S M Ho & K W Loh & T T Low & W W Orr and Commissioner of Taxation (Taxation) - [2018] AATA 3911

S M Ho & K W Loh & T T Low & W W Orr and Commissioner of Taxation (Taxation) [2018] AATA 3911 (16 October 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Number(s): 2016/5349 & 2017/5244
Re:S M Ho & K W Loh & T T Low & W W Orr
APPLICANT

AndCommissioner of Taxation
RESPONDENT

Decision
Tribunal:Deputy President F D O'Loughlin
Date of oral decision: 15 June 2018
Date of written reasons: 16 October 2018
Place:Melbourne

The Tribunal varies the decision under review by remitting the default assessment penalty by 50% and otherwise affirms the decision under review.
[sgd]

Deputy President F D O'Loughlin
Catchwords
GOODS AND SERVICES TAX – sale of property – subdivision of property - whether property is the supply of a going concern – whether margin of sale made correctly – whether default assessment made correctly – whether sale of property was an input taxed supply – whether shortfall penalty correctly imposed – whether default assessment penalty correctly imposed – estoppel - decision varied
Legislation
A New Tax System (Goods and Services Tax) Act 1999
Administrative Appeals Tribunal Act 1975
Taxation Administration Act 1953
Cases
Federal Commissioner of Taxation v Wade (1951) 84 CLR 105
Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119
Macquarie Bank Ltd and Another v Federal Commissioner of Taxation and Another (2013) 215 FCR 403
Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation (2013) 212 FCR 483
Sterling Guardian Pty Ltd v Commissioner of Taxation (2005) 60 ATR 502
Sterling Guardian Pty Ltd v Federal Commissioner of Taxation (2006) 149 FCR 255
Secondary Materials
Goods and Services Tax Ruling 2002/5
Goods and Services Tax Ruling 2006/8
Written REASONS FOR DECISION given orally on 15 June 2018
Deputy President F D O'Loughlin
16 October 2018

The GST partnership comprising the applicant disputes GST and penalties assessed upon the sale of four properties or premises, located at 404 and 406 Queens Parade in Clifton Hill, Victoria.
Evidence
Various directions were made on 15 November 2016, 9 February 2017, 28 April 2017, 22 June 2017, and a correction made on 3 July 2017, requiring the applicant to file with the Tribunal and serve on the Commissioner signed statements of evidence to be given by each witness intended to be called to give evidence, and all reports and documents on which the applicant intended to rely.
The evidence in the proceeding constituted the T documents.[1] The applicant filed documents on which it intended to rely which have also been included in the T documents. The applicant confirmed that the content of the T documents was the only evidence on which it was relying in the proceeding and did not lead or call any witness evidence.
[1]The documents that are filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth).
Facts
The Commissioner filed a SFIC[2] and written submissions, both of which were cross referenced to the relevant T documents. The applicant accepted the facts asserted at paragraphs [5] to [12], [14] to [21], [23] to [25], [27] to [33] - with a caveat concerning paragraph [29(e)] of the Commissioner’s SFIC which are as follows:
[2]Statement of Facts, Issues and Contentions.
Purchase of properties
5On 28 July 2001, William Orr (as nominee for the Applicant) purchased the property at 404 Queens Parade, Clifton Hill, Victoria (404 Queens Parade) for $539,000. The property contained an existing building which was used as a commercial property at the time it was purchased by the Applicant. The Applicant has provided a part of the contract of sale for 404 Queens Parade (T19, pp. 206-213).
6The Applicant contends that it paid no GST to the vendor of 404 Queens Parade (T19, p.203). The part of the contract of sale provided is silent on GST.
7On 8 September 2001, Kah Weng Loh (as nominee for the Applicant) purchased the adjacent property at 406 Queens Parade, Clifton Hill, Victoria (406 Queens Parade) for $571,000. That property had an existing building which the Applicant contends was used as a residential property. The Applicant has provided a part of the contract of sale for 406 Queens Parade (T19, pp.306-313).
8The Applicant contends that it paid no GST to the vendor of 406 Queens Parade (T19, p.204). The part of the contract of sale provided is silent on GST.
9In 2014, the Applicant leased the ground floor of 404 Queens Parade to “Drakk Construction Group”[3] for $1,914.50 plus GST per month. The lease commenced on 8 October 2014 and is expressed to be for a term of 12 months. A copy of the lease is at T15, pp.179-184. The lease is entitled “Commercial Property” and the permitted use is listed as “office” (T15, p.180 & p.183).
[3]According to an ABN search: Drakk & Associates Pty Ltd, ABN 45 113 496 352.
10The first floor of 404 Queens Parade was not subject to the lease. The Applicant has stated that the first floor was never leased and was used as a building manager’s floor and storage and had also, at some stage, been used by Mr Orr rent-free (T1, p.37; T19, p.203). Mr Orr is one of the partners of the Applicant[4].
[4]Mr Orr trades under the business name “William Orr & Associates”.
Subdivision and development
11From 2012 to 2014, the Applicant subdivided the two properties into four lots and constructed two three storey residential dwellings (Unit 1 and Unit 2) on the newly created rear two lots (Lot 3 and Lot 4).
12The following diagrams depict the two properties before and after the development and subdivision:

…
14The Applicant claimed input tax credits for expenses associated with the construction, subdivision and development of the properties. The Applicant also claimed input tax credits associated with the financing costs of the development.
Sale of Lots 3 and 4
15By contract of sale dated 14 December 2013, the Applicant sold the land in Lot 4 (being Unit 2) to an unrelated purchaser for $850,000. A copy of the contract of sale is at T19, pp.270-301.
16The contract of sale stipulates that GST is not included in the purchase price (T19, p.271). The words “plus GST” appear in the first box on the right hand side of the page and the words “margin scheme” appear in the third box on the right hand side of the page.
17By contract dated 29 March 2014, the Applicant sold the land in Lot 3 (being Unit 1) to an unrelated purchaser for $900,000. A copy of the contract of sale is at T19, pp.214-269.
18The contract of sale stipulates that GST is not included in the purchase price (T19, p.216). The words “plus GST” appear in the first box on the right hand side of the page and the words “margin scheme” appear in the third box on the right hand side of the page.
19Settlement of both sales appears to have taken place on 19 June 2014 (T19, pp.303&305).
20On 29 August 2014, the Applicant lodged an activity statement for the quarter ended 30 June 2014 showing that it owed nil GST on sales, capital purchases of $137,470 and GST on purchases of $12,497 (T3, p.63).
Sale of 404 Queens Parade and 406 Queens Parade
406 Queens Parade (Lot 2)
21By contract dated 8 December 2014, the Applicant sold Lot 2 (being the parcel of land containing the existing building on 406 Queens Parade) to an unrelated purchaser for $1,000,000. A copy of the contract of sale is at T14, pp.143-155. Settlement appears to have taken place on 7 April 2015.
…
23The contract of sale stipulates that the sale is a going concern; the words “Going Concern” appear in the second box on the right hand side of the page (T14, p.145).
404 Queens Parade (Lot 1)
24By contract dated 23 February 2015, the Applicant sold Lot 1 (being the parcel of land containing the existing building on 404 Queens Parade) to an unrelated purchaser for $935,000. A copy of the contract of sale is at T14, pp. 160-172. Settlement appears to have taken place on 19 June 2015.
25The contract of sale stipulates that the sale is a going concern; the words “Going Concern” appear in the second box on the right hand side of the page (T14, p.162).
…
Audit
27In June 2015, the Commissioner commenced an audit of the Applicant's activity statements for the tax period ending 31 December 2014. A copy of the notification of audit is at T4, p.76. The scope of the audit was expanded to cover the tax periods commencing 1 July 2013 and ending on 31 March 2015 (ST20).
28Mr Kah Weng Loh, who is one of the partners of the Applicant, corresponded with the Commissioner’s representatives in relation to the audit. Mr Loh is a registered tax agent.
29During the audit, the Commissioner discovered that the Applicant:
(a)had not reported any GST payable in relation to the sale of Units 1 and 2 (being Lots 3 and 4). The Applicant’s position was that the margin on each of those sales was nil;
(b)had not reported any rental income for the period during which the lease with Drakk Construction Group was on foot. The Applicant conceded that this was a mistake;
(c)had claimed input tax credits of $4,976 for loan and interest payments in the 31 December 2013 tax period. The Applicant conceded that this was a mistake;
(d)had claimed input tax credits of $11,594 in the 30 June 2014 tax period for expenses for which input tax credits had already been claimed in earlier tax periods; and
(e)had not lodged an activity statement for the tax period ending 30 June 2015.
30The Commissioner’s representatives contacted the purchaser of 406 Queens Parade who confirmed that the property was bought and is currently being used as a commercial property by a finance broker (T20, p.345).
31On 4 September 2015, the Commissioner requested that the Applicant lodge an activity statement for the tax period ending 30 June 2015. A copy of the letter requesting lodgement is at T17, p.191. The Applicant failed to lodge the activity statement.
32The audit was completed in September 2015. A copy of the letter notifying the Applicant of the completion of the audit, including the reasons for decision, is at T21.
Assessments
33As a result of the audit, the Commissioner issued:
(a)an amended assessment for the tax periods 1 October 2013 to 31 March 2015, increasing the Applicant’s net amount by $138,887. A copy of the notice is at T22;
(b)a notice of assessment for the tax period ending 30 June 2015 (Default Assessment) imposing a net amount of $126,409. A copy of the notice is at T25;
(c)a notice of assessment of penalty for failing to provide a document imposing a penalty of $94,806.75 (Default Assessment Penalty). A copy of the notice is at T23; and
(d)a notice of assessment of shortfall penalty imposing a penalty of $83,332.20 (Shortfall Penalty). A copy of the notice is at T24.
The facts asserted in each of these paragraphs are accepted and adopted in these circumstances.
The facts asserted by the Commissioner that are disputed are those in paragraphs [26] and [13], [22] and [29(e)] of the Commissioner’s SFIC.
At [13] the Commissioner asserts:
13.The Applicant also carried out renovations to the existing buildings located on the two frontal lots (Lot 1 and Lot 2). The Applicant has stated that the properties on Lots 1 and 2 were extended for more floor space and rooms (ST21, p.409).
The applicant contends that the references to renovations were references to the units constructed at the rear of the properties, - lots 3 and 4. This disputed fact is addressed below together with the appropriate treatment of Lot 2 406 Queens Parade.
At [22] the Commissioner asserts:
22.The statement of adjustments [for the sale of Lot 2 (the parcel of land on which the existing building on 406 Queens Parade was erected) describes the property as an “Office” (T14, p.159).
The applicant contends, and the Commissioner accepts, that that statement was prepared by the lawyers for the purchasers of that property, and not the applicant.
At [26] and [29(e)] the Commissioner asserts that applicant had not lodged an activity statement for the quarter ended 30 June 2015:
The applicant contends that the Commissioner made default assessments, which obviated that process.
The shortfall penalties imposed represent approximately 48 per cent of the tax shortfall. There were some components of the shortfall that were subject to a voluntary disclosure, and a 10 per cent remission of penalty was allowed for that voluntary disclosure, which brought the overall penalty calculation to approximately 48 per cent of the tax shortfall.
The default assessment penalty was 75 per cent of the tax shortfall calculated in the Commissioner’s first assessment for the period that ended on 30 June 2015. The assessment and objection process for this period entailed an assessment, an objection, an objection decision, and a further, increased, assessment giving effect to the objection decision. In the first assessment, the margin scheme was applied to determine the taxable amount, and a 75 per cent penalty was applied to that. In the objection decision, the Commissioner decided that the margin scheme had been wrongly applied and that the correct taxable amount was higher. The second assessment was made and issued for that higher amount. The Commissioner did not impose any additional penalty associated with the increased liability in the second assessment. The ultimate penalty levied was 75 per cent of the original adjustment, not 75 per cent of the aggregate adjustment after the amended assessment.
issues
The applicant also accepted that the issues in dispute are as described in paragraphs [47] to [52] of the Commissioner’s SFIC in the following terms:
47.The first issue is whether the Applicant has correctly calculated the margin on the sale of Lots 3 and 4.
48. The second issue is whether the Default Assessment was correctly made.
49.The third issue is whether the sale of 404 Queens Parade qualified as the supply of a going concern and, if it did not, whether it qualified for the margin scheme.
50.The fourth issue is whether the sale of 406 Queens Parade was an input taxed supply and, if it was not, whether it qualified for the margin scheme.
51.The fifth issue is whether the Shortfall Penalty of $56,158.60 was correctly imposed and, if it was, whether a further remission is justified.
52.The sixth issue is whether the Default Assessment Penalty of $69,386.25 was correctly imposed and, if it was, whether a further remission is justified.
In support of the allegation that the default assessment should be set aside because, as an assessment, it should not have been made, the applicant makes significant allegations about the process and the time within which that assessment was made. None of these allegations are issues which are properly raised before the Tribunal. The Tribunal is in a position to review the default assessment to the extent that the applicant can show that it is excessive, and not otherwise. A Tribunal review is not judicial review of the process; the assessments have been made, and the Tribunal can only deal with whether or not they are excessive.
The penalty associated with the default assessment is an automatic penalty: 75 per cent. In an application to the Tribunal for review, the applicant can only seek to have that penalty reduced by way of remission, which is addressed below.
Also contested by the applicant in its documents is the GIC.[5] The Commissioner correctly states, and the applicant did not take it any further, that GIC is not a matter that is reviewable in the Tribunal.
analysis
[5]General Interest Charge
Lots 3 and 4
Lots 3 and 4 were the newly constructed dwellings at the rear of the properties.
At the outset the applicant took the view that the margin scheme applied to those properties. The Commissioner does not dispute that the margin scheme applied. The amounts properly included in the calculations required under the margin scheme were, at least originally, disputed. The applicant had included development costs in the acquisition cost in calculating the taxable margin. Including the development costs reduced the taxable amount. The Commissioner disagrees, and says the acquisition cost is the acquisition cost alone, and does not include development costs.
The applicant abandoned its position regarding how the margin scheme applies. In defence of the original position taken, the applicant pointed to paragraphs [50] and [51] of the Commissioner’s ruling, GSTR 2006/8, and noted that an alternative position, which includes development costs in the calculation of the margin, was acknowledged by the Commissioner, and that this was the position that the applicant had adopted.
In reply, the Commissioner drew attention to paragraphs [53] and [54] of that same ruling, which explained why the alternative argument is incorrect and to the Sterling Guardian decisions,[6] both at first instance and on appeal, and section 75-14 of GST Act,[7] which, he correctly submits, are a complete answer to the alternative position.
[6]Sterling Guardian Pty Ltd v Commissioner of Taxation (2005) 60 ATR 502 and Sterling Guardian Pty Ltd v Federal Commissioner of Taxation (2006) 149 FCR 255
[7]The A New Tax System (Goods and Services Tax) Act 1999 (Cth)
The position adopted by the applicant was, as the Commissioner submitted, untenable. The change to the law with effect from 2005, the phrase “to avoid doubt” in s75-14, a binding decision of the Full Court of the Federal Court of Australia directly on point,[8] and the involvement of a tax agent in the position taken by the applicant, make that position more than a shortfall caused by mere carelessness. It is a shortcoming more appropriately regarded as a reckless shortcoming, and base penalty on the reckless scale is appropriate in those circumstances. Remission is dealt with below.
[8]Sterling Guardian Pty Ltd v Federal Commissioner of Taxation (2006) 149 FCR 255.
Lot 1 (404 Queens Parade)
In relation to 404 Queens Parade, Lot 1 on the Commissioner’s diagram, the applicant contends that the whole property was sold as a going concern, notwithstanding that the leased area was only the lower floor, with the upper floor never having been leased. In the alternative, the applicant contends that if only the lower floor was subject to the going concern, and the sale was therefore a mixed supply, then the proportion of the sale proceeds ought be 67 per cent to the lower floor, and 33 per cent to the upper floor, as opposed to what the 50/50 split that the Commissioner has accepted.
Dealing with the appropriate split proportion first, the Commissioner has accepted that part of a building can constitute going concern, and attract the going concern exemption, notwithstanding the sale is of the whole building. The Tribunal makes no comment on that position. And the Commissioner contends that in the present case there is no evidence to show that proportions adopted to date, i.e. the 50/50 proportions, are inappropriate.
The Tribunal was not provided with any evidence of an expert to base an assessment of proportionate values of different parts of the property, nor was it provided with any evidence of the respective amenity and facilities on the first floor or the ground floor, or of the scale of any renovations. The Commissioner’s contention must be accepted. There is no evidence available to support any alternate finding.
This is fundamentally a burden of proof case. It is necessary for the applicant to prove that the liabilities imposed by assessments are excessive, or otherwise incorrect. That is the effect of section 14ZZK of the Administration Act.[9] In challenging a substantive liability, an applicant is required to prove that the assessment is excessive, and at times what the correct liability to tax should be. There is no onus on the Commissioner to show that an assessment is correct.
[9]The Taxation Administration Act 1953 (Cth).

As to whether the whole premises sold was a going concern, the applicant points to GST Ruling 2002/5, at paragraphs [152] to [154]. These paragraphs are to the effect that partially tenanted buildings might be able to be sold as a going concern, and that in conducting a leasing enterprise from a building, from time to time that enterprise might involve temporarily unlet parts of the building, and parts or areas of some buildings might not be tenanted because they are set aside and used for storage of things like cleaning equipment, and/or offices for building managers.
Without endorsing or criticising those paragraphs, paragraphs [152] to [154] of GST Ruling 2002/5 are not relevant in the present case.
(a)Paragraph [152] deals with the ordinary event of tenants coming and going, and an ongoing process of finding new tenants. The present case involves an unlet floor of a two-storey building, and no active pursuit of a tenant for that part of the building.
(b)Paragraph [153] talks about temporary unlet areas to facilitate maintenance, refurbishment, and activities of the like. Again, that is not this case.
(c)Paragraph [154] talks about some areas not being let, but nevertheless still being part of an enterprise of leasing the building. Such areas could include storage equipment and the like. The paragraph calls for the establishment of a nexus between the unlet areas and the enterprise of leasing. Here there is an assertion that the second floor was used for storage, and a manager’s office. There is no evidence that demonstrates how the second floor was integral to the enterprise of leasing the whole of the two-level building. There is no evidence of what was stored, or how it was necessary to have a building manager, and what that building manager did.
The applicant’s reliance on GST Ruling 2002/5 is misconceived.
It is also to be recognised that the applicant has asserted that the second floor of Lot 1 was not part of the leasing enterprise.
In light of these circumstances it cannot be concluded that Lot 1, 404 Queens Parade was sold as a whole, as a going concern, and it cannot be concluded that any different proportion of the property is more appropriately regarded as the going concern than the 50/50 split.
Estoppel contentions concerning Lot 1 are dealt with below.
Lot 2 (406 Queens Parade)
In relation to Lot 2 (406 Queens Parade) the applicant advances three propositions.
First, the contract indicated the property was sold as a going concern. However, there was no lease of the property when sold, and no other evidence of leasing enterprise being conducted in relation to that property. So the sale was not free of GST on that account.
Second, the applicant has attempted to secure the purchasers’ agreement to amend the purchase agreement to make the contract subject to the margin scheme. That agreement has not been procured, so the margin scheme cannot be applied.
The remaining proposition advanced by the applicant was that the sale was an input tax supply, and not subject to GST. To be an input tax supply, the premises needs to be a residential premises, but not commercial residential premises or new residential premises. That is the effect of section 40-65 of the GST Act. The applicant contends first, that 406 Queens Parade was capable of use as a residential premises, and secondly, that it was not new residential premises.
Much of the documentary material suggests that 406 Queens Parade comprised office or commercial premises. For example, the contract of sale suggested it was a going concern, and the statement of adjustments suggested it was an office. After the sale, those premises were let by the new owner of the property, to a commercial tenant, for commercial use. In these circumstances the Commissioner contends that the applicant has not established that the premises were not commercial premises.
There is also evidence that it was undeniably the case that 406 Queens Parade began life as a residential premises, and at least when purchased by the applicant was inherently capable of use as a residential premises. It had a floor plan that suggested it comprised five bedrooms, a living room, and family, kitchen, and dining rooms. It had all the features of a relatively large two-storey terrace home, typical of its suburb. While it is not known how much of the configuration of the property changed in the period of the applicant’s ownership, a property that begins with this configuration could reasonably be expected, in 2015, to be capable of use as a residential premises. It ought not be forgotten that in contemporary times, buildings that began life as churches, fire stations, banks, and even warehouses, seem to be desirable, if not highly sought after by at least some in the contemporary community, as residential premises. It is possibly a very low threshold to satisfy for premises to be capable of use as residential premises.
The Commissioner also contends that the applicant has not demonstrated that Lot 2 (406 Queens Parade) was not new residential premises. New residential premises is a defined term.[10] Residential premises are new if they have not previously been sold as residential premises, have been created through substantial renovations of a building or have been built or contain a building that has been built to replace demolished premises on the same land. Clearly the premises had previously been sold, or should be accepted as previously having been sold as residential premises, but it is not clear whether, at the time of sale by the applicant, the premises had not undergone substantial renovations falling within the second part of the definition. Substantial renovations is also defined[11] in the following terms:
Renovations in which all, or substantially all, of the building is removed or replaced. However the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases.
[10]GST Act, s 40-75.
[11]GST Act, s 195-1.
In correspondence from the applicant concerning Lot 2 (406 Queens Parade) the applicant said that that property had undergone what might be described as significant renovation. In an email of 27 August 2015 the applicant said both 404 and 406 were extended for more floor space and rooms. The works carried out were estimated to be 50 per cent each. That statement was made in response to an earlier email from the ATO[12] to the applicant which asked:
We require information pertaining to the time 406 Queens Parade was used as temporary residential accommodation, and additionally we require detailed explanation as to what works were carried out on property 406 Queens Parade, as well as the attribution calculations used to distinguish between 406 and 404.
[12]Australian Taxation Office.
The applicant contends that 406 Queens Parade was not new residential premises, and merely spruced up for sale by painting the building, and that the only permit sought was for the painting and related works, and that the statements concerning renovations were a reference to units constructed at the rear of 404 and 406 Queens Parade. There is no evidence to support the applicant’s assertion. There is no evidence of planning permits sought and not sought, as asserted. Further, the context in which the renovation statements were made does not appear to be newly constructed apartments. And the language used in the statements made is inconsistent with the statements being a reference to newly constructed apartments: - a wholly new apartment is unlikely to be referred to in terms of extension, more floor space and more rooms. In these circumstances, the applicant has not proven that 406 Queens Parade was not substantially renovated, and therefore was not new residential premises.
Lots 1 and 2 – Estoppel
The applicant also asserts that the Commissioner ought to be estopped from at least asserting part of the tax liability associated with 404 and 406 Queens Parade. He originally assessed allowing the margin scheme to apply, and then on objection recalculated the liability, not applying the margin scheme. This assertion came at the hearing, and was a new point raised. While taken by surprise, the Commissioner did not take any exception to the lack of notice of the new point, and pointed, correctly, to the decisions and the relevant passages in Federal Commissioner of Taxation v Wade,[13] and Macquarie Bank.[14] The estoppel provision cannot be accepted. There is no estoppel against the operation of the Act.
[13](1951) 84 CLR 105 at 117, Kitto J.
[14](2013) 215 FCR 403 at [49] and [2013] FCAFC 119 at [11].
Penalty remission
At paragraph [102] of his submissions, and relying on Sanctuary Lakes,[15] the Commissioner contends:
Whether or not a penalty should be remitted depends on whether the Commissioner is satisfied, having regard to the taxpayer’s particular circumstances, that it is appropriate to remit penalty in whole or in part
and
There need to be circumstances that could be regarded as mitigating the applicant’s behaviour in some way.
[15](2013) 212 FCR 483 at [249] and [274].
At paragraphs [248] and [249] of Sanctuary Lakes, Edmonds J said:
…It may be appropriate in a particular case to remit a penalty on the basis that the outcome otherwise could be described as “harsh”, but that does not mean that “harshness” should be elevated to an essential element in determining whether or not to remit the penalty under s 298-20.
[249] In my opinion the correct question which arises under s 298-20 should not be expressed in terms of “harshness”. Rather, 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
...
In my view, there is no warrant for confining the otherwise broad discretion in s298-20 to circumstances where the outcome of imposing administrative penalty would otherwise be “harsh”.
There are two penalties presently in issue, one is the shortfall penalty, and the other is the default assessment penalty.
The shortfall penalty has been levied at 50 per cent, and any uplift has been remitted, so it remains at 50 per cent with the slight reduction from 50 per cent on account of the voluntary disclosure.
The applicant contends that the shortfall penalty is harsh and ought be remitted, and the applicant points to alternative views expressed in the Commissioner’s ruling that are consistent with the position adopted by the taxpayer. As already indicated, those alternative views are untenable, and were untenable for quite a number of years before the relevant acts of the applicant.
The applicant also points to problems with computer facilities, telephone and internet difficulties, and the death of the mother of one of the partners of the applicant.
The Commissioner contends that the second two of these groups of factors are irrelevant because they occurred well after the events which led to the shortfall arising. That submission is correctly made, and those subsequent matters, computer difficulties and the like, that occurred in August and possibly later in September 2015, do not bear upon the sales of the original two Lots or Lots 3 and 4. There is no other evidence of factors that suggest that the penalty is otherwise inappropriate, the objection decision to decline further penalty remission must be affirmed. Whether penalty is personally perceived by the applicants to be harsh is not a factor that the Tribunal can have regard for. The applicant’s case to the contrary must be rejected.
That leaves the default assessment penalty. On the spectrum of the timeframes within which the ATO audits are usually conducted and concluded with the issue of assessments, the timeframe over which the 30 June 2015 period BAS[16] was discussed between the ATO and the applicant and the default assessment that was made was short, very short. The ATO asked for the BAS to be lodged in August 2015, before the usual lodgement date for BAS lodgements for periods to 30 June 2015 allowed under the ordinary tax agent programs. After that request, some dialogue continued concerning lodgement of that BAS, and on or about 11 September 2015, a short extension was sought to 18 September 2015. For reasons unknown, the ATO only consented to an extension to 16 September 2015. The two-day difference is without explanation, and seems somewhat harsh or petty. The BAS was not lodged, and the Commissioner issued a default assessment on 25 September 2015.
[16]Business Activity Statement.
During this period there were communication difficulties between the applicant and the Commissioner, and there are competing perceptions of those difficulties. Nevertheless, there is evidence of the death of a close relative of one of the applicant’s partners. There is evidence of Telstra failures affecting the applicant. There is evidence of a server breakdown and replacement that affected the applicant. And while acknowledging the Commissioner’s submission, quite powerfully made, that the applicant has not led evidence of what it was that the applicant’s partner, who had the family death, could have assisted with, or what was on the computer system that could not be accessed, these events were out of the normal, and can be accepted as causing a disruption.
In circumstances where the timeframe within which the Commissioner acted was very short, and in circumstances where a default assessment attracts an automatic penalty of 75 per cent, it can be seen that this is an unjust outcome. In those circumstances, having regard to the factors affecting the taxpayer and the taxpayer’s particular circumstances, the default assessment penalty ought be remitted, at least in part. The applicant was asked to lodge, and failed to do so, the relevant BAS. That request was made and directed to one of the members of the applicant, who was a tax agent. These factors cannot be ignored either. Accordingly, the extent of the remission cannot be a remission in full. The decision of the Tribunal is to remit the default assessment penalty to amount equal to 50 per cent of the penalty that has been levied. In other respects the objection decisions of the Commissioner are affirmed.
decision
The Tribunal varies the decision under review by remitting the default assessment penalty by 50% and otherwise affirms the decision under review.

I certify that the preceding 54 (fifty-four) paragraphs are a true copy of the reasons for the decision herein of Deputy President F D O'Loughlin

[sgd]........................................................................
Associate
Dated: 16 October 2018

Date(s) of hearing: 14 and 15 June 2018

Date of oral decision and reasons 15 June 2018

Advocate for the Applicant: Mr Kah Loh

Counsel for the Respondent: Ms Mia Clarebrough

Date(s) of hearing:	14 and 15 June 2018
Date of oral decision and reasons	15 June 2018
Advocate for the Applicant:	Mr Kah Loh
Counsel for the Respondent:	Ms Mia Clarebrough