GSLL and Commissioner of Taxation (Taxation)
[2016] AATA 954
•29 November 2016
GSLL and Commissioner of Taxation (Taxation) [2016] AATA 954 (29 November 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2015/3760-3763
Re
GSLL
APPLICANT
And
Commissioner of Taxation
RESPONDENT
File Number(s)
2015/3764-3767
Re
MKDZ
APPLICANT
And
Commissioner of Taxation
RESPONDENT
File Number(s)
2015/3769-3770
Re
ZZSW
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President Dr P McDermott RFD
Date 29 November 2016 Place Brisbane I affirm the decisions under review.
...................................[sgd].....................................
Deputy President Dr P McDermott RFD
CATCHWORDS
TAXATION AND REVENUE – applicants’ liable to administrative penalty for failure to lodge FBT returns – base penalty amount of 75% – administrative penalty not remitted in part or whole – decisions affirmed under review
LEGISLATION
Fringe Benefits Tax Assessment Act 1986 (Cth) ss 68, 70, 72, 90
Taxation Administration Act 1953 (Cth) s 14ZZK, Sch 1, ss 286-75(1A), 284-75(3), 284-75(6), 298-20(1)CASES
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
SECONDARY MATERIALS
Practice Statement Law Administration 2014/4
REASONS FOR DECISION
Deputy President Dr P McDermott RFD
29 November 2016
INTRODUCTION
This is a review of the decisions of the Commissioner of Taxation (“the respondent”) to disallow the objections of three companies, GSLL, MKDZ and ZZSW (“the applicants”), in relation to the respondent’s decisions concerning the remission of administrative penalties imposed.
PRIOR DETERMINATIONS
On 8 October 2014, the ATO decided to issue default FBT assessments for the 2010, 2011, 2012 and 2013 fringe benefit years for GSLL under s 73 of the Fringe Benefits Tax Assessment Act 1986 (Cth) (“the FBT Act”) in relation to two vehicles, namely, a 2007 BMW 530i and a 2011 BMW 520d.[1] The summary of all liabilities and penalties imposed was recorded as follows:[2]
[1] Exhibit A, T-Documents, T29.
[2] Ibid at p. 244.
FBT year
FBT payable
Base penalty rate applied – 75%
Total penalties and FBT payable
2010
$28,581.69
$21,436.27
$50,567.96
2011
$28,581.69
$21,436.27
$50,567.96
2012
$17,033.41
$12,775.06
$30,358.47
2013
$16,737.67
$12,553.25
$30,140.92
TOTAL
$90,934.46
$68,200.85
$161,635.31
The ATO decided to issue default FBT assessments for the 2010, 2011, 2012 and 2013 fringe benefit years for MKDZ under s 73 of the FBT Act in relation to three vehicles, namely, a BMW E60 530i, a BMW 750i and a Mini Cooper.[3] The summary of all liabilities and penalties imposed was recorded as follows:[4]
[3] Ibid.
[4] Ibid.
FBT year
FBT payable
Base penalty rate applied – 75%
Total penalties and FBT payable
2010
$33,375.37
$25,031.53
$58,956.90
2011
$67,585.89
$50,689.42
$118,825.31
2012
$86,856.88
$65,142.66
$152,549.54
2013
$61,689.22
$46,266.92
$108,806.14
TOTAL
$249,507.36
$187,130.52
$439,137.88
The ATO decided to issue default FBT assessments for the 2012 and 2013 fringe benefit years for ZZSW under s 73 of the FBT Act in relation to two vehicles, namely, a Volkswagen Passat and a Porsche Cayenne.[5] The summary of all liabilities and penalties imposed was recorded as follows:[6]
[5] Ibid.
[6] Ibid.
FBT year
FBT payable
Base penalty rate applied – 75%
Total penalties and FBT payable
2012
$129.27
$96.95
$776.22
2013
$10,555.03
$7,916.27
$19,321.30
TOTAL
$10,684.30
$8,013.23
$20,097.53
On 5 December 2014, GSLL and MKDZ each lodged an objection against the FBT assessments and the assessments of administrative penalties.[7] ZZSW also lodged an objection against the assessments of administrative penalties on that date.[8]
[7] Exhibit A, T-Documents, T46 and T47.
[8] Exhibit A, T-Documents, T48.
On 25 May 2015, the respondent made objection decisions in respect of the objections lodged by the applicants. The objection lodged by GSLL was allowed in part by determining that the 2007 BMW 530i was owned by MKDZ.[9] The FBT liabilities for GSLL and MKDZ were consequently adjusted accordingly. The objections lodged by MKDZ and ZZSW were disallowed.[10]
[9] Exhibit A, T-Documents, T53.
[10] Exhibit A, T-Documents, T52, T54.
On 24 July 2015, the applicants applied to this Tribunal for a review of the respondent’s objection decisions dated 25 May 2015.
On 20 August 2015, MKDZ lodged a second objection against the FBT assessments.[11]
[11] Exhibit A, T-Documents, T62.
On 29 October 2015, the respondent made an objection decision allowing the second objection by accepting that MKDZ had not owned or leased the BMW E60 530i during the relevant tax periods.[12] On 18 November 2015, the respondent issued MKDZ with a notice of amended assessment to decrease its FBT liabilities in accordance with the second objection decision.[13]
[12] Exhibit A, T-Documents, T65.
[13] Exhibit A, T-Documents, T66-T69.
FACTS
Mr Ooi is the sole shareholder of MKDZ.[14]
[14] Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [8].
GSLL and ZZSW are owned by an investment company.[15] Mr Ooi is a 70% shareholder of that investment company as trustee for a family trust. Mr Goh and his wife hold 30% of the shares in the investment company as trustees for a family trust.[16]
[15] Ibid at [9] and [11].
[16] Ibid at [6].
Mr Ooi was the director, business manager and head chef of the applicants’ at all material times.[17] Mrs Ching is the office manager of the applicants and handles the paperwork.[18]
[17] Ibid at [4].
[18] Ibid at [95].
Mr Goh was the tax agent of the applicants’ at all material times. In a statement dated 7 February 2016, Mr Ooi stated that Mr Goh was paid $35,000 per year for his accounting services.[19] At the hearing Mr Ooi said that Mr Goh was paid approximately $40,000 per year.[20]
[19] Ibid at [7].
[20] Transcript of proceedings, p. 85.
Mr Ooi and Mr Goh met in the 1980s. Mr Ooi states that their relationship has developed over time and describes Mr Goh as his “business partner”.[21] Mr Goh states that he considers himself to be “an investor rather [than] a partner”.[22]
[21] Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [5].
[22] Transcript of proceedings, p. 107.
On 11 July 2014, the Australian Taxation Office (“the ATO”) notified Mr Goh of the commencement of an audit to determine whether the applicants had an obligation to lodge fringe benefit tax (“FBT”) returns for the 2010, 2011, 2012 and 2013 fringe benefit years. The ATO also notified the applicants by way of a letter posted on that date.[23] All relevant letters sent by ATO to the applicants were addressed to Mr Ooi in his capacity as the Public Officer.
[23] Exhibit A, T-Documents, T14.
On 7 August 2014, Mr Ooi and Mr Goh attended a meeting with ATO auditors.[24] On the following day, the ATO sent the applicants a letter stating that they were required to lodge FBT returns for the 2010, 2011, 2012 and 2013 fringe benefit years. The letter specified that, if the returns were not lodged by 5 September 2014, default assessments would be issued and a minimum penalty of 75% may be imposed.[25]
[24] Exhibit A, T-Documents, T15.
[25] Exhibit A, T-Documents, T16.
On 4 September 2014, Mr Goh attended another meeting with ATO auditors. It was recorded that Mr Goh presented two logbooks relating to a Porsche Cayenne and a BMW 750i in the record of the meeting.[26]
[26] Exhibit A, T-Documents, T20.
On 12 September 2014, the ATO advised Mr Goh that the ATO had not received the requested FBT returns and would consequently issue default assessments using the statutory method. Mr Goh was recorded as saying that he had not lodged FBT returns because he anticipated that the ATO would disagree with the returns and instead would prefer to negotiate after the ATO completed calculations.[27]
[27] Exhibit A, T-Documents, T21.
On 16 September 2014, the applicants lodged applications to register for FBT.[28]
[28] Exhibit A, T-Documents, T23-26.
ISSUES
The sole issue for consideration is whether the applicants are entitled to the remission of administrative penalties under s 284-75(3) of Sch 1 to the Taxation Administration Act 1953 (Cth) (“TAA53”).
The applicants no longer seek a review of the respondent’s objection decisions with respect to the assessments for FBT.[29]
LEGISLATIVE FRAMEWORK
[29] Applicants’ submissions on hearing dated 3 May 2016 at [6].
Fringe Benefits Tax
The FBT is a tax imposed on employers in respect of non-salary benefits which are provided to their employees in respect of employment. The Fringe Benefits Tax Assessment Act 1986 (Cth) (“FBTAA”) is the principal Act which assesses a taxpayer’s liability to FBT.
Section 68 of the FBTAA provides that where an employer is liable to pay FBT, the employer must furnish an FBT return to the respondent no later than 21 May in the next year of tax or at a later date that the respondent allows.
Section 70(a) of the FBTAA provides that an FBT return must be in the approved form. Section 70(b) of the FBTAA provides that an FBT return must specify the FBT amount of the employer of the relevant year of tax and the amount of tax payable on that amount.
Section 73 of the FBTAA provides that the respondent will make a default assessment where an employer has not furnished a return in respect of the relevant year of tax and the respondent considers that the employer is liable to pay FBT in respect of that year.
Administrative penalties
The uniform administrative penalties regime is set out under Pt 4-25 of Sch 1 to the TAA53.
Liability to penalty
Section 284-75(3) of Sch 1 to the TAA53 provides that a taxpayer is liable to an administrative penalty where:
(a)the taxpayer fails to give a return, notice or other document to the respondent by the required date; and
(b)that document is necessary for the respondent to accurately determine a tax-related liability of the taxpayer (other than a liability arising under the Excise Acts); and
(c)the respondent determines the tax-related liability without the assistance of that document.
Section 250-10 of Sch 1 to the TAA53 contains a table setting out an index of each tax-related liability under other Acts. Item 25 of the table provides that the fringe benefits tax is a tax-related liability under s 90 of the FBTAA.
Base penalty amount
Section 284-90(1) of Sch 1 to the TAA53 contains a table to be applied in calculating the base penalty amount under sub-division 284 – B of the TAA53. Item 7 of the table provides that the base penalty amount is 75% of the tax-related liability concerns where the taxpayer is liable to an administrative penalty under s 284-75(3).
Remission of penalty
Section 298-20(1) of Sch 1 to the TAA53 provides a discretion for the respondent to remit a penalty in part or whole. The PSLA 2014/4 gives guidelines on how this discretion may be exercised. Paragraph 26 of the PSLA 2014/4 states that the question of remission must be considered with respect to all of the relevant facts and the particular circumstances of the taxpayer and having regard to the purpose of the provision.
Paragraph 27 of the PSLA 2014/4 states that the objective of consistent treatment by reference to specified rates of penalty would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course.
Paragraph 28 of the PSLA 2014/4 states that remission will generally occur where:
· the taxpayer had a genuine belief that they were not required to lodge the document; or
· circumstances beyond the taxpayer’s control affected their ability to lodge the document; or
· the amount of penalty imposed by law would cause an unjust result; or
· there were credits available to offset the amount of the tax-related liability payable; or
· there was extraordinary cooperation from the taxpayer during an examination.
Section 14ZZK(b) of the TAA53 provides that the taxpayer has the burden of proving that the reviewable decision should not have been made or should have been made differently.
Safe harbour provisions
Section 284-75(6) of Sch 1 to the TAA53 provides that liability to an administrative penalty under subs (1) and (4) is excluded where:
(a) you engage a * registered tax agent or BAS agent; and
(b) you give the registered tax agent or BAS agent all relevant
taxation information; and
(c) the registered tax agent or BAS agent makes the statement; and
(d) the false or misleading nature of the statement did not result
from:
(i) intentional disregard by the registered tax agent or BAS
agent of a * taxation law (other than the * Excise Acts); or
(ii) recklessness by the agent as to the operation of a taxation
law (other than the Excise Acts).
Section 286-75(1A) of Sch 1 to the TAA53 provides that liability to an administrative penalty under sub (1) is excluded where:
(a) you engage a * registered tax agent or BAS agent; and
(b) you give the registered tax agent or BAS agent all relevant
taxation information to enable the agent to give a return, notice,
statement or other document to the Commissioner in the *
approved form by a particular day; and
(c) the registered tax agent or BAS agent does not give the return,
notice, statement or other document to the Commissioner in the
approved form by that day; and
(d) the failure to give the return, notice, statement or other document
to the Commissioner did not result from:
(i) intentional disregard by the registered tax agent or BAS
agent of a * taxation law; or
(ii) recklessness by the agent as to the operation of a taxation
law.
There is no equivalent safe harbour provision applicable to s 284-75(3) of Sch 1 to the TAA53.
CONTENTIONS
Applicants’ contentions
The applicants contend that the discretion set out within s 298-20(1) of Sch 1 to the TAA53 should be exercised to remit the penalty in part or whole. They contend that there is no requirement to demonstrate any particular special circumstances exist, such as those set out in para 28 of the PSLA 2014/4, before the discretion can be exercised. They further contend that the Tribunal is not bound by the policy expressed in the PSLA 2014/4.
The applicants contend that the discretion to remit the penalty under s 298-20(1) of Sch 1 to the TAA53 should be exercised on the basis that:
·The director of the applicants, Mr Ooi, entrusted Mr Goh with their financial management, including all taxation compliance obligations;
·Mr Goh, in his capacity as an accountant, completely and singularly failed to discharge his professional obligations to enable the applicants to comply with their FBT obligations; and
·Mr Ooi had no knowledge of the applicants’ taxation compliance obligations, particularly in relation to FBT.
The applicants contend that they are not liable for an administrative penalty under s 286-75(1) of Sch 1 to the TAA53 because they qualify for the exception to such an administrative penalty under s 286-75(1A) of Sch 1 to the TAA53.
The applicants contend that the base penalty amount under item 1 of the table contained in s 284-90 of Sch 1 to the TAA53 should not be applied. The basis for this contention is that their behaviour and conduct did not demonstrate an intentional disregard or recklessness in regard to FBT obligations. They contend that Mr Ooi was unable to do so because he was unaware of his FBT obligations.
The applicants contend that the base penalty amount under item 2 of the table contained in s 284-90 of Sch 1 to the TAA53 should be not applied. The basis for this contention is that the evidence does not indicate that Mr Goh, in his capacity as a tax agent, asserted recklessness.
The applicants contend that the appropriate base penalty, if any, should not be levied under item 7 of the table contained in s 284-90 of Sch 1 to the TAA53. Instead, they contend, the penalty should be levied under item 3 of the table. The basis for this contention is that it was the failure of Mr Goh, in his capacity as the applicants’ tax agent, to take reasonable care to comply with the FBT lodgement regime.
Respondent’s contentions
The respondent contends that the applicants were given more than ample time to lodge the outstanding FBT returns when they were directed to do so before 5 September 2014.
The respondent contends that it was appropriate that an administrative penalty was imposed under s 284-75(3) of Sch 1 to the TAA53 as each of the requirements under that subsection have been satisfied. They further contend that there is no legal basis to challenge the imposition of the administrative penalty under s 284-75(3) of Sch 1 to the TAA53.
The respondent contends that there is no discretion to impose any other rate than the base penalty rate under item 7 in the table under s 284-90(1) of Sch 1 to the TAA53 where the administrative penalty was imposed under s 284-75(3) of Sch 1 to the TAA53.
The respondent contends that the other items contained in the table under s 284-90(1) of Sch 1 to the TAA53 have no application because the administrative penalty was not imposed under s 284-75(1) or (4) of Sch 1 to the TAA53.
The respondent contends that, pursuant to s 14ZZK(b) of the TAA53, the applicants have the burden of proving that the remission decision should not have been made or should have been made differently.
The respondent contends that it is appropriate for the Tribunal to take into account the PSLA 2014/4 because to do so has the benefit of achieving consistency in decision-making. They further contend that paras 26 to 45 of the PSLA 2014/4 are consistent with the test set out by Griffiths J in Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 90 ATR 762.
The respondent contends that Mr Ooi’s conduct in the course of the audit demonstrates recklessness toward to the applicants’ FBT obligations. They contend that Mr Ooi either knew or ought to have known that the applicants were required to lodge the outstanding FBT returns by 5 September 2014 as early as 7 August 2014. They contend that Mr Ooi also knew or ought to have known that the ATO intended to issue assessments and to impose a penalty of 75% for each FBT return not lodged prior to the audit on 9 October 2014.
The respondent contends that the evidence indicates that Mr Goh had advised Mr Ooi about the applicants’ FBT obligations. They contend that Mr Ooi was aware of the applicants’ FBT obligations after his first meeting with the ATO on 7 August 2014.
The respondent contends that Mr Ooi’s reliance on Mr Goh does not support the applicants’ contention that the level of administrative penalty be remitted given that Mr Ooi failed to follow Mr Goh’s advice to keep the logbook.
The respondent contends that the knowledge and actions of Mr Goh are also relevant in relation to the consideration of the remission of penalties. They contend that Mr Goh was aware of the applicants’ obligation to lodge FBT returns as early as 30 June 2010.
The respondent contends that the safe harbour provisions in ss 286-75(1A) and 284-75(6) of Sch 1 to the TAA53 have no application in relation to the penalty imposed under s 284-75(3) of Sch 1 to the TAA53.
CONSIDERATION
Are the applicants liable to a penalty under s 284-75(3) of Sch 1 to the TAA53?
I am satisfied that the applicants are liable to a penalty under s 284-75(3) of Sch 1 to the TAA53. Each of the paragraphs (a) to (c) of that provision, which are necessary for the penalty to be applied, have been satisfied.
Section 68 of the FBTAA requires that outstanding FBT returns be lodged by 21 March in the next year of tax or such later date as the Commissioner allows. The applicants did not lodge their FBT returns by 21 March of the relevant years.
On 8 August 2014, the ATO sent the applicants a letter stating that they are obligated to lodge FBT returns for the 2010, 2011, 2012 and 2013 fringe benefit years by 5 September 2014.[30] Mr Goh stated in evidence that he had read the letter and had advised Mr Ooi of its contents. He also stated that they had discussed how they would go about lodging the returns and the logbooks.[31] The applicants did not lodge the FBT returns by the required date. Therefore, s 284-75(3)(a) of Sch 1 to the TAA53 has been satisfied.
[30] Exhibit A, T-Documents, T16.
[31] Transcript of proceedings, pp. 120-121.
The applicants’ FBT returns were necessary for the respondent to accurately determine the applicants’ liability to pay FBT. The respondent cannot be expected to accurately determine a tax-related liability of the taxpayer in the absence of a tax return. FBT is a tax-related liability under s 90 of the FBTAA as shown at item 15 in the table under s 250-10(2) of the TAA53. Therefore, s 284-75(3)(b) of Sch 1 to the TAA53 has been satisfied.
On 8 October 2014, the ATO determined the applicants’ tax-related liability without the assistance of the FBT returns. The ATO issued default assessments for the relevant FBT years under s 73 of the FBTAA. Therefore, s 284-75(3)(c) of Sch 1 to the TAA53 has been satisfied.
The applicants lodged applications to register for FBT on 16 September 2016.[32] However, this was after the date that they were due and the assessment was made without reference to the applications.
[32] Exhibit A, T-Documents, T23-T26.
Are any safe harbour provisions applicable?
There are no safe harbour provisions applicable to an administrative penalty under s 284-75(3) of Sch 1 to the TAA53. The provisions advanced by the applicants apply to penalties other than s 284-75(3) of Sch 1 to the TAA53. Section 284-75(6) of Sch 1 to the TAA53 applies to an administrative penalty imposed under subs 284(1) and (4) of Sch 1 to the TAA53. Section 286-75(1A) of Sch 1 to the TAA53 applies to an administrative penalty imposed under s 286-75(1) of Sch 1 to the TAA53.
What is the applicable base penalty rate?
The applicable base penalty rate is to be determined with reference to the penalty applied and the table contained in s 284-90(1) of Sch 1 to the TAA53.
The applicants are liable to a penalty under s 284-75(3) of Sch 1 to the TAA53. Item 7 of the table contained in s 284-90(1) of Sch 1 to the TAA53 provides that where the taxpayer is liable to an administrative penalty under s 284-75(3) the applicable base penalty amount is 75% of the tax-related liability.
The respondent is correct in their contention that there is no discretion to impose any base penalty rate other than the rate under item 7 in the table where the administrative penalty was imposed under s 284-75(3) of Sch 1 to the TAA53. The second column of the table clearly states that the base penalty amount applies “in this situation”. I cannot apply an alternative base penalty amount which was intended to apply to a different situation.
Should the discretion to remit the penalty in part or whole be exercised?
The applicants seek the exercise of the discretion under s 298-20(1) of Sch 1 to the TAA53 to remit the penalty in part or whole. There are no criteria set out in the TAA53 that must be considered in deciding whether to exercise it or not. The criteria in PSLA 2014/4 provide guidance.
Severity or harshness is not a requirement for remission. Rather remission must be appropriate based on the taxpayer’s particular circumstances. Griffiths J provided in Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483 at 534 to 535:
In my view, there is no warrant for reading into the broad discretion conferred by s 298-20 of the TAA 1953 (or, indeed, former s 227(3) of the ITAA 1936) a requirement that the decision-maker must be satisfied that the outcome is “harsh” for the particular taxpayer in his or her individual circumstances unless penalty is remitted.
…
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 s 298-20.
…
In my opinion, the correct question which arises under s 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 (see the observations of McHugh and Gummow JJ in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 465 on the different meanings of the individual words “harsh”, “unjust” and “unreasonable” in a different context concerning unfair dismissal and the collocation of those words in both legislation and an industrial award). In my view, there is no warrant for confining the otherwise broad discretion in s 298-20 to circumstances where the outcome of imposing administrative penalty would otherwise be “harsh”.
It is appropriate to consider paras 28 to 45 of the PSLA 2014/4 as they have relevance to this application in determining whether the discretion should be exercised. I am satisfied that these examples are consistent with the interpretation of the discretion by Griffiths J in Sanctuary Lakes. The examples listed direct attention to the taxpayer’s particular circumstances and help identify whether it would be unreasonable or unjust if the penalty were not remitted. I will consider each of these examples in turn.
Understanding
Paragraph 29 of the PSLA 2014/4 states that it may be appropriate to remit a penalty where the taxpayer has a mistaken belief that lodgement was not required.
I consider the understanding of both Mr Goh and Mr Ooi to be relevant to this consideration. I do not consider the relationship between Mr Goh and the applicants can be characterised solely as one of a tax agent and their client. He and his wife were jointly 30% shareholders in the investment company which is the sole shareholder in GSLL and ZZSW. He is also a director of that investment company. Moreover, given that the operations of each of the applicants were interconnected, it was in Mr Goh’s interests that each of the applicants succeeded. [33]
[33] Transcript of proceedings, at pp. 105-107.
Mr Goh stated that he did not make business decisions. However, this was because Mr Goh did not want to be personally involved in the running of the restaurants.[34] It was not because Mr Goh’s relationship was limited to that of a tax agent and their client. Mr Goh was given the opportunity to contribute towards significant business decisions. For example, Mr Ooi had sought Mr Goh’s opinion about the opening of new restaurants.[35]
[34] Exhibit H, Statement of Mr Goh dated 3 February 2016 at [13].
[35] Transcript of proceedings, at p. 107.
I am not satisfied that Mr Goh was unaware of the requirement of the applicants’ to lodge FBT returns. Mr Goh has been registered as a tax agent since 1987 and as a chartered accountant since 1988. He agreed that he has a good understanding of the FBT obligations when it was put to him at the hearing.[36] Given his experience and knowledge it is not plausible that he was unaware of the applicants’ requirement to lodge FBT returns. If the respondent had not identified the avoidance of FBT, Mr Goh stood to benefit through the investment by his family trust in two companies that had not discharged their significant FBT liabilities.
[36] Transcript of proceedings, p. 110.
Mr Goh stated that the applicants did not lodge FBT returns because he believed that they were not required to. He did not consider that they had FBT liabilities because the applicants received employee contributions or were reimbursed for private use.[37] He also believed that the applicants were not required to lodge FBT returns because of the logbooks.[38]
[37] Exhibit H, Statement of Mr Goh dated 3 February 2016 at [70].
[38] Ibid at [81].
I consider that Mr Goh could not have been in any doubt that the applicants’ were required to lodge FBT returns after receiving the letter from the ATO dated 8 August 2014. Mr Goh did not dispute that he received the letter.[39] The letter clearly stated that the applicants were required to lodge FBT returns by 5 September 2014.[40]
[39] Ibid at [82].
[40] Exhibit A, T-Documents, T16.
Mr Goh stated that he informed the ATO again that he did not believe the applicants had FBT liabilities. They informed him that he should notify them of his belief in writing before 5 September 2014.[41] There is no evidence that this was ever done.
[41] Exhibit H, Statement of Mr Goh dated 3 February 2016 at [83].
On 12 September 2014, an ATO audit officer made the following file note of a telephone conversation with Mr Goh:[42]
He said he agreed he had to lodge but wanted me to provide the calculations and we could negotiate. He said he didn’t want to waste his time by doing them if I was going to disagree with what he came up with.
[42] Exhibit A, T-Documents, T21.
Mr Ooi was made aware of the requirement of the applicants’ liability to pay FBT at the meeting of 7 August 2014. In his statement Mr Ooi refers to the meeting and in the following paragraph he states:[43]
I was shocked at the FBT obligations. Mr… Goh never advised me about the FBT obligation whenever I asked him about purchasing a luxury car in a company’s name.
[43] Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [92].
In his statement, Mr Ooi asserts that he did not receive the ATO’s letter of 8 August 2014 nor did Mr Goh inform him of it.[44] It is not clear why Mr Ooi did not receive the letter of 8 August 2014 given that it was addressed to him. He states that:[45]
If I had known about the letter of demand from the ATO requiring the FBT returns to be lodged by 5 September 2014, I would have made every effort to lodge the FBT returns by 5 September 2014. However, I have never been told what to do in relation to the letter of demand. Mr… Goh did not explain to me about the FBT returns.
[44] Ibid at [97].
[45] Ibid at [100].
I am not satisfied that Mr Ooi was not aware that the applicants’ were required to lodge their FBT returns on the deadline of 5 September 2014. Undoubtedly Mr Ooi knew that some action was required after the meeting of 7 August 2014. It was after that meeting and before 5 September 2014 that he prepared the logbook based on his recollection of the use of the vehicle in previous years.[46] Moreover, Mr Goh agreed that he advised Mr Ooi of the content of the letter dated 8 August 2014.[47]
[46] Transcript of proceedings, p. 31; Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [100].
[47] Transcript of proceedings, p. 121.
Paragraph 29 of the PSLA 2014/4 states that a taxpayer’s efforts to understand and comply with their obligation to lodge can be taken into account. It is concerning that Mr Ooi failed to take a more active involvement in the applicants’ financial obligations after the meeting of 7 August 2014. Mr Ooi describes himself as being “shocked” at the meeting of 7 August 2014 because he was told that the applicants had FBT obligations that Mr Goh had failed to advise him of.[48] If this were the case, then Mr Ooi should have taken some action to comply with the applicants’ tax obligations rather than rely on Mr Goh to do so.
[48] Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [92].
Paragraph 31 of the PSLA 2014/4 distinguishes between an honest misunderstanding of an obligation to lodge, circumstances precluding lodgement beyond the control of the taxpayer, and ignoring, disregarding or a failing to manage the lodgement obligation. The ATO explained to both Mr Ooi and Mr Goh that the applicants had an obligation to lodge FBT returns at the meeting of 7 August 2014. The ATO also requested by letter dated 8 August 2014 that the applicants lodge the FBT returns and they were not lodged within a reasonable time, namely, on or before 5 September 2015. I consider that the applicants have failed to manage or have disregarded their FBT lodgement obligation. Therefore, remission is not appropriate on this basis.
Control
Paragraph 33 of the PSLA 2014/4 provides that remission may be appropriate where circumstances beyond the taxpayer’s control render them unable to lodge the document.
The FBT returns were not lodged before 21 May of the relevant years because Mr Goh asserted that the applicants’ were not liable to pay FBT. It is apparent from the telephone conversation between Mr Goh had with the ATO auditor on 12 September 2014 that the applicants’ FBT returns were not lodged by 5 September 2014 because he “didn’t want to waste his time by doing them if [the ATO] was going to disagree with what he came up with”.[49] I am not satisfied that the FBT returns were not lodged due to circumstances beyond the applicants’ control.
[49] Exhibit A, T-Documents, T21.
Unjust result
Paragraph 33 of the PSLA 2014/4 states that remission may be appropriate where the penalty will provide an unjust result. Griffiths J explained in Sanctuary Lakes at 535 that whether or not a result is unjust is to be assessed against the taxpayer’s particular circumstances.
The base penalty rate of 75% is a significant one. Paragraph 38 of the PSLA 2014/4 states that the total amount of penalty and interest charge should be considered to ensure it represents a defendable and reasonable amount.
The applicants contend that 75% is an unjust penalty where the failure to lodge was a result of ignorance of the law. This may be so. However, several actions of Mr Ooi and particularly Mr Goh are indicative of a disregard for the applicants’ FBT obligations rather than ignorance, including:
·Mr Goh’s unsatisfactory explanation for failing to lodge the FBT returns by 5 September 2014;
·Mr Ooi failure to follow Mr Goh’s advice to retain a logbook for the relevant motor vehicles; and
·Mr Ooi’s and Mrs Ching’s retrospective completion of logbooks based on recollection in order to reduce FTB liability.
Cooperation
Paragraph 42 of the PSLA 2014/4 states that remission may be appropriate where a taxpayer provides a level of cooperation that exceeds reasonable cooperation during an examination. I am not satisfied that the applicants have provided the requisite level of cooperation at any time.
Neither Mr Ooi nor Mr Goh made a voluntary disclosure at the meeting held on 7 August 2014. Mr Ooi states that Mr Goh did not explain what a voluntary disclosure was to him.[50]
[50] Exhibit C, Statement of Mr Ooi signed 7 February 2016 at [93].
Paragraph 43 of the PSLA 2014/4 states that remission may be appropriate where the taxpayer provides the respondent with information which allows the respondent to determine the tax-related liability. Mr Goh provided the ATO with a logbook that was created based on Mr Ooi’s and Mrs Ching’s recollection.[51] Mr Ooi stated in evidence that he created the logbook to “try to reduce” the applicants’ FTB liability and because he knew the absence of one was a “problem”.[52] Creating a logbook well after the events being logged defeats the purpose of having a logbook, that being to keep an accurate contemporaneous record.
[51] Transcript of proceedings, p. 28.
[52] Ibid at pp. 66-67.
Mr Goh attempted to pass off the logbooks as being prepared at the time of the entries when he provided them to the ATO on 4 September 2014. This claim was disproved by the audit officer who observed that the logbook itself was only published after the date of the entries recorded.[53]
[53] Exhibit A, T-Documents, T20.
Paragraph 44 of the PSLA 2014/4 provides that remission should not be considered where the taxpayer knowingly failed to lodge the required documents. The applicants’ knowingly failed to lodge the FBT returns by 5 September 2014. I am not satisfied that the applicants cooperated during the examination to the extent that exceeded reasonable cooperation.
Inconsistent communication
The applicants in their further submissions on hearing dated 24 June 2016 point out that while the letter from the respondent dated 8 August 2014 stated that the deadline to lodge their FBT returns was 5 September 2014, the respondent still requested further information on 16 September 2014. The applicants submit that the respondents’ actions have been inconsistent. However, the communication of 16 September 2014 in which further information was requested did not in any way detract from the letter of 8 August 2014 which required the FBT returns to be lodged by 5 September 2014.
CONCLUSION
The applicants are liable to an administrative penalty under s 284-75(3) of Sch 1 to the TAA53 for failing to lodge their FBT returns by 5 September 2014. The returns were necessary for the respondent to accurately determine the applicants’ FBT liability. The respondent was required to determine the applicants’ FTB liability using default assessments and without the assistance of the returns.
The base penalty amount is 75% in the situation where an administrative penalty under s 284-75(3) of Sch 1 to the TAA53 is imposed. The safe harbour provision under s 284-75(6) of Sch 1 to the TAA53 does not apply to an administrative penalty under s 284-75(3) of Sch 1 to the TAA53.
The applicants did not have a penalty imposed under s 286-75(1) of Sch 1 to the TAA53. In these circumstances, s 286-75(1A) of Sch 1 to the TAA53 is not applicable. In any event, the applicants have not discharged the evidential burden that they would have borne under s 286-75(1B) of Sch 1 to the TAA53 to prove that they complied with s 286-75(1A)(b) of Sch 1 to the TAA53.
The discretion vested under s 298-20(1) of Sch 1 to the TAA53 requires the consideration of “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”.[54] Accordingly, the “power under s 298-20 requires consideration to be given to the particular circumstances of the taxpayer”.[55]
[54] See Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483 at [249] per Griffiths J with whom Edmonds J agreed.
[55] Ibid at [251].
I have considered the applicants’ particular circumstances in deciding whether the discretion contained in s 298-20(1) of Sch 1 to the TAA53 to remit the penalty should be exercised. I am not satisfied that remission should occur for any of the reasons set out in the submissions of the applicants or for any other reason.
While Mr Goh was not a “business partner” as described in the evidence of Mr Ooi, his relationship with the applicants was more than that of an accountant and client. Mr Goh had an interest in the applicants (except for MKDZ) by way of the 30% interest of his family trust in the investment company which is the sole shareholder in GSLL and ZZSW. Mr Ooi in evidence pointed out that he informed Mr Goh when he made important decisions concerning those companies. Moreover, his approval was sought by Mr Ooi before making the decision to open new restaurants.
Mr Towers, a chartered accountant engaged by the applicants after the default assessment was imposed, indicated in a letter dated 21 June 2016 that in his opinion Mr Goh was naive in not being aware that a 75% base penalty would be imposed. However, Mr Goh acknowledged receiving the letter of 8 August 2014. In that letter, which was addressed to the attention of Mr Goh, there is a clear statement that the applicants “may also be liable for a minimum penalty of 75% for each FBT return not lodged”.[56]
[56] Exhibit A, T-Documents, T16 at p. 138.
Mr Goh was fully aware of the applicants’ obligation to lodge their FBT returns by 5 September 2014. However, he elected not to comply with the obligation. There is no contention that the letter of 8 August 2014 did not give the applicants adequate time to lodge their FBT returns. Mr Goh did not seek an extension of time to lodge the FBT returns.
Mr Goh asserts that the FBT returns were not lodged before 5 September 2014 because he did not believe the ATO would accept his calculations. This does not amount to a circumstance beyond the applicants’ control or an adequate reason why he did not file the return.
Mr Ooi states that he was unaware of the applicants’ obligation to lodge the returns because he was reliant on Mr Goh. Despite being “shocked” at the meeting held on 7 August 2014, Mr Ooi, as a company director, failed to take the level of care that a reasonable person in a similar situation would take to ensure that the applicants complied with their obligations after the meeting.
I do not consider that the culpability of the applicants in failing to provide the returns to the respondent by 5 September 2014 is disproportionately insignificant to the base penalty rate.
I certainly draw an adverse inference against the applicants from the provision of a logbook that was published after the purported entries in the logbook. This conduct does not warrant any remission of penalty.
I do not consider it appropriate to remit the administrative penalty imposed either in part or whole. The applicants have an onus under the former s 14ZZK(b)(iii) of the TAA53 (which applies to this application under Act no 88 of 2013) to prove that the remission decision should have been made differently. The applicants have not discharged this onus. I also do not consider that the applicants have discharged the onus of showing that the objection decisions are excessive.
DECISION
I affirm the decisions under review.
I certify that the preceding 104 (one hundred and four) paragraphs are a true copy of the reasons for the decision herein of Deputy President Dr P McDermott RFD ..............................[sgd]..........................................
Associate
Dated 29 November 2016
Date(s) of hearing 4-5 April 2016, 13 June 2016 Date final submissions received 25 July 2016 Counsel for the Applicant Mr SC Fisher Solicitors for the Applicant Emmanuel Lawyers Solicitors for the Respondent Australian Taxation Office Legal Services Branch
Key Legal Topics
Areas of Law
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Tax Law
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Administrative Law
Legal Concepts
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Penalty
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Statutory Construction
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Remedies
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Procedural Fairness
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