Case: Hart v Commissioner of Taxation [2003] FCAFC 105 ; (2003) 131 FCR 203
Outcome: applied
Insofar as concerns the requirement of "recklessness", it is sufficient to refer to the observations of Hill and Hely JJ in Hart v Commissioner of Taxation [2003] FCAFC 105 ; (2003) 131 FCR 203 at [43] - [44] : "Recklessness is a concept well known to the law, particularly in the fields of tort and criminal law. In those fields, recklessness will usually be found to have been established if the person's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person. In some contexts a subjective test is applied, but in others the test is objective. In BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 at 364 Cooper J made the following observations in relation to recklessness in the context of s 226H: 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. There is a line between recklessness and dishonesty, and as the Explanatory Memorandum for the Taxation Laws Amendment (Self Assessment) Bill 1992 (Cth) (at p 89) confirms, a finding of dishonesty is not necessary for a taxpayer to be subject to a s 226H penalty. Wherever a tax return includes deductions that are not allowable, a foreseeable consequence is that there will be a tax shortfall, particularly in a system of self assessment. But, in the ordinary case, the mere fact that a tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established although there are some sections (e.g. s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than an intentional disregard of the Act (s 226J)." 181 The "not reasonably arguable" requirement of s 226K is elaborated in a definition in s 222C(1) of the 1936 Act . It provides: " 222C(1) [Regard to relevant authorities] For the purposes of this Part: (a) the correctness of the treatment of the application of a law; or (b) another matter; Is reasonably arguable if, having regard to the relevant authorities and the matter in relation to which the law is applied or the other matter, it would be concluded that what is argued for is about as likely as not correct." The word "authority" is defined to include the relevant income tax Act, intrinsic material of which account can be taken in interpreting that Act, the decisions of a court, Tribunal or board of review and public rulings.