SDRQ and Commissioner of Taxation (Taxation)

The Administrative Appeals Tribunal reviewed deemed objection decisions of the Commissioner of Taxation that disallowed the Applicant, SDRQ, claims for capital losses in the 2011 tax year and imposed a shortfall penalty. The Applicant had acquired shares in Company A and Company B in 1989 for a total of $6,000,000.15. In 1991 and 1992, the Applicant transferred these shares to related parties for nominal amounts, claiming substantial capital losses. These claimed losses were carried forward and applied against capital gains in later tax years, including the 2011 tax year. The Commissioner rejected the carry forward losses and assessed a shortfall penalty for recklessness.

The Tribunal was required to determine whether the Applicant had incurred allowable capital losses on the disposal of its shares in Company A and Company B, and consequently, whether the carry forward of these losses to the 2011 tax year was valid. Additionally, the Tribunal had to consider whether the shortfall penalty imposed on the Applicant for recklessly making a false or misleading statement in its 2011 tax return was appropriate.

The Tribunal varied the deemed objection decision, allowing the Applicant's claimed loss on the sale of shares in Company B, and set aside the penalty decision in relation to that claim. However, the Tribunal affirmed the disallowance of the claimed loss on the sale of Company A shares and affirmed the penalty decision concerning that claim, finding it was based on recklessness as to the operation of taxation law. The Tribunal noted that the Applicant's submissions did not justify remission of the penalty. The parties were to be heard on the appropriate orders and a specific point concerning losses claimed in prior years.