Johnston and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2010/2740)
Judgment date: 20 January 2011
Date published: 11 March 2011
Decision outcome: Partly adverse

Summary of decision:
Whether an administrative penalty for failing to provide a valid notice of intent to claim a superannuation contribution deduction was properly imposed and whether remission of the penalty was warranted.

Overview of facts:
The taxpayer sold investment property and deposited the sale proceeds into his superannuation account with the intent that they would be tax-deductible contributions. The taxpayer failed to notify his superannuation fund of his intent to claim personal superannuation deductions in his income tax returns within the time limits prescribed in section 290-170 of the Income Tax Assessment Act 1997. The Commissioner disallowed the deductions and increased the taxpayer's taxable income applying an administrative penalty at the rate of 25% for 'lack of reasonable care' | This case initially concerned the deductibility of personal superannuation contributions in the income years ended 30 June 2007 and 2008, but was narrowed by consent to a dispute about penalty in relation to the 2008 income year. | Issues decided by the court or tribunal | • Whether an administrative penalty of 25% should be imposed for failure to take reasonable care to comply with a taxation law | The Tribunal considered that there was no failure on the part of the taxpayer to take reasonable care as he had acted in the honest but mistaken belief of entitlement to a tax deduction. However, the failure by the taxpayer's agent to make an enquiry as to whether the administrative requirements to support the claims for a deduction had been complied with by the taxpayer constituted a failure by the agent to take reasonable care to comply with a taxation law. The time limit set by s 290-170(1)(b) of the ITAA had been exceeded, because the paperwork had not been properly attended to by the taxpayer or the superannuation fund. Accordingly, the administrative penalty at the rate of 25% was properly imposed. | • Whether the penalty should be remitted | In the circumstances of this case, where the taxpayer's tax liability had increased by almost $40,000 as a result of the disallowed deduction, and the deduction had been denied due to a shortcoming in the paperwork, the Tribunal considered it would be harsh to impose a penalty of almost $10,000, and decided to remit the penalty in full. | The Tribunal commented that, having regard to the particular circumstances of this taxpayer, the penalty imposed does not achieve the purpose of encouraging compliance with the law and deterring non-compliance. Hence, there was no good purpose to be served by leaving the penalty in place.

Issues decided:
• Whether an administrative penalty of 25% should be imposed for failure to take reasonable care to comply with a taxation law: The Tribunal considered that there was no failure on the part of the taxpayer to take reasonable care as he had acted in the honest but mistaken belief of entitlement to a tax deduction. However, the failure by the taxpayer's agent to make an enquiry as to whether the administrative requirements to support the claims for a deduction had been complied with by the taxpayer constituted a failure by the agent to take reasonable care to comply with a taxation law. The time limit set by s 290-170(1)(b) of the ITAA had been exceeded, because the paperwork had not been properly attended to by the taxpayer or the superannuation fund. Accordingly, the administrative penalty at the rate of 25% was properly imposed. | • Whether the penalty should be remitted: In the circumstances of this case, where the taxpayer's tax liability had increased by almost $40,000 as a result of the disallowed deduction, and the deduction had been denied due to a shortcoming in the paperwork, the Tribunal considered it would be harsh to impose a penalty of almost $10,000, and decided to remit the penalty in full. The Tribunal commented that, having regard to the particular circumstances of this taxpayer, the penalty imposed does not achieve the purpose of encouraging compliance with the law and deterring non-compliance. Hence, there was no good purpose to be served by leaving the penalty in place.

ATO view of decision:
Although it was found that the penalty was correctly imposed, it was open to the Tribunal on the facts of the case to remit the penalty in full having regard to particular circumstances of the case.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Income Tax Assessment Act 1997 290-170 290-170(1)(b) Taxation Administration Act 1953 284-75(1) 284-90(1) 298-20
Case references: Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 [2008] FCAFC 54 2008 ATC 20-015 69 ATR 627
Subject references: Administrative penalty Valid notice of intention to claim deduction for contribution to superannuation fund Lack of reasonable care Remission of penalty