PDXS and Commissioner of Taxation (Taxation)

[2021] AATA 725

PDXS and Commissioner of Taxation (Taxation) [2021] AATA 725 (31 March 2021)

Division:TAXATION AND COMMERCIAL DIVISION

File Number:          2018/1613, 2018/1614, 2018/1615, 2018/1616

Re:PDXS

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member Dr M Evans-Bonner

Date:31 March 2021

Place:Perth

The Objection Decision is affirmed.

.............[Sgd]...........................................................

Senior Member Dr M Evans-Bonner

CATCHWORDS

TAXATION – income tax – Applicant made statements regarding cash income to Western Australia Police during Police interview – Police froze $79,545 cash found in Applicant’s home and car – Police referred Applicant to Australian Taxation Office – default assessments of income tax for 2011 and 2014 income years – default amended assessments of income tax for 2012 and 2013 income years – assessment of penalties – whether default income tax assessments were excessive – whether administrative penalties were excessive –  whether all or part of penalty should be remitted – Applicant knowingly made false statements about his income – Tribunal does not have jurisdiction to review the Commissioner’s decision not to remit any general interest charge – Applicant alleged Commissioner did not make a genuine attempt to estimate his taxable income – whether Applicant met burden of proof – Applicant unable to meet burden – Objection Decision affirmed

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) – ss 25(1), 29(2), 29(7)

Income Tax Assessment Act 1936 (Cth) – ss 166, 167, 170(1) item 1, s 175A
Taxation Administration Act 1953 (Cth) – Part IIA, ss 8AAG(5), Part IVC, ss 14ZL(1), 14ZY, 14ZY(1), 14ZY(2), 14ZZ(1)(a)(i), 14ZZK, 14ZZK(b), 14ZZK(b)(i), 14ZZK(b)(ii),
sch 1 s 260-5, sch 1 div 284, sch 1 div 284 s 284-90(1), sch 1 s 284-220, sch 1
s 284-220(1)(c), sch 1 s 284-5, sch 1 s 284-75, sch 1 s 284-75(1), sch 1 s 284-75(3),
sch 1 s 284-80(1), sch 1 s 284-85(1), sch 1 s 284-90, sch 1 s 284-90(1), sch 1 s 284-90(1) item 1, sch 1 s 284-90(1) item 7, sch 1 s 284-225, sch 1 s 298-10, sch 1 s 298-20(1)-(3), sch 1 s 298-30(1), sch 1 s 298-30(2)

Criminal Property Confiscation Act 2000 (WA) – ss 73, 76

CASES

Bosanac v Federal Commissioner of Taxation (2019) 267 FCR 169

Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614
Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301
Le v Commissioner of Taxation [2021] FCA 303
Mulherin v Federal Commissioner of Taxation (2013) 96 ATR 835
Rigoli v Commissioner of Taxation (Cth) (2014) 141 ALD 529
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 212 FCR 483
Sharp and Federal Commissioner of Taxation (2010) 81 ATR 641

Vu v Commissioner of Taxation (2006) 63 ATR 341

SECONDARY MATERIALS

Australian Taxation Office, Practice Statement Law Administration 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount (25 June 2020)

REASONS FOR DECISION

Senior Member Dr M Evans-Bonner

31 March 2021

BACKGROUND TO THE APPLICATION

1. On the evening of 13 October 2014, the Applicant was driving his car and was stopped by Western Australia Police who located a firearm and $2,200 cash in his car (T13/190).  

2. Police then searched the Applicant’s house and found approximately $50,000 cash in a plastic bag in a kitchen, approximately $10,000 in a bedroom drawer and $11,000 in some filing shelves in the study. The total amount Police found in the Applicant’s house was $79,545 (A2, [38]). Police also found pills and vials of steroids (T13/193-194).

3. Police suspected that the monies were the proceeds of crime, and so early the following morning (14 October 2014), from 2.56am until 3.21am, they detained the Applicant under s 73 of the Criminal Property Confiscation Act 2000 (WA) (CPC Act) and interviewed him at the Police station (T13).

4. The interview was recorded. During the interview the Applicant made admissions about the cash being income from his businesses. For example, the Applicant stated that he would “skim money off” his businesses to reduce his taxable income, citing “too much tax, and problems with child support” (T13/191). He stated later in the interview that he did not deposit the monies in a bank account in order to “avoid GST” (T13/195) and to prevent his income being “traceable” for tax reasons, stating “[i]f I get audited, they’ll want to know where that cash come[s] from” (T13/199).

5. A freezing notice was issued under the CPC Act to freeze the $79,545 (A1(a), [1]).

6. Email correspondence and Australian Taxation Office (ATO) case notes (A22 and A23) show that on approximately 15 October 2014, the Police had contacted the ATO to advise them of the admissions the Applicant had made in the interview about his income, including that “[t]he seized $79,545.00 he [the Applicant] states is earnings from the business he has saved to lower his taxable income which he doesn’t put through the books.”

7. On 20 and 22 January 2015 the Deputy Commissioner of Taxation (the Commissioner) issued s 264 notices to the Commonwealth Bank and Westpac Bank requesting information about the Applicant’s bank accounts (T15/203-206), as well as to the Commissioner of Police requesting all documents in relation to the investigation of the Applicant (T16/207-211).

8. After the Police interview, the ATO audited the Applicant for the period 1 July 2010 to

   
   

   30 June 2014. The result of the audit was that on 27 May 2015 the Commissioner issued the following assessments (T9/99; T10.1 to T10.6):

   (a)default notices of amended assessment for the 2012 and 2013 income years because the Commissioner was not satisfied with the income tax returns the Applicant lodged;

   (b)default notices of assessment for the 2011 and 2014 income years because the Applicant did not lodge income tax returns for those income years;

   (c)a notice of assessment on administrative penalty for the 2011 income year on the basis that the Applicant failed to lodge an income tax return; and

   (d)notices of assessment on administrative penalty for the 2012 and 2013 income years on the basis that the Applicant intentionally made false statements about his income.  

9. The adjustments to the amounts of the Applicant’s income and the penalties made in these assessment notices by the Commissioner are summarised in the following table (R4, para [7]):

Year end	As lodged	As assessed	Adjustment	Tax Shortfall	Penalty Assessed
2011	N/A	$150,119	$150,119	$47,213.00	$35,409.75
2012	$35,707	$185,809	$150,102	$59,167.43	$44,375.55
2013	$19,265	$150,128	$130,863	$47,961.20	$43,165.00
2014	N/A	$151,774	$151,774	$48,608.60	N/A
$54,972	$637,830	$582,858	$202,950.23	$122,950.30

1. Also on 27 May 2015, the Commissioner issued two garnishee notices to the Applicant’s banks (A1, [7]). On the same date the Commonwealth Bank transferred $212,406 from the Applicant’s account to the ATO (A1, [8]).

2. On 24 July 2015, the Applicant objected to the income tax assessments and penalty assessments (T11/150-162). The Applicant additionally requested that any general interest charge (GIC) be remitted (T11/154). The grounds for objection were (T11/154):

   1.    the Assessments were excessive for the years ended 30 June 2011, 30 June 2012, 30 June 2013, 30 June 2014 …;

   2.    the Commissioner did not make a genuine attempt to estimate the Taxpayer’s taxable income for the Relevant Periods for the purpose of issuing Default Assessments;

   3.    the Assessments were made contrary to law;

   4.    the Penalty Assessments were issued incorrectly;

   5.    General Interest Charge is not payable or should otherwise be remitted.

3. However, on 10 March 2017, the Commissioner disallowed the Applicant’s objection to the notices of assessment for the 2011, 2012, 2013 and 2014 income years and disallowed the Applicant’s objection to the notices of assessment of shortfall penalties for the 2011, 2012 and 2013 income years (Objection Decision) (T2).

4. With respect to the Applicant’s request that any GIC should be remitted, the Commissioner decided in “Attachment A” to the letter advising of the Objection Decision dated 10 March 2017 that “we do not consider that your request warrants remission on this occasion”. “Attachment A” also stated that the decision not to remit any GIC (T2/25):

   does not form part of the reasons for the objection decision as the imposition of GIC and a decision not to remit GIC is not considered to be part of the income tax assessments. Therefore, you cannot object to it and there is no right of review of its imposition by the Administrative Appeals Tribunal or the Small Tax Claims Tribunal. …

5. A letter to the Applicant from the Proceeds of Crime Squad dated 21 November 2017, stated that on 3 October 2017 the Office of the Director of Public Prosecutions for Western Australia had advised Police that they would not be pursuing confiscation action with respect to the $79,545 that had been frozen. However, the Applicant was advised that instead of the monies being returned to him, they would be sent to the ATO with any interest. This was because the ATO had served Police with a garnishee notice under

   
   

   s 260-5 in sch 1 of the Taxation Administration Act 1953 (Cth) (TAA) (A19).

6. On 29 March 2018 the Applicant lodged an application seeking review of the Objection Decision in the General Division of the Administrative Appeals Tribunal (the Tribunal).

7. On 13 April 2018, the Tribunal extended the time for the making of the application for review under s 29(7) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) because the Applicant had lodged his application outside of the 28 day time limit prescribed by s 29(2) of the AAT Act.

8. Events after the Applicant lodged his application including the incarceration of the Applicant and restrictions on in-person hearings due to COVID-19 delayed the hearing of this application until 15 February 2021.

   ISSUES

9. The issues for determination before the Tribunal are:

   (a)whether the income tax assessments are shown to be excessive;

   (b)whether the administrative penalty assessments are shown to be excessive; and

   (c)whether the Tribunal should otherwise exercise the discretion to remit the penalties imposed on the Applicant by the Commissioner.

10. The relevant legislation before the Tribunal is the Income Tax Assessment Act 1936 (Cth) (ITAA 36) and the TAA.

    MATTERS THAT ARE NOT IN ISSUE

    Decision not to remit general interest charge (GIC)

11. The Tribunal does not have jurisdiction to review the Commissioner’s decision not to remit any GIC for the following reasons.

12. The Tribunal has the power to review a decision if an enactment authorises the Tribunal to do so (s 25(1) of the AAT Act).

13. Part IVC of the TAA concerns taxation objections, reviews and appeals. Section 14ZL(1) of the TAA sets out when Part IVC applies:

    (1)   This Part applies if a provision of an Act or a legislative instrument (including the provision as applied by another Act) provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling, may object against it in the manner set out in this Part.

    (2)   Such an objection is in this Part called a taxation objection.

14. Under s 14ZY of the TAA, the Commissioner decides taxation objections. The Commissioner must decide, under s 14ZY(1) of the TAA whether to allow the taxation objection, wholly or in part, or to disallow the taxation objection. This is an objection decision (s 14ZY(2) of the TAA).

15. Section 14ZZ(1)(a)(i) of the TAA provides that a person who is dissatisfied with a reviewable objection decision made by the Commissioner may apply to the Tribunal for a review of that decision, or appeal to the Federal Court against the decision.

16. A decision not to remit GIC is not a “reviewable objection decision” under Part IVC of the TAA. Instead, a decision of the Commissioner to remit all or a part of a GIC is made under s 8AAG(5) in Part IIA of the TAA and there is no right of review to the Tribunal under that part. This was explained by Member Webb in Sharp and Federal Commissioner of Taxation (2010) 81 ATR 641, 642-643 [8]:

    while certain remission decisions concerning penalties may be subject to review by the Tribunal, the same cannot be said for remission decisions concerning the general interest charges under s 8AAG of the TAA. Decisions concerning the remission of general interest charges are not “reviewable objection decisions” and are not reviewable under Pt IVC of the TAA by this tribunal; decisions of that kind may be reviewable under the Administrative Decisions (Judicial review) Act 1977 (Cth).

    Whether the Commissioner did not make a genuine attempt to estimate the Applicant’s taxable income

17. In the Applicant’s objection dated 24 July 2015 (T11), the Applicant submitted that the Commissioner did not make a genuine attempt to estimate his taxable income. The Applicant’s concern was with the way the Commissioner arrived at his assessment of the Applicant’s taxable income. Specifically, the Applicant contended that the Commissioner solely relied upon the Applicant’s $150,000 estimate of his income for the income year ending 30 June 2015 (which was outside the audit period) that the Applicant gave during his interview with Police. The Applicant further submitted that this interview was at 3am, that the Applicant was under a compulsion to answer the questions put to him (pursuant to s 76 of the CPC Act), and that the estimate was given without reference to how the profits would be distributed between different legal entities which traded under the structure of a trust (A1(b), para [28] of the “facts” and para [3] and [4] of the “contentions”; A2).  

18. Section 14ZZK of the TAA states:

    On an 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.

19. Pursuant to s 14ZZK of the TAA, it is the taxpayer who bears the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been. Relevantly, in a judgment of the High Court, The Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614, 621, Brennan J observed:

    The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.

20. As was explained by the Federal Court in Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301, 314 [61] (Gashi), there is no onus on the Commissioner to show the assessments were correctly made:

    In seeking to establish in Pt IVC proceedings that an assessment issued under s 167 is excessive, the ultimate question was and remains whether the amount of each assessment was excessive: Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 623. Section 14ZZO of the TAA places the burden of proving each assessment is excessive on the taxpayer: Dalco at 623 citing George at 189. The TAA does not place any onus on the Commissioner to show that the assessments were correctly made: Dalco at 624 citing Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 89. Indeed, absent agreement with the Commissioner to confine the issues for determination in a Pt IVC proceeding, the Commissioner is entitled to rely upon any deficiency in the taxpayer’s proof of the excessiveness of the amount assessed in seeking to uphold the assessment: Dalco at 624.

21. In Gashi, the Federal Court stated, at 314 [62], that to discharge the onus of proving that an assessment is excessive, “it is insufficient for a taxpayer simply to show error on the Commissioner’s part”.

22. In Rigoli v Commissioner of Taxation (Cth) (2014) 141 ALD 529, 537 [25]-[26], the Full Federal Court further explained that finding error in the Commissioner’s methodology will not be enough to discharge the taxpayer’s burden of proof under s 14ZZK of the TAA:

    [25]The task Mr Rigoli sought to carry out was to simply identify some errors in the Commissioner’s approach so that the matter might be remitted on the basis of those errors for reconsideration by the Commissioner. This is the very picking and choosing which the authorities make clear is impermissible. The taxpayer’s choice is to pay tax according to the commissioner’s assessment under s 167 or to establish, as a matter of evidence, what was “the amount upon which ... income tax ought to be levied”. An intermediate course, which involves elements of the commissioner’s calculations and facts which the taxpayer chooses to lead in evidence, is not an available option.

    [26]… where s 14ZZK applies, the only state of satisfaction that the AAT is required to reach is whether, on the facts as found by the AAT, the taxpayer has proved that the assessment is excessive. If that state of satisfaction cannot be reached, the application for review must be dismissed. Her Honour went on to note that, as the authorities made clear, the taxpayer does not discharge this burden of proving that the assessment is excessive by demonstrating some error in the commissioner’s judgment under s 167 of the amount upon which income tax ought be levied: see Dalco per Brennan J (at CLR 625; ALR 347) and Toohey J (at CLR 634; ALR 353) and Gashi (at [66]-[67].

23. Additionally, “in a tribunal review of an assessment it is not necessary for the Commissioner to seek to establish that the applicant’s assessable income was or was at least a particular figure” (Finn J in Vu v Federal Commissioner of Taxation (2006) 63 ATR 341, 344 [9]).

24. Bosanac v Federal Commissioner of Taxation (2019) 267 FCR 169 (Bosanac) is relevant to the Applicant’s concern that the estimate of his income in the Police interview was for the income year ending 2015, which was after the audit period. In Bosanac, at 184 [69], the Full Court of the Federal Court stated that “[a] concession by the Commissioner that a particular amount did not form part of the taxable income of [the person] in a particular year was an insufficient basis upon which the Court could reach a conclusion as to the actual extent of [the person’s] income in that year”.

25. In short, impugning the Commissioner’s methodology will not go far enough to discharge the taxpayer’s burden under s 14ZZK of the TAA. Instead, in order to discharge the burden of proving that the assessment was excessive, “the taxpayer must positively prove his or her ‘actual taxable income’ and, in doing so, must show that the amount of money for which tax is levied by the assessment exceeds the actual substantive liability of the taxpayer” (Mulherin v Federal Commissioner of Taxation (2013) 96 ATR 835, 846 [42] citing Brennan J in Dalco at 623 – 625 and Gashi at 315 [63]).

26. Further clarification was provided in the recent judgment of Logan J in Le v Commissioner of Taxation [2021] FCA 303, at [56]:

    it is insufficient for an applicant merely to offer a critique of the Commissioner’s assessing approach, even a critique which suggests that it is likely to be wrong. However, … if, in addition to such a critique, the applicant introduces evidence, which is accepted and which shows that the assessment is wrong by a particular amount, that applicant will have discharged the statutory onus of proof.

27. However, more fundamentally, the submission that the Commissioner did not make a genuine attempt to estimate the Applicant’s taxable income is one that goes to the validity of the notices of the assessment issued by the Commissioner. If the notices of assessment are invalid, then the Tribunal has no jurisdiction because jurisdiction is dependent upon there being a valid assessment, an objection to that assessment, and then an objection decision.

1. In conclusion, there is no issue before the Tribunal as to whether the Commissioner made a genuine attempt to estimate the Applicant’s taxable income.

   ASSESSMENTS

   Relevant legislation

2. The default notices of assessment and the default notices of amended assessment made by the Commissioner on 27 May 2015 were made under s 167 of the ITAA 36 which provides:

   If:

   (a)any person makes default in furnishing a return; or

   (b)the Commissioner is not satisfied with the return furnished by any person; or

   (c)the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;

   the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

3. Section 166 of the ITAA 36 provides that the Commissioner will make the assessment of the amount of the person’s taxable income based on any tax returns and any other information in the Commissioner’s possession:

   From the returns, and from any other information in the Commissioner’s possession, or from any one or more of these sources, the Commissioner must make an assessment of:

   (a)the amount of the taxable income (or that there is no taxable income) of any taxpayer; and

   (b)the amount of the tax payable thereon (or that no tax is payable); and

   (c)the total of the taxpayer’s tax offset refunds (or that the taxpayer can get no such refunds).

4. Item 1 of the table in s 170(1) provides, with some qualifications, that:

   The Commissioner may amend an assessment of an individual for a year of income within 2 years after the day on which the Commissioner gives notice of the assessment to the individual.

5. As outlined above, the Applicant objected to each of the assessments made by the Commissioner on 27 May 2015, pursuant to s 175A of the ITAA 36 which provides:

   (1)A taxpayer who is dissatisfied with an assessment made in relation to the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

   (2)A taxpayer cannot object under subsection (1) against an assessment ascertaining that:

   (a)the taxpayer has no taxable income; or

   (b)the taxpayer has an amount of taxable income and no tax is payable.

   (3)Subsection (2) does not prevent the taxpayer from objecting against an assessment if the taxpayer is seeking an increase in:

   (a)the taxpayer’s liability; or

   (b)the total of the taxpayer’s tax offset refunds.

   Issue one: were the assessments excessive?

6. At the hearing the Applicant conceded that he owed some income tax, and probably some penalties, but that he believed the amounts assessed by the Commissioner in the default notices of assessment and the default notices of amended assessment were excessive. He stated (transcript/29):

   I accept that my tax affairs are incorrect and I definitely need to pay some extra tax and probably penalties as well.

   …

   I’m happy to concede that.  But I believe the figure is grossly excessive.

   …

   And I believe it’s no coincidence that the figure the Commissioner of Taxation came to just happens to be a fraction higher than what the WA Police seized off me.

7. The Applicant provided the Tribunal with his own calculations as to what he thought his taxable income was. These amounts were (A25 and transcript/26):

   ·$59,067.67 for the 2011 income year;

   ·$102,559.57 for the 2012 income year;

   ·$72,516.79 for the 2013 income year; and

   ·$92,401.93 for the 2014 income year.

8. These amounts are substantially lower than those in the default notices of assessment and default notices of amended assessment issued by the Commissioner on

   
   

   27 May 2015.

9. Under cross-examination, the Applicant confirmed that his methodology of calculation was to go through his personal bank records and to identify deposits that he thought were income. If he could not recall what an amount was, he gave the Commissioner the benefit of the doubt and classified the amount as income (transcript/55-56). For the income years 2012 and 2013 when tax returns were filed, the Applicant appears to have then added the amounts from his personal bank accounts to the amounts in his filed tax returns (transcript/61). The Applicant then subtracted deductions of $3,700 for the 2011, 2012 and 2013 income years, and a deduction of $3,800 for the 2014 income year with reference to a part of the ATO web site concerning vehicle deductions, but with no supporting evidence (A25).  

10. However, the problem for the Applicant is that he did not keep any accounting records of the cash he received or the expenses for each of his businesses between the 2011 and 2014 income years. These businesses were a tattoo shop, a business selling encrypted BlackBerry mobile telephones and a hairdressing business. Additionally, his methodology of calculation did not include an analysis of any amounts deposited into each of his business accounts. The following exchange illustrates this problem (transcript/57-58):

    MR WALKER: All of these annexures to your statutory declaration, these are dealing with deposits into or transfers out of your personal bank accounts?

    APPLICANT:   Yes, that’s correct.

    MR WALKER: But you also received a lot of cash from your businesses which didn’t go through your bank accounts between 2011 and 2014, didn’t you?

    APPLICANT:   There would be some, yes.

    MR WALKER: You haven’t produced anything for the tribunal showing what those cash amounts were, have you?

    APPLICANT:   Well, the $80,000 in my house, that’s what it is.

    MR WALKER: You can’t show what cash amounts you received for the 2011 to 2014 financial years and that didn’t go through your bank accounts, can you?

    APPLICANT:   I can’t - well, are you asking me if I can’t show if there was other - well, not other - income?

    MR WALKER: My question was you can’t show what cash amounts you received for the 2011 to 2014 financial years and that didn’t go through your bank accounts?

    APPLICANT:   Yes, that’s a fair characterisation of the situation.

    MR WALKER: You didn’t keep any records that would allow you now to go back and work out how much cash you received from the businesses in the 2011 to 2014 financial years, and that didn’t go through your bank accounts, right?

    APPLICANT:   Yes, that’s correct.

    MR WALKER: Between the 2011 and 2014 financial years, you had business bank accounts for the BlackBerry business and the tattoo shop and the hairdressing business, didn’t you?

    APPLICANT:   Say that again?  Between which years?

    MR WALKER: 2011 and 2014?

    APPLICANT:   Yes.

    MR WALKER: You had business bank accounts for the BlackBerry business and the tattoo shop and the hairdressing business, correct?

    APPLICANT:   That’s correct, yes.

    MR WALKER: With Westpac and NAB?

    APPLICANT:   That would have been for the hair.  No, Westpac would have been for the tattoo, and the - yes, yes.  That’s correct.

    MR WALKER: You haven’t produced any of those business bank account records to the tribunal, have you?

    APPLICANT:   No.

    MR WALKER: You haven’t produced to the tribunal any till receipts, books of account for the hairdressing business, have you?

    APPLICANT:   No.

11. It is evident from this exchange that the Applicant did not account for the $79,545.00 cash found by the Police in his car and home in his income calculations. He conceded during cross-examination that the cash was from his three businesses and that he did not keep records of his cash activities. Thus, it is unclear how much cash related to each business. It is also unclear as to what his taxable income should have been for each of the income years if the cash is considered.

12. The Tribunal has also had regard to numerous statutory declarations from the Applicant’s family members and friends (A3 to A11). These refer to some of the Applicant’s business ventures (successful and unsuccessful) including start up costs, to amounts transferred into his bank account for domestic reasons such as rent, monies for a holiday, payments to the Applicant for the sale of an engagement ring, as well as confirmation from a friend who did some tiling free of charge in the Applicant’s tattoo shop. Despite this evidence supporting some bank transactions, overall, the Applicant has not provided enough supporting materials (for example, accounting records) to substantiate what he said his taxable income should be in the relevant income years.

13. Consequently, the Tribunal is not satisfied that the Applicant’s actual taxable income for each of the income years is less than the amounts assessed by the Commissioner in the default assessments. That is, the Applicant has failed to meet the burden of proving, pursuant to s 14ZZK(b)(i) of the TAA, that the assessments made by the Commissioner were excessive or otherwise incorrect and what the assessments should have been.

    ADMINISTRATIVE PENALTIES

    Relevant legislation

14. The Commissioner is empowered to assess the amount of an administrative penalty under div 284 of sch 1 to the TAA (s 298-30(1) of sch 1 to the TAA). Section 298-10 of sch 1 to the TAA provides in part that “[t]he Commissioner must give written notice to the entity of the entity’s liability to pay the penalty and of the reasons why the entity is liable to pay the penalty.”

15. The Commissioner imposed administrative penalties on the Applicant pursuant to

    
    

    ss 284-75(1), 284-75(3), 284-85(1) and 284-90(1) in div 284 of sch 1 to the TAA. That division sets out the circumstances in which administrative penalties apply for making false or misleading statements (s 284-5 of sch 1 to the TAA).

16. The Applicant objected to these administrative penalties pursuant to s 298-30(2) of sch 1 to the TAA which provides:

    (2)An entity that is dissatisfied with such an assessment made about the entity may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

17. The Applicant accepted that he may have to pay some penalties but submitted that the amounts of the penalties were “harsh” (transcript/30).

    Issue two: were the administrative penalties excessive?

    Was the penalty for the 2011 income year excessive?

18. As noted in the reasons for the Objection Decision, the Applicant was assessed as being liable for an administrative penalty for the 2011 income year because he failed to lodge an income tax return (T9/122). He was not assessed as being liable for a penalty for the 2014 income year because the deadline for the lodgement of his return had not passed (T9/123). Section 284-75(3) of sch 1 to the TAA relevantly provides:

    (3)You are liable to an administrative penalty if:

    (a)you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

    (b)that document is necessary for the Commissioner to determine a *tax‑related liability (other than one arising under the *Excise Acts) of yours accurately; and

    (c)the Commissioner determines the tax‑related liability without the assistance of that document.

    Note:You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286‑C.

19. Section 284-85(1) of sch 1 to the TAA provides that the base penalty amount is to be worked out under s 284-90:

    Work out the *base penalty amount under section 284-90. If the base penalty amount is not increased under section 284‑220 or reduced under section 284‑225, this is the amount of the penalty.

20. The Applicant did not make any statements that would reduce his penalty under

    
    

    s 284-225 of sch 1 to the TAA, or any misleading statement which would increase the penalty for the income year ending 2011 under s 284-220 of sch 1 to the TAA because he did not file a tax return at all. Consequently, the relevant penalty is set out in item 7 to the table contained within s 284-90(1) of sch 1 to the TAA. Section 284-90(1) of sch 1 to the TAA provides that where a person is liable to an administrative penalty under s 284-75(3) of sch 1 to the TAA, the base penalty amount is “75% of the tax-related liability concerned”. 

21. The Applicant failed to lodge an income tax return when one was due because, even by his own calculations, he had a taxable income of at least $59,067.67 (A25) for the 2011 income year. The Tribunal finds that the Applicant was correctly assessed under the applicable provisions of the TAA as being liable for a base penalty amount of 75% for the 2011 income year.

    Were the penalties for the 2012 and 2013 income years excessive?

22. For the income years ending 2012 and 2013, the Applicant was assessed as being liable for an administrative penalty on the basis that he made false or misleading statements to the Commissioner in his returns lodged for those income years (T9/122).

23. Section 284-75 of sch 1 to the TAA provides that a person is liable to a penalty if they make a false or misleading statement to the Commissioner:

    (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 (other than the *Excise Acts); and

    (b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

    Note:This section applies to a statement made by your agent as if it had been made by you: see section 284‑25.

24. Pursuant to item 1 of s 284-90(1) of sch 1 to the TAA, if a person has a shortfall amount as a result of a making a statement described in s 284-75(1) of sch 1 to the TAA (that is, a false or misleading statement in a material particular) and the amount, or part of the amount resulted from intentional disregard of a taxation law by the taxpayer or their agent, the base penalty amount is 75% of the shortfall amount.

25. Section 284-80(1) of sch 1 to the TAA defines a shortfall amount:

    You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.

    (Original emphasis.)

26. The Applicant submitted an income taxation return for the income year ending 2012 on

    
    

    27 May 2013 (T3/27). In this return, which he agreed under cross-examination that he certified to be true and correct, the Applicant stated that he earnt $36,000 from security work. The Applicant also stated in this return that he earnt zero business income (T3/30). The Applicant, who had commenced his BlackBerry business at that time, agreed that he gave false information to the ATO, as the following exchange illustrates (transcript/43):

    MR WALKER: So you’ve declared here on your tax return for 2012, the 2012 financial year, that you received no business income for the financial year ended 30 June 2012?

    APPLICANT:   That’s correct.

    MR WALKER: And that wasn’t true, was it?

    APPLICANT:   Of course not.

    MR WALKER: So coming back to your 2012 tax return, you knew when you submitted it that you had an obligation to give true and accurate information about your income, didn’t you?

    APPLICANT:   Yes.

    MR WALKER: You certified that the 2012 tax return was true and correct when you lodged it?

    APPLICANT:   M’mm.

    MR WALKER: And that certification was false?

    APPLICANT:   Yes.

    MR WALKER: So you knowingly made a false declaration on your 2012 tax return?

    APPLICANT:   Appears that way, yes.

    MR WALKER: You knowingly made a false declaration to the tax office about your tax affairs, and in this proceeding, you are asking the tribunal to accept your evidence about what your income in 2012 actually was?

    APPLICANT:   Yes, that’s correct.

    MR WALKER: Why should the tribunal believe what you say now when you have previously knowingly made a false statement about your tax affairs?

    APPLICANT:   You can’t penalise me twice for something.

27. The Tribunal therefore finds that the Applicant knowingly made a false statement about his business income in his return for the 2012 income year.

28. As noted above at paragraph [55], s 284-85(1) of sch 1 to the TAA provides that the base penalty amount may be increased or reduced in the circumstances described in

    
    

    ss 284-220 and 284-225 of sch 1 to the TAA. Section 284-220(1)(c) of sch 1 to the TAA provides:

    (1)The *base penalty amount is increased by 20% if:

    …

    (c)the base penalty amount was worked out using item 1, 2 or 3 of the table in subsection 284‑90(1) and a base penalty amount for you was worked out under one of those items previously; or …

29. Relevant to the Applicant’s situation, s 284-220(1)(c) of sch 1 to the TAA provides that the base amount can be increased if it has previously been worked out under item 1, which in the Applicant’s case it had been for the 2012 income year.

30. With respect to the 2013 income year, under cross-examination the Applicant confirmed that he had continued to run his BlackBerry business in that income year. He established a trust for the business on 22 May 2013 (A13). Under cross examination, the Applicant stated that this was because his BlackBerry business “was starting to take off” and agreed that the trust was established because he started to give some attention to the tax consequences of his BlackBerry business (transcript/41-42). However, despite the Applicant’s BlackBerry business “taking off”, the amount of his income recorded in his 2013 income tax return was only $19,265, with his business income again being recorded as zero (T4/34-35). The Tribunal therefore finds that the Applicant knowingly made a false statement about his business income in his return for the 2013 income year.

31. The Applicant has not satisfied the Tribunal that there was no intentional disregard. Indeed, the evidence before the Tribunal suggests that there was, and that the Applicant knowingly provided false information about his income to the Commissioner for the 2012 and 2013 income years.

32. In conclusion, there is no basis upon which the Tribunal can find that the penalty assessments were excessive. 

    Issue 3: Should the Tribunal exercise the discretion to remit the penalties?

33. Even when a penalty has been correctly assessed, the Commissioner has a broad discretion to remit all or part of the penalty. With respect to this application, the Commissioner refused to remit all or part of the penalties under s 298-20(1) and the Applicant objected under s 298-20(3) of sch 1 to the TAA (T2).

34. Section 298-20 of sch 1 to the TAA provides:

    (1)The Commissioner may remit all or a part of the penalty.

    (2)If the Commissioner decides:

    (a)not to remit the penalty; or

    (b)to remit only part of the penalty;

    the Commissioner must give written notice of the decision and the reasons for the decision to the entity.

    Note:Section 25D of the Acts Interpretation Act 1901 sets out rules about the contents of a statement of reasons.

    (3)If:

    (a)the Commissioner refuses to any extent to remit an amount of penalty; and

    (b)the amount of penalty payable after the refusal is more than 2 penalty units; and

    Note:See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

    (c)the entity is dissatisfied with the decision;

    the entity may object against the decision in the manner set out in Part IVC.

35. In Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 212 FCR 483, 535 [249], Griffiths J (with whom Edmonds J agreed at 513 [153]) stated that:

    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 …

36. There is no evidence to satisfy the Tribunal that, in the circumstances of the Applicant’s case, remission of the penalties in whole or in part, is necessary to prevent an “unreasonable or unjust (and therefore inappropriate)” outcome for the Applicant.

1. The broad nature of the discretion to remit was described in the Practice Statement Law Administration 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount (PS LA), which gives guidance to decision-makers. It provides, at [16B] that, “[r]emission is not limited to the reasons listed here, and you should consider remission in any situation where the final penalty is not a just outcome.” There are, however, some non-exhaustive examples of circumstances in the PS LA that may provide a basis for remission in whole or in part. These include when “the mechanical or calculation process of the law could result in an unintended or unjust result” or when a taxpayer has taken reasonable care and made a genuine attempt to comply but has become liable to a penalty due to the reckless actions of their tax agent.

2. Some other relevant circumstances that may provide a basis for remission were noted in the reasons for the Objection Decision, including whether there was an honest or unintentional mistake that contributed to the false statement. However, in the Applicant’s case, there was no honest or unintentional mistake by him that contributed to the false statements in his income tax returns for the 2012 and 2013 income years. Indeed, the Tribunal found above that the Applicant knowingly made false statements in those returns.

3. The Objection Decision also referred to whether there were unusual or unintended factors leading to the failure to lodge a return. There is, however, no evidence of any unusual or unintended factors that led to the Applicant’s failure to lodge his 2011 income tax return.  

4. In conclusion, the Applicant has the burden of proving, pursuant to s 14ZZK(b)(ii) of the TAA that the decision to refuse to remit the penalties should have been made differently. There is no evidence to satisfy the Tribunal that it is appropriate to exercise the discretion to remit the penalties.

   CONCLUSION

5. The Tribunal has found that:

   (a)the Tribunal does not have jurisdiction to review the Commissioner’s decision not to remit any GIC; and

   (b)there is no issue before the Tribunal as to whether the Commissioner made a genuine attempt to estimate the Applicant’s taxable income.

6. Based on the evidence before it, the Tribunal has found that the Applicant has not met the burden of proving, as required by s 14ZZK(b) of the TAA that:

   (a)the default notices of amended assessment for the 2012 and 2013 income years and the default notices of assessment for the 2011 and 2014 income years were excessive (issue one);

   (b)the penalty assessments were excessive (issue two); and

   (c)the decision to refuse to remit the penalties should have been made differently (issue three).

   DECISION

7. The Objection Decision is affirmed.

I certify that the preceding 79 (seventy-nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr M Evans-Bonner

.........[Sgd]...............................................................

Associate

Dated: 31 March 2021

Date of hearing:	15 February 2021
Applicant:	Self-represented
Counsel for the Respondent:	Mr P A Walker, Francis Burt Chambers
Solicitors for the Respondent:	The Australian Government Solicitor