Hanson and Commissioner of Taxation (Taxation)

Hanson and Commissioner of Taxation (Taxation) [2023] AATA 2067 (17 July 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers:2022/7341-7349
Re:Garth Hanson
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Member D Mitchell
Date:17 July 2023
Place:Brisbane

The Tribunal affirms the decision under review.
…………………[SGD]………............
Member D Mitchell

CATCHWORDS
TAXATION – administrative penalty – shortfall penalty – tax shortfall – taxpayer’s burden to prove shortfall penalty assessment excessive or incorrect – whether discretion should be exercised to remit penalty – decision under review affirmed.
LEGISLATION
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50
SECONDARY MATERIALS
Practice Statement Law Administration PS LA 2012/5: Administration of the false or misleading statement penalty – where there is a shortfall amount
Miscellaneous Tax Ruling 2008/1: Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregards
REASONS FOR DECISION
Member D Mitchell
17 July 2023
INTRODUCTION

Mr Garth Hanson (the Applicant) is seeking review[1] of an Objection Decision of the Commissioner of Taxation (the Respondent) dated 26 July 2022.[2]
[1] Exhibit 1, T Documents, T1, pages 1-5, Application for Review.
[2] Exhibit 1, T Documents, T41.1, page 504, Notice of decision on objection.
The reviewable objection decision disallowed the Applicant’s objection to the administrative penalty assessments relating to the imposition of shortfall penalties for the income years ended 30 June 2008 to 30 June 2015 and 30 June 2018 (the Relevant Years).[3]
[3] Exhibit 1, T Documents, T41.1, page 504, Notice of decision on objection, and T2, pages 6-8, Reasons for Decision.
BACKGROUND
The Applicant did not lodge his income tax returns for the Relevant Years by the required lodgement dates.
Having liaised with officers of the Respondent, the Applicant lodged his income tax returns for the income years ended 30 June 2008 to 30 June 2014 on 6 July 2021.[4]
[4] Exhibit 1, T Documents, T3-T9, pages 9-232, Income Tax Returns for the years ended 30 June 2008 to 30 June 2014.
On 6 December 2021, the Respondent remitted failure to lodge penalties[5] for the income years ended 30 June 2015, 2016 and 2018.[6]
[5] Previously imposed on 25 June 2021. See Exhibit 1, T Documents, T21, pages 374-377, Statement of Account for the imposition of failure to lodge tax returns on time penalties for years ended 30 June 2015, 30 June 2016, 30 June 2018 and 30 June 2020.
[6] Exhibit 6, Respondent’s Case Note Report Bundle.
On 19 December 2021, the Applicant lodged his income tax returns for the income years ended 30 June 2015 and 30 June 2018.[7]
[7] Exhibit 1, T Documents, T10, pages 233-272, Income Tax Return for the year ended 30 June 2015 and T11, pages 273-316, Income Tax Return for the year ended 30 June 2018.
On 16 February 2022, the Respondent notified the Applicant that they had commenced an audit of his income tax returns for the Relevant Years and requested that he provide more information in relation to the deductions he had claimed.[8]
[8] Exhibit 1, T Documents, T14, pages 321-338, Letter to Applicant for further information for processing returns for the 2008 to 2015 and 2018 financial years.
On 7, 15 and 22 March 2022, the Applicant provided further information to the Respondent in regard to the deductions he claimed for the Relevant Years.[9]
[9] Exhibit 1,T Documents, T17, T18, 18.1, 18.2 and T19, pages 345-363, Evidence provided by the Applicant.
On 23 March 2022, the Respondent notified the Applicant that his audit had been finalised.[10]
[10] Exhibit 1, T Documents, T20, pages 364-373, Letter to the Applicant enclosing the Audit Reasons for Decision regarding the 2008 to 2015 and 2018 financial years.
At audit the Respondent decided to:[11]
[11]    Exhibit 1, T Documents, T20, pages 365-373, Audit Reasons for Decision.
(a)disallow most of the deductions claims by the Applicant for the Relevant Years on the basis there was no supporting evidence to substantiate the claims;[12]
(b)disallow a business loss claimed by the Applicant for the year ended 30 June 2018 on the basis that there was no supporting evidence to substantiate the claim;[13] and
(c)impose shortfall penalties for the Relevant Years on the basis that:[14]
(i)he made a false or misleading statement in his income tax returns which resulted in a shortfall amount (due to claiming deductions and losses that were not allowable);
(ii)he did not take reasonable care when he prepared his income tax returns for the Relevant Years as:
(i)    he claimed expenses for which he did not have supporting documentation;
(ii)   he made claims for expenses, for which he did not support with the requested documentation to demonstrate that the claimed expenses were incurred, and that the expenses are work-related and/or deductible and not private, domestic, or capital in nature; and
(iii) he made a large claim for work-related travel expenses which he was not entitled to as no evidence had been provided.
[12]    Exhibit 1, T Documents, T20, 365-369, Audit Reasons for Decision.
[13]    Exhibit 1, T Documents, T20, 368, Audit Reasons for Decision.
[14]    Exhibit 1, T Documents, T20, 370-373, Audit Reasons for Decision.
On 29 March 2022, the Respondent issued notices of assessment of shortfall penalty for the Relevant Years.[15]
[15] Exhibit 2, Supplementary T Documents, ST1 to ST9, pages 507-542, Notice of Assessment of Shortfall Penalty for the years ended 30 June 2008 to 30 June 2015 and 30 June 2018.
The shortfall penalties imposed for the Relevant Years are as follows:[16]
[16] Exhibit 2, Supplementary T Documents, ST1 to ST9, pages 507-542, Notice of Assessment of Shortfall Penalty for the years ended 30 June 2008 to 30 June 2015 and 30 June 2018.

Income Year

Income tax shortfall

Penalty Assessment

2008

$1,618.16

$404.54

2009

$1,383.79

$345.90

2010

$2,213.19

$553.25

2011

$4,681.60

$1,170.40

2012

$2,881.78

$720.40

2013

$2,493.03

$623.25

2014

$2,852.25

$713.05

2015

$1,670.84

$417.70

2018

$9,772.11

$2,443.00

On 26 April 2022, the Applicant lodged an objection to the assessment for shortfall penalties for the Relevant Years, stating:[17]
I was told there would be no penalties and the outcome I am seeking is to have penalties removed on all returns please refer to complaints on file and the fact it has taken ATO to process return I would like to speak with someone to go into detail and the mistreatment o myself and returns (sic)
[17] Exhibit 1, T Documents, T31, page 412, Objection lodged by the Applicant.
The Applicant provided further evidence on 7 June 2022.[18]
[18] Exhibit 1, T Documents, T34 and T34.1, pages 418-428, Email chain between the informal review officer and the Applicant regarding substantiation of work-related expenses claimed enclosing tax invoices from the Applicant regarding tools purchases and a forklift licence.
As a result of that information the Respondent undertook an informal review which led to further deductions being allowed for the income years ended 30 June 2008 and

30 June 2011.[19] Amended assessments were issued for those years on 4 and 7 July 2022.[20]
[19] Exhibit 1, T Documents, T35 and T36, pages 429-489, Amended Income Tax Returns for the years ended 30 June 2008 and 30 June 2011.
[20] Exhibit 1, T Documents, T38 and T39, pages 494-501, Notice of Amended Assessment for the years ended 30 June 2008 and 30 June 2011.
On 1 July 2022, the Respondent remitted shortfall penalty amounts of $4.89 and $38.00 for the income years ended 30 June 2008 and 30 June 2011[21] respectively. This reflected the reduction in the tax shortfall for those years due to the outcome of the informal review.[22]
[21] Exhibit 1, T Documents, T37, pages 490-492, Remission of shortfall penalties for the years ended 30 June 2008 and 30 June 2011.
[22] At the Hearing the Respondent told the Tribunal that amended assessments are not issued in relation to adjustments made to shortfall penalties in such circumstances. The Respondent submitted that should the Tribunal affirm the reviewable Objection Decision the remitted shortfall penalty amounts for the income years ended 30 June 2008 and 30 June 2011 will remain in place.
On 26 July 2022, the Respondent disallowed the Applicant’s objection in relation to the imposition of shortfall penalty for the Relevant Years.[23]
[23] Exhibit 1, T Documents, T41.1, page 504, Notice of objection decision and T2, pages 6-8, Reasons for objection decision.
On 8 September 2022, the Applicant lodged an Application for Review of the objection decision with the Tribunal.[24] The Applicant provided the following reasons for why he claims that the Respondent’s objection decision is wrong:[25]
from the first person I spoke to I was told I would not receive any fees, penalties, charges of any kind and I clarified this from the start and I was also told that the ATO was also here to work through things and after speaking with them doing it their way so many people I spoke to I was also told it would only take 55 days nearly a year later as I complained and spoke with a lady there and disagreed with her she abused her position and audited me and was to come back to me to work through the returns after I supplied the information I could, as in-between the lodgements and nearly a year later some of the info was destroyed by natural disaster and that's why were were to work through together instead just finalized and smacked me with some penalties after I was told there would be none. I asked to speak with the deputy tax commissioner and was declined this also to let them know. I also lodged a complaint and reviews as all these people that I lodged the complaint to all agreed with me that I have been treated poorly and given wrong info and that the penalties should be reversed even the person I lodged to agreed this should be. so I don't get why it hasn't been revered. I just want the penalties reversed as I endeavoured to do the right thing and followed the ato word for word look where that got me. also we need to look at the at the time frame it took them to process my returns and that needs to be addresses and a penalty should be issued to the ato and paid to me for the drama and time it has taken them. or they can just simply return the penalties and we move on from there.
I do not believe all things were taken into account and discretion was not applied as there was no misleading information from my end just simply tried to work with tax dept to resolve and work through returns and a sensible outcome here as the ato have mis informed and mis lead and done a lot of things wrong as the intention of the whole process was to clean everything up and finalize all out standing by doing this together but it was not the case. please refer to all phone recordings and emails. even the ones that were not taken into account on the original complaint.
[24] Exhibit 1, T Documents, T1, pages 1-5, Application for Review.
[25] Exhibit 1, T Documents, T1, page 5, Application for Review.
On 24 January 2023, the Applicant provided documents titled “Summary of Events” and “Reasons on why the penalties should be removed” together with a number of email chains between himself and officers of the Respondent.[26]
[26] Exhibit 3, Applicant’s Email attaching Summary of Events and Reasons on why the penalties should be removed document and various email chains.
On 6 March 2023, the Respondent provided a Statement of Facts, Issues and Contentions setting out his view of the matter.[27]
[27] Exhibit 4, Respondent’s Statement of Facts, Issues and Contentions.
On 15 May 2023, the Respondent provided an Outline of Submissions[28] to supplement the document filed on 6 March 2023, together with a Case Note Report Bundle[29] which outlines the Respondent’s details of interactions between his officers and the Applicant during the periods:
·11 April 2014 to 25 June 2014;
·18 November 2021 to 9 February 2022;
·14 February 2022 to 24 June 2022; and
·9 May 2022 to 29 July 2022.
[28] Exhibit 5, Respondent’s Outline of Submissions.
[29] Exhibit 6, Respondent’s Case Note Report Bundle.
On 12 June 2023, the Applicant provided an Outline of Submissions in reply.[30]
[30] Exhibit 7, Applicant’s Outline of Submissions.
A Hearing was conducted on 7 July 2023. At the Hearing, the Applicant was self-represented, appeared by MS Teams and gave evidence under affirmation.
THE LAW
Administrative penalties may be imposed in a number of circumstances in accordance with Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA 1953).
Relevant to the present matter, section 284-75(1) of Schedule 1 to the TAA 1953 provides that administrative penalties may be imposed where:
284-75 Liability to Penalty
(1)You are liable to an administrative penalty if:
(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law; and
(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
…
Exceptions to subsections (1) and (4)
(5) You are not liable to an administrative penalty under subsection (1) or (4) for a statement that is false or misleading in a material particular if you, and your agent (if relevant), took reasonable care in connection with the making of the statement.
The meaning of reasonable care is not defined. Guidance is found in Miscellaneous Taxation Ruling MT 2008/1: Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (MT 2008/1) which provides:
Meaning of reasonable care
27.      The expression ‘reasonable care’ is not a defined term and accordingly takes its ordinary meaning. The Australian Oxford Dictionary, 1999, Oxford University Press Melbourne, defines ‘care’ as ‘…3 serious attention; heed, caution, pains’ and ‘reasonable’ as ‘3a within the limits of reason; not greatly less or more than might be expected’. Taking ‘reasonable care’ in the context of making a statement to the Commissioner or to an entity within the meaning of subsection 284-75(4) means giving appropriately serious attention to complying with the obligations imposed under a taxation law.
28.      The reasonable care test requires an entity to take the same care in fulfilling their tax obligations that could be expected of a reasonable ordinary person in their position. This means that even though the standard of care is measured objectively, it takes into account the circumstances of the taxpayer. This aspect of the test is addressed in the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No. 2) 2000 where it states at paragraph 1.69:
Reasonable care requires a taxpayer to make a reasonable attempt to comply with the provisions of the ITAA and regulations. The effort required is one commensurate with all the taxpayer’s circumstances, including the taxpayer’s knowledge, education, experience and skill.[31]
29.      Judging whether there has been a failure to take reasonable care turns on an evaluation of all the circumstances surrounding the making of the false or misleading statement to determine whether a reasonable person of ordinary prudence in the same circumstances would have exercised greater care.
[31]    Footnote 5 of MR2008/1 provided: Refer to the proposals made in the information paper at paragraphs 2.7 to 2.12 (discussed in paragraph 25 of this Ruling) which were given effect to by the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth).
Section 284-85 of Schedule 1 to the TAA 1953 outlines how the amount of penalty is to be calculated.
For current purposes, section 284-90 of Schedule 1 to the TAA 1953 provides that the base rate penalty amount is 25% of the shortfall or part of the amount that resulted from the failure from the taxpayer or their agent to take reasonable care to comply with a taxation law.[32]
[32] Section 284-90(1), Item 3 of Schedule 1 to the TAA 1953.
Section 298-20 of Schedule 1 to the TAA 1953 provides that the Commissioner, and therefore the Tribunal, has the power to remit all or a part of the penalty. Although the power to remit all or part of the penalty is unfettered, the discretion must be exercised for a proper purpose and in accordance with the objects of the TAA 1953 and according to law.[33]
[33] Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 at [193].
In considering whether or not the discretion to remit all or part of the penalty, the Tribunal notes that while PSLA 2012/5: Administration of the false or misleading statement penalty – where there is a shortfall amount (PSLA 2012/5) is not binding on the Tribunal, it is an appropriate tool to assist in assessing the parties contentions.
In relation to the factors considered in PSLA 2012/5 when assessing whether a shortfall penalty should be remitted, in part or in full, consideration is given to:[34]
·     the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations
·     the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty; this objective 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, and
·     the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer’s particular circumstances.
[34]    PSLA 2012/5 at paragraph 16F.
Where a taxpayer is dissatisfied with an assessment, determination, notice or decision they may object against it in accordance with the requirements set out in Part IVC of the TAA 1953.[35]
[35] Section 14ZLof the TAA 1953.
The Respondent must decide whether to allow, wholly or in part, or disallow the taxpayer’s objection.[36]
[36] Section 14ZY of the TAA 1953.
A taxpayer who is dissatisfied with the Respondent’s objection decision may apply to the Tribunal for a review of the decision or appeal to the Federal Court against it.[37]
[37] Section 14ZZ of the TAA 1953.
Section 14ZZK of the TAA 1953 provides that on application for review of a reviewable objection decision:
(a) the applicant, is unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving:
(i) if the taxation decision concerned is an assessment – that the assessment is excessive or otherwise incorrect and what the assessment should have been; or
(ii) in any other case – that the taxation decision concerned should not have been made or should have been made differently.
As such, to be successful in this matter the onus falls on the Applicant to prove that the assessments of shortfall penalty were incorrect. As such in this matter the Applicant needs to prove that he took reasonable care in completing his income tax returns for the Relevant Years.
Should the Tribunal, however, find that the shortfall penalty assessments for the Relevant Years were correctly imposed, then to be successful in this matter the onus falls on the Applicant to prove that the decision to not remit the shortfall penalty should not have been made or should have been made differently.
ISSUES
The issues before the Tribunal are whether the Applicant has discharged his onus to prove:
(a)
that he should not be liable for shortfall penalties imposed under section

284-75(1) of Schedule 1 of the TAA 1953; and
(b)that should he be liable for shortfall penalties for the Relevant Years, the discretion to remit the penalties under section 298-20(1) of Schedule 1 of the TAA should be exercised in his favour.
APPLICANT’S CONTENTIONS

The Applicant’s written submissions contend that he should not be liable for shortfall penalties in relation to the Relevant Years on the basis that he says he worked with the Respondent to lodge his outstanding income tax returns, did everything he was told to do and was advised that he would not be subject to penalties, fees or charges.[38]
[38] Exhibit 3, Applicant’s Summary of Event and Reasons on why the penalties should be removed documents and Exhibit 7, Applicant’s Outline of Submissions.
It is clear from the Applicant’s submissions that he is dissatisfied with the conduct of the Respondent’s officers throughout the audit and objection processes. The Applicant raised concerns with regards to the time taken to process his income tax returns once they were lodged.[39]
[39] Exhibit 3, Applicant’s Summary of Event and Reasons on why the penalties should be removed documents and Exhibit 7, Applicant’s Outline of Submissions.
The Applicant submitted:[40]
All care was taken by the applicant in their power to do what was asked and was needed by the ATO the applicant cant help natural disaster and the ATO lengthy processing times. As this was outside the normal parameters and exceptional circumstances this should have been appointed to 1 case officer from start to finish and would have been finalised in an appropriate time frame and therefore it would have not ended up here or with the penalties being applied in correctly.
[40] Exhibit 7, Applicant’s Outline of Submissions.
At the Hearing, the Applicant told the Tribunal:
·     There was a clear understanding between him and the Respondent’s officers when he started to work with them to lodge his outstanding income tax returns that there would be no fees, penalties or charges imposed on him.
·     He reiterated and confirmed that understanding on the phone.
·     He is not disputing the amendments to his income tax returns for the Relevant Period as he accepts that records got damaged so he could only claim deductions for what he had at the time.
·     He disputes the shortfall penalties.
·     He followed what was requested of him by the Respondent’s officers.
·     What he wants is to have the shortfall penalty remitted and his tax refunds come back to him.
·     That the Respondent had said it would take 55 days to process his tax returns and it took almost a year and only got done because he lodged a complaint.
·     That in 2021 when he lodged his income tax returns for the Relevant Years he had all of the documents stored in his shed and lost them when the shed flooded.
·     The documents he had been able to provide are all he has and they were stored in a different place.
·     When asked about his deduction claim with regards to costs of managing his tax affairs for each of the Relevant Years in circumstances where he did not lodge his returns, that he got the advice and half-heartedly started his returns but gave up.
·     His claim for gifts and donations were a misunderstanding on his behalf and after talking to the Respondent’s officers during the informal review process he understood that he could not claim the amounts he had donated to his church without a receipt.
·     When asked if he was aware during the Relevant Years that in order to claim a tax deduction he needed to keep receipts, that he was aware and had receipts for all of his claims, but some had faded so he had them noted down.
·     His intention was to work through his outstanding income tax returns with the Respondent.
·     He wanted to clear up his outstanding matters with the ATO so that he could clear up his outstanding issues in relation to child support. He had wanted his tax refunds to be applied to his child support debt.
·     The shortfall penalties should be remitted as the Respondent made a series of mistakes and did not act in accordance with their policies and procedures that are in place to work with taxpayers.
·     That if the Respondent’s officers provided incorrect advice with regards to penalties, fees or charges he should not be punished for that. The Respondent should have to honour the advice, he believes they are legally bound to do so.
·     He believes that the shortfall penalties were imposed because he had a disagreement with one of the Respondent’s officers.
·     All information he has given to the Respondent has been true and correct, he had not made a false or misleading statement.
·     If the Respondent had of completed everything in 55 days from lodgement as promised then he would have had all the required documents. Losing the information was out of his control.
·     As there was an adjustment to the shortfall penalties for two of the years this shows that he had taken reasonable care, so he does not understand why there still a shortfall penalty for those years at all.
·     He has been forthcoming and honest and has taken reasonable care, losing his documents in a natural disaster was out of his control.
·     It is not reasonable what he has had to endure throughout the ATO process.
On cross-examination, the Applicant:
·     When asked about his claims for the costs of managing his tax affairs during the Relevant Years, said, that he did have the invoices and receipts for each year and because he cannot provide them, he accepts that he cannot claim a deduction for them and they have been removed.
·     When put to him that there was no evidence to support why he had some documents and not others, said some were kept in the house.
·     Confirmed that his evidence was that he had all receipts for the costs of managing his tax affairs for each of the Relevant Years available to him when he lodged his income tax returns but then did not have them available at audit.
·     When asked how the ATO could say there would be no shortfall penalties before he had lodged his income tax returns, said, that is what one of the Respondent’s officers had said and they are legally bound by it.
·     Said that if the Respondent’s officers are giving false and misleading information and the Respondent must deal with that.
RESPONDENT’S CONTENTIONS
The Respondent contended that:[41]
28.1. the Applicant is liable to the administrative penalties for the Relevant Years as the Applicant made statements to the Respondent which were false or misleading due to understating his taxable income by over-claiming deductions and losses for the Relevant Years;
28.2. the Applicant’s understatement of his taxable income resulted in shortfall amounts for the Relevant Years;
28.3. the base penalty amount is 25% of the relevant shortfall amount as the behaviour giving rise to the shortfall is best characterised as a failure to take reasonable care; and
28.4. the Applicant has not discharged his onus to establish that he should not be liable for administrative penalties for the Relevant Years.
[41] Exhibit 4, Respondent’s Statement of Facts, Issues and Contentions, page 5, paragraph 28.
The Respondent further contended that:[42]
·     The references made by the Applicant to having been told that penalties would not apply relate to the failure to lodge penalties which were remitted.
·     The Respondent did not instruct the Applicant what deductions or losses to claim in his income tax returns.
·     The Respondent did not give any assurance that the shortfall penalties would not be imposed, and could not have, as their imposition was conditional upon consideration of the statements made in the income tax returns and the characterisation of the behaviour giving rise to the shortfall amounts.
·     The Applicant has not explained in a level of detail which would assist the Tribunal, why his circumstances are unique and why they warrant remission of the shortfall penalties.
[42]    Exhibit 4, Respondent’s Statement of Facts, Issues and Contentions, pages 5-6, paragraphs 29-31.
The Respondent contended that in considering whether the Applicant took reasonable care, the Tribunal should have regard to:[43]
[43] Exhibit 5, Respondent’s Outline of Submissions, pages 5-6, paragraphs 25-32.
25.Although degrees of familiarity with taxation laws vary from person to person, it is effectively universal knowledge that in order to claim substantial deductions, a person must ordinarily possess an invoice or similar substantiating document.
26.The tax returns in question were lodged in June and December of 2021. The Respondent’s audit commenced in February 2022. Despite the relatively short time prior to the commencement of the audit, no substantiating documents have been produced for the disallowed deductions and loss.
27.The Applicant alleges that some documents were lost due to a natural disaster, though this allegation does not appear to have been raised during the audit and is lacking in detail. Certainly, some documents survived the event, in relation to which claims have been allowed.
28.The Commissioner submits that, for certain categories of deduction, it is more likely than not that the Applicant did not actually possess a substantiating document at the time of lodgement.
29.By way of example, the Applicant claimed $26,169 in deductions for charitable donations across the Relevant Years, allegedly for weekly donations to his church. The Respondent submits that, even if the alleged donations were made, it is likely the Applicant held no evidence of them at the time of lodgement and further notes that the Applicant would only have been entitled to a deduction if his church was a deductible gift recipient.
30.The Respondent submits a similar conclusion can be reached in relation to the Applicant’s claim for the cost of alleged tax advice across the Relevant Years. In circumstances where the returns were not lodged until 2021 and were seemingly prepared by the Applicant himself, it would be reasonable for the Tribunal to conclude (absent cogent evidence) that the Applicant could not substantiate those claims at the time of lodgement.
31.These examples, together with the other categories of disallowed deductions and the overwhelming absence of contemporaneous evidence more broadly, make it tolerably plain that the Applicant claimed deductions without substantiating documents.
32.The Respondent respectfully submits that a reasonable person of ordinary prudence would not have claimed the deductions and loss in question, and consequently, the Applicant failed to exercise reasonable care in the circumstances.
[Footnotes omitted]
At the Hearing the Respondent confirmed the contentions set out above and further contended that the Applicant had not provided any evidence that the imposition of the shortfall penalty in the Relevant Years was an unintended or unjust result.
CONSIDERATION
The penalty provisions of the TAA 1953 aim to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care, or not making a reasonable effort to comply correctly with their reporting obligations.[44] This is especially relevant and important in a self-assessment taxation system.
[44] PSLA 2012/5, page 1, paragraph 3A.
The Applicant made statements to the Respondent in lodging his income tax returns for the Relevant Years. Those statements in relation to claimed deductions and carry forward business losses were material particulars as they affected a decision regarding the calculation of his tax related liability.
The Tribunal acknowledges that the Applicant contended that his work-related deductions were properly claimed however he no longer held the required receipts or supporting documents due to matters outside his control.
The Tribunal, however, does not accept that contention. At the Hearing the Applicant told the Tribunal that at the time of lodging his income tax returns for the Relevant Years that he held all required supporting documents to claim the deductions he sought to claim. The Applicant later told the Tribunal that some of those documents were faded and he had kept a note of them. The Applicant also said that he made donations to his church and mistakenly thought they were deductible, he acknowledged that the church did not and does not provide receipts. While the Tribunal accepts that the Applicant may have lost some records in a flood in his shed, he did not provide any corroborating evidence of that event or of the note book in which he says he kept notes regarding all of his claimed deductions. It does not make sense to the Tribunal that the Applicant sought tax advice in each of the Relevant Years from a tax professional however then did not lodge his income tax return each year.
Based on the evidence before it, the Tribunal considers that the Applicant’s claims for deductions in relation to gifts and donations, costs of managing taxation affairs and other disallowed deductions and disallowed losses cannot be considered to be anything other than false statements as they are contrary to fact. The claimed expenses and losses cannot be deductible in circumstances where they cannot be substantiated, are likely to not be deductible (in the instance of weekly donations at church) and it is unclear whether they have been incurred.
The Tribunal is mindful that a finding that the Applicant had made a false statement in relation to material particulars in his income tax returns for the Relevant Years does not in of itself lead to a finding that he did not take reasonable care.
The Tribunal asked the Applicant whether he was aware during the Relevant Years and at the time of lodging his income tax returns that in order to claim deductions he was required to substantiate them and he said he was. The Tribunal considers that the Applicant did not approach the lodgement of his income tax returns for the Relevant Years with the same amount of caution and attention of a reasonable person in his situation. The Applicant has asked the Tribunal to accept that he had all required documents at the time of lodgement but not at the time of audit. The Tribunal does not consider the Applicant to be a creditable witness in this regard. The Tribunal notes that the Applicant conceded that some documents were faded at time of lodgement, that his church did not provide receipts and did not provide responses to the Respondent’s requests for explanation with regards to how the claimed deductions related to his income earning activity. The Tribunal considers that a reasonable person in the Applicant’s situation would have taken more care in attending to their taxation affairs.
The onus is on the Applicant to prove that the assessment of shortfall penalty for the Relevant Years was excessive or otherwise incorrect. As such it is up to the Applicant to satisfy the Tribunal that he had not made false statements to the Respondent in relation to material particulars and had acted with reasonable care.
The Tribunal having considered all of the evidence before it is not satisfied that the Applicant has advanced any arguments that support his contention that he did not provide any false statements and took reasonable care in completing his income tax returns for the Relevant Years. This is especially the case where the Applicant has not provided any evidence to corroborate his submissions about faded invoices, a flooded shed and destroyed documents. Such evidence could have been in the form of photographs and production of the notebook to which he refers.
Consequently, the Tribunal finds that no exemption applies to the operation of section

284-85(1) of Schedule 1 of the TAA 1953. As a result the Tribunal is satisfied that the shortfall penalties as set out in the Assessments of Shortfall Penalty issued to the Applicant for the Relevant Years were properly imposed.
In considering whether it is appropriate to exercise the discretion in section 298-20(1) of Schedule 1 to the TAA 1953 to remit the shortfall penalties imposed for the Relevant Years the Tribunal is drawn back to the intention of the penalty provisions outlined in the TAA 1953.
The Applicant’s main contention as to why he says the discretion should be exercised in his favour is because he says he was told that in working with the Respondent to lodge his outstanding income tax returns that there would be no fees, penalties or charges.
The evidence provided by the parties in relation to their interactions do not give any indication that the comments made by the Respondent’s officers related to penalties other than failure to lodge penalties.[45] The failure to lodge penalties were remitted by the Respondent. The Respondent’s case notes for 10 December 2021 indicate that upon remittance of those penalties, the Applicant then agreed to lodge the further outstanding income tax returns for the income tax years ended 30 June 2016, 30 June 2018 and

30 June 2021.[46]
[45] Exhibit 3, Email trails provided by the Applicant and Exhibit 6, Respondent’s Case Note Report Bundle.
[46] Exhibit 6, Respondent’s Case Note Report Bundle.
The Applicant also contended that the length of time between the lodgement of his income tax returns for the Relevant Years and the commencement of the audit together with his experiences with the Respondent throughout the audit and objection processes lead to special circumstances.
While not trivialising the Applicant’s dissatisfaction with his interactions with and actions of the Respondent’s officers, the Tribunal has no jurisdiction with regards to the conduct of the Respondent’s officers and is limited to considering the evidence before it in accordance with the applicable law. The Tribunal does not consider the matters raised by the Applicant in this regard when looked at wholistically with the evidence before it, establishes any positive basis to exercise the discretion to remit the shortfall penalty imposed for the Relevant Years.
The onus is on the Applicant to prove that the decision made not to remit the shortfall penalty imposed for the Relevant Years was incorrect and should be made differently. The Tribunal considers that the Applicant did not discharge his burden in that regard. The Tribunal considers that the Applicant did not provide any evidence in relation to the imposition of the shortfall penalty for the Relevant Years as having an unintended or unjust result. As such the Tribunal does not consider that there is just cause, given the underlying intention of the penalty provisions for it to remit the shortfall penalty imposed for the Relevant Years.
Based on the information before it, the Tribunal is not satisfied that the discretion to remit the administrative penalty (being the shortfall penalty imposed for the Relevant Years) in part or in full should be exercised.
CONCLUSION
For the reasons set out above, the Tribunal finds that the:
(a)
Applicant has not discharged his onus to prove that the assessment of shortfall penalties for the income tax years ended 30 June 2008 to 30 June 2015 and

30 June 2018 are excessive or otherwise incorrect.
(b)
shortfall penalties imposed pursuant to sections 284-75(1) of Schedule 1 to the TAA 1953 for the income tax years ended 30 June 2008 to 30 June 2015 and

30 June 2018 was correctly imposed.
(c)Applicant has not discharged his onus to prove that the decision not to exercise the discretion in section 298-20 of Schedule 1 to the TAA 1953 was in relation to the remission of the shortfall penalties should have been made different.
Accordingly, the decision under review is affirmed.

I certify that the preceding 66 (sixty-six) paragraphs are a true copy of the reasons for the decision herein of Member D Mitchell

...........................[SGD]..........................
Associate
Dated: 17 July 2023

Date of hearing: 7 July 2023

Applicant: By MS Teams

Solicitors for the Respondent: Ms C Maxia
Mr A Dekkers

Australian Taxation Office

[2023] AATA 2067

17 July 2023

Key Legal Topics

Areas of Law

Tax Law

Administrative Law

Legal Concepts

Statutory Construction

Remedies

Procedural Fairness

Standing

Appeal

Income Year	Income tax shortfall	Penalty Assessment
2008	$1,618.16	$404.54
2009	$1,383.79	$345.90
2010	$2,213.19	$553.25
2011	$4,681.60	$1,170.40
2012	$2,881.78	$720.40
2013	$2,493.03	$623.25
2014	$2,852.25	$713.05
2015	$1,670.84	$417.70
2018	$9,772.11	$2,443.00

Date of hearing:	7 July 2023
Applicant:	By MS Teams
Solicitors for the Respondent:	Ms C Maxia Mr A Dekkers
Australian Taxation Office