Case: Kowadlo v Commissioner of Taxation [2004] AATA 786
Outcome: considered
Counsel for the Commissioner helpfully referred me to a number of authorities where the Tribunal has reviewed the discretion of the Commissioner under s 298- 20 : &#8226; In Hobart Central Child Care Pty Ltd v Federal Commissioner of Taxation [2005] AATA 1027 ; 2005 ATC 2351 where the Commissioner took the view that tax shortfalls resulting from subsequently disallowed deductions were caused by the taxpayer's intentional disregard of the law, and a penalty was imposed, the Tribunal found that there were no grounds for remitting the penalties under s 298- 20 . The Tribunal said: "Section 298- 20 of Schedule 1 to the TA Act provides that the Commissioner may remit all or part of a penalty. It does not set out any guidelines as governing the exercise of the discretion. Given the provisions relating to the imposition of penalties, there would clearly need to be circumstances that could be regarded as mitigating the taxpayer's behaviour in some way while bearing in mind the purpose for which the income tax is imposed and paid and the role of the ITA Act and TA Act in supporting that purpose. I am satisfied that there are no circumstances that mitigate those in which HCCC finds itself." (at 2,385) &#8226; In Otway Pastoral Pty Ltd v Federal Commissioner of Taxation [2005] AATA 649 ; 2005 ATC 2219 the taxpayer had failed to lodge quarterly BASs on time for the periods ending 30 June 2001 through to 30 September 2003, and finally lodged them in early December 2003. The Tribunal stated that the remission power should only be granted where special circumstances exist (at 2221). It found that the failure to lodge the BASs by the due dates was due to factors outside the control of the taxpayer, namely the failure of the taxpayer's bookkeeper to discharge her duties and to disclose such failure, and the unavoidable absence (due to a stroke) of the manager employed by the taxpayer to supervise the bookkeeper's activities. The Tribunal was satisfied that the combination of factors was unusual and represented special circumstances. In relation to the claim of the taxpayer that the absence of a manager coupled with drought conditions, loss of stock and the cumulative cost of penalties would leave it in a very difficult financial position, the Tribunal noted that: "While not necessarily a special circumstance, the general financial losses caused by the mishaps to the farm manager also have some relevance to this decision."(at 2222) &#8226; In Kowadlo v Commissioner of Taxation [2004] AATA 786 the taxpayers' returns for the year ended 30 June 2002 were lodged late and a penalty was imposed. The Tribunal noted that returns for each of the three prior years were lodged late without penalty, but found: "As stated on behalf of (the Commissioner), the penalty regime is to penalise non-compliance with the requirements of the legislation. Loss of revenue is not the issue. While particular and unexpected problems of a tax agent may be appropriate grounds for remission of all or part of a penalty, I am of the opinion here that the consistent late lodgement of returns by the applicants without prior penalties has allowed already any appropriate remission. If the late lodgement is entirely the fault of the tax agent, and I had no clear evidence that it was, this is a matter between the tax agent and his client. I am not satisfied on the evidence before me that there is justification for any remission of the penalty."(at [10]) &#8226; In Re Taxpayer v Federal Commissioner of Taxation [2005] AATA 696 ; (2005) 60 ATR 1129 the Commissioner took the view that the taxpayer was not entitled to claim GST input credits in the relevant circumstances, and because the case involved intentional disregard of a taxation law, imposed a penalty of 75% under Div 284. The Tribunal affirmed the decision of the Commissioner not to remit the penalty or any part thereof in circumstances where the taxpayer had intentionally understated tax or knowingly over-claimed a credit. &#8226; In Re William Vazquez &amp; Associates v Federal Commissioner of Taxation [2005] AATA 301 ; (2005) 58 ATR 1357 where a director of the taxpayer said that the taxpayer did not have the funds to make payment of outstanding amounts, and that he had been of the mistaken belief as to the time payments were due to be made, the Commissioner imposed a penalty for late lodgement. In allowing partial remission of the penalty on the basis that the penalty was excessive, it is useful to note the following comments of the Tribunal: "[14] Although the penalty imposed is described as an 'administrative penalty' it is still a penalty and normal sentencing principles must be kept in mind when exercising the discretion as to whether to mitigate the penalty of not. In particular apart from circumstances peculiar to the individual offending taxpayer the threefold purposes of punishment must be kept in mind. Those purposes are retribution, deterrence and reformation. In particular, see the discussion of sentencing principles in R v Kane [1974] VR 759 at 764-765. ... [26] At para 98.5.3 of [the ATO receivables policy document] it is stated that in determining penalty the Commissioner will have regard to the lodgement history of the taxpayer and the effort taken by the Tax Office to obtain lodgement. ... [28] In seeking to apply those principles to the individual circumstances of this taxpayer, I do not regard them as either derogating from or adding to general principles regarding mitigation of penalty. [29] Notwithstanding the comments in Re Kowadlo and FCT [2004] AATA 786 , I do regard any loss or potential loss or revenue as being part of the matrix of factors affecting a decision whether to remit penalty or not. [30] I accept that the applicant, by its directors was under a mistaken belief that payment had to accompany lodgement. What detracts from any mitigating factor is that the applicant made no attempt to contact the ATO and explain its difficulties and seek some arrangement. Further, even when 2 reminder letters were sent the approach of the directors of the company seems to have been one of ignoring the problem in the hope that it would go away. [31] On the other hand, there has apparently been no prior or subsequent breach. The company is apparently viable but subject to fluctuations in its income... [32] Quite clearly, the applicant has learnt a salutary lesson that time constrains must be obeyed and that difficulties with returns should be negotiated with the respondent at the outset. This can be classed as reformation. [33] So far as retribution and general deterrence are concerned, no doubt the applicant and its accountants and directors are now aware of the late lodgement provisions and will make others aware." &#8226; In Re Kizquart Pty Ltd v Federal Commissioner of Taxation [2005] AATA 582 ; (2005) 60 ATR 1112, the Tribunal followed Vazquez and found that in determining whether the discretion to mitigate should be exercised, normal sentencing principles should be taken into account (at 1116). In finding that the amount of the penalty was excessive, the Tribunal found it relevant that: o the taxpayer had reformed his practice and no longer lodged his statements late, and accordingly it was not necessary to punish him for his inadvertent failure in view of his difficulties during the period in question (at 1116) o there had not been any actual loss or realistically any potential loss of revenue which might affect a decision whether to remit penalty o the late lodgements were caused by a combination of the taxpayer's failure to understand the new system, pressure of work and personal difficulties, all factors amounting to a delay caused by circumstances beyond the control of the taxpayer o the taxpayer had a good tax record and contacted the ATO once he recognised that he had not understood his obligations. 42 As the Commissioner noted in his submissions, Hobart Central Child Care [2005] AATA 1027 ; 2005 ATC 2351, Otway Pastoral Pty Ltd [2005] AATA 649 ; 2005 ATC 2219, Kowadlo [2004] AATA 786 and Taxpayer v Federal Commissioner of Taxation [2005] AATA 696 ; 60 ATR 1129 are consistent with the Commissioner's submissions as to the factors to which a decision-maker may have regard in relation to the exercise of the remission discretion, whereas William Vazquez [2005] AATA 301 ; 58 ATR 1357 and Kizquart [2005] AATA 582 ; 60 ATR 1112 are not.