DG Empire as trustee for the DG Empire Trust and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (NT2006/032)
Judgment date: 29 July 2007
Date published: 30 August 2007
Decision outcome: Partially adverse

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether an administrative penalty for failure to take reasonable care should be remitted in full or in part.

Overview of facts:
• The taxpayer purchased a commercial property for $2,280,000. Although the directors were involved in the property industry, this was their first acquisition of a commercial property and the taxpayer's first acquisition of property. • In the contract of sale of the property, the box indicating whether the supply was a taxable supply was not completed and the box indicating whether the sale was a GST-free supply of a going concern was marked 'Yes'. • The taxpayer's business activity statement (BAS) was prepared by a tax agent who mistakenly believed that the taxpayer was entitled to an input tax credit on the acquisition of the property. Thus an input tax credit of $207,769 was claimed. • The Tax Office reviewed the BAS. However, contrary to its standard procedures, the evidence did not establish that the Tax Office offered the taxpayer an opportunity to make a voluntary disclosure at the commencement of the review. • As a result of the review, the Tax Office amended the taxpayer's BAS to disallow the input tax credit and assessed an administrative penalty at the rate of 25% of the shortfall amount for a failure to take reasonable care, in accordance with section 284-90 of the Taxation Administration Act 1953 . The Tax Office declined to remit the penalty imposed under the Act in whole or in part. • The taxpayer applied to the Tribunal for review of the Tax Office objection decision disallowing the taxpayer's objection against the decision not to remit the penalty in whole or in part. | • The taxpayer purchased a commercial property for $2,280,000. Although the directors were involved in the property industry, this was their first acquisition of a commercial property and the taxpayer's first acquisition of property. • In the contract of sale of the property, the box indicating whether the supply was a taxable supply was not completed and the box indicating whether the sale was a GST-free supply of a going concern was marked 'Yes'. • The taxpayer's business activity statement (BAS) was prepared by a tax agent who mistakenly believed that the taxpayer was entitled to an input tax credit on the acquisition of the property. Thus an input tax credit of $207,769 was claimed. • The Tax Office reviewed the BAS. However, contrary to its standard procedures, the evidence did not establish that the Tax Office offered the taxpayer an opportunity to make a voluntary disclosure at the commencement of the review. • As a result of the review, the Tax Office amended the taxpayer's BAS to disallow the input tax credit and assessed an administrative penalty at the rate of 25% of the shortfall amount for a failure to take reasonable care, in accordance with section 284-90 of the Taxation Administration Act 1953 . The Tax Office declined to remit the penalty imposed under the Act in whole or in part. • The taxpayer applied to the Tribunal for review of the Tax Office objection decision disallowing the taxpayer's objection against the decision not to remit the penalty in whole or in part. | Issue decided by the Court or Tribunal | The Tribunal decided that the penalty should be remitted in part, pursuant to section 298-20 of Schedule 1 to the Taxation Administration Act 1953 , set aside the objection decision and reduced the penalty from 25% of the shortfall amount to 15% of the shortfall amount. | In reaching this decision, the Tribunal had regard to the following matters: • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure. | • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure.

Issues decided:
The Tribunal decided that the penalty should be remitted in part, pursuant to section 298-20 of Schedule 1 to the Taxation Administration Act 1953 , set aside the objection decision and reduced the penalty from 25% of the shortfall amount to 15% of the shortfall amount. In reaching this decision, the Tribunal had regard to the following matters: • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure. • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure.

ATO view of decision:
The Commissioner accepts that the decision to partially remit the penalty is one that was open to the Tribunal on the view of the evidence taken by the Tribunal and will not appeal the decision.

Administrative treatment:
The Tax Office has reviewed its procedures in the light of its experience in this case. | Implications on current Public Rulings & Determinations | Nil

Legislative references: Taxation Administration Act 1953 Schedule 1, 284-75(1) Schedule 1, 298-20
Subject references: Goods and Services Tax Penalty remission