Fitzpatrick and Commissioner of Taxation
[2010] AATA 832
•27 October 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 832
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/4716
TAXATION APPEALS DIVISION ) Re JOHN FITZPATRICK Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms J L Redfern, Senior Member Date27 October 2010
PlaceSydney
Decision The decision under review is affirmed. ...................[sgd]...........................
Jan L Redfern
Senior Member
CATCHWORDS
TAXATION: Energy Grants (Credits) Scheme – energy grants- fuel tax credits – diesel expenses – entitlement – lack of substantiation – failure to take reasonable care - imposition of penalties – decision affirmed.
LEGISLATION
Energy Grants (Credits) Scheme Act 2003
Fuel Tax Act 2006
Product Grants and Benefits Administration Act2000; ss25 - 27
Tax Administration Act 1953; Divs 284, 298 and 382
REASONS FOR DECISION
27 October 2010
Ms J L Redfern, Senior Member
Background
1. During the period 1 July 2003 and 30 June 2008 (the relevant period), schemes were operated under the Product Grants and Benefits Administration Act 2000 (PGBA Act), the Energy Grants (Credits) Scheme Act 2003 (EGCS Act) and the Fuel Tax Act 2006 (FT Act) to provide grants and/or benefits in respect of certain energy purchases. The purchase of diesel for use in carrying out agricultural related activities was an allowable expense under the schemes.
2. Mr Fitzpatrick claimed energy grants for the period 1 July 2003 to 30 June 2006 under the EGCS Act and was paid $32,545.22. He claimed fuel tax credits under the FT Act for the period 1 July 2006 to 30 June 2008 and was paid $16,674.
3. The Commissioner of Taxation conducted audits in respect of the claims made in the period 1 July 2003 and 30 June 2008 and requested substantiation for the amounts claimed. No substantiation was provided and the Commissioner revised the energy grants and fuel tax credits to nil, issued new assessments and imposed penalties.
4. Mr Fitzpatrick objected to the assessments and penalty notices and, by objection decision dated 14 August 2009, the Commissioner allowed Mr Fitzpatrick some entitlement in respect of energy grant and fuel tax credits, reduced administrative penalties from 30 per cent to 25 per cent but rejected the majority of the claims.
5. Amended assessments were issued on 31 August 2009 and 1 September 2009. The amounts claimed from Mr Fitzpatrick by the Commissioner for refund of the rebates, penalty and interest are in excess of $50,000.
6. Mr Fitzpatrick has sought a review of the Commissioner’s decision of 14 August 2009.
Issues
7. The issues for determination are:
(a)Whether the Commissioner has correctly assessed Mr Fitzpatrick’s entitlement to energy grant credits under the EGCS Act in respect of the period 1 July 2003 to 30 June 2006.
(b)Whether the Commissioner has correctly assessed Mr Fitzpatrick’s entitlement to fuel tax credits under the FT Act in respect of the period 1 July 2006 to 30 June 2008.
(c)Whether the Commissioner has properly imposed administrative penalties and whether any remission of the penalty is warranted.
Legislative framework
8. Under the EGCS Act, energy grants are available for the purchase of diesel fuel from 1 July 2003 in respect of eligible use, which includes agricultural related activities.
9. The record keeping requirements for the EGCS Act are set out in sections 25 to 27 the Product Grants and Benefits Administration Act 2000 (PGBA Act). The effect of sections 25 to 27 of the PGBA Act is that claimants are only entitled to receive a grant under the EGCS Act if they keep records to substantiate claims for a grant and retain those records for five years after the claim is made. If a claim is made but the claimant has not retained records to substantiate a claim, the claimant is not entitled to make a claim and is taken never to have been so entitled (s 25(1) (b) of the PGBA Act).
10. The entitlement to energy credits ceased for the purchase of diesel fuel on or after 1 July 2006. The FT Act commenced on 1 July 2006, allowing fuel tax credits for the acquisition and use of taxable fuel when carrying on an enterprise.
11. The record keeping requirements for transactions relevant to the entitlement to fuel tax credits are subject to Sub-division 382-A of Schedule 1 to the Tax Administration Act 1953 (TAA), which provides a claimant must keep records that record and explain all transactions that are relevant to the entitlement and must retain those records for at least five years after the claim is made.
12. There is no dispute that Mr Fitzpatrick would be entitled to the relevant energy and/or fuel tax credits if they have been incurred. The issue is that Mr Fitzpatrick has provided limited records to substantiate such claims.
13. Division 284 of Schedule 1 to the TAA deals with liability for administrative penalties. Division 298 deals with the machinery provisions for the imposition and remission of penalties.
14. A person is liable for an administrative penalty under section 284-75 of the TAA if the person, or their agent, makes a false or misleading statement and the statement results in a “shortfall amount”. Relevantly, there is a shortfall amount under section 284-80(1) if:
“an amount that the Commissioner must pay or credit…worked out on the basis of the statement is more than it would be if the statement were not false and misleading”.
15. Under section 284-215(2) of the TAA, a person does not have a “shortfall amount” for the purposes of section 284-75 if the person has taken “reasonable care” in making the statement.
16. Subsection 284-90(1) provides for a base penalty of 25 per cent of any shortfall amount if the shortfall, or part of it, resulted from a failure to take reasonable care.
17. The Commissioner may remit penalty under section 298-20(1) of the TAA. The Commissioner has issued guidelines as to the factors to be considered when exercising this discretion in Practice Statement Law Administration 2006/2. According to the guidelines, the particular circumstances and compliance history of the taxpayer should be taken into account. If there is history of non-compliance, evidence that the penalty is unfair and unjust in the circumstances would be required.
Evidence
18. On 9 April 2008 the Commissioner commenced an audit in respect of the energy grant and/or fuel tax credits claimed by Mr Fitzgerald for the period 1 July 2003 to 31 December 2007. By letter dated 9 April 2008 Mr Fitzgerald was requested to provide records to substantiate these claims. The letter contained a formal notice. Mr Fitzpatrick did not provide any documents or information in response to this letter or notice.
19. On 20 November 2008 the Commissioner commenced an audit in respect of the fuel tax credits claimed by Mr Fitzgerald for the period 1 January 2008 to 30 June 2008. By letter dated 20 November 2008 Mr Fitzgerald was requested to provide records to substantiate these claims. Mr Fitzpatrick provided fuel purchase documentation to substantiate some of the claims.
20. The Commissioner revised the energy grant and fuel tax credits to nil for the first audit period and reduced Mr Fitzpatrick’s entitlement for the second audit period. This resulted in a shortfall amount for ‘overpaid’ credits of $49,220.22. The Commissioner also imposed an administrative penalty of 30 per cent on this shortfall on the basis that the base penalty of 25 per cent should be increased by 20 per cent.
21. Mr Fitzpatrick objected to the assessments and imposition of penalties and provided further information which included bank statements and receipts provided by the Mobil service station at Hillston.
22. Based on these documents, the Commissioner accepted payments evidenced by receipts where there was sufficient detail to identify that the purchase related to diesel and the quantity purchased. This information was also cross-referenced against payments made to ‘Mobil Hillston’ from Mr Fitzpatrick’s bank account. In addition, where payments were made to ‘Mobile Hillston’, as evidenced by bank statements, the Commissioner accepted payments over $100 as representing diesel purchases but excluded 20 per cent of those purchases. This methodology was adopted on the basis of the pattern established for diesel purchases as disclosed by the fuel receipts provided by Mr Fitzpatrick. These receipts showed that smaller purchases were for petrol, which was not eligible for rebate. Larger purchases were for both petrol and diesel, but petrol purchases generally comprised no more than 20 per cent of the total purchase.
23. The Commissioner excluded receipts for purchases prior to the audit period commencing 1 July 2003 and receipts for purchases identified only as ‘fuel’ or for the purchase of oil or other items.
24. A summary of the energy grants and fuel tax credits allowed by the Commissioner using this methodology was produced for the hearing by the representative for the Commissioner (Exhibits B and C). Exhibit B shows the Commissioner allowed 23,840 litres (against 85,122 claimed) for energy grant credits for 1 July 2003 to 30 June 2006. Exhibit C shows the Commissioner allowed 10,575 litres (against 47,211 claimed) for fuel tax credits for 1 July 2006 to 30 June 2008. This resulted in an overpayment (or shortfall) of energy grant and fuel tax credits of $23,679.46 and $13,974 respectively. The Commissioner issued amended assessments to give effect to the objection decision of 14 August 2009.
25. Mr Fitzpatrick told the Tribunal he would have purchased more diesel than the amount allowed for credits by the Commissioner. He worked with his father and purchased diesel for his father’s farms in NSW and Victoria. He paid cash for his purchases and often did not keep his receipts. Mr Fitzpatrick could not provide any additional information to substantiate his claims for credits other than what had already been provided. Mr Fitzpatrick acknowledged he was not well organised, did not have a proper filing cabinet and may have thrown out receipts inadvertently. He told the Tribunal that if he had realised he was going to be audited he would have kept the records of purchases in a filing cabinet.
26. Mr Fitzpatrick purchased most of the diesel from the Mobil service station at Hillston but would also purchase diesel from service stations in Victoria. He often purchased petrol and diesel at the same time. He did not have an account at Hillston service station as they would not give him one. This is why he made most of his purchases by cash. He sometimes paid for fuel on his debit card.
27. Mr Fitzpatrick was first registered under the various schemes in 1996. He would generally make a claims based on drums of diesel purchased, which was approximately 400 litres per drum. When shown an Energy Grants (Credits) Scheme claim form dated 12 September 2003, Mr Fitzpatrick could not remember completing this form, which contained a warning and declaration. However, he did recall reading the warning on such claim forms to the effect:
“Check your fuel receipts to ensure you are not claiming the same fuel twice as penalties may apply”.
28. The relevant claim form also included a declaration to the effect that the information supplied in the claim was “true and correct” and that the claimant:
“maintains records which substantiate purchase and usage of the fuel relating to this claim and will keep these records for five years after the Tax Office receives this form.”
29. Mr Fitzpatrick agreed he ‘probably would have’ signed the claim forms and the declarations but said he did not read the declarations. He knew he had to keep records of the diesel purchases for five years but did not realise the Commissioner would audit those claims such a long time after the claim had been made. He told the Tribunal the claims made were for diesel for his father’s farms but he had no records of how these claims were quantified or originally recorded.
30. Mr Fitzpatrick also told the Tribunal he would not be able to pay the debt or penalty claimed by the Commissioner as he was on a pension and it would take him 10 years. Mr Fitzpatrick acknowledged receiving the benefit of the credits but said they were properly claimed.
Are the assessments for Mr Fitzpatrick’s entitlements to energy grants and fuel tax credits for the period 1 July 2003 to 30 June 2008 correct?
31. The Commissioner has allowed Mr Fitzpatrick credits for energy grants and fuel tax even though Mr Fitzpatrick was not able to substantiate all of these claims. Under the EGCS Act scheme, there is no entitlement to the grant unless records are maintained and retained for five years after the claim. There is no similar provision under the FT Act scheme but there is an obligation to keep records to substantiate claims under Sub-division 382-A to Schedule 1 of the TAA. The Commissioner has nonetheless allowed credits on the basis that certain payments made to the Mobil service station at Hillston were for diesel purchases. The methodology adopted by the Commissioner is an estimate based on past purchases and the limited records available and gives Mr Fitzpatrick the benefit of any doubt in his favour. Given the limited records and the absence of detailed receipts, the methodology is reasonable and the amount allowed by the Commissioner is more likely than not to be correct.
32. Mr Fitzpatrick could not provide any further evidence to support his claim for energy grants and/or fuel tax credits other than the information already provided to the Commissioner. While it is possible Mr Fitzpatrick may have made the purchases of diesel claimed, he bears the onus under section 14ZZK of the TAA to establish these claims. In the absence of any documents or evidence from Mr Fitzpatrick to support his claims for energy grants and fuel tax credits, I am unable to accept his assertion that all claims were properly made.
33. As such, I am satisfied that the entitlements for energy grants and fuel tax credits for the period 1 July 2003 to 30 December 2008, as assessed by the Commissioner in the decision of 14 August 2009, are correct.
Whether administrative penalties have been properly imposed and whether they should be remitted?
34. Mr Fitzpatrick did not keep records of all diesel purchases, and the limited records available were reconstructed by the Commissioner to arrive at a more favourable assessment of energy grant and fuel tax credits than was originally allowed on the basis of the information provided in response to the audits. Mr Fitzpatrick acknowledged he should have maintained records of his purchases and knew he had to keep records for five years. The relevant claim forms included a declaration to the effect that records to substantiate claims were maintained and would be kept for five years from the claim. Mr Fitzpatrick regularly completed and signed these forms and received credits from the Commissioner in the vicinity of $50,000 in the period 1 July 2003 to 30 June 2008 in respect of these claims. Mr Fitzpatrick says he did not read the declarations before signing the forms yet gave evidence he was aware he needed to keep records of purchases.
35. If a person makes a statement that is false and misleading and that statement gives rise to a “shortfall amount”, the claimant will be liable to an administrative penalty. In this case, the statement made by Mr Fitzpatrick in each of the claim forms was to the effect he had made the diesel purchases, had records to substantiate those claims and would keep those records for five years. There is no evidence Mr Fitzpatrick made diesel purchases for the full amounts claimed yet there is evidence he did not have, nor did he retain, records to substantiate these claims. There is also evidence from Mr Fitzpatrick that this was the position when he made his claims. The failure to substantiate the claims or maintain and retain records of purchases resulted in a revision of rebates allowed for the period 1 July 2003 to 30 June 2008, which gave rise to an overpayment of energy grant and fuel tax credits. Given the evidence of Mr Fitzpatrick about his practice in making claims, I am satisfied the overpayments would be a “shortfall amount” within the meaning of item 2 in section 284-80(1) of the TAA being:
“An amount that the Commissioner must pay or credit…worked out on the basis of the statement is more than it would be if the statement were not false and misleading.”
36. There is no “shortfall amount” if the claimant has taken reasonable care in respect of the claims made (s 284-215(2) of the TAA).
37. I accept the Commissioner’s contention that Mr Fitzpatrick did not use reasonable care in relation to claims made for energy grant and fuel tax credits in the period 1 July 2003 to 30 June 2008. The failure to read the forms he signed is evidence of lack of care. Even though he says he did not read the declarations, Mr Fitzpatrick concedes he knew he had to keep records of his purchases for five years. His main complaint is he did not realise he would be audited. Mr Fitzpatrick concedes he should have maintained better records and could not explain how he quantified his claims. This is particularly important for claims under the ECG scheme where an entitlement to the grant is contingent on records substantiating claims.
38. I am satisfied that administrative penalties of 25 per cent, being the base penalty under section 284-90 of Schedule 1 for the failure to take reasonable care, were properly imposed on the shortfall amounts under both schemes.
39. The question therefore arises as to whether these penalties should be remitted.
40. The particular circumstances of the case should be considered to assess whether penalty should be remitted. The Commissioner contends there is a history of non compliance as Mr Fitzpatrick has lodged several activity statements and income tax returns late. While Mr Fitzpatrick says he will find any penalty difficult to pay as a pensioner, there is no evidence that these penalties are unjust or unfair in the circumstances. Mr Fitzpatrick received the benefit of energy grant and fuel tax credits over a period of five years, to which he was not entitled. He was not entitled to those credits because there is no evidence he incurred the payments and there are no records to substantiate the claims. This is a matter that was within Mr Fitzpatrick’s exclusive control. He did not rely on anyone else to make the claims or maintain records. There is no evidence of incapacity or misadventure at the relevant time and I am not satisfied that the imposition of penalties in respect of the amended assessments would produce a harsh outcome in the circumstances.
Conclusion
41. I am satisfied that the entitlements for energy grants and fuel tax credits for the period 1 July 2003 to 30 December 2008, as assessed by the Commissioner in the decision of 14 August 2009, are correct. I am also satisfied that administrative penalties of 25 per cent were properly imposed on the shortfall amounts as assessed and should not be remitted.
42. I affirm the objection decision of the Commissioner of 14 August 2009.
I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of Ms J LRedfern, Senior Member.
Signed: .....................................................................................
AssociateDate of Hearing 21 September 2010
Date of Decision 27 October 2010
Applicant in Person
Solicitor for the Respondent Mr Julian Burne
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