JG and JA Williamson Holdings Pty Ltd as Trustee of John Williamson Family Trust and Commissioner of Taxation

[2007] AATA 1344

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1344

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No TT200600004-5

TAXATION        APPEALS        DIVISION		)
Re		J.G. AND J.A. WILLIAMSON HOLDINGS PTY LTD as Trustee of JOHN WILLIAMSON FAMILY TRUST

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Senior Member B.H. Pascoe

Date21 May 2007

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) Senior Member

GOODS AND SERVICES TAX – administrative penalty – shortfall ‑ input credit claims on purchase of real estate – acquisition under margin scheme – whether reasonable care

Taxation Administration Act 1953,  Schedule 1

REASONS FOR DECISION

21 May 2007 Senior Member B.H. Pascoe        

1.      This is an application to review a decision of the Commissioner of Taxation (the respondent), to disallow an objection against the assessment of an administrative penalty on a shortfall of Goods and Services Tax (GST) for the quarters ended 30 June 2005 and 30 September 2005.  Initially the penalty was assessed at 25 per cent of the shortfall but reduced to 20 per cent in the decision on the objection as a result of the voluntary disclosure.

2.      At the hearing the applicant, J.G. and J.A. Williamson Holdings Pty Ltd as trustee for the John Williamson Family Trust (Williamson Trust), was represented by Mr D. Hindle, an accountant.  The respondent was represented by Mr I. Bolonja an officer of the respondent.  Evidence was given by Mrs J. Williamson, a director of the trustee company.

3.      The basic facts were not in dispute.  The Williamson Trust was registered for GST purposes from 1 October 2002 after it acquired a farming property and commenced a farming business.  Business Activity Statements (BAS) were lodged on a quarterly basis.  They were prepared by Mrs Williamson and given to Mr Hindle, the tax agent for lodgement.  On 10 May 2005 the trustee entered into a contract to purchase a property in Kalimna, Victoria.  The price was specified in the contract as $450,500 plus any GST.  A deposit of $45,050 was paid on the signing of the contract.  Settlement occurred on 26 July 2005 with balance payable being $431,329 including adjustments.  One of those adjustments was $25,050 shown as GST on purchase price.  A tax invoice for $25,050 GST was provided by the vendor and dated 25 July 2005 although it is not clear when it was given to the purchaser.  Mrs Williamson recalled seeing that document but not the time when she first saw it.

4.      In the BAS for the quarter ended 30 June 2005, an input credit of $4,095 was claimed referable to the deposit paid in that quarter.  In the BAS for the quarter ended 30 September 2005 an input credit of $39,184 referable to the balance of the purchase price was claimed.  Mrs Williamson said that the property had been purchased for development and sale and she assumed that one-eleventh of the amount paid was claimable as a GST input credit on her understanding that the amount was inclusive of GST.  She said that it was the first such development project they had undertaken.

5.      On 14 November 2005, the respondent notified the tax agent, Mr Hindle, that the Williamson Trust had been selected for review of the June and September 2005 BAS.  On 15 November 2005, Mr Hindle sent to the respondent the details of the BAS and a copy of the contract of sale.  On 23 November 2005, the applicant was requested to provide tax invoices to verify the input tax credit claimed.  By letter of 24 November 2005, Mr Hindle advised that the property had been acquired under the margin scheme and no input credit was claimable.  He requested an amendment to the September BAS to exclude the input credit claimed in relation to that purchase.  On 8 December 2005 assessments in relation to the June and September 2005 quarters were issued.  In addition to the adjustment totalling $43,279 relating to the property purchase, a further adjustment of $545 was made for unrelated issues.  A shortfall penalty of $10,956 being 25 per cent of the total adjustment was assessed.  On objection, the respondent reduced the penalty relevant to the property purchase by $2,164 or 20 per cent of the original penalty on the basis that the shortfall was voluntarily disclosed.

6. Section 284-75(1) of the Schedule 1 to the Taxation Administration Act 1953 (the TAA Act) provides:

You are liable to an administrative penalty if:

(a)you or your agent makes 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; and

(c)you have a *shortfall amount as a result of the statement.

Item 3 of s 284-90(1) imposes a base penalty amount of 25 per cent of the shortfall amount which resulted from the failure of the taxpayer or the tax agent to take reasonable care to comply with a taxation law.  Under s 284-225(1) the penalty is reduced by 20 per cent where, after the Commissioner advises that an audit is to be conducted, a voluntary disclosure of the shortfall is made and that disclosure can reasonably be estimated to have saved the Commissioner a significant amount of time or resources in the audit.

7. It was submitted for the applicant that Mrs Williamson who prepared the relevant BAS had no accounting or taxation experience and no knowledge of GST on real estate, particularly margin schemes. It was acknowledged that, in hindsight, it may have been appropriate to have made enquiries prior to finalising the BAS. In the circumstances, Mr Hindle submitted that the penalty was harsh in the circumstances and further reduction of the penalty under the discretion contained in s 298.20 of the Schedule 1 to the TAA Act should be given.

8.      For the respondent it was submitted that an ordinary prudent person with the experience, knowledge and skill of the applicant would have been aware that a tax invoice is a necessary prerequisite for claiming a GST input credit, would have questioned a tax invoice and settlement statement showing GST as an amount well below 10 per cent of the purchase price and, in a first transaction involving a large outlay on real estate, made appropriate enquiries prior to completing the BAS.

9.      It may be readily accepted that Mrs Williamson had, in common with many others, a lack of understanding of the implications of the margin scheme in relation to transaction in real estate.  I accept, also, her evidence that this was the first purchase of real estate for development.  However, several significant errors occurred.  The first was the claiming of input credits without having the necessary tax invoice.  The second was claiming an input credit in the June 2005 BAS in relation to the deposit paid in that quarter.  The next error was claiming an input credit in the September quarter well in excess of the amount shown as GST in both the tax invoice and the settlement statement.  Finally, there was a claim to which the applicant had no entitlement as a result of the property being acquired under the margin scheme.

10.     Reasonable care is not defined in the legislation, but the Explanatory Memorandum when these penalty provisions were introduced into the legislation and decisions of this Tribunal and the Courts make it clear that the care required is that which a reasonably prudent person with the taxpayer’s knowledge, education, experience and skill would take.  Here, Mrs Williamson had been preparing BAS for well over two years.  While the purchase of the real estate may have been a new type of transaction, she would have been expected to understand and have relied upon tax invoices.  It may be that the claiming of an input credit on the deposit without a tax invoice could be explained by lack of knowledge or experience.  The subsequent claim in the September quarter when in possession of a tax invoice for a lesser amount cannot be so explained.  It would be expected that the combination of the purchase contract, the settlement statement and the tax invoice would have readily alerted a prudent person to, at least, make appropriate enquiries.  The failure to do so is, in my view, a clear failure to take reasonable care.  Both Mrs Williamson in her evidence and Mr Hindle in his submission acknowledged that, in retrospect, advice should have been sought.  The additional amount claimed by the vendor for GST and stated in the tax invoice was clearly less than the amounts claimed as input credits.  It is noticeable that, immediately the respondent requested tax invoices, Mr Hindle recognised that no input credit was claimable.  It cannot be accepted that reasonable care was taken when the input credit was claimed without reference to the documentation relating to the transaction and any enquiry being made.

11.     In these circumstances the decision under review should be affirmed.

I certify that the eleven [11] preceding paragraphs are a true copy of the reasons for the decision herein of

Mr B.H. Pascoe, Senior Member

Signed:          Dianne Eva

Clerk

Date of Hearing:  9 May 2007
Date of Decision:  21 May 2007
Advocate for the applicant           Mr David Hindle, David Hindle & Associates 
Advocate for the respondent        Mr Ivica Bolonja, ATO Legal Services Branch