Ljiljana Coshott and Commissioner of Taxation
[2014] AATA 622
[2014] AATA 622
Division TAXATION APPEALS DIVISION File Number
2013/3778
Re
Ljiljana Coshott
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Professor R Deutsch, Deputy President
Date 2 September 2014 Place Sydney The Objection Decision under review is affirmed.
........................[sgd]................................................
Professor R Deutsch, Deputy President
CATCHWORDS
TAXATION – income tax – whether capital gains tax event occurred from a deed of settlement – what are the capital proceeds of CGT event – cost base of CGT asset – taxpayer bears burden of proof – record keeping – penalty assessments – appropriate penalty – meaning of recklessness – objection decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth), s 6-5, Pt3-1, ss 102-23, 104-25, 108-5, 110-25, 110-35, 110-45, 115-5, 116-20, 116-40, 104-25, s 121-20, Pt 3-3
Taxation Administration Act 1953 (Cth), s 14ZZK, Sch 1, ss 284-75
CASES
ANZ Savings Bank Ltd v FCT 94 ATC 4844
Carborundum Realty Pty Limited v RAIA Architecture Pty Limited 93 ATC 4418
Coshott v Barry [2012] NSWSC 850
FCT v Dalco (1990) 168 CLR 164
RV Investments (Aust) Pty Ltd as trustee for the RV Unit TrustTuite v Exelby 93 ATC 4293
REASONS FOR DECISION
Professor R Deutsch, Deputy President
2 September 2014
WHAT THIS CASE IS ABOUT
This matter broadly raises two key issues namely:
·Does a capital gain arise from the receipt by a taxpayer of a sum of money which is in settlement of a claim by the taxpayer seeking damages for negligence and breach of contract? and
·If a capital gain did so arise and was not disclosed in the taxpayer’s relevant tax return what is the appropriate penalty that should apply?
BACKGROUND FACTS
In 2000 Mrs Coshott, (‘the Applicant’) and her husband, Mr Robert Coshott jointly commenced proceedings against Mr George Vardas in the District Court of New South Wales.
Those proceedings were transferred by consent to the Supreme Court of New South Wales in 2002.
In August 2004, an Amended Statement of Claim (‘ASOC’) was filed in those proceedings by the Applicant and Mr Coshott.
Broadly, the Amended Statement of Claim alleged the following:
(a)that prior to 30 June 1991, the Applicant and Mr Coshott were profit sharing partners in Coshott Legal Practice, conducted at Double Bay;
(b)that in or around May 1991 Mr Coshott met with Mr Vardas, a solicitor trading as Gunn Hamilton & Blay, to discuss Mr Coshott’s proposed retirement and the future conduct by Mr Vardas of various matters on behalf of the Applicant and Mr Coshott;
(c)that in the period from on or about 30 June 1991, Mr Coshott and/or the Applicant entered into separate retainers (‘the Retainers’) with Mr Vardas regarding:
(i)the transfer of various client matters of the Coshott Legal Practice to Mr Vardas;
(ii)Mr Vardas acting, on a contingency basis or otherwise, in debt recovery matters against various former clients of the Coshott Legal Practice;
(iii)Mr Vardas acting for the Applicant and Mr Coshott in various personal matters.
(d)that, in relation to over 200 separate matters falling into one or more of the above categories, Mr Vardas breached duties owed under the Retainers, duties owed in tort and fiduciary duties;
(e)that Mr Vardas was liable to the Applicant and Mr Coshott to pay damages for negligence, damages for breach of contract and equitable compensation.
Mr Vardas was indemnified by LawCover in respect of the claims in the Supreme Court proceedings under a policy of professional indemnity insurance.
By deed dated 6 September 2007 the Supreme Court proceedings were settled (‘the Settlement Deed’).
The relevant material terms of the Settlement Deed were as follows:
(a)At clause 3.1, Mr Vardas agreed to pay the Applicant and Mr Coshott an amount of $700,000.
(b)The effect of clause 4 of the Settlement Deed was, inter alia, that in consideration for the payment of $700,000 under clause 3, the Applicant and Mr Coshott released Mr Vardas from all of the claims in the ASOC.
The Settlement Deed did not set out any basis for apportioning the $700,000 amongst the claims in the ASOC. There is no material available which would indicate how the sum of $700,000 was calculated, or which would provide any basis for apportioning it amongst the claims in the ASOC.
The Applicant received a cheque for $350,000 from LawCover dated 4 September 2007,.
There is nothing to indicate what directions were given to Mr Vardas or LawCover by the Applicant and/or Mr Coshott regarding payments made under the Settlement Deed or what arrangements were made between the Applicant and Mr Coshott in relation to how the $700,000 payable under the Settlement Deed was to be apportioned between them.
The Applicant has provided invoices to the total of about $630,000 which are claimed by her to relate to the Supreme Court proceedings. There is nothing to indicate whether, or to what extent, any of these invoices have been paid by her or at all, and of whether, or to what extent, she has any liability for the claims for costs that are the subject of these invoices.
In Coshott v Barry [2012] NSWSC 850, McCallum J found at [2] that “most” of the costs charged by a firm known as CKB Partners,(a firm retained by Mrs and Mr Coshott, to provide legal services in a series of different matters) remained unpaid. His Honour determined at [53] that the claims of CKB Partners to enforce 4 of 6 costs certificates obtained in respect of those costs were statute barred. It is not apparent whether, or to what extent, the costs the subject of McCallum J’s decision related to the substantive Supreme Court proceedings.
On 11 October 2012, the Commissioner wrote to the Applicant in a ‘Default Assessment Warning’ letter informing her that a default assessment may be issued if she failed to lodge a return for the 2008 income year.
On 26 October 2012 the Applicant lodged an income tax return for the 2008 income year, in which she returned no assessable income.
On 7 March 2013 the Commissioner issued a notice of assessment, assessing the Applicant to tax in the amount of $153,583. That amount was calculated on the basis that the Applicant had a taxable income of $366,280, being:
(a)a net capital gain of $350,000; and
(b)interest in the amount of $16,280.
On 7 March 2013 the Commissioner issued a notice of assessment for shortfall penalty for the 2008 income year in the amount of $76,791.50, pursuant to s 284-75 of Schedule 1 of the Taxation Administration Act 1953 (‘TAA’).
The Applicant lodged an objection to the above assessments on 25 March 2013.
On 21 June 2013, the Commissioner allowed the above objections in part and in particular decided to:
(a)reduce the amount assessed as a capital gain by 50% (that is reduced from $350,000 to $175,000) on the basis that it was a discount capital gain within the meaning of s 115-5 of the Income Tax Assessment Act 1997 (‘ITAA 1997’); and
(b)reduce the administrative penalty and General Interest Charge (‘GIC’) accordingly.
On 2 August 2013 the Applicant lodged an application for review of the Commissioner’s objection decision.
ISSUES
The issue in the proceedings is whether the Applicant can discharge her onus to show that the amended assessment was excessive. The questions that arise are:
(i)Whether, upon the execution of the Settlement Deed, CGT event C2 occurred in relation to each of the causes of action the subject of the ASOC?
(ii)If so, what capital proceeds were received by the Applicant in respect of each of those CGT events, (including whether the Applicant can establish how much of the $350,000 she received was reasonably attributable to each event for the purposes of subsections 116-40(1) or 116-40(2) of ITAA 1997)?
(iii)What, if anything, was the cost base of each of the CGT assets released upon execution of the Settlement Deed?
(iv)Whether, if the $350,000 is not assessable as a capital gain, it is assessable as ordinary income under s 6-5 of ITAA 1997?
(v)Whether the penalty imposed is correct or should be remitted either wholly or in part?
In relation to this last issue, prior to the hearing, the Applicant had indicated that she does not object to the imposition of administrative penalties except on the basis that the Respondent was incorrect to assess her to tax on the $350,000 payment. The Respondent accepted that if he was incorrect in assessing the Applicant to tax on some or all of this amount, then the administrative penalty imposed should be reduced accordingly.
At the hearing the Applicant, through her representatives, indicated that she no longer adopts that position and that she formally objects to the imposition of the penalty and is seeking to have it remitted in whole or in part.
APPLICANT’S CONTENTIONS
In relation to issue (i), the Applicant contends that damages by definition cannot be a capital gain since the purpose of damages is to return the plaintiff to his or her pre-damage position. Thus, the damages cannot be a profit or a gain.
In relation to issue (ii), the Applicant contends that this is only relevant if she is found to be incorrect in respect of issue (i). If that is the case, the Applicant appears to concede that the full amount received is capital proceeds.
In relation to issue (iii) the Applicant contends that the full amount of the legal costs incurred in prosecuting the proceedings should be deducted from the amount received in order to ascertain the capital gain. The total legal costs were (at least) $630,612.72 which if allocated on a 50/50 basis between the Applicant and her husband (who is not a party to these proceedings) would amount to costs of $315,306.36 and would result in a taxable capital gain of no more than $34,697.64.
In relation to issue (iv), the Applicant made no contentions.
In relation to issue (v), the Applicant contends that the penalty should be either remitted in full or reduced to 25% based on lack of reasonable care rather than recklessness.
RESPONDENT’S CONTENTIONS
In relation to issue (i), the Commissioner contends:
(a)that each of the causes of action pleaded against Mr Vardas in the ASOC were CGT assets within the meaning of s 108-5(1) ITAA 1997; and
(b)that upon execution of the Settlement Deed, the causes of action pleaded against Mr Vardas in the ASOC were released, within the meaning of s 104-25(1) ITAA 1997, and CGT event C2 occurred in relation to each of those causes of action.
In relation to issue (ii), the Commissioner contends that the capital proceeds received by the Applicant in respect of all of the CGT events was $350,000. The Applicant has not established any reasonable basis to apportion the sum of $350,000 as between each of the CGT events, or as between CGT events and other events or other transactions.
In relation to issue (iii), the Commissioner contends that the Applicant has not established that the CGT assets constituted by the causes of action in the ASOC had any cost base within the meaning of Division 110 of ITAA 1997. The Applicant has not established that she has incurred any of the costs the subject of invoices provided to the Commissioner, or provided any basis for apportioning the sums the subject of those invoices as amongst the CGT assets in question.
In relation to issue (iv), the Commissioner contends that even if the Applicant’s contentions that the payment does not give rise to a capital gain are accepted, she has nonetheless failed to establish that the $350,000 was not in these circumstances assessable as income according to ordinary principles.
In relation to issue (v), the Commissioner contends that the penalty of 50% based on recklessness was correct.
THE TRIBUNAL’S REASONING
I will now consider these issues sequentially.
CGT event
The first issue to consider is whether there was a CGT event arising from the execution of the Settlement Deed.
In considering this issue the ITAA 1997 requires consideration to be given to a series of possible CGT events and settle upon that which is most specific to the circumstances in the case where two or more CGT events may apply.
In this case it would appear that CGT event C2 is most directly relevant.
At the relevant time, that is in the 2008 income year, s 104-25 was in the following terms:
104-25 Cancellation, surrender and similar endings: CGT event C2
(1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset:
(a) being redeemed or cancelled; or
(b) being released, discharged or satisfied; or
(c) expiring; or
(d) being abandoned, surrendered or forfeited; or
(e) if the asset is an option—being exercised; or
(f) if the asset is a *convertible interest—being converted.
(2) The time of the event is:
(a) when you enter into the contract that results in the asset ending; or
(b) if there is no contract—when the asset ends.
(3) You make a capital gain if the *capital proceeds from the ending are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.
Note: The capital proceeds referred to in this subsection are reduced if the gain or loss was for shares and an amount was taken into account as a capital gain for the shares under former section 160ZL of the Income Tax Assessment Act 1936 for the 1997D98 income year or an earlier income year: see section 104Q25 of the Income Tax (Transitional Provisions) Act 1997.
(4) A lease is taken to have expired even if it is extended or renewed.
Exceptions
(5) A *capital gain or *capital loss you make is disregarded if:
(a) you *acquired the asset before 20 September 1985; or
(b) for a lease that you granted:
(i) it was granted before that day; or
(ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day...
The causes of action pleaded by the Applicant and her husband against Mr Vardas in the Amended Statement of Claim were CGT assets within the meaning of s 108-5(1) ITAA 1997. They were either a kind of property for the purposes of s 108-5(1)(a) or, alternatively, legal or equitable rights that were not property for the purposes of s 108-5(1)(b) ITAA 1997.
At the time that the Applicant and her husband executed the Deed of Settlement, the causes of action pleaded against Mr Vardas were released, in particular by operation of clauses 3 and 4 of the Deed. CGT event C2 happened because the CGT assets (being the causes of action or "choses in action") ended by release, discharge or satisfaction or by being surrendered pursuant to s 104-25(1).
The time of the CGT event was 6 September 2007, being the time that the Applicant first entered into the Settlement Deed (pursuant to s 104-25(2)). It is common ground that this occurred in the 2008 income year.
Pursuant to s 104-25(3) the Applicant made a capital gain in the 2008 income year to the extent that the capital proceeds she received from the end of the CGT assets was more than their cost base.
In submissions and at the hearing the Applicant, through her representative, sought to argue that there is some broader legal principle that ‘damages cannot, by definition, be a capital gain’.
However, there does not appear to be such a broad principle in operation and certainly since the introduction of taxes on capital gains in Australia, it is entirely possible for damages received by way of settlement of a claim to be treated as a capital gain after appropriate adjustment is made for any costs that can be used to reduce that amount under the relevant statutory formulation provided in the legislation. This is clear from some of the decided authorities (see for example Tuite v Exelby 93 ATC 4293 and Carborundum Realty Pty Limited v RAIA Architecture Pty Limited 93 ATC 4418). The Commissioner of Taxation has also considered a number of issues in relation to the circumstances in which damages can amount to a capital gain in Ruling TR 95/35.
Thus, it seems clear that no such broad principle currently exists having regard in particular to the statutory rules now found in Parts 3-1 and 3-3 of ITAA 1997.
The relevant capital proceeds
The second issue concerns the question as to what amounts to the capital proceeds in respect of the identified CGT event.
The available evidence (see in particular T5-236 and T5-237) indicates that the capital proceeds received by the Applicant was in the amount of $350,000. This was money that the Applicant received in respect of CGT event C2 happening and thus constituted capital proceeds pursuant to s 116-20(1)(a) ITAA 1997.
It remains unclear from the evidence as to precisely why the Applicant received an amount of $350,000 from LawCover whereas Mr Coshott received a lesser amount of $325,000.
Whether there was any cost base and, if so, the quantum of the cost base
The third issue concerns the question as to the cost base of a CGT asset. This must inevitably be calculated in accordance with Subdivision 110-A of the ITAA 1997.
Broadly the cost base consists of five separate elements and a taxpayer is required to keep records of each element pursuant to the requirements of Division 121 ITAA 1997. Specifically, a taxpayer is required to keep written records of every act, transaction, event or circumstance that can be reasonably expected to be relevant to working out whether it has made a capital gain or loss from a CGT event (s 121-20(1) ITAA 1997).
In this application, the Applicant contends that certain legal expenses were incurred by her and her husband in relation to the Supreme Court proceedings and ought to be taken into account in calculating any net capital gain in the 2008 income year, The Commissioner was not satisfied with the evidence supplied by Mrs Coshott during the history of these proceedings at audit and at objection, in that it did not definitively establish any personal liability on the part of the Applicant for the legal costs and or whether all legal costs related to the CGT assets in question or other matters. No retainer letters were provided to the Commissioner to establish the Applicant's liability and in some cases, invoices were not provided for all the costs that were claimed. The Commissioner is also uncertain as to the provisions on which the Applicant relies to establish any cost base she might have in the CGT assets.
In order to establish the first or second element of the cost base of a CGT asset (ss 110-25(2) and ss 110-25(3) and s 110-35 ITAA 1997), the relevant requirements of those provisions must be satisfied. Further such costs cannot form part of the cost base of a CGT asset to the extent that they have already been deducted (ss 110-45(1B)) and/or where the expenditure has been subsequently recouped (s 110-45(3)).
The onus is on the Applicant in these proceedings to prove that there is a cost base in relation to the CGT assets in question and, if so, the quantum of that cost base at the time that CGT event C2 occurred during the 2008 income year.
Clearly in this case, there is a serious issue regarding the strength of the evidence presented by the Applicant so as to support her claim for inclusion of the alleged legal costs as part of the cost base so as to reduce the amount of the capital gain which would be subject to tax.
The Commissioner has raised a number of issues with the Applicant and has asked for the production of evidence to support the claims. Certainly, invoices were provided but there were a number of problems with these invoices including:
·no clear evidence to support the fact that these invoices were ever paid;
·even if they were paid there was no clear evidence that they were paid by the Applicant;
·even if paid there seems to have been no clear basis for establishing that the invoices that were paid related specifically in each case to the compensation received that is the subject of these proceedings;
·there seemed to be considerable difficulty in reconciling the legal costs and the net damages figures with the invoices and no advice or assistance appeared to be forthcoming from the Applicant or her advisers.
In this context there are two matters that are problematic for the Applicant:
·First, under s 14ZZK(b)(i) of the TAA, the Applicant bears the burden of proving that the Commissioner’s income tax assessment is excessive: FCT v Dalco (1990) 168 CLR 164l; ANZ Savings Bank Ltd v FCT 94 ATC 4844. Thus, it is the Applicant who has the burden of demonstrating that the assessments in question are excessive and what the correct assessments should be. In this case that means that the Applicant must demonstrate that certain amounts should be included in the cost base. However for all the reasons mentioned above it is clear that the Applicant has failed to discharge that onus.
·Secondly, there are detailed record keeping rules in the legislation that operate to ensure that taxpayers maintain adequate records or suffer the consequence of a non-inclusion in the cost base of an amount that may otherwise have been included.
Thus, s 121-20 ITAA 1997 states that you must keep records of every act transaction event or circumstance that can reasonably be expected to be relevant to working out whether you have made a capital gain or a capital loss from a CGT asset. This includes records of each element of the cost base and reduced cost base of a CGT asset.
The records must show;
othe nature of the act, transaction, event or circumstance;
othe day it happened;
owho did the act and who were the parties to the transaction; and
ohow the act, transaction, event or circumstance is relevant to working out the capital gain or capital loss.
Clearly the Applicant has failed to discharge her onus of proof as she has not maintained adequate records.
As set out in the objection decision, the Commissioner accepts that the Applicant was entitled to apply the 50% CGT discount to the amount of the capital gain, being $350,000, and accordingly the net capital gain in the 2008 income year was in the amount of $175,000.
Was the penalty imposed appropriate?
The Commissioner imposed penalties at 50% on the basis that the Applicant or her representative had acted with recklessness. The Applicant contended that this should be reduced to nil or at most 25% based on a lack of reasonable care.
In relation to this issue it is critical to identify exactly what is meant by recklessness.
In a recent decision of the Tribunal in RV Investments (Aust) Pty Ltd as trustee for the RV Unit Trust [2014] AATA 158, the Tribunal conveniently summarised the relevant authorities as follows:
266. The word "recklessness" has been considered in a number of cases. Some were gathered together by Senior Member McCabe in Re Dixon A TF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Taxation when considering Item 2 of s 284-90(1) of Schedule 1 of the TAA:
24. The taxpayer is liable to pay the penalty in this case if either he or his agent was reckless. Recklessness is not defined in the TAA, but it is has been discussed in a number of cases. In Reed (Albert E) and Co Ltd v London and Rochester Trading Co Ltd [1954] 2 Lloyds Rep 463, Devlin J said (at 475) recklessness 'means deliberately running an unjustifiable risk'. In Shawinigan Ltd v Vokins and Co Ltd [1961] 3 All ER 396 at 403, Megaw J said recklessness is gross carelessness' or 'a high degree of carelessness'. His Honour continued:
The only test, in my view, is an objective one. Would a reasonable man, knowing all the facts and circumstances which the doer of the act knew or ought to have known, describe the act as 'reckless' in the ordinary meaning of that word in ordinary speech?
25. That approach has been followed by the Tribunal in other cases. In Jones and Commissioner of Taxation [2003] AATA 84, I suggested at paragraph 26: ' recklessness means more than mere carelessness. It incorporates an element of rashness or heedlessness': see also Re Taxpayer and Commissioner of Taxation [2004] AATA 1304 at paragraph 94; Arrow Pearl Co Pty Ltd and Commissioner of Taxation [2005] AATA 340 at paragraph 98. Recklessness falls short of a finding of intentional disregard, where the taxpayer or the agent presses a claim they know to be wrong. Similarly, a finding of recklessness does not imply the applicant or his agent were dishonest: see Hart v Commissioner of Taxation (2003) 131 FCR 203 at 214 per Hill and Hely JJ.
267. The same views were expressed earlier by Spender J in Hart v Commissioner of Taxation:
While it may have been wrong of Mr Hart to have relied on an "opinion formed in 1988', having regard to the 'subsequent trading history' in making a claim that a business was being conducted, in my opinion it is not properly to be regarded as 'reckless' to have persisted in a claim which was not the subject of any disputation at an earlier time, even accepting that the period of losses and the extent of them had not been as extensive as they were at a later time.
It is not reckless simply to make a claim that is erroneous. Nor, in my view, is it reckless to make a claim, 'knowing there is a real risk that the claim might be wrong;' cf the observations of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164; (2001) 46 ATR 347 at 364. If a jockey knows that in a horse race there is a real, as opposed to a fanciful, risk of serious injury or death involved in participation in the race, it would not be reckless conduct on the part of the jockey according to the proper meaning of the word 'reckless', to take part in the horse race. So, too, a driver in a Formula 1 motor vehicle race.
Recklessness consists in making a claim, not caring whether the claim is true or false. ...
268. His Honour was in the minority in that case but his statement of the applicable principles is consistent with those expressed by the majority, Hill and Heery JJ:
There is a line between recklessness and dishonesty, and... a finding of dishonesty is not necessary for a taxpayer to be subject to a s226H penalty. Wherever a tax return includes deductions that are not allowable, a foreseeable consequence is that there will be a tax shortfall, particularly in a system of self-assessment. But, in the ordinary case, the mere fact that ta tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established although there are some sections (eg s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than intentional disregard (s 226J).
269. In deciding whether the principles had been applied by the trial Judge, the majority said:
The primary judge did not explain, in terms, why the circumstances of this case fell within s 226H [recklessness] rather than, eg s 226G [failure to take reasonable care]. However, it is implicit in his Honour's judgment that the claim to the tax deduction was so tenuous, that if not due to an intentional disregard of the Act, it was only explicable on the basis of gross negligence in propounding the claim. A finding of gross negligence may be made in appropriate circumstances without the need for any subjective enquiry.
(Footnotes omitted)
In this application, the Commissioner contends that the Applicant was grossly careless in the preparation and lodgment of her 2008 income tax return in particular for the following reasons:
(a)The Applicant gave no evidence in the proceedings and consequently there is no clear evidence before the Tribunal as to the circumstances in which she completed and lodged her income tax return. Obviously, as a result, there was no opportunity for the Commissioner to cross-examine the Applicant concerning these matters relevant to penalties or her substantive income tax liability.
(b)The settlement sum was a very significant amount, namely $350,000, that was received by the Applicant in the 2008 year. There is no evidence that the Applicant ever sought advice from any person (including the ATO or a tax professional) regarding the proper taxation treatment of this amount or the need to lodge an income tax return for the 2008 income year. Nor, it appears, did she seek advice in relation to answering the question asked in the tax return form, Question 18 “Did you have a capital gains tax event during the year?”
No answer was given to that question by the Applicant.
Section 102-23 of the ITAA 1997 provides that a CGT event still happens even if it (a) it does not result in a capital gain or loss; or (b) a capital gain or capital loss from the event is disregarded. Accordingly Question 18 ought to have been answered "Yes" even if the Applicant contended that there was no capital gain.
(c)There is no evidence before the Tribunal of any record-keeping by the Applicant in relation to her capital gains tax affairs as required by Division 121 ITAA 1997. Specifically, a taxpayer is required to keep written records of every act, transaction, event or circumstance that can be reasonably be expected to be relevant to working out whether it has made a capital gain or loss from a CGT event – this includes proper records of each of the elements of cost base (s 121-20(1) ITAA 1997).
(d)The failure to obtain any advice or keep CGT records occurred in circumstances where the Applicant was a litigant in the relevant legal proceedings and was fully aware of the nature and amount of the settlement payment she had received under the Deed of Settlement in the 2008 year.
(e)Even after the Applicant was given a lodgment request by the Commissioner and warned that a default assessment may issue, she took the step of lodging an income tax return that:
(i)failed to disclose any assessable income or taxable income, and
(ii)failed to disclose that a CGT event had taken place.
In the Tribunal’s view the finding of recklessness is appropriate having regard, in particular, to the following facts:
·the Applicant took no steps to seek independent legal advice in relation to whether any tax might be payable in respect of the receipt of the $350,000 payment;
·the Applicant kept virtually no records as required by the Act, and
·the Applicant lodged a tax return which was incorrect in a material particular.
DECISION
The Objection Decision under review is affirmed.
I certify that the preceding 64 (sixty-four) paragraphs are a true copy of the reasons for the decision herein of Professor R Deutsch, Deputy President. ........................................................................
Associate
Dated 2 September 2014
Date of hearing 21 March 2014 Date final submissions received 16 April 2014 Advocate for the Applicant Mr R Coshott Counsel for the Respondent Ms M Hirschhorn Solicitors for the Respondent Mr E Chiaw, ATO Review & Dispute Resolution
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