Manne and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2009/2253, 2254 and 400)
Judgment date: 28 May 2010
Date published: 9 July 2010
Decision outcome: Partly adverse

Summary of decision:
This case involves the question whether amended assessments of income tax were excessive, whether administrative penalties were appropriately imposed for shortfall amounts and, if so, whether they should be remitted.

Overview of facts:
1. The proceedings related to the years ended 30 June 2003 to 2005 inclusive. In the original return, the applicant claimed deductions for work related, general and investment property expenses. On 11 February 2007, the Applicant sought to amend the returns to reduce her taxable income. After receipt and consideration of the amendments an audit was commenced. Prior to commencement of the audit, the Applicant withdrew the amended returns. | On 11 February 2007, the Applicant sought to amend the returns to reduce her taxable income. After receipt and consideration of the amendments an audit was commenced. Prior to commencement of the audit, the Applicant withdrew the amended returns. | 2. At the conclusion of the audit, the Respondent issued amended assessments in respect of the income tax and notices of assessment and liability to pay penalty (reduced for voluntary allowance in respect to the amended returns). The Applicant objected, the Commissioner disallowed the objections and the Applicant filed an application for review. | 3. The Respondent subsequently cancelled the 2005 amended assessment. | Issues decided by the court | On review of the Commissioner's decision, the Tribunal found that the Applicant had provided further documentary evidence to support some of the deductions claims, and found that her oral evidence was sufficiently detailed to explain the lack of documentation. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. | The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. | • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. | The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. | • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome.

Issues decided:
On review of the Commissioner's decision, the Tribunal found that the Applicant had provided further documentary evidence to support some of the deductions claims, and found that her oral evidence was sufficiently detailed to explain the lack of documentation. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome.

ATO view of decision:
The Tribunal affirmed the Commissioner's objection decisions that the penalty was properly imposed on the Applicant with respect to the 2003 and 2004 amended returns. The decisions in relation to the other issues were based on the specific facts of this case. It is considered that this decision will not have any impact on any existing or future litigation proceedings.

Administrative treatment:

Legislative references: Income Tax Assessment Act 1936 170 Income Tax Assessment Act 1997 8-1 Div. 30 Tax Administration Act 1953 14ZZK Div. 284 Div. 298
Case references: Hart v Federal Commissioner of Taxation [2003] FCAFC 105 (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371 Re Dixon and the Commissioner of Taxation [2006] AATA 130 2006 ATC 2092 62 ATR 1001 Dixon v Federal Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 69 ATR 627
Subject references: Income Tax Burden of proof Shortfall amounts Imposition of penalties Reasonable care