Sobel Investments Pty Ltd and Commissioner of Taxation - [2012] AATA 180

[2012] AATA 180

Division
File Number(s)	No. 2010/5449, 2010/5450
Re	Sobel Investments Pty Ltd
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Dr G Hughes
Date of written reasons	26 March 2012
Place	Melbourne

Decision Summary

The decision under review is affirmed

...................[sgd].....................................................

Dr Gordon Hughes, Member

Catchwords

Applicant in the business of buying and selling properties – carried forward losses from the sales of properties – deduction of cost of renovations and other expenses – applicant unable to produce reliable evidence – failure by applicant to discharge onus of proof

Legislation

Income Tax Assessment Act 1997 sections 4-1, 4-10(3), 4-15, 6-5, 6-10, 6-20, 8-1, 70-1, 70-10, 70-15, 70-35, 70-40, Division 36
Taxation Administration Act 1953 sections 8AAG, 14ZZK(b)(i), 284-75, 284-90, 284-B, 286-75

Cases

Commissioner of Taxation vDalco (1989-90) 168 CLR 614
Galea v Federal Commissioner of Taxation (1990) 21 ATR 110
Gauci v Commissioner of Taxation (1975) 135 CLR 81
Federal Commissioner of Taxationv Australia and New Zealand Savings Bank Ltd 94 ATC 4844

Secondary Materials

Miscellaneous Taxation Ruling MT2008/1.

REASONS FOR DECISION

Background

The applicant in this matter was seeking review of a decision by the respondent to disallow its objection to assessments for the years ending 30 June 2003 and 30 June 2004.
The application principally involved the question of the deductibility of expenses allegedly incurred by the applicant in buying, renovating and selling properties in circumstances where the expenses were largely undocumented. The properties in question were located in Synott Street, Werribee (the "Werribee property") and in Little Bourke Street, Melbourne (the "Little Bourke Street property").
The applicant was incorporated on 24 February 1995. The applicant acknowledged that, for the purposes of these proceedings, it was in the business of buying and selling properties.
Between 28 March 2003 and 19 October 2003, the applicant was placed under external administration.
In 2009 the applicant was selected for an income tax audit by the respondent in relation to omitted income and expenses for the financial years ending 30 June 2003 and 30 June 2004.
The auditor requested information or supporting documentation regarding sources of income received and expenses incurred during these years but the applicant failed to provide this information.
Following a request by the respondent, the applicant lodged income tax returns for each of the years in question, in May 2010. Each return claimed nil return for the year in question.
The respondent determined that the returns were inaccurate because they failed to account for the sales of the Werribee property and the Little Bourke Street property.
In June 2010 the respondent issued a notice of assessment for the year ending 30 June 2003 with a taxable income of $1,263,500, and for the year ending 30 June 2004 with a taxable income of $2,450,000, together with notices of assessment of a shortfall penalty of $189,525 and $367,500 respectively for the two years in question.
The respondent's calculations included a carried forward loss of $1,291,500 in the 2003 financial year. This figure was determined by reference to the aggregate of the applicant's property purchases in the financial years ending 30 June 1996, 1997 and 1999 respectively, less the proceeds of property sales in the financial years ending 30 June 1998, 1999 and 2000 respectively.
The applicant objected that the respondent had included the sale price of the Werribee and Little Bourke Street properties in its assessment but had not allowed the cost incurred in purchasing those properties, including associated costs such as land cost, stamp duty, renovations, legal expenses, wages, interest etc, all of which it described as clearly allowable deductions.

Legislation

It is convenient to provide a broad summary of the legislative provisions under which this decision was made. The summary below addresses the legislation as it was in force at the time of the income years relevant to this decision.
Fundamental to the respondent's case was section 14ZZK(b)(i) of the Taxation Administration Act 1953 which provides that the onus is on the applicant to substantiate taxable income for each year.
Section 4-1 of the Income Tax Assessment Act 1997 (the Assessment Act) provides that income tax is payable by individuals and companies, and notes that the actual amount of income tax payable may be nil.
Section 4-10(3) of the Assessment Act states that the formula for determining income tax payable for an income year is as set out in section 4-15.
The formula in section 4-15 of the Assessment Act essentially involves subtracting the taxpayer's deductions from assessable income. If deductions exceed the assessable income, the taxpayer may have a tax loss which can be deducted in a later income year.
Section 6-5(2) of the Assessment Act provides that, for Australian residents, assessable income includes ordinary income derived directly or indirectly from all sources during the income year.
Section 6-10 of the Assessment Act provides that assessable income includes amounts which are not ordinary income and which are described as statutory income.
Section 6-20 of the Assessment Act describes the circumstances in which ordinary income or statutory income may be regarded as exempt income.
Section 8-1 of the Assessment Act deals with general deductions and provides that losses or outgoings can be deducted from assessable income when incurred in gaining or producing assessable income.
Section 70-1 of the Assessment Act provides that the taxpayer can deduct items of trading stock in certain circumstances.
Section 70-10 of the Assessment Act defines trading stock as including anything acquired for the purposes of sale or exchange in the ordinary course of a business.
Section 70-15 of the Assessment Act states that outgoings incurred in connection with the acquisition of trading stock can be deducted during the year in which the outgoing is incurred or otherwise in the first income year that it either becomes part of the taxpayer's trading stock on hand or the first income year for which an amount is included in the taxpayer's assessable income connected with the disposal of that item.
Section 70-35 of the Assessment Act provides that the excess of value in trading stock at the end of an income year, over the value at the start of the income year, becomes assessable income; whilst the taxpayer can deduct the difference where the value at the end of income year is lower than at the start of the income year.
Section 70-40 of the Assessment Act provides that the value of an item of trading stock at the start of an income year is deemed to be the same as at the end of the previous income year, and that the value of the item will be nil if the item was not taken into account at the end of the previous income year.

Consideration of issues

Scope of dispute

The applicant sought general deductions in the 2003 income year for the cost of the Werribee property, which had been purchased in 1997. It asserted that the proceeds of the sale should be reduced by $1.7 million to account for the cost of renovations. The applicant asserted that further reductions be made to take account of the cost of receivership arising after receivers and managers took control of the property during the year.
In respect of the 2004 income year, the applicant sought to deduct the original cost of the Little Bourke Street Property which had been purchased in 1998. It contended that the sale price should be reduced so as to take account of the cost of renovations, interest expenses, legal expenses relating to receivership disputes and wages for directors' fees.
Further, in the 2003 and 2004 income tax years, the applicant sought to carry forward losses from the previous income year.
The applicant provided the respondent with a nil self-assessment of ordinary income and statutory income in respect of each year. The respondent asserted that this nil self-assessment ignored ordinary income in the form of rent from the Little Bourke Street property, earnings from a shop of which the applicant was a lessee at 385 Bourke Street, rent of site advertising and promotional material at the Little Bourke Street property and, in the 2003 income year, the proceeds of a deposit received and retained on a failed sale of the Werribee property. In relation to statutory income over the same period, the respondent asserted that the applicant's nil self-assessment ignored dividends received from a share in Bonluc Pty Ltd valued at $2.3 million and dividends from Elephant Backpackers Pty Ltd.
None of the applicant's claims for deductions in 2003 or 2004 were verified by contemporary documentation, either because no such documentation was produced or because such documentation as was produced did not directly support the deductions claimed. Furthermore, to the extent that the applicant sought to rely upon opening and closing stock values of trading stock in the form of properties relevant to the two years in question, its failure to lodge returns for the years 1997-2000, and its lodgement of nil returns for the 2001 and 2002 income years, created what the respondent described as a failure to engage with the relevant provisions of the Assessment Act.

Burden of proof

The applicant bore the onus of proof, pursuant to section 14ZZK(b) of the Taxation Administration Act 1953, to show that the assessments under review were excessive, and the extent to which they were excessive: Commissioner of Taxation vDalco (1989-90) 168 CLR 614.
The respondent emphasised that it was for the applicant to substantiate its taxable income for each of the 2003 and 2004 income years by including amounts derived as income according to ordinary concepts (ordinary income) of that year together with other assessable income (statutory income) and exempt income, subject to the allowance of general deductions of the year in question, tax losses carried forward from earlier income years and accounting for trading stock it had held at the start and end of that income year.
Specifically, pursuant to section 14ZZK(b)(i), it was necessary for the applicant to apply the following methodology:
(a)the inclusion of amounts derived as:
(i)Income recording to ordinary concepts (ordinary income) of that year;
(ii)Other assessable income (statutory and income) of that year;
(iii)Exempt income of that year; and
(b)the allowance of:
(i)General deductions of that year;
(ii)Any tax losses carried forward from earlier income years and;
(iii)Accounting for trading stock it held at the start and end of that income year.
It was thus for the applicant to substantiate the deductibility of its expenses by reference to the prescribed methodology. As submitted by the respondent, the applicant failed to address all of the relevant integers.
The significance of section 14ZZK(b)(i) in the context of this matter must be emphasised as it ultimately forms the basis of the Tribunal's decision. If the respondent made an error in determining the cost or otherwise of renovations or other expenses allegedly incurred by the applicant, the onus remained on the applicant to demonstrate what its true tax liability should be.
In this regard, it is instructive to refer to Commissioner of Taxation vDalco (1989-90) 168 CLR 614 in which Brennan J stated:
[W]here, as here, the tax payer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong. A tax payer that shows on the facts that are known that a mere error by the Commissioner in assessing the amount of the tax payer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. Unless the amount of the assessment is found to be excessive in the sense of being greater than the taxable income on which tax ought to have been levied, the tax payer fails on his appeal.
Previously, in Gauci v Commissioner of Taxation (1975) 135 CLR 81, Mason J had observed:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirements that the assessments should be sustained or supported by evidence.
While the judgment of Mason J in Gauci was a dissent, it was subsequently quoted with approval in Dalco.
Also of relevance is Galea v Federal Commissioner of Taxation (1990) 21 ATR 1108, in which Hill J observed:
The Commissioner's failure to establish a positive case… leaves the Tribunal in no different position than it would have been if the Commissioner had not sought at all to advance a positive case.
In short, it was for the applicant to establish and demonstrate its true substantive tax position. The Tribunal has concluded that the applicant was unsuccessful in this regard.
Mr Jerome Borazio, a director, gave evidence on behalf of the applicant. In the absence of credible documentary evidence, the applicant's case essentially turned upon the credibility of Mr Borazio's evidence. Unfortunately, Mr Borazio did not prove to be a reliable witness – this is not to say that he attempted to mislead the Tribunal, but rather that he was simply unable to assist.
In a witness statement filed with the Tribunal, Mr Borazio stated that the applicant had purchased the Werribee property for $550,000 (in 1997) plus stamp duty and legal costs. It subsequently undertook renovations which cost $1,700,000. When the loans were defaulted, the bank had appointed receivers, and all proceeds of the sale were utilised to repay the bank plus receivership fees. The applicant made no profit. It sought to carry forward losses of $242,000 in the year ended 30 June 2003.
In the witness statement Mr Borazio also stated that the applicant had sold the Little Bourke Street property (in the financial year ending 30 June 2004) for $2,450,000 less agent's commission and cost. From that sale price, it sought to deduct the original cost of land plus stamp duty and legal costs ($1,050,000), the cost of renovations and expenses ($611,340) incurred during ownership, interest of $98,250 and legal expenses of $64,250 which were incurred by the company in disputing the receivership. In addition, the applicant sought to carry forward from 30 June 2003 losses of $242,200. It also claimed a deduction in respect of directors' fees amounting to $80,000, rendering a net taxable income of $251,660 for the year of 30 June 2004.
As indicated above, Mr Borazio's assertions were unsupported by documentary evidence. He could not adequately explain why he had not provided documentation when requested by the Commissioner in correspondence dated 9 December 2009, 11 February 2010, 6 September 2010 and 5 October 2010. He told the Tribunal that he just did not know what documents were available or had been made available.
The respondent contended that much of Mr Borazio's oral evidence was irrelevant. Broadly speaking, it did not address the key issues showing the true liability of the taxpayer's position under the Act.
The respondent further contended that to the extent that Mr Borazio's evidence was relevant, it was unreliable. Mr Borazio admitted to having a poor recollection. As a consequence, specific data regarding quantum and timing which was essential for the applicant's case was simply not presented.
The respondent categorised Mr Borazio's signed statement as a speculative reconstruction, as opposed to an independent recollection. By way of example, Mr Borazio's oral evidence as to the cost of renovations was, in the respondent's words, a moveable feast. Similarly, his estimates as to interest payments ranged from $98,000 to $250,000, and his estimate of legal expenses ranged from $64,000 to $360,000.
The respondent's counsel submitted that, from his demeanour in the witness box, Mr Borazio was uncooperative, unresponsive and argumentative, and that this formed grounds for the Tribunal not to accept his uncorroborated evidence. According to the respondent, Mr Borazio had claimed not to understand questions which were clear, he had made a last minute request for an adjournment on speculative grounds and he had failed to produce documentation called for by the respondent.
The Tribunal shares the respondent's conclusion that, uncorroborated, Mr Borazio's evidence was unreliable. Given the absence of helpful documentary evidence, this left the applicant with little prospect of success.
Against the above background, it is appropriate to review various individual items which formed part of the applicant's claim. The Tribunal considers it unnecessary to deal with every issue and contention in these reasons for decisions, however. The basis of the Tribunal's reasoning will become clear.

Trading Stock

The respondent provided evidence of the acquisition and sale of various properties by the applicant over a period of five years. The applicant had acknowledged that it was in the business of acquiring and disposing of properties.
Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purposes of gaining or producing such income, except where the outgoings are of a capital, private or domestic nature, or relate to the gaining or producing of exempt income.
Section 70-1, as it applied between 1 July 1997 and 4 July 1999, provided:
This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations:
·you acquire an item of trading stock;
·you carry on a business and hold trading stock at the start or the end of the income year;
·you dispose of an item of trading stock outside the ordinary course of business or it ceases to be trading stock in certain other circumstances.
The applicant sought, in 2003, to deduct the original cost of the Werribee property. It further sought, in 2004, to deduct the original cost of the Little Bourke Street property.
The Werribee property had been acquired in the financial year ending 30 June 1998 and the Little Bourke Street property had been acquired in the financial year ending 30 June 1999. It followed that the properties in question should have been deducted in earlier years. They could not be deducted in the financial years ending 30 June 2003 or 30 June 2004.
It is appropriate to commence with a review of the implications of the sale of the Werribee property. The applicant purchased the property in 1997 for $550,000 and sold it in the financial year ending 2003 for $2,555,000. It contended that the sale price of the property should be reduced by $550,000 plus stamp duty, being the original cost of the land.
The auditor applied a carried forward loss of $1,291,500 in determining the applicant's taxable income for the 2003 income year. This included an amount of $550,000 in respect of the Werribee property. It followed that the deduction had already been allowed under section 8-1 of the Income Tax Assessment Act in the 1997 income year, being the income year in which the expenditure was incurred. The purchase price had therefore already been allowed in the 2003 income year as part of a carried forward loss of $1,291,500 and no further adjustment can be made.
With respect to the stamp duty aspect of the claim, no evidence was provided by the applicant as to the amount of stamp duty incurred. This had been requested by the respondent on various occasions. In the absence of any evidence, no deduction can be allowed.

It is appropriate to turn now to the Little Bourke Street property. The property had been acquired on 4 March 1999 for $1,050,000 and sold in 2004 for $2,450,000.
The auditor applied a carried forward loss of $1,291,500 in determining the applicant's taxable income for the 2003 income year. This included a carried forward loss of $1,050,000 for the 1999 income year relating to the purchase of the Little Bourke Street property. A deduction had therefore already been allowed under section 8-1 of the Assessment Act in the 1999 income year, being the income year in which the expenditure was incurred, for the purchase price of the property. The purchase price had accordingly already been allowed in the 2003 income year as part of the carried forward loss of $1,291,500 and no further adjustment for the purchase price can be allowed.

Renovations

As this was a major deduction claimed by the application, it warrants particular comment.
The applicant sought a deduction of $1,700,000 in respect of renovations to the Werribee property.
The applicant did not provide substantiating information in respect of the claimed expenditure. The respondent noted that details to substantiate the renovation expenses had been requested in letters dated 6 September and 5 October 2010 but no response had been received, and accordingly no deduction had been allowed. The respondent emphasised that the applicant had provided no contemporaneous information or documentation to substantiate the quantum or timing of the asserted renovations.
In his evidence before the Tribunal, Mr Borazio could not be specific as to how much he had spent on the Werribee renovations. He estimated he had spent about $2,000,000 on the Werribee and Little Bourke Street properties combined.
Mr Borazio acknowledged that in his written statement he had estimated the renovations of the Werribee property were valued at $1,700,000 but he could not recall how this figure was arrived at. It was an approximation of the cost of a big renovation.
In relation to the Werribee renovation, Mr Borazio rejected any suggestion that the amount spent on renovations was exaggerated. He disputed the description of the property by Chartered Accountants Carson & McLellan, receivers and managers, on 3 April 2003 that the premises are unattended and appear to be in a state of neglect. According to Mr Borazio, this may have been the appearance but it did not mean that no renovation work had been done.
Mr Borazio disputed the assertion in a letter from Carson & McLellan dated 26 May 2003, in which receiver and manager, Craig Crosbie commented that Mr Borazio's estimate that the site was worth $3,000,000 seemed inappropriate as the site has not been developed and the Company has not obtained relevant planning permits. Mr Borazio also disputed the assertion by Paul Sutherland of Sutherland Farrelly, real estate agents, in a facsimile dated 22 May 2003 that the building has been partially refurbished and it is questionable as to whether the building adds any value to the site.
Mr Borazio further rejected as a misinterpretation a description by Mr Sutherland on 28 May 2003 that the property was suitable for demolition. It was, in Mr Borazio's contention, an incomplete development relevant to a specialised field, and would be regarded as being in an appropriate state for development by a person involved in the specialist field.
Mr Borazio rejected as a negligent statement a report in the Jewish News on 30 May 2003 which stated:
Selling Agent Michael Major comments "that the size of the site, location and 'residential one' zoning presents an outstanding redevelopment opportunity for a medium to high density residential development, aged care or related use subject to the necessary Council approval.
In relation to the Little Bourke Street property in the year ended 30 June 2004, Mr Borazio submitted that the figure of $611,340 claimed for expenses was accurate but he acknowledged it was based on materials prepared for him by his accountants and that he had no specific recollection of the expenses.
Mr Borazio accepted that the applicant had produced no contemporaneous evidence of expenditure on the Little Bourke Street property to the respondent but he nevertheless insisted that such records existed. However, he was not able to produce any such records to the Tribunal.
Against this background, the Tribunal cannot be satisfied as to the amount, if any, which the applicant spent on renovations to either property. The deductions claimed for renovations cannot be allowed.

Administration fees

Between 28 March 2003 and 19 October 2003 the applicant had been placed under external administration, and receivers and managers were appointed. The applicant contended that the sale price of the Werribee property should be reduced for the costs of the receivership. It further contended that it did not receive any funds on settlement, with all excess funds being paid to the receivers and managers. The respondent insisted that the applicant had not identified credible contemporaneous information or documentation to substantiate its assertions. Hence, it was not entitled to a deduction under section 8-1 of the Assessment Act for receivership expenses.
It is clear to the Tribunal that the costs are not allowable as a deduction under section 8-1 of the Assessment Act. Similarly, the applicant's argument that the sale price of the Werribee Street property should be reduced by virtue of the fact that the applicant did not receive any funds on settlement (because all excess funds were paid to the receivers) is not sustainable. Any funds paid to the receiver cannot be considered to be expenditure incurred in gaining or producing the applicant’s assessable income or necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income. No deduction is therefore permissible on these grounds.

Wages and Directors fees

The applicant sought to deduct the cost of wages and directors fees from the profit of the sale of the Little Bourke Street property but again no evidential material was provided.

Stamp Duty

The applicant contended that the sale price of both properties should be reduced by the amount of stamp duty on the purchase. However, it provided no evidence of the amount of stamp duty incurred.

Interest and Legal Expenses

The applicant contended that the sale price for the Little Bourke Street property should be reduced for interest in the amount of $98,250 together with legal expenses in the amount of $64,250 relating to disputing receivership and associated matters. The respondent countered, however, that there was no entitlement to a deduction under section 8-1 of the Assessment Act in the absence of substantiating evidence.

Undeclared income

The applicant did not provide the Tribunal with any evidence by the applicant that the respondent had incorrectly assessed the rental and other income.
In respect of the 2003 income year, the respondent asserted that the applicant would have received gross income which at least included:
(a)a deposit on a failed sale of the Werribee Street property;
(b)rental from the Little Bourke Street property;
(c)income from the lease of a shop at 385 Bourke Street;
(d)rental of site for advertising and promotional material at Little Bourke Street Property;
(e)a small amount in respect of sundry debtors;
(f)dividends from Bonluc Pty Ltd; and
(g)dividends from Elephant Backpackers Pty Ltd.
In relation to the 2004 income year, the respondent contended that the applicant's income should at least include:
(a)rent from the Little Bourke Street property;
(b)rent from the first floor unit at Little Bourke Street to Mr Borazio;
(c)rent from the shop at 385 Bourke Street;
(d)rent of site for advertising and promotional material at Little Bourke Street;
(e)dividends from Bonluc Pty Ltd; and
(f)dividends from Elephant Backpackers Pty Ltd.
Mr Borazio said he could not recall whether, in the 2003 financial year, the applicant had received and retained a 10% deposit in relation to a failed sale. He thought it was most likely incorrect that the applicant had received and retained the sum of $270,000 in this respect but he would not elaborate further.
In relation to the Little Bourke Street property, Mr Borazio acknowledged that the applicant would have been receiving rent from tenants before and after the receiver and manager was appointed.There were a number of tenants before and after the receivership – one was a video shop (Centre Zone) and one was a hair dresser (Pro-Trim). Rent would have been about $115,000. After some prevarication, Mr Borazio acknowledged that the applicant would have received income from the Uzuki sushi bar. He said he would not have disclosed this in his income tax return because it was a loser.
Mr Borazio accepted the proposition that the applicant would have received rent in respect of billboard space of about $6,000 per annum.
Mr Borazio acknowledged that the applicant may have received income from Bonluc Pty Ltd but it was unlikely. A report by Carson & McLellan dated 26 May 2003 on the value of the applicant's assets included reference to a $1 share in Bonluc Pty Ltd which had been revalued at $2,300,000. Mr Borazio disputed the valuation of the Bonluc share at $2,300,000. He said this was a nonsense because it was not tradable. It had no commercial value in his view. The applicant led no further evidence in support of this assertion.
The report from Carson & McLellan also referred to a $1 share in Elephant Backpackers Pty Ltd, the realisable value of which was unknown. Mr Borazio acknowledged the applicant would have received money from Elephant Backpackers but he could not recall how much.

Penalties

The respondent contended that the applicant was liable to an administrative penalty on the basis that, in the terms of section 284-75(1) of schedule 1 to the Taxation Administration Act 1953, it had made a statement to the respondent which was false and misleading in a material particular. Alternatively, the applicant or its agent had been reckless as to the operation of a taxation law in the terms of section 284-90.
The starting point is that the applicant lodged nil tax returns for each of the 2003 and 2004 income years. It was in response to this that the applicant was ultimately issued, following an audit, with notices of assessment for income tax for the two years in question, with shortfall penalties.
The applicant's penalty was set at 50%. In this regard, it is relevant to have regard to the respondent's Miscellaneous Taxation Ruling MT2008/1 ("Penalty Relating to Statements: Meaning of Reasonable Care, Recklessness and Intentional Disregard"). The ruling gives the Commissioner's interpretation of the concepts of reasonable care, recklessness and intentional disregard as used in subdivision 284-B and intentional disregard and recklessness as used in subsection 286-75(1A) of schedule 1 to the Taxation Administration Act 1953.
Paragraph 20 of the Ruling notes that the base penalty under subsection 284-90(1) or a penalty imposed under subsection 284-75(1) reflects the level of care taken by the entity or agent in making a false or misleading statement and, basically, the more culpable the behaviour, the higher the level of penalty.
Paragraph 21 of the ruling states:
Where a shortfall amount results from a failure to take reasonable care, the base penalty under item 3 of the table in subsection 24-90(1) is 25% of the shortfall amount. Where recklessness as to the operation of a taxation law results in a shortfall amount, the base penalty amounts to 50% of the shortfall amount under item 2 of the table in subsection 284-90(1). A base penalty amount of 75% of a shortfall amount applies under item 1 of the table in subsection 284-90(1) if the shortfall amount results from intentional disregard of a taxation law.
The Tribunal is satisfied in this instance that the applicant's conduct was appropriately categorised as reckless.

General interest charge

The respondent may remit all, or part of, the general interest charge if the circumstances described in sections 8AAG(2) to (5) of the Taxation Administration Act 1953 are satisfied. These include special circumstances where it is fair and reasonable to remit. The Tribunal considers there are no circumstances in the present case which would justify a remission. The applicant had a shortfall amount in both years in question and failed to provide any grounds to substantiate its objection.

Decision

For the reasons stated above, the applicant has failed to discharge the onus of proof arising under section 14ZZK(b) of the Taxation Administration Act 1953 to show that the assessments under review were excessive. The Tribunal affirms the decision under review.

1. I certify that the preceding 92 (ninety-two) paragraphs are a true copy of the reasons for the decision herein of Dr Gordon Hughes, Member.

………………[sgd]………………………..

Clerk

Date 26 March 2012

Date of hearing

5-6 December 2011

Advocate for the Applicant

Mr Graeme Knott

Advocate for the Respondent

Counsel for the Respondent

Mr Wayne Stewart, ATO Legal Services Branch

Mr Daniel Star