Hudson v Commissioner of Taxation

Hudson (the taxpayer) appealed to the Full Federal Court against a decision of a single judge of that court, which had affirmed the Commissioner of Taxation's assessment of a shortfall penalty. The dispute concerned the application of a penalty under s 284-75 of Schedule 1 to the *Taxation Administration Act 1953* (Cth) (TAA) for a shortfall in the taxpayer's income tax liability for the 2017 income year. The Commissioner had imposed the penalty on the basis that the taxpayer had failed to take reasonable care in working out their liability, and the taxpayer contended that the Commissioner had not discharged the onus of proof resting upon them to establish the elements of the offence.

The central legal issue before the Full Federal Court was whether the Commissioner had satisfied the onus of proof required to establish that the taxpayer had failed to take reasonable care in relation to their tax return. Specifically, the court had to consider the meaning of "reasonable care" in the context of s 284-75 of the TAA and whether the evidence presented by the Commissioner was sufficient to demonstrate that the taxpayer's conduct fell short of that standard.

The Full Federal Court held that the Commissioner had discharged the onus of proof. The court reasoned that the taxpayer's failure to disclose a significant capital gain, which was readily ascertainable from documents in their possession, demonstrated a lack of reasonable care. The court emphasised that "reasonable care" requires a taxpayer to make a genuine and honest attempt to understand and comply with their tax obligations, and that the taxpayer's actions in this instance fell below that standard. The appeal was dismissed.