the period under review.

18. On 25 January 2011, the Commissioner issued a Notice of assessment of net amount for the periods 1 January 2007 to 30 June 2010 detailing a tax shortfall of $141,116.

19. On 2 February 2011, the Commissioner issued a Notice of assessment and liability to pay penalty in the amount of $70,558. The administrative penalty was imposed by the Commissioner at the rate of 50% after determining that the behaviour leading to the tax shortfall was recklessness.

20. On 18 March 2011, Mr Moore objected to the Notice of assessment of net amount and the Notice of penalty.

21. On 16 September 2011, the Commissioner advised Mr Moore he had allowed his objection in part, namely, the Commissioner allowed some ITCs that had been claimed. Subsequently, the Commissioner issued amended assessments. The tax shortfall amount was reduced and, consequently, the amount of the penalty was also reduced.

22. On 6 May 2013, Mr Moore applied to the Tribunal for a review of the Commissioner’s objection decision in relation to the penalty aspects.

    THE EVIDENCE OF MR DAVID MOORE

    
    
    

23. The following findings of fact are based on Mr Moore’s evidence including his statement of facts and issues filed with the Tribunal. Mr Moore was self represented and was the only person to give evidence.

24. Mr Moore stated that his wife prepared and lodged his BASs and that he never reviewed them or any of the supporting documents, including the invoices that he kept in a box in the linen closet which, as it transpired, did not substantiate his ITC claims. He also kept no vehicle log books. Nor did he ever check any of his bank statements and so he was unaware that he was receiving GST refunds from the Commissioner over a lengthy period of time in the joint bank account that he had with his wife. He said that the mistakes in his BASs were not made intentionally by his wife and that he had always been honest with the Commissioner.

25. He said that his wife had previously prepared the BASs for her ex husband and she had also worked for banks. She also controlled their joint bank account and handled all of their financial matters.

26. He agreed that it was important that his tax returns including BASs be accurate and that it was necessary to keep tax invoices and records to substantiate his claims both for income tax and GST purposes. But he disagreed as to whether a reasonable person would check the BASs for accuracy. He said that most people would ask their accountant to prepare and lodge their BASs but that he could not afford to do so, even though his accountant prepared his income tax returns. He said that there was no reason for him to be involved in checking the BASs or the supporting documents because his wife was attending to this and “as far as [he] knew everything was sweet”.[2]

    [2] Transcript P-20

27. Mr Moore accepted the outcome of the Commissioner’s audit that he had claimed ITCs to which he was not entitled. He also acknowledged having claimed ITCs over a lengthy period without being able to provide the relevant documentation to substantiate his claims. He explained that a lot of the information had been lost with his old computer and that many receipts had faded and were illegible. He accepted that the manual entries in the cash books maintained by his wife did not reconcile to the receipts that had been kept or to the ITC claims in the BASs.

28. Mr Moore also said that his wife rang the Commissioner’s officers and was told that he could claim various ITCs, including for the purchase of his family home because he maintained a home office. He said that records had not been kept by his wife of those telephone discussions but that he had expected that the Commissioner would have recorded them or at least made notes on his file (the Commissioner was unable to locate any relevant records and also said that not all telephone discussions are recorded). Mr Moore also said that the salesman at the car dealership had told him that he could claim back the entire GST on the two vehicles he purchased but now accepted that he was given wrong information by the salesman.

29. I do not accept what Mr Moore says his wife was told by the Commissioner’s officers or what Mr Moore says he was told by the car salesman. I was not persuaded that the Commissioner or any other persons, besides Mr Moore and his wife, were responsible for or contributed to the errors made in Mr Moore’s BASs.

    IS MR MOORE LIABLE TO AN ADMINISTRATIVE PENALTY AT THE RATE OF 50%?

30. The Commissioner formed the view that Mr Moore was liable to pay a penalty at the rate of 50% on the basis that the shortfall amount resulted from recklessness as to the operation of the tax laws.

31. Division 284 of Schedule 1 to the TAA sets out the administrative penalty regime that applies to matters required to be reported on in BASs from 1 July 2000. Subdivision 284-B was amended with a date of effect of 4 June 2010. The penalty imposed on Mr Moore is in respect of statements made both prior to and after 4 June 2010. The provisions referred to below are as the law was prior to those amendments but nothing turns on the amendments made with effect from 4 June 2010 in this case, so it is unnecessary to additionally set out the amended provisions after that date.

32. Relevantly, s 284-75(1) provided as follows (omitting the note):

    284‑75 Liability to penalty

    (1) You are liable to an administrative penalty if:

    (a) you or your agent makes 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; and

    (c) you have a *shortfall amount as a result of the statement.

33. A statement is false or misleading in a material particular if it affects a decision regarding the calculation of a taxpayer’s tax liability or entitlement to a credit or refund. The amount claimed as ITCs on a taxpayer’s BAS for a tax period would be a statement that is false in a material particular, where it is erroneous or incorrect, as it is integral to the calculation of the net amount that the taxpayer must pay to the Commissioner or that the Commissioner must refund to the taxpayer, in respect of the period. It does not matter whether or not the taxpayer knows that the statement is false or misleading. In other words, the bare fact that a taxpayer’s statement as to the ITCs claimed is wrong is sufficient and no dishonest conduct on the part of the taxpayer or anyone else needs to be established.

34. Subsection 284-80(1) of Schedule 1 to the TAA states that you have a shortfall amount if an item in the table in the subsection applies to you. A shortfall amount arises where:

    ·a taxpayer’s tax liability worked out on the basis of the false statement is less than it would have been if the statement was not false or misleading; or

    ·the amount that the Commissioner must pay or credit a taxpayer worked out on the basis of the false statement is more than it would be if the statement was not false or misleading.

35. Section 284-90 of Schedule 1 to the TAA sets out a table for the determination of the base penalty amount as a percentage of the shortfall amount, depending on the behaviour applicable at the time the shortfall occurred. Relevantly, the Commissioner assessed Mr Moore at the rate of 50% of the shortfall amount on the basis that the tax shortfall resulted from his recklessness as to the operation of the taxation law. “Recklessness” in this context means gross carelessness, or a disregard for, or indifference to, a risk that was reasonably foreseeable: BRK (Bris) Pty Ltd v FCT [2001] FCA 164 per Cooper J at [77].

36. I agree with the Commissioner’s contention that Mr Moore over claimed ITCs for a lengthy period of time in circumstances where he knew or should have known that he was not entitled to claim the ITCs. Most of his claims for ITCs in the Relevant Period were without foundation, including the claim for the sizeable ITC on the purchase of his home which was not even a taxable supply of new residential premises. By his own admission, Mr Moore acknowledged that the tax shortfall was the result of mistakes in his BASs even though he says he did not knowingly make any false statements to the Commissioner or know about these mistakes until after the audit. Mr Moore conceded that he was indifferent as to whether the BASs were accurate. He stated that he never checked any of the BASs or whether he had the supporting documentation for the ITC claims because he thought everything was fine. Mr Moore chose to leave the preparation of his BASs in the hands of his wife who had no taxation expertise.

37. In my view, Mr Moore’s conduct amounts to recklessness because there were foreseeable risks as to a tax shortfall where his BASs included claims for ITCs to which he was not entitled and a reasonable person in the position of Mr Moore should have known about those risks. Mr Moore displayed complete indifference to the high risk of non-compliance in his GST affairs. As noted above, a finding of dishonesty is not necessary for a taxpayer to be subject to a penalty for recklessness: see Hart v Commissioner of Taxation [2003] FCAFC 105 per Hill and Hely JJ at [44] where the former s 226H of the Income Tax Assessment Act 1936 dealing with recklessness was considered.

    SHOULD THE PENALTY BE REMITTED?

38. Section 298-20 of Schedule 1 to the TAA gives the Commissioner the discretion to remit all or part of an administrative penalty. By its very nature, the application of the remission discretion requires a careful analysis of the factual circumstances.

39. Mr Moore advanced a number of propositions as to why the penalty imposed should be remitted. First, he stated that the mistakes were not intentional. Second, he stated that had he known the correct information about his GST compliance obligations, he would either have not registered until GST registration was required or he would have requested that his tax agent prepare his BASs. Third, he stated that the penalty arose from the Commissioner’s failure to conduct an audit of his BASs, that is, he “complained” that the Commissioner had allowed his situation of GST refunds to go undetected for a long time. Finally, he stated that the penalty and these proceedings adversely affected his family through stress necessitating visits to his doctor.

40. The proposition that Mr Moore had not intentionally made the mistakes serves to highlight that there wasn’t intentional disregard of the taxation laws which attracts a higher penalty. However, it does not of itself influence any remission of the penalty based on recklessness. As noted above, it does not matter whether or not the taxpayer knows that the statement is false or misleading.

41. As to the contention that Mr Moore should not have voluntarily registered for GST while he was under the GST registration threshold, that is not a relevant consideration in circumstances where he did register. His contentions that he did not properly understand his GST obligations or the complexity of preparing BASs do not warrant remission because Mr Moore has been a taxpayer for a considerable period of time, having worked for over 30 years. He had an accountant that he used for the preparation of his income tax returns but he chose not to engage him in relation to his GST affairs. This demonstrated a disregard of or indifference to foreseeable risks, particularly as he was being paid GST refunds on a regular basis. He should have known that there was a high risk of errors in his GST obligations in circumstances where he was indifferent to the BASs lodged.

42. Mr Moore’s “complaint” that the Commissioner had allowed the situation to go on for so long and not undertaken an earlier audit of Mr Moore is not a relevant consideration for remission of penalty, although his point may be valid for tax administration. Similarly, the stress caused to Mr Moore and his family is not a relevant consideration in circumstances where he and his wife were responsible for their predicament. Having regard to the above matters, I was not convinced that the penalty imposed was inappropriate and warranted remission.

43. I would add, for completeness, that there is no basis for discounting the penalty under

    
    

    s 284-225 of Schedule 1 of the TAA. A 20% reduction of the penalty is potentially available to a taxpayer who voluntarily discloses information about his or her affairs to the Commissioner if the disclosure “can reasonably be estimated to have saved the Commissioner a significant amount of time or significant resources in the audit”: s 284-225(1) (in its form prior to amendments made in 2010). While Mr Moore provided some information to the Commissioner and he also informed the Commissioner about having claimed an ITC in relation to the purchase of his family home very early in the audit, this did not save the Commissioner any time or significant resources in the audit. This was because the Commissioner was unable to reconcile the ITCs claimed with any of the documents that were produced by Mr Moore.

    CONCLUSION

1. Mr Moore failed to discharge the onus that he bore pursuant to s 14ZZK of the TAA of establishing that the assessment a 50% administrative penalty was excessive. Accordingly, I find that the administrative penalty of 50% is the correct or preferable one.

2. The Commissioner’s objection decision under review is affirmed.

I certify that the preceding 45 (forty- five) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member.

.....(Sgd) T Freeman.............

Associate

Dated 2 September 2014

Date of hearing	28 July 2014
Date of last submissions	18 August 2014
Applicant	Self represented
Counsel for the Respondent	Mr C Slater
Solicitors for the Respondent	ATO Review and Dispute Resolution