Dowsing and Commissioner of Taxation (Taxation)

Dowsing and Commissioner of Taxation (Taxation) [2022] AATA 3173 (29 September 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2021/8759
Re:Caleb Dowsing
APPLICANT

AndCommissioner of Taxation
RESPONDENT

Decision
Tribunal:Senior Member Dr M Evans-Bonner
Date:29 September 2022
Place:Perth

The Reviewable Decision is affirmed.
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Senior Member Dr M Evans-Bonner
CATCHWORDS
TAXATION – application for review of an objection decision – Applicant failed to provide outstanding tax return despite numerous attempts by the Respondent to contact him – administrative penalty imposed – Respondent remitted 75% of penalty – Applicant seeking full remission – whether circumstances beyond the Applicant’s control affected his ability to lodge his tax return for the financial year ending 30 June 2017 – Applicant had addiction issues with drugs and gambling – Applicant has not discharged onus under s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) – Reviewable Decision affirmed
LEGISLATION
Taxation Administration Act 1953 (Cth) – s 14ZZK(b), 284-75(3) of Schedule 1, 298-20(1) of Schedule 1
SECONDARY MATERIALS
Australian Taxation Office, Practice Statement Law Administration 2014/4: Default assessment penalty – cl 3A, 5K, 5R, 5S
REASONS FOR DECISION
Senior Member Dr M Evans-Bonner
29 September 2022
BACKGROUND TO The application

Mr Dowsing did not submit his tax return for the 2017 income year. This was despite numerous attempts by the Commissioner to contact him by telephone, email, post and text message between 6 March 2019 and 7 May 2019, as well as a notice being sent to him directing him to contact the Commissioner. Contact was also made with the Applicant’s tax agent on 14 March 2019 and 1 April 2019, with extensions of time for the Applicant to lodge his tax return being agreed to, but they were not complied with (T5-T14; T17).
After further unsuccessful attempts were made by the Commissioner to contact the Applicant, on 21 May 2019, the Commissioner issued a default assessment warning letter to the Applicant, stating that if he did not lodge his tax return by 18 June 2019, he would be subject to a base penalty amount of 75% (ST2).
Mr Dowsing failed to submit his tax return by 18 June 2019, so on 1 July 2019, the Commissioner made a default assessment (T3).
On 26 August 2019, the Commissioner issued a notice of assessment for the 2017 income year (T4), with a shortfall of $6,657.80 which was accepted and paid by Mr Dowsing. However, the Commissioner also issued a notice of assessment of an administrative penalty for failing to provide a document. The penalty was assessed as 75% of $6,657.80, resulting in an administrative penalty of $4,993.35 (ST1).
Mr Dowsing, with the encouragement of his mother, engaged a family friend, Mr Barber who is a chartered accountant, to help him. On 31 May 2021, Mr Barber lodged an objection against the penalty assessment on Mr Dowsing’s behalf. The basis of the objection was that Mr Dowsing “had a challenging couple of years” (T19) due to a gambling and drug addiction which affected his mental health, caused him to accrue debts, and to suffer housing instability and mental health issues (T20).
On 20 September 2021, the Commissioner issued an objection decision which allowed the objection in part, by reducing the base penalty amount from 75% ($4,993.35) to 25% ($1,664.45) (T2). This is the Reviewable Decision currently before me.
On 18 November 2021, Mr Barber, on behalf of Mr Dowsing, sought review of the Reviewable Decision in this Tribunal seeking for 100% of the penalty to be remitted (T1).
On 21 September 2022, I heard this application by MS Teams. Mr Barber appeared pro-bono for Mr Dowsing and I thank Mr Barber for doing so. Mr Moharich appeared for the Commissioner. Mr Dowsing gave evidence, and I found him to be frank and honest.
The issues
The issues I am required to determine are:
(a)whether Mr Dowsing was liable to an administrative penalty under s 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA); and
(b)whether I should exercise discretion under s 298-20(1) of Schedule 1 of the TAA to remit 100% of Mr Dowsing’s penalty.
Pursuant to s 14ZZK(b) of the TAA, Mr Dowsing has the burden of proving that the assessment of the administrative penalty is excessive or otherwise incorrect, and what it should have been.
Was mr dowsing liable to an administrative penalty?
Subsection 284-75(3) of the TAA provides:
(3) You are liable to an administrative penalty if:
(a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b)that document is necessary for the Commissioner to determine a *tax-related liability (other than one arising under the *Excise Acts) of yours accurately; and
(c)the Commissioner determines the tax-related liability without the assistance of that document.
As I outlined in the “Background to the Application” section above, Mr Dowsing failed to submit his tax return for the 2017 income year despite numerous attempts by the Commissioner to contact him, via various means, and despite the Commissioner negotiating extensions of time with his tax agent. Mr Dowsing’s tax return was required for the Commissioner to determine his tax liability for that income year. As Mr Dowsing did not meet his reporting requirements, the Commissioner made a default assessment.
Accordingly, I find that Mr Dowsing was liable to an administrative penalty.
Should discretion be exercised to remit the penalty in full?
Subsection 298-20(1) of the TAA provides that: “The Commissioner may remit all or a part of the penalty”.
The TAA does not set out any guiding factors or principles that may be relevant in assessing how the direction to remit should be exercised.
The Commissioner has, however, issued Practice Statement Law Administration 2014/4: Default assessment penalty (PSLA 2014/4) which “explains how we exercise the Commissioner’s discretion to remit the penalty and ensure consistent treatment of entities with similar circumstances”.
Clause [3A] of PSLA 2014/4 sets out some general principles as follows:
We consider these general principles when making decisions about this penalty:
·     The primary purpose of the penalty provisions is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised where it has made a reasonable and genuine attempt to comply.
·     The penalty provisions aim to achieve a ‘level playing field’, ensuring there are consequences for not making a reasonable effort to comply correctly with tax obligations.
·     The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations.
·     The Taxpayers’ Charter requires us to treat an entity as being honest. We accept that what an entity tells us is the truth and the information it has provided is complete and accurate unless we have good reason to think otherwise.
·     We must consider the individual circumstances of each case, including the background and experience of the entity.
·     Our decisions must be based on, and supported by, the available facts and evidence.
·     We will generally contact an entity and give it the opportunity to explain its actions before a penalty decision is made. Exceptions to this might include where the facts clearly show deliberate disengagement from the tax system.
Clause [5K] of PSLA 2014/4 provides guidance about when remission of a penalty may be appropriate. It provides, in part:
The remission decision should be approached in a fair and reasonable way. Remission, in full or in part, is generally appropriate when:
·     an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, its obligation
·     an entity understood the obligation to lodge but circumstances beyond its control affected its ability to lodge
·     the amount of penalty imposed by law causes an unjust result in the circumstances,
…
(Emphasis added)
The part of cl [5K] that I have highlighted in bold is relevant to Mr Dowsing. Mr Dowsing admitted at the hearing that he was aware he had to lodge a tax return for the 2017 income year, and that he did not do so within the required time due to circumstances beyond his control that affected his ability to lodge.
The required time for lodgement was 31 October 2017, if Mr Dowsing was completing his own tax return, or 15 May 2018, if he had the assistance of an accountant. I will refer to this as the Relevant Period. At the hearing, Mr Barber advised that in previous years Mr Dowsing’s tax return had been completed by the accountants used by his family business. I have therefore considered 15 May 2018 to be the appropriate end of the Relevant Period.
Clauses [5R] and [5S] of PSLA 2014/4 provide some guidance about “circumstances beyond the entity’s [or in this case, Mr Dowsing’s] control”. These clauses state:
Remission may be appropriate where the entity is unable to lodge because of circumstances beyond its control. Without limiting the Commissioner’s discretion in relation to any particular case, this will include cases where the entity is unable to lodge because of:
·     a natural disaster, such as a fire or a flood
·     ill health, or the ill health or death of key personnel, or
·     impeded access to records.
In determining the extent to which the penalty should be remitted in these circumstances, we take into account all relevant circumstances, including:
·     what event (or events) occurred and the event’s impact on the entity’s capacity to prepare and lodge documents
·     when the event occurred and how long it lasted
·     whether the event has had a prolonged effect on the entity’s capacity to lodge
·     whether the entity could have obtained assistance to lodge, and
·     the entity’s efforts to prepare the document or assist us in accurately assessing the liability.
Until the 2017 financial year, Mr Dowsing had a compliant tax history, and he had lodged tax returns for the 2014-, 2015-, and 2016-income years on time (T21).
However, Mr Dowsing submitted that, during the Relevant Period, the circumstances beyond his control that affected his ability to lodge a tax return were his drug and gambling addiction. These addictions had detrimentally impacted other areas of his life such as his mental health, his work in the family business and his relationship with his family members, including tension with his brother who he worked in the family business with. This culminated in his leaving the family business altogether in January 2019, leading to further debts and housing instability.
I accept the Applicant’s evidence that he had a drug addiction for many years leading up to the Relevant Period and that his drug and gambling addiction gradually got worse and seriously impacted his life during the Relevant Period. I accept that the Applicant’s life must have been chaotic and disorganised during this time, and I accept his evidence that there was some trouble with the law with traffic infringements and unpaid court and traffic fines during the Relevant Period, that Mr Dowsing is still paying off. He described being “up and down like a yo-yo” during that time. There were times he was able to function, and times he was not able to. His gambling resulted in his neglecting financial aspects of his life, resulting in debts accruing.
I am concerned, however, that these circumstances were not entirely out of Mr Dowsing’s control. I appreciate that addiction, whether it be to gambling or to drugs, can be a very difficult habit to break. However, Mr Dowsing’s circumstances arose, at least partly, from his own poor life choices, and not as the result of an event beyond his control such as ill-health or a natural disaster, as contemplated by the PSLA 2014/14.
Also, the Applicant was able to function to some extent, during the Relevant Period. He was employed in the family business and earning an income, although I accept that he was likely to have been an unreliable employee. At the hearing he also confirmed that he had rental accommodation during the Relevant Period. It seems that his housing instability did not start until after the Relevant Period from January 2019 when he left the family business.
The Applicant also went on a family holiday in Japan to engage in snowboarding during the Relevant Period from 29 December 2017 to 11 January 2018 (T16). His mother paid for flights, accommodation, and his skiing gear. Mr Dowsing said his mother was keen to get him out of Australia and away from drugs, which is entirely understandable. He was able to function sufficiently to go on this holiday so as not to have any issues with travel or with Japanese authorities.
To Mr Dowsing’s credit, he attended regular Gambling Anonymous and Alcoholics Anonymous meetings in December 2017 to April 2018 (T27; T25).
Thus, there would have been periods where he was functioning, and opportunities during the Relevant Period for the Applicant to have lodged his tax return, including with the assistance of the accountants engaged by his family’s company who had prepared his returns in the past.
I am therefore not satisfied that the circumstances were beyond Mr Dowsing’s control, whereby he was unable to lodge his tax return by the end of the Relevant Period. I do not regard the amount of the penalty to be unjust in those circumstances. In other words, I am not reasonably satisfied that the penalty in the Reviewable Decision is excessive or incorrect.
To Mr Dowsing’s credit, it seems that he has turned his life around. He is in a stable relationship with a supportive partner and two small children. From 2020, he attended numerous counselling sessions, including with his partner (A2; A3; T22-T24; T29-T32). He has now established his own business as a concreter and has engaged Mr Barber to assist him to get his tax affairs in order. With the assistance of his mother, he has made payment arrangements to repay the debts accrued because of his gambling and the fines he owes to the enforcement registry. It is commendable that Mr Dowsing has taken these positive steps to improve his life and his financial organisation.
Conclusion
In conclusion, I have found that Mr Dowsing was liable to an administrative penalty under s 284-75(3) of Schedule 1 of the TAA.
I am also not satisfied that the administrative penalty in the Reviewable Decision is excessive or otherwise incorrect. I therefore decline to exercise discretion under s 298-20(1) of Schedule 1 of the TAA to remit all of Mr Dowsing’s penalty.
Decision
For the reasons outlined above, the correct or preferable decision is that the Reviewable Decision is affirmed.

I certify that the preceding 34 (thirty-four) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr M Evans-Bonner

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Associate
Dated: 29 September 2022
Date of Hearing: 21 September 2022
Representative for the Applicant: Mr AW Barber, AWB Partners Chartered Accountants
Representative for the Respondent: Mr M Moharich, instructed by Ms V Bei of the Australian Taxation Office

[2022] AATA 3173

29 September 2022

Key Legal Topics

Areas of Law

Tax Law

Administrative Law

Legal Concepts

Remedies

Penalty

Statutory Construction

Judicial Review

Procedural Fairness