Tschierschky and Commissioner of Taxation (Taxation) - [2023] AATA 1201

Tschierschky and Commissioner of Taxation (Taxation) [2023] AATA 1201 (21 April 2023)
Administrative Appeals Tribunal

ADMINISTRATIVE APPEALS TRIBUNAL )

) No: 2021/4425

Small Business Taxation Division )
Re: Jan Tschierschky
Applicant

And: Commissioner of Taxation
Respondent
DIRECTION
TRIBUNAL: Senior Member K James
DATE OF CORRIGENDUM: 16 May 2023
PLACE: Perth

The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the Decision dated
21 April 2023 in this application as follows:

The word ‘competition’ at paragraph 4 of the Decision is replaced with the word ‘completion’.

............[sgd].......................................................
Senior Member K James
Division:Small Business Taxation Division
File Numbers: 2021/4425, 2021/4426
Re:Jan Tschierschky
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Senior Member K James
Date:21 April 2023
Place:Perth

The Tribunal affirms the reviewable decision dated 1 July 2021.
.....................................[sgd]...................................
Senior Member K James
Catchwords
TAXATION – income tax – failure to disclose capital gains income – reviewable decision to disallow a remission of administrative penalty – whether administrative penalty excessive or otherwise incorrect – false or misleading statement – meaning of ‘recklessness’ within the context of section 284-90 of the Taxation Administration Act 1953 (Cth)
Legislation
Taxation Administration Act 1953 (Cth)
Cases
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164
Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483
Stewart and Commissioner of Taxation [2013] AATA 845
REASONS FOR DECISION
K James, Senior Member
21 April 2023
INTRODUCTION

Mr Tschierschky (Applicant) sought a review in the Tribunal pursuant to Part IVC of the Taxation Administration Act 1953 (Cth) (TAA) of a decision made on 1 July 2021 by the Commissioner of Taxation (Commissioner) to disallow his objection dated 9 March 2021. The objection concerned an assessment made by the Commissioner on 4 February 2021 to impose a penalty amount of $21,349.15 against the Applicant for making a false or misleading statement in his 2018 income tax return which resulted in a shortfall amount. The shortfall amount of $53,372.99 being the tax on a net capital gain of $140,592.08, which was not included by the Applicant in his return lodged on 27 February 2019. In his return, which was prepared by the Applicant’s registered tax agent (tax agent), it stated there was no capital gains event during that tax year.
The base penalty amount was assessed pursuant to section 284-90, Schedule 1 of the TAA, as resulting from statements caused by the recklessness of the Applicant or his tax agent at the time of making the statement, with the base penalty rate for recklessness being 50% of the tax shortfall amount, and the base penalty rate for not exercising reasonable care being 25%.
BACKGROUND
The background facts include that, between August and September 2018, the Respondent conducted an audit of the Applicant’s 2016 income tax return. The Applicant was found to have omitted to include net capital gains he had made from the disposal of shares that resulted in an increase in his assessed taxable income.
Subsequent to the competition of the above audit, the Applicant lodged his 2018 return which omitted a further capital gain
The following is a chronological summary of the material before the Tribunal for events relevant to the 2018 tax year and the subsequent period:
·on 31 July 2017, the Applicant sold shares in a public listed company; [1]
[1] Document T6 of the T Documents.
·on 12 September 2017, the Applicant sold two parcels of shares in public listed companies; [2]
[2] Document T6 of the T Documents.
·on 5 October 2017, the Applicant sold shares in a public listed company; [3]
[3] Document T6 of the T Documents.
·on 6 October 2017, the Applicant sold shares in a public listed company; [4]
[4] Document T6 of the T Documents.
·on 23 October 2017, the Applicant sold shares in a public listed company; [5]
[5] Document T6 of the T Documents.
·on 14 August 2018, the Applicant, care of his tax agent, was advised of audit of his 2016 return. The letter relevantly provided:
Did you make a capital gain when you sold your shares?
Review your records from the sale of your shares
Contact us by 11 September 2018;[6]
·on 27 September 2018, the Respondent sent a letter to the Applicant at his home address advising that the audit had been completed and an amended notice of assessment would issue with interest but no ‘administrative penalty because [the Applicant] took reasonable care when [the Applicant] prepared [his] income tax return’. The letter relevantly provided ‘[a]s you didn’t give us the information we asked for, we’ve finished our audit for the 2016 income year based on the information we had.[7] This letter would appear on the Tax Agent Portal;
·also on 27 September 2018, the Respondent has a file note of a phone conversation with the Applicant’s tax agent that the client’s return had been amended as per the figures ‘on the initial audit letter’. The note continues on with: ‘possible penalties if a future case were to arise in the future was also discussed and as agreed the finalisation letter was issued via the Tax Agent Portal. [The Applicant’s tax agent] advised that he was unable to contact the client to retrieve information hence the lack of documentation sent in’.[8] No mention is made in the above letter of the same date of the matters raised in the conversation between the Australian Taxation Office (ATO) officer and the tax agent discussed above;
·on 4 October 2018, an amended notice of assessment for the 2016 year of $1004.25 plus interest of $65.78 was issued to the Applicant at his home address.[9] This correspondence would, again, have been accessible to the tax agent through the Tax Agent Portal;
·on 3 December 2018, the tax agent signed the 2018 tax return.[10] The electronic form indicated that a paper copy was signed by the Applicant. The date of signature is blank. The paper return was not in evidence;
·on 27 February 2019, the Applicant’s 2018 tax return was received by the ATO.[11] As stated above, the return answered ‘N’ to the question ‘[d]id you have a capital gains tax event during the year?’, with ‘N’ being the electronic form for ‘no’;
·on 6 November 2020, the Respondent notified the Applicant by letter to his home address of the audit of the Applicant’s 2018 return, together with information of the omitted share sales above;[12] and
·on 7 December 2020; the Applicant’s tax agent sent a letter to the Respondent to make a voluntary disclosure confirming the share sales.[13]
[6] Document TT1 of the Supplementary T Documents.
[7] Document T3 of the T Documents.
[8] Document T4 of the T Documents.
[9] Document TT5 of the Supplementary T Documents.
[10] Document T5 of the T Documents.
[11] Document T5 of the T Documents.
[12] Document T6 of the T Documents.
[13] Document T7 of the T Documents.
The Commissioner’s submission to the Tribunal was;
12. At the conclusion of the audit on 28 January 2021, the Commissioner determined that:
12.1the Applicant’s failure to disclose a net capital gain of $140,592.08 from the sale of shares in his 2018 income tax return constituted a false or misleading statement in a material particular;
12.2the false or misleading statement resulted in a tax shortfall amount of $53,372.99;
12.3the Applicant’s behaviour demonstrated “recklessness” which under s 284-90 of Schedule 1 to the TAA imposes a penalty at a base rate of 50% of the shortfall amount, therefore the base rate penalty amount was assessed as $26,686.44; and
12.4because the Applicant made a voluntary disclosure after audit notification he was entitled to a penalty reduction of 20%, resulting in the tax shortfall penalty amount being $21,349.15.[14]
[citations omitted]
[14] Page 3 of the ‘Respondent’s Outline of Written Submissions’, dated 14 April 2022.
The submission continued;
Onus of proof
18. The Applicant bears the burden of proving that the Penalty Assessment is excessive or otherwise incorrect and what it should have been.
19. In order to discharge that burden, the Applicant must prove, on the balance of probabilities, that:
19.1he or his tax agent did not make a false or misleading statement in his 2018 income tax return that led to a shortfall amount;
19.2the conduct by him or his tax agent in making a false or misleading statement in his 2018 income tax return was not reckless in relation to the operation of a taxation law; and
19.3that his circumstances warrant the remission of the penalties, in part or in full. [15]
[citations omitted]^‘
It was further stated;
The Commissioner assessed that the tax shortfall amount resulting from the Statements was caused by the recklessness of the Applicant or his agent at the time of making the Statements.[16]
[15] Page 4 of the ‘Respondent’s Outline of Written Submissions’, dated 14 April 2022.
[16] Paragraph 28 of the ‘Respondent’s Outline of Written Submissions’, dated 14 April 2022.
The Tribunal accepts that section 14ZZK(b)(i) puts the onus on a taxpayer to establish the facts are such that the penalty made by the Commissioner has been wrongly made. The public policy behind section 14ZZK has been explained on many occasions. It is the taxpayer who has direct knowledge of the relevant facts, not the Commissioner. In establishing the relevant facts, evidence from witnesses other that the taxpayer is often necessary to establish what were the relevant facts.
At the hearing on 21 April 2022, the Applicant informed the Tribunal that his tax agent had Covid-19 and would not be appearing to give evidence. An application was not made to adjourn the proceedings. The Applicant was self-represented. After the proceedings concluded, the Tribunal called a directions hearing at which the Applicant was advised that the Tribunal was prepared to reopen the hearing and give the Applicant the opportunity to call the tax agent.
As a consequence of contact made by the Applicant with Tribunal staff, a further directions hearing was held at which the Applicant was offered further time to provide any additional evidence. As that further time has now expired and the Applicant did not provide any additional evidence, this decision proceeds on the evidence given at the initial hearing.
The Applicants evidence was that whilst he thought he had forwarded his share trading information (CommSec statements) to his tax agent, he conceded in various filed documents and in his evidence that he had no proof that he did. Without drawing any adverse conclusions from the non-appearance of the tax agent, I find that the relevant sales were not disclosed to the tax agent.
Section 284-75(6) provides that a taxpayer who has made a full and true disclosure of all relevant facts to their tax agent, a ‘safe harbour’ exists from a penalty being imposed on the taxpayer for not exercising reasonable care. On the finding above, the safe harbour is not available to the Applicant.
I accept the Respondent’s submission that the Applicant made a false or misleading statement to the Commissioner on 27 February 2019 when his tax agent lodged his 2018 tax return which:
(a)stated there was no capital gains event during the year; and
(b)failed to disclose the net capital gain of $140,592.08 from the sale of shares.[17]
[17] Paragraph 27 of the ‘Respondent’s Outline of Written Submissions’, dated 14 April 2022.
What must next be decided is whether the resulting tax shortfall was caused by the Applicant, or his tax agent, not exercising reasonable care, or by recklessness of either or both. As noted in paragraph 2 above, the base penalty amount for not exercising reasonable care is 25% of the shortfall, or 50% in the case of recklessness.
In BRK (Bris) Pty Ltd v Commissioner of Taxation,[18] the Federal Court of Australia held that:
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.[19]
[18] [2001] FCA 164.
[19] [2001] FCA 164 at [77].
The Tribunal makes the following observations of the evidence before it:
(a)the 2016 audit was conducted at a time when the tax agent was unable to make contact with the Applicant and concluded by the Respondent without any input by the Applicant or his tax agent, as to the amount of undisclosed income or, as requested, a submission as to the appropriate penalty;[20]
(b)the Applicant’s evidence, in terms of his filed documents and evidence before the Tribunal, that there was a two-way communication problem between himself and his tax agent between August 2018 and February 2019 is believed;
(c)during the relevant period, the Applicant was away from his home for extended periods and that a neighbour collected his mail. The Tribunal makes no findings as to what he read or did not read;
(d)that the conversation between the ATO officer and the tax agent was not communicated to the Applicant, whilst plausible, was not established on the evidence. The file note acknowledges that the tax agent has not been able to contact the Applicant. The email chain attached to the Applicant’s witness statement evidences that during the relevant period the Applicant was having great difficulty in communicating with the tax agent;
(e)the Respondent’s direct communication with the Applicant advising of the outcome of the 2016 audit makes no mention of the level of future penalties. The ATO officer’s file note with the tax agent refers to the ‘possibility of future penalties’. It cannot be regarded as an indication that ‘reckless’ penalties will be applied for similar breaches in the future as submitted;
(f)the Applicant’s evidence that he understood from a previous business course that capital gains were not taxable in Australia is fanciful and not accepted. The course would have to have been undertaken 33 years before the 2018 return was lodged.[21] For however long the Applicant has been lodging Australian tax returns, there have been questions directed at disclosing capital gains;
(g)the major difference between the Applicant’s non-disclosure in 2016 and 2018 is the much greater shortfall amount in 2018;
(h)the capital gains question is asked for a purpose. A gain of the size made in the year ending June 2018 objectively should have prompted a taxpayer to have, at the least, queried whether there were any taxable consequences associated with that gain; and
(i)what is missing from the evidence is what did happen between the Applicant and his tax agent. On the evidence, one or both did not exercise reasonable care. There is no evidence as to whether that lack of care was or was not, in the category of gross negligence. To set aside the assessment, the Tribunal has to be satisfied on the balance of probabilities that there was not recklessness. Whilst it is possible that there may have been facts and circumstances to suggest a lower penalty might be appropriate, absent evidence from the tax agent as to what was communicated between them, the Tribunal cannot find there was not gross negligence by one or both.
[20] Documents T3 and T4 of the T Documents.
[21] A capital gains tax was introduced in Australia in 1985.
The Tribunal finds that the Applicant has not satisfied the Tribunal that, on the balance of probabilities, neither he nor his tax agent were not reckless.
The final issue is whether, pursuant to section 298-20 of Schedule 1 of the TAA, a discretion should be exercised to remit all or part of an administrative penalty. The remission power, whilst broad, should be exercised consistently with the objects of the penalty regime, which is to encourage taxpayers to take appropriate care with the preparation of their return. This includes fully informing their tax agent of their tax affairs. The penalty regime provides a safe harbour for taxpayers who have appropriately informed their tax agent.
Where the safe harbour is not available, a pivotal issue is whether, on the facts and circumstances, the penalty imposed is harsh or produces an unjust, inappropriate or unreasonable outcome.[22]
[22] Sanctuary Lakes Pty Ltd v Commissioner of Taxation (2013) 212 FCR 483, Griffiths J with whom Edmonds J agreed at [248]-[249]; Stewart and Commissioner of Taxation [2013] AATA 845, per Middleton J and Senior Member O’Loughlin at [104].
Consistent with the reasons and findings above, evidence has not been provided to the Tribunal on which it can safely come to a finding as to why there was an omission to return a sizeable capital gain and, as such, come to an outcome that the penalty is harsh, unjust, inappropriate or unreasonable.
The Tribunal upholds the Commissioner’s decision dated 1 July 2021.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for the decision herein of Senior Member K James

…………………[sgd]………………….
Associate
Dated: 21 April 2023

Date of hearing: 21 April 2022

Applicant:

Mr Jan Tschierschky

Advocate for the Respondent: Ms Kiralee Duke

Solicitors for the Respondent: Australian Taxation Office

ADMINISTRATIVE APPEALS TRIBUNAL	)
)	No: 2021/4425
Small Business Taxation Division	)

Date of hearing:	21 April 2022
Applicant:	Mr Jan Tschierschky
Advocate for the Respondent:	Ms Kiralee Duke
Solicitors for the Respondent:	Australian Taxation Office