Taneja and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/5830-5833)
Judgment date: 8 October 2009
Date published: 15 December 2009
Decision outcome: Partially Adverse

Summary of decision:
This case involved three issues that had been remitted back to the Tribunal following the first hearing of this matter in Raj Taneja v Commissioner of Taxation No 1 [2009] AATA 87 (Taneja No1). In Taneja No 1 the Tribunal found that the Applicant was not carrying on a personal services business and remitted certain issues to the Commissioner for determination. After the failure by the parties to reach an agreement on the remitter issues, the Tribunal was asked to rule upon them.

Overview of facts:
The Applicant was a computer system analyst and one of the directors of RS Consulting Group Pty Ltd (the Company). | During the 2002, 2003, 2004 and 2005 income years the Company earned income through the provision of the applicant's personal efforts or skills to third party clients. In the decision handed down on 11 February 2009 (the earlier proceedings) the Tribunal found that that the Company was not a personal services business. As a result of this decision, the matter was remitted to the Commissioner for determination of the amount of income attributable to Mr Taneja personally under Part 2-42 of the Income Tax Assessment Act 1997 . As a result of the application of Part 2-42 to the personal services income, the Applicant could not deduct certain expenses including some wages and superannuation contributions. | The Commissioner issued the Company with amended assessments for the 2002 to 2005 income years, as well as issuing amended assessments for the Applicant and imposed a shortfall penalty of 25%. | Issues decided by the court or tribunal | 1. Whether the assessments made by the Commissioner cannot be sustained as they are less favourable to the taxpayer than Taxation Ruling 2001/8 (in particular paragraphs 108, 131, 136 and 138)? | 2. Is the Applicant entitled to the tax offset in former section 159T of the Income Tax Assessment Act 1936 , for contributions made by the Company for the benefit of Mrs Taneja? | 3. Should the tax shortfall penalties imposed by the Commissioner for the 2003-04 and 2004-05 income years be remitted in whole or in part? | Answers to the issues | The Tribunal held: 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care. | 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care.

Issues decided:
1. Whether the assessments made by the Commissioner cannot be sustained as they are less favourable to the taxpayer than Taxation Ruling 2001/8 (in particular paragraphs 108, 131, 136 and 138)? 2. Is the Applicant entitled to the tax offset in former section 159T of the Income Tax Assessment Act 1936 , for contributions made by the Company for the benefit of Mrs Taneja? 3. Should the tax shortfall penalties imposed by the Commissioner for the 2003-04 and 2004-05 income years be remitted in whole or in part? | Answers to the issues: The Tribunal held: 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care. 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care.

ATO view of decision:
The Tribunal found in favour of the Tax Office on all points except the imposition of the shortfall penalty for the 2004 and 2005 income years. The decision of the Full Federal Court was open to it on the facts of the case. Whilst the Tribunal found that the tax agent had taken reasonable care, such a finding may not necessarily be made on similar facts, in relation to how personal services income is attributed to an individual who provides the services, skills, talents or efforts that gain or produce the income, during later income years.

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

Legislative references: Income Tax Assessment Act 1997 85-20 85-25 86-15(1) 86-60 87-18(3) 87-18(4) 87-20 87-25 87-30 995-1 Income Tax Assessment Act 1936 170BA 159T 159TC Taxation Administration Act 1953 14ZAAA 14ZAAE 14ZAAF 14ZAAG 14ZAAI 284-75(1) 284-90
Case references: Commissioner of Taxation v Metaskills Pty Ltd [2003] FCA 766 2003 ATC 4644 (2003) 53 ATR 346 130 FCR 248 Fowler v Federal Commissioner of Taxation [2008] FCA 528 2008 ATC 20-022 (2008) 72 ATR 64 (2008) 167 FCR 425 Re Taneja and Commissioner of Taxation [2009] AATA 87 2009 ATC 10-078
Subject references: Income Tax Personal services business Attribution Penalty Tax Rebate Superannuation contribution paid by Company