Ford and Commissioner of Taxation (Taxation)

[2018] AATA 3039

Ford and Commissioner of Taxation (Taxation) [2018] AATA 3039 (23 August 2018)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:           2017/7678

Re:Vicki Ford

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:    Member D K Grigg

Date:23 August 2018

Place:Brisbane

The Tribunal affirms the decision under review.

.............................[sgd].....................................

Member D K Grigg

CATCHWORDS

TAX – where applicant failed to provide her income tax return on time - whether administrative penalty correctly imposed under section 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 –– whether discretion should be exercised to remit the penalty - decision under review affirmed.

LEGISLATION

Evidence Act 1995 (Cth)

Taxation Administration Act 1953 (Cth)

REASONS FOR DECISION

Member D K Grigg

23 August 2018

BACKGROUND

1. This matter concerns the late lodgement of an income tax return for the year ended 30 June 2015 which resulted in the imposition of a penalty.

2. Ms Ford elected not to appear at the Tribunal hearing on this matter and Mr Peter Gesch, her accountant, represented her at the hearing.

3. Ms Ford’s income tax return for the 2015 financial year was due to be lodged by 28 April 2016.[1] By October 2016, Ms Ford’s income tax return had still not been lodged and as a result, on 28 October 2016, the Australian Tax Office (“ATO”) wrote to Ms Ford through her accountants, informing her that she needed to lodge her tax return for the financial year ended 30 June 2015 and to do so by 25 November 2016.[2] The letter also advised Ms Ford that if she did not make contact that:

(a)they may issue a default assessment;

(b)she may be required to pay a penalty of 75% of any tax raised from the assessment;

(c)a penalty for failing to lodge her income tax return on time may be payable; and

(d)there may be interest charges on any tax she may owe.

[1]        Respondent’s Statement of Facts, Issues and contentions dated 4 May 2018, para 5.

[2]        Exhibit 1, T Documents, T8, pages 43 – 45, letter from the ATO to Ms Ford dated 28 October 2016.

1. The ATO estimated that her total taxable income for the year ended 30 June 2015 was $304,252.[3]

   [3]        Exhibit 1, T Documents, T8, pages 43-44, Letter regarding Income Tax Lodgement for the year ended 30 June 2015 dated 28 October 2016.           

2. No communications from Ms Ford were received by the ATO and they wrote to her again on 20 January 2017 informing her that:[4]

(a)she needed to lodge a tax return by 20 February 2017 or that she would be liable to pay an administrative penalty of 75% of the tax related liability on any tax owing based on the ATO’s default assessment; and

(b)a separate penalty for failing to lodge a tax return on time may also be payable.

[4]        Exhibit 1, T Documents, T9, pages 46 – 49, Letter from the ATO to Ms Ford dated 20 January 2017.

1. By 24 March 2017 Ms Ford still had not provided her income tax return nor had she made any attempt to communicate with the ATO. As a result, the ATO lodged an income tax return as a default assessment for the year ended 30 June 2015.[5] Pursuant to the default assessment the ATO determined that Ms Ford had a taxable income of $306,392 for that financial year.

   [5]        Exhibit 1, T Documents, T 10, pages 50 – 56, ATO default assessment for the year ended 30 June 2015 dated 24 March 2017.

2. On 31 March 2017, pursuant to the default income tax assessment, the ATO issued Ms Ford with a notice of assessment for the year ended 30 June 2015. Pursuant to the notice of assessment, Ms Ford’s assessed tax payable was $111,095.28 and the balance of tax owing to the ATO, after deducting pay-as-you-go withholding tax credits, was $48,292.80.[6]

   [6]        Exhibit 1, T Documents, T 11, pages 57 – 58, Notice of assessment for the financial year ended 30 June 2015 issued by the ATO dated 31 March 2017.

3. On 31 March 2017 the ATO also issued Ms Ford with two penalties:

(a)a penalty of $900 for her failure to lodge her income tax return on time (FLT Penalty) which was payable on or before 21 April 2017;[7] and

(b)an administrative penalty of $36,219 which was payable on or before 18 April 2017.[8]

[7]        Exhibit 1, T Documents, T 12, pages 59 – 60, Notice of penalty for failure to lodge documents on time for the year ended 30 June 2015 issued 31 March 2017.

[8]        Exhibit 1, T Documents, T 13, pages 61 – 62, Notice of penalty for failure to lodge documents on time for the year ended 30 June 2015 issued 31 March 2017.

1. An FLT penalty is imposed for failing to lodge a required document by a certain time pursuant to section 286-75 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“the Act”). The amount of the penalty is calculated as one penalty unit for each 28-day period the tax return was overdue.[9]

   [9] Section 286-80, Schedule 1 of the Taxation Administration Act 1953 (Cth)

2. Administrative penalties are imposed pursuant to section 284 – 75(3) of Schedule 1 of the Act, where:

(a)a person has failed to provide a return, notice or other document; and

(b)that document was necessary to determine a person’s tax related liability accurately; and

(c)because of the failure to provide the document the ATO has had to determine the person’s tax related liability without it.

1. In those circumstances the base penalty amount of 75% of the tax related liability is imposed.[10]

   [10] Section 284-90, Schedule 1 of the Act.

2. On 3 April 2017 Ms Ford finally lodged her income tax return with the ATO for the year ended 30 June 2015.[11]

   [11]       Exhibit 1, T Documents, T 14, pages 63 – 71, Ms Ford's income tax return for the year ended 30 June 2015 lodged on 3 April 2017.

3. As a result of Ms Ford lodging her tax return, the ATO issued a notice of amended assessment for the year ended 30 June 2015. Pursuant to the amended assessment, Ms Ford’s taxable income was $24,000 higher than the taxable income assessed by the ATO. The amended assessed tax payable was $121,997.68 and the ATO determined that Ms Ford owed an additional tax amount of $12,758.61.[12]

   [12]       Exhibit 1, T Documents, T 15, pages 72 – 77, Notice of amended assessment issued by the ATO for the year ended 30 June 2015 dated 10 April 2017.

4. On 17 October 2017 Ms Ford lodged an objection to the imposition of the penalties and interest raised by the ATO, on the grounds that she had not received the letters of 28 October 2016 or 20 January 2017, and was therefore unaware that a default assessment would be issued, or the date she needed to lodge her tax return in order to avoid being issued with a default assessment. [13] Ms Ford’s accountant, Mr Gesch of Haywood’s Chartered Accountants, stated that Ms Ford was objecting to the penalty because she had not received the default assessment or warning letter from the ATO and was not aware of the date that the overdue obligation needed to be lodged in order to avoid being issued a default assessment. Ms Ford’s accountants state that they did not receive the default assessment from the ATO until 4 April 2017, the day after they lodged Ms Ford’s income tax return. Ms Ford’s accountants also note that the tax payable pursuant to the lodged income tax return was more than the default assessment and that all outstanding amounts have been paid by Ms Ford.[14]

   [13]       Exhibit 1, T Documents, T 16, pages 78 – 82, Objection and supporting documents lodged by Ms Ford dated 17 October 2017.

   [14]       Exhibit 1, T Documents, T 16, page 80, Objection and supporting documents lodged by Ms Ford dated 17 October 2017

5. On 1 November 2017 the ATO advised Ms Ford that they had considered her objection and allowed it in part. The ATO agreed to reduce the penalty from 75% of the tax shortfall to 50% of that shortfall and the administration penalty was therefore reduced to $30,263.45.[15]

   [15]       Exhibit 1, T Documents, page 83, T 17, Notice of objection decision dated 1 November 2017.

6. On 22 December 2017 Ms Ford applied to this Tribunal for review of the ATO’s decision.[16] The Tribunal has jurisdiction to review decisions under the Act pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) and Part IVC of the Act.

   [16]       Exhibit 1, T Documents, T1, pages 1- 6, Application for review dated 22 December 2017.

7. In its Reasons for Decision document, the ATO stated that although it acknowledged Ms Ford’s tax agent’s statements on the non-receipt of an assessment warning letter, it was reasonable to expect that she would have been aware of her requirement to lodge an income tax return by the required due date. At no time did Ms Ford notify the ATO that there were circumstances which prevented her from doing so and she did not contact the tax office prior to the lodgement date to explain her situation. In addition, the ATO contends that not only was a tax return overdue, it was significantly overdue, and in the four previous financial years Ms Ford also failed to lodge a tax return by the due date, in some cases being overdue by more than several years. The ATO contends that this behaviour shows disregard of her tax obligations and responsibilities. Based on Ms Ford’s past compliance history, the ATO contends that further remission is not appropriate. The ATO agreed to reduce the penalty amount of 75% to 50% on the basis that her tax return, once lodged, increased the tax payable.[17]

   [17]       Exhibit 1, T Documents, T2, pages…, Reasons for decision dated 1 November 2017.

8. Ms Ford contends that she did not receive any notices from the ATO concerning the lodgement of her overdue income tax return and refers and relies on Practice Statement Law Administration (‘PS LA’) 2011/19 which provides that a penalty should be remitted where imposing the penalty would not provide a just result. Ms Ford contends that the decision to impose the penalty should be remitted and the penalty should be reduced by 80% pursuant to paragraph 42 of PS LA 2014/4.

LEGISLATIVE BACKGROUND

1. Section 284 – 75(3) of Schedule 1 of the Act sets out as follows:

   284-75   Liability to penalty

   (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.

   Note:          You are also liable to an administrative penalty for failing to give the                document on time: see Subdivision 286-C.

2. The base penalty is 75% of the relevant tax related liability.[18]

   [18] Section 284 – 90, Schedule 1, the Act.

3. Pursuant to section 298 – 20 of Schedule 1 of the Act, the Commissioner has the power to remit all or part of the penalty amount calculated.

4. The ATO issues practice statements pursuant to authority of the Commissioner. These practice statements are used by the ATO to provide instructions on the way in which the tax law should be administered. Practice statement LA 2014/4 explains the circumstances in which an entity will become liable to a penalty pursuant to section 284-75(3) and how that penalties assessed including any remission.

5. Pursuant to paragraph 27 of PS 2014/4 a relevant matter for the remission of a penalty includes “a major objective of the penalty regime is to promote a consistent treatment by reference to specified rates of penalty” and that this objective could be compromised if penalties are omitted without cause or as a matter of course.

6. Paragraph 28 of PS 2014/14 goes on to provide that the discretion to remit penalties should be approached in a fair and reasonable way and sets out that a remission, either in full or in part will generally occur, as follows:

   ·     an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, their obligation

   ·     an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge

   ·     the amount of penalty imposed by law causes an unjust result

   ·     there were credits available to offset the amount of the tax-related liability payable, or

   ·     there was extraordinary cooperation during an examination.

ISSUES FOR THE TRIBUNAL

1. The issues for determination by the Tribunal are:

(a)Whether the administrative penalty for failure to provide a document was correctly imposed under section 284-75(3) of Schedule 1 of the Act; and

(b)Whether the Respondent should exercise its discretion to further remit the penalty under section 298-20(1) of Schedule 1 of the Act.

WAS THE ADMINISTRATIVE PENALTY CORRECTLY IMPOSED?

1. It is not in dispute that Ms Ford failed to lodge her income tax return by the due date and that this document was necessary for the ATO to determine Ms Ford’s tax liability.

2. Mr Gesch’s office was Ms Ford’s address for service of any notices from the ATO. Mr Gesch submitted that none of the warning letters were ever received by his office and that his ATO portal did not list any of the warning letters as having been sent.[19]

   [19]       Applicant’s Statement of Facts, Issues and Contentions, para 4

3. The Respondent submitted that the notices were sent to Ms Ford’s address for service. Pursuant to section 160 of the Evidence Act 1995 (Cth):

   It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external Territory was received at that address on the fourth working day after having been posted.

4. There is no evidence that any of the notices sent by the ATO were returned as being undeliverable. Further, it is clear that Ms Ford received the notice imposing the penalty because she subsequently objected to it.

5. While there is a requirement that a notice which imposes a penalty be served on the penalized party,[20] there is no legal requirement that the ATO warn a person that a penalty may be imposed.

   [20] See section 298-10, Schedule One of the Taxation Administration Act 1953 (Cth).

6. Therefore, even if Ms Ford was not aware that the ATO had sent letters warning her that an administrative penalty would be imposed if she failed to provide her tax return by the requested time, this does not invalidate the ultimately imposed penalty.

7. At the hearing, Mr Gesch also confirmed with the Tribunal that since 2003 Ms Ford has lodged every tax return late and has, in the past, had FLT penalties imposed as a result. The Tribunal can therefore conclude that Ms Ford was fully aware of the potential consequence of a late lodgment.

8. The Tribunal finds that the administrative penalty was correctly imposed.

SHOULD THE PENALTY BE REMITTED FURTHER IN PART OR IN FULL?

Did Ms Ford have a genuine, yet mistaken belief that lodgement was not required?

1. Mr Gesch informed the Tribunal that Ms Ford was fully aware of her obligations to lodge her tax return and that they had to be lodged on or before the due date. Mr Gesch also said he has been Ms Ford’s accountant for approximately 20 years and that he would have sent her a reminder to lodge her tax return by the due date, as was his practice.

2. Therefore, there is no basis to remit the matter on the grounds of a mistaken belief.

Were there circumstances beyond Ms Ford’s control that affected her ability to lodge?

1. Mr Gesch confirmed that as far as he was aware there were no circumstances beyond Ms Ford’s control that affected her ability to lodge her tax return in time. Ms Ford chose not to appear at the hearing and did not provide any written reasons explaining her failure to lodge her tax return in time.

2. There is no basis to remit the matter on the grounds of extenuating circumstances.

Does the amount of the penalty imposed provide an unjust result?

1. Pursuant to PS 2014/4:

   36. An unjust result may occur where the culpable behaviour of the taxpayer associated with the failure to provide a document to the Commissioner is disproportionately insignificant to the amount of penalty and charges imposed.

2. Mr Gesch’s contention was that if they had received the warning letters, Ms Ford could have lodged her tax return before the penalty was imposed.

3. In the Tribunal’s view, this contention fails to acknowledge that:

(a)Ms Ford was aware of her obligations as a taxpayer;

(b)Ms Ford had been reminded by Mr Gesch that her tax return had to be lodged;

(c)no reason or explanation was proferred as to why Ms Ford took nearly 12 months to lodge her tax return;

(d)Ms Ford had received penalties for late lodgment in the past and was therefore fully cognisant of the potential consequences of late lodgment;

(e)The penalty was not imposed until 12 months after the tax return was due, giving Ms Ford ample time to comply with her obligations;

(f)Ms Ford has a very long history of failure to lodge her tax returns on time; and

(g)the penalty has already been generously reduced from 75% to 50% of her tax liability.

1. In the circumstances, the Tribunal finds that the amount of the penalty imposed is not unjust and is not disproportionate to Ms Ford’s consistently tardy behaviour, which could be assumed to demonstrate a complete disregard of her legal tax obligation.

Remaining Grounds set out in paragraph 28 of PS 2014/4

1. The remaining grounds provided for in paragraph 28 of PS 2014/4 which would justify remitting the penalty in part or in full are not relevant to Ms Ford.

DECISION

1. The Tribunal finds that there is no basis for the penalty to be remitted. The decision under review is affirmed.

I certify that the preceding 43 (forty-three) paragraphs are a true copy of the reasons for the decision herein of Member D K Grigg

...............................[sgd]..............................

Associate

Dated: 23 August 2018

Date of hearing:	6 August 2018
Advocate for the Applicant:	Mr Dekkers, ATO
Advocate for Respondent:	Mr Gesch, Haywoods Accountants