FYYB and Commissioner of Taxation (Taxation)

[2021] AATA 3567

FYYB and Commissioner of Taxation (Taxation) [2021] AATA 3567 (27 July 2021)

Division:SMALL BUSINESS TAXATION DIVISION

File Number(s):      2020/6393

Re:FYYB

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Member Reitano

Date:27 July 2021

Date of written reasons:        5 October 2021

Place:Sydney

I affirm the Commissioner’s decision, dated 17 August 2020, to disallow the objection.

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

Member Reitano

CATCHWORDS

ADMINISTRATIVE PENALTY – superannuation fund – objection raised to decision not to remit administrative penalty – contravention of borrowing provisions – borrowing of money from a member of the fund – seriousness of contravention – whether penalty is unjust or overly oppressive – decision under review affirmed.

LEGISLATION

Superannuation Industry (Supervision) Act 1993 (Cth) ss 67, 67A, 67B

Taxation Administration Act 1953 (Cth) Schedule 1, s 298-20

SECONDARY MATERIALS

Practice Statement Law Administration (PSLA2020/3) – Self managed superannuation funds - administrative penalties imposed under section 166(1) of the Superannuation Industry (Supervision) Act 1993

REASONS FOR DECISION

Member Reitano

5 October 2021

1. The Applicant (the Fund) has applied for a review of the Commissioner of Taxation’s decision of 17 August 2020 which disallowed the Fund’s objection to a decision by the Commissioner, refusing to remit $7,500 of an administrative penalty imposed on the Fund under the Superannuation Industry (Supervision) Act 1993 (Cth) (Superannuation Act).

   FACTS

2. On 10 September 2018, the auditor of the Fund submitted an Auditor Contravention Report (Report) for the 2017 tax year. The Report identified that the Fund had borrowed $220,000 in contravention of section 67(1) of the Superannuation Act, which proscribes a trustee from borrowing money, except in certain prescribed circumstances which are found in ss.67A and 67B of the Superannuation Act. None of the circumstances that would have permitted the borrowing were satisfied so that any such exception was engaged.

3. The circumstances of the borrowing are not in dispute. Sometime in 2015, one of the members of the Fund borrowed $220,000 from Westpac Banking Corporation. On 26 March 2015 the same member of the Fund lent the amount of $220,000 to the Fund. There was no issue that the borrowing did not fall within any of the exceptions referred to.

4. A contravention report recorded that the borrowing, and thus the contravention, had been recorded in a fiscal management report in 2015. It was said that the loan would be restructured correctly, in line with s 67A of the Superannuation Act, which contains instruction on the correct form for limited recourse borrowing arrangements. A period of time was allowed for that to happen and to fix the problem - the problem being the proscribed borrowing. The problem was not fixed, and eventually, the report was lodged with the Commissioner in 2018.

5. The Commissioner imposed penalties for three separate contraventions of s 67(1) for each of the 2015, 2016 and 2017 tax years, which he was entitled to do. The total penalties imposed were $31,800. The penalty for the 2015 year was $10,200 and for the other years, respectively, was $10,800. This was because the value of a penalty unit increased from $170 to $180 in 2016.

6. On 11 July 2019, the Commissioner remitted the penalty in part, in the exercise of his power to do that under s.298-20, of Schedule One, the Taxation Administration Act 1953 (Cth) (Administration Act). The penalty was remitted to $7,500, representing a little less than 25 per cent of the total penalty that had been imposed. On 20 November 2019, the Fund objected to the Commissioner’s decision, as it was entitled to do. On 17 August 2020, the Commissioner disallowed the objection.

7. On 14 October 2020, the Fund filed an application with the Tribunal, asking the Tribunal to review the Commissioner’s decision disallowing the objection.

   ISSUE

8. The issue is whether any part of the penalty of $7500 should be remitted. There is no issue that the Fund contravened s 67 (1) of the Act in the tax years 2015, 2016 and 2017.

   CONSIDERATION

9. Section 298-20 of Schedule 1 to the Administration Act gives the Commissioner a wide discretion to remit all or any part of an administrative penalty that has been imposed.

10. The Commissioner, in exercising the discretion in s 298-20 does so in accordance with the Practice Statement Law Administration (PSLA2020/3) – Self managed superannuation funds - administrative penalties imposed under section 166(1) of the Superannuation Industry (Supervision) Act 1993 (Practice Statement). The Practice Statement identifies four factors that should be considered in determining whether or not to remit a penalty. They are:

    (a)The purpose of the penalty provision;

    (b)The Trustee’s behaviour and circumstances;

    (c)Seriousness of the contravention; and

    (d)Unintended or unjust results.

11. The Practice Statement has, undoubtedly, been introduced as a matter of sound administrative practice in order to foster, so far as possible, consistency in decision-making. Many of the matters referred to in the Practice Statement are directed to matters that might be regarded as common sense, but reducing them to writing is a sound means of ensuring that things are applied consistently and that mistakes are not made.

12. Sight should not be lost, however, of the fact that the starting point in the legislation is to provide for an actual penalty to be imposed. This is no doubt directed to considerations of specific and general deterrence which loom large in taxation penalty matters. The particular contravener and the community, generally, are by reason of the prospect of being penalised, often substantially penalised to be deterred from future contraventions of the Superannuation Act.

13. What, then, are the factors that are relevant to the imposition of the penalty in this case? The Commissioner referred to the Fund’s poor compliance record so far as lodgement of annual returns and other documents is concerned. That compliance history was not ‘poor enough’ it would appear to attract action by the Commissioner in pursuing contraventions in respect of those lodgements.

14. The conduct in 2018, 2019 and 2020 was well after the contraventions that are in issue here which relate to 2015, 2016 and 2017. Each of those later contraventions would constitute offences against s35D of the Superannuation Act which, themselves, may carry penalties. I do not know why no action was taken and I do not know why the contraventions occurred or what the explanation for them might be. I should not treat this matter as a de facto hearing of those contraventions in determining what penalties should be imposed in this case.

15. The second matter, which is far more important is the fact that even today the contravention has not finally been rectified, although the Fund has taken a number of steps towards fixing things. Again, I should add that it is no part of this decision to deal with administrative penalties that might be imposed in respect of non-compliance in 2018, 2019 and 2020 in respect of the proscribed borrowing that the Fund appears to have engaged in or the proscribed maintenance of that borrowing in contravention of s.67(1).

16. I am dealing with the question of administrative penalties that arise because of contraventions in 2015, 2016 and 2017. The Fund has had about six years to rectify those contraventions. It had not done so after three years, and it appears not to have taken any steps to do so until very recently. It is also significant that in June 2019 an enforceable undertaking was entered into, which would have seen compliance completed by 1 November 2019. This did not happen, it is said, because it was too ambitious due to the various exigencies of the accounting practice with which the Fund was associated and which later acquired the Fund, including staff turnover, the development of or the introduction of new software and so on. They might explain but do not excuse the contraventions.

17. I do not put a lot of store in the fact that the enforceable undertaking has not been completed, and nor, as I said, do I put a great deal of store in the fact that there continued to be contraventions in 2018, 2019, and 2020. What is relevant for present purpose is that the contraventions in 2015, 2016, and 2017 have not been rectified.

18. There was some reference to the problems created by the pandemic, but this matter arose well before the pandemic and in fact the enforceable undertaking was to be completed in November 2019, which was two or three months before the pandemic emerged. There was also reference to the significant costs that have been incurred in rectifying the contraventions, but of course it is to be remembered that had the contraventions not occurred at all, those costs would not have been incurred at all.

19. The matters that I consider that are important to the assessment of the question of remission of any penalty in this matter are the four matters that follow.

20. First, the breach is a breach of a significant obligation under the Superannuation Act that occurred over several years, which was reflected by the initial quantification of the penalty which must have been quite terrifying for those who received it. It was $31,800, albeit that that was ultimately remitted to $7500. The fact that the legislature has provided for such a significant penalty initially demonstrates that the matter was a serious one.

21. Second, I do not consider there is at all to the point that there was “no consequences” resulting from the contravention. It is not trite to say that it is no defence to speeding by more than 30 kilometres an hour in a 50-kilometre zone that there was no accident that resulted from the speeding. The legislature has provided for serious consequences that follow from the contravention and that is as serious as consequences can be, particularly when reflected in an administrative penalty of over $30 000.

22. Third, the continued failure since 2015 to deal with and rectify the contravention over the three successive years is a significant matter that makes the circumstances egregious. Again, I do not consider the subsequent alleged contraventions in 2018, 2019 or 2020 to be material to this matter.

23. I did not apprehend it was ultimately pressed but it was suggested that I should adjourn the proceedings for three months to allow for the Applicant to complete the enforceable undertaking. I think there would be little to be achieved by adjourning the proceedings to allow rectification to take place, especially given that the original deadline for the undertaking’s completion is over 18 months ago. Further, for my part I do not consider that the appropriate means of dealing with an application for remission of a penalty is to treat rectifications as some form of negotiating tool to seek remission of a penalty.

24. Even if matters had been rectified during the hearing, it would have made little change to the size of the administrative penalty that should be imposed, given the time over which the contravention continued.

25. Fourth, there is nothing in the circumstances that indicate that the Fund does not have the capacity to pay the penalty or that the penalty would somehow be oppressive or unjust in all the circumstances. The Fund has not provided any further documentation or explanation that would warrant any further remission of the penalty because the penalty is oppressive or unjust.

26. Finally, I consider that overall circumstances of the contravention need to be assessed. As I have said, the administrative penalty that would otherwise have been imposed would have been something close $32,000. I do not consider that there is any magic to the question of remission other than that the overall size of any administrative penalty should not be considered to be unjust or overly oppressive, and that it should reflect the seriousness of the contravention. I am satisfied that both of these criteria are met in this matter.

    DECISION

27. In the circumstances I consider that it is appropriate to remit the fine to $7500. I affirm the Commissioner’s decision, dated 17 August 2020, to disallow the objection.

I certify that the preceding 27 (twenty-seven) paragraphs are a true copy of the reasons for the decision herein of Member Reitano

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

Associate

Dated: 5 October 2021

Date(s) of hearing:	27 July 2021
Applicant:	Self-represented
Solicitors for the Respondent:	Ms M Calligaro, Australian Taxation Office