Diarra and Commissioner of Taxation (Taxation)
[2019] AATA 5545
•23 December 2019
Diarra and Commissioner of Taxation (Taxation) [2019] AATA 5545 (23 December 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2016/2338
Re:Joseph Diarra
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:F D O'Loughlin QC, Deputy President
Date:23December 2019
Place:Melbourne
The Tribunal affirms the decision under review.
......[sgd]..................................................................
F D O'Loughlin QC, Deputy President
Catchwords
TAXATION – Administrative penalty – Reasonable care – Remission
Legislation
A New Tax System (Tax Administration) Act 1999 (Cth)
Taxation Law Amendment (Self Assessment) Act 1992 (Cth)Taxation Administration Act 1953 (Cth)
Cases
Aurora Developments Pty Ltd v Commissioner of Taxation (No 2) (2011) 196 FCR 457
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
Commissioner of Taxation v Dixon (Trustee) (2007) 67 ATR 87Secondary Materials
Explanatory Memorandum, A New Tax System (Tax Administration) Bill 1999
Revised Explanatory Memorandum, A New Tax System (Tax Administration) Bill (No. 2) 2000REASONS FOR DECISION
F D O'Loughlin QC, Deputy President
23 December 2019
INTRODUCTION AND ISSUES
The issue for determination in the present application is whether administrative penalties, pursuant to ss 284-75 and 284-90 of Schedule 1 to the Administration Act[1] for failure to take reasonable care causing a false statement in an income tax return, arose for the 2011 Year,[2] and whether any such penalties ought be remitted.
[1]The Taxation Administration Act 1953 (Cth).
[2]The year that ended on 30 June 2011.
Notwithstanding their inclusion in the document that included the objection to the 2011 Year penalty, the SIC[3] for the 2011 Year and administrative penalty for the 2102 Year[4] are not matters validly before the Tribunal for review because, respectively, the amount charged is below the reviewable threshold and the 2012 Year objection decision was not referred to the Tribunal within the prescribed time (and no application was made to allow an out of time application).
[3]Shortfall Interest Charge.
[4]The year that ended on 30 June 2012.
Whether the safe harbor provisions in s 284-75(6) of Schedule 1 to the Administration Act apply is not before the Tribunal because the Applicant has not used the services of a Registered Tax Agent.
FACTS
The Applicant is a gentleman in his mid-40s. He:
(a)has high school level education in Mali;
(b)speaks French as his first language;
(c)has learned the English language;
(d)migrated to Australia when approximately 20 years old;
(e)lives in shared accommodation in a Melbourne residential suburb which is not expensive;
(f)has been employed since at least 2010 in various roles including as a process worker, as a store person and a as forklift driver;
(g)has no family in Australia;
(h)is the only male in a large family in Mali whom he supports financially, one of whom is seriously ill;
(i)asserts that he has sent amounts of money overseas (to support his family, to pay for his sister’s medical expenses and to give money to the Red Cross in Mali) in excess of the deductions he claimed for which were substantial (for example $25,000 in the 2011 Year). He asserts that he lives modestly and retains what he needs for his personal expenses and sends the rest overseas;
(j)(for some years at least and borne out by his 2011 Year tax return) worked two jobs that allowed limited sleep each day to support his family;
(k)lost one of his jobs because he was asleep on duty because of the hours he worked;
(l)asserts he has sent money to a family member in Mali every single week, although the documentary evidence he has provided does not bear this out;[5]
(m)has filed tax returns, and at least for the five year period before the 2012 year did not use the services of a Registered Tax Agent for those lodgements; and
(n)for a number of years including the 2011 and 2102 Years, relied on the assistance of an accountancy student from a Melbourne based university to prepare and lodge tax returns;
(o)is a member of a community and through that community came to learn of and meet the student who assisted him in his taxation affairs; and
(p)asserts that at the time he would not have known whether what he was doing was correct, but now knows (through having engaged a Registered Tax Agent to look after his tax affairs) of the shortcomings of what had happened.
[5]The Applicant has provided proof of amounts sent as set out in Table 1 below.
To prepare tax returns, the student visited the Applicant at his home, asked questions, completed an electronic tax return and filed it for the Applicant electronically. The student charged fees (up to approximately $300 per year) which depended on the number of jobs the Applicant worked. Some of the questions asked concerned travel between jobs, the cost of laundry of work clothing and similar questions directed to the Applicant’s work and life arrangements.
Table 2 summarises particulars of the Applicant’s tax returns lodged for the 2008 to 2010 years.
Table 3 summarises particulars of the Applicant’s tax returns lodged for the 2011 and 2012 Years, the adjustments that were made by the Respondent to those returns and the penalties imposed for failure to take reasonable care.
On 29 August 2012, the Commissioner wrote to the Applicant concerning his 2012 tax return (which disclosed assessable income of $59,649 and claims for various deductions and tax offsets, totalling $48,891.00) and requested information and supporting documentation.
Following an inadequate response, the Commissioner notified the Applicant that his claimed deductions and tax offsets for the 2012 Year would be reduced by $48,557 as set out in Table 3. One of the deductions claimed, a $28,000 deduction for donations, was disallowed because the Red Cross Mali was not a registered Deductible Gift Recipient in Australia.
For the 2012 Year, the Applicant was found to have had a tax shortfall of $19,487.89. The Commissioner issued a notice of assessment of shortfall penalty of $4,871.97. The penalty was imposed at a rate of 25% on the basis of a lack of reasonable care.
Thereafter there was an objection which was disallowed and the Applicant did not seek a Tribunal review of that objection decision. In his objection the Applicant asserted that:
(a)he had lost one of his jobs;
(b)he needed the money to support dependent family members in Africa including his sick older sister who required medical treatment; and
(c)he was of African nationality with no relevant education and did not know what he was doing.
The Applicant provided documentation to support his request to remit penalties to the Respondent, including evidence of various amounts of money transmitted by the Applicant to a recipient in Mali.
Review, assessment and penalty for the 2011 year
On 29 May 2013, the Commissioner wrote to the Applicant concerning his 2011 tax return (which disclosed an assessable income of $107,209.00 and claims for various deductions and tax offsets, totalling $45,737.00) and requested information and supporting documentation.
The Applicant did not respond to the Commissioner's 29 May 2013 letter with the information and documentation that was sought.
On 25 July 2013, the Commissioner issued a notice of amended assessment for the 2011 Year to the Applicant. That amended assessment reduced the deductions and tax offsets claimed by $45,737.00 as set out in Table 3. The Applicant was found to have a tax shortfall of $18,027.37 for the 2011 Year.
The Commissioner issued the Applicant a notice of assessment of shortfall penalty of $4,506.84. The penalty was again imposed at a rate of 25% on the basis of a lack of reasonable care.
On 8 April 2014, the Applicant’s recently appointed tax agent, Kennedy Tax & Business Services, lodged an objection in which it requested a remission of the administrative penalty and the SIC for both the 2011 Year and the 2012 Year contending, amongst others, that:
(a)the Applicant was not advised by his previous account [sic] about what deductions he could claim;
(b)the Applicant was advised that he could claim for his family medical expense living overseas and for the dependent offset; and
(c)the Applicant's expenses were for his sister’s medical treatment for cancer. The Applicant’s sister was not a resident of Australia.
Kennedy Tax & Business Services also provided documentation of the Applicant's request to remit penalties to the Respondent. These documents were:
(a)two medical certificates from April 2010 stating that the Applicant’s sister had advanced breast cancer;
(b)a letter from APRA to the Applicant noting an application for early release of superannuation benefits; and
(c)documents referring to various amounts of money transmitted by the Applicant to recipients located in Mali between 2011 and 2013 (as summarised in Table 4).
On 10 June 2014, the Commissioner disallowed the objection denying any remission in respect of the 2011 Penalty Assessment.
On 3 May 2016, the Applicant applied to the Tribunal for a review of that objection decision.
In the three years immediately prior to the 2011 year, the Applicant lodged tax returns via e-tax in which he claimed significant deductions in similar amounts to those claimed by the Applicant in the 2011 Year and the 2012 Year, as detailed in Table 2.
The legislation and its application
A taxpayer is liable for an administrative penalty where the taxpayer or the taxpayer’s agent makes a statement to the Commissioner that is false or misleading in a material particular.[6]
[6]Administration Act, Sch 1, s 284-75(1).
The Applicant made statements to the Commissioner in his 2011 Year income tax return that were false or misleading in a material particular because the Applicant claimed more than he was entitled to and he does not seek to challenge that. As a result of the statements, a shortfall amount arose, because the Applicant's tax liability was less than it would have been if the statements were not false or misleading.
The Applicant is therefore liable for administrative penalties.
The base penalty is 25% of any shortfall amount where that shortfall amount results from failure of a taxpayer or a taxpayer’s tax agent to take reasonable care in filing an income tax return.[7]
[7]Administration Act, Sch 1, s 284-90(1), item 3.
The "reasonable care" test in item 3 of s 284-90 requires 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 questions, 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.[8]
[8]Aurora Developments Pty Ltd v Commissioner of Taxation (No 2) (2011) 196 FCR 457 at [38] Greenwood J. See also [37] for the background to this proposition.
The deductions and tax offset claimed by the Applicant in the 2011 Year represented over 40% of his total income for the year and the Applicant has not sought to defend any entitlements to those deductions and offset.
Further, the Applicant relied on a student who came to his address and assisted with e-tax lodgements on the Applicant’s behalf.
The Applicant can be accepted as a person unaware of all of the subtleties of Australia’s income tax system and can also be accepted as someone whose circumstances in life are not as fortunate as many others in Australia, and who admirably supports his family.
However, the test is an objective one and community standards would not accept that the Applicant has taken reasonable care in adopting the approach he has in attending to his income tax obligations. For such large claims, a reasonable person in the Applicant's circumstances would have kept appropriate records to support the amounts claimed, and would have made appropriate inquiries and/or sought appropriate advice from a Registered Tax Agent or accountant to verify his claims.
The Applicant did not do any of these things. In particular, the Applicant admitted lack of knowledge but failed to engage a Registered Tax Agent.
The Applicant did not provide any supporting documents or explanation in response to the Commissioner's enquiries regarding the 2011 Year. Even if the Applicant had received the advice contended for by his newly appointed agent, the receipts for money transfers provided by the Applicant for the 2011 Year do not appear to have any relationship to the amounts claimed as deductions in the 2011 Year tax return and although there may have been a legitimate claim for travelling between jobs, the work related expense deductions are materially out of the ordinary for the jobs the Applicant has undertaken.
The Commissioner has a discretionary power to remit all or a part of the penalty.[9]
[9]Administration Act, Sch 1, s 298-20(1).
As indicated in the Sanctuary Lakes[10] decision, whether a penalty should be remitted depends on whether the Commissioner, and the Tribunal on review, is satisfied, having regard to the taxpayer’s particular circumstances, that it is appropriate to remit the penalty in whole or in part.[11] Harshness of the penalty is not the relevant test, although it may be relevant.
[10]Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483.
[11](2013) 212 FCR 483 at [249] Griffiths J, with whom Edmonds J agreed.
At paragraphs [248] and [249] of the Sanctuary Lakes decision, Griffiths J said:
It may be appropriate in a particular case to remit a penalty on the basis that the outcome otherwise could be described as harsh, but that does not mean that harshness should be elevated to an essential element in determining whether or not to remit the penalty under section 298-20.
In my opinion the correct question which arises under section 298-20 should not be expressed in terms of “harshness”. Rather, the question is simply whether the decision maker is satisfied, having regard to the taxpayer’s particular circumstances, that it is appropriate to remit penalty in whole or in part. For example, a decision maker might determine that it is appropriate to remit penalty in whole or in part, because otherwise the outcome for a particular taxpayer would be unreasonable or unjust (and therefore inappropriate), as opposed to harsh ... … In my view, there is no warrant for confining the otherwise broad discretion in section 298-20, to circumstances where the outcome of imposing administrative penalty would otherwise be harsh.
And, at [273] and [274], endorsed the proposition that:
There need to be circumstances that could be regarded as mitigating the applicant’s behaviour in some way.
The legislative scheme for imposition of a penalty introduced to the Administration Act was described by Griffiths J in Sanctuary Lakes at paragraphs [263] to [266].[12] A uniform system of penalties was introduced which:
(a)provided a generic and uniform system of penalties in which decisions are reviewable;
(b)sought to treat taxpayers in like circumstances consistently;
(c)considered taxpayer circumstances and compliance history;
(d)tailored the penalty to secure compliance improvements; and
(e)allowed remission where taxpayers and their agents make a genuine attempt to meet their obligations, but will maintain an appropriate level of penalty where taxpayers don’t make an effort to do the right thing.
[12]Referring to the Explanatory Memorandum, A New Tax System (Tax Administration) Bill 1999: that became the A New Tax System (Tax Administration) Act 1999 (Cth) and the Revised Explanatory Memorandum, A New Tax System (Tax Administration) Bill (No. 2) 2000.
The 1992 penalty system — that had a similar structure where taxpayers were not to be penalised if not culpable and categories of offending were scaled — was also described by Griffiths J in Sanctuary Lakes at paragraph [261] to the effect that remission powers were retained because:
… there may be cases that do not fit neatly into a category, or for which the prescribed rates of penalty are inappropriate. … [T]he discretion which the Commissioner has to remit penalty in whole or in part … is not removed … so that the Commissioner has the flexibility to deal with hard cases that may arise. The AAT is able to exercise this power of remission in appropriate cases when reviewing decisions of the Commissioner, and the courts are able to adjudicate on whether the discretion was exercised in accordance with the law.[13]
[13]Referring to the Explanatory Memorandum to the 1992 Bill that became the Taxation Law Amendment (Self Assessment) Act 1992 (Cth).
In exercising this discretion, the Commissioner must decide whether it is appropriate, in all of the circumstances, to remit the penalty in whole or in part, for example where the imposition of penalties would produce an unjust or unreasonable outcome in the circumstances of the case.[14] In exercising this discretion, the Tribunal is to take into account the purpose of the penalty regime being to deter infringement where tax-payers are required to self-assess their tax obligations.[15]
[14]Sanctuary Lakes (2013) 212 FCR 483 at [249] (Griffiths J).
[15]Ibid [274]; see also Commissioner of Taxation v Dixon (Trustee) (2007) 67 ATR 87, 103 [47].
Applying these rules to the Applicant’s circumstances means it is not appropriate to remit the penalty.
While the Applicant has admirable commitment to his family, and his family includes a member suffering serious illness, these are not factors that ought attract remission of the penalty. The Applicant is not alone in that predicament and support of family is not to be secured by impermissible claims to materially excessive tax concessions and deductions.
The tax shortfall resulted from a claim of a number of substantial deductions and a tax offset which was not the result of an isolated mistake, or isolated bookkeeping or record keeping errors. The Applicant has made similar claims over a number of years. All claims were made in the absence of any appropriate advice or inquiries in circumstances where any objective view of the entitlements would be questionable, or ought be subject to scrutiny, given the proportion the claims made of the Applicant’s gross income.
The tax shortfall penalty is not excessive and there are no grounds for its remission.
DECISION
The application for review is dismissed and the Objection decision in relation to the 2011 Penalty Assessment is affirmed.
I certify that the preceding 44 (forty-four) paragraphs are a true copy of the reasons for the decision herein of F D O’Loughlin QC, Deputy President.
......[sgd]..................................................
Associate
Dated: 23 December 2019
Date of hearing: 1 February 2017 Advocate for the Applicant: Mr Kennedy Weldemariam,
Kennedy Tax and Business Services Pty Ltd
Counsel for the Respondent: Ms Fleur Shand Solicitors for the Respondent: Australian Taxation Office,
Dispute Resolution
Appendix
Table 1
Date
Amount
Recipient
9/02/2011
$1,037.00
Seydou Yakouba Traore
6/03/2011
$1,200.00
Seydou Yakouba Traore
1/04/2011
$1,100.00
Seydou Yakouba Traore
15/04/2011
$1,148.32
Seydou Yakouba Traore
8/05/2011
$1,065.99
Seydou Yakouba Traore
8/05/2011
$1,049.98
Seydou Yakouba Traore
15/05/2011
$1,370.00
Seydou Yakouba Traore
3/07/2011
$1,260.56
Seydou Yakouba Traore
10/07/2011
$1,075.00
Seydou Yakouba Traore
22/07/2011
$1,250.00
Seydou Yakouba Traore
7/08/2011
$1,220.00
Seydou Yakouba Traore
9/08/2011
$1,500.00
Seydou Yakouba Traore
16/08/2011
$1,500.00
Seydou Yakouba Traore
26/08/2011
$1,500.00
Seydou Yakouba Traore
9/09/2011
$1,130.00
Seydou Yakouba Traore
21/09/2011
$1,700.00
Seydou Yakouba Traore
21/09/2011
$1,700.00
Seydou Yakouba Traore
8/12/2011
$1,400.00
Seydou Yakouba Traore
4/06/2012
$601.46
Mamadou Diarra
28/07/2012
$458.62
Mamadou Diarra
11/08/2012
$840.00
Mamadou Diarra
18/08/2012
$450.00
Mamadou Diarra
1/09/2012
$840.00
Mamadou Diarra
6/09/2012
$300.00
Mamadou Diarra
8/09/2012
$640.00
Mamadou Diarra
15/09/2012
$500.00
Mamadou Diarra
22/09/2012
$900.00
Mamadou Diarra
29/09/2012
$500.00
Mamadou Diarra
6/10/2012
$800.00
Mamadou Diarra
13/10/2012
$640.00
Mamadou Diarra
21/10/2012
$300.00
Mamadou Diarra
16-Feb-13
$1,500.00
Mamadou Diarra
23-Feb-13
$1,400.00
Mamadou Diarra
Total
$33,876.93
Table 2
Details of Income returned and deductions claimed
Item
2008 Year
2009 Year
2010 Year
I Taxable income
$73,181
$73,985
$78,619
Deductions
D1 Work-related car expenses
$4,555
$6,600
$7,012
D2 Work-related travel expenses
$6,000
$8,500
$10,300
D3 Work-related clothing expenses
$1,060
$1,270
$290
D4 Work related self-education expenses
$550
$700
D5 Other work-related expenses
$1,200
$340
$467
D8 Gifts/Donations
$12,140
$32,000
$20,000
D9 Costs of managing tax affairs
$120
$200
$300
D15 Other deductions
$5,000
$210
$300
Total of deductions claimed by Applicant
$30,075
$49,670
$39,369
Table 3
2011 and 2012 Year details of deductions and tax offsets disallowed, tax shortfalls and penalties imposed
2011 Year
2012 Year
Item
Amounts disclosed in returns lodged
Amounts post ATO amended assessments
Amounts disclosed in returns lodged
Amounts post ATO amended assessments
Assessable Income
$107,209
$107,209
$59,649
$59,649
Deductions
D1 Work related car expenses
$7,170
$0
$7,170
$0
D2 Work related travel expenses
$9,850
$0
$9,960
$0
D3 Work-related clothing expenses
$520
$0
$580
$0
D5 Other Work-related expenses
$511
$0
D9 Gifts/Donations
$25,000
$0
$28,000
$0
D10 Costs of managing tax affairs
$400
$0
$500
$0
Total of deductions
$43,451
$0
$46,210
$0
T1 Spouse, child- housekeeper or housekeeper tax offset
$2,286
$0
$2,347
$0
Total of deductions and tax offsets
$45,737
$0
$48,557
$0
Tax shortfall
18,027.37
$19,487.89
Penalty at 25%
$4,506.84
$4,871.97
Key Legal Topics
Areas of Law
-
Tax Law
-
Administrative Law
Legal Concepts
-
Penalty
-
Remedies
-
Procedural Fairness
3