OTWAY PASTORAL PTY LTD v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2005] AATA 649

Decision date: 7 July 2005

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BH Pascoe (Senior Member)

This is an application to review a decision of the Commissioner of Taxation (the respondent) to disallow an objection to the imposition of penalties for failure to lodge activity statements by the due date. The penalties were imposed under Subdivision 286-C of Schedule 1 to the Taxation Administration Act 1953 (the Act).

2. At the hearing the applicant, Otway Pastoral Pty Ltd (the company) as Trustee for the Otway Pastoral Trust, was represented by Michael Elton and the respondent was represented by Bahagia Chong, an officer of the respondent.

3. Under section 286-75 of the Act liability to an administrative penalty arises if a return, notice, statement or other document is required to be lodged by a particular day and it is not lodged by that day. Section 286-80 of the Act sets out the basis of the penalty as one penalty point for each period of 28 days or part thereof from the due date to the date lodged. One penalty point is $110. In this case the records of the respondent showed the following due dates for quarterly activity statements to be lodged and the date recorded as lodged:

   PERIOD ENDED         DUE DATE                 DATE LODGED
   30 June 2001         13 August 2001           5 December 2003
                        (by extension granted)
   30 September 2001    28 October 2001          5 December 2003
   31 December 2001     28 February 2002         5 December 2003
   31 March 2002        28 April 2002            5 December 2003
   30 June 2002         28 July 2002             5 December 2003
   30 September 2002    28 October 2002          5 December 2003
   31 December 2002     28 February 2003         5 December 2003
   31 March 2003        28 April 2003            8 December 2003
   30 June 2003         28 July 2003             8 December 2003
   30 September 2003    28 October 2003          8 December 2003
          

Penalties of five penalty points were imposed in respect of each period other than the period ended 30 September 2003 for which two penalty points were imposed.

4. Mr Elton said that the activity statements to 30 June 2003 had been prepared by a bookkeeper employed by the company. Copies were kept with the records of the company and indicated that they were prepared, signed and lodged well before the date shown in the respondent's records. He accepted that it would appear that some were two or three months late but not the periods alleged by the respondent. He said that the company operated a farming property under the control of a manager. The manager suffered a stroke in July 2001. He was unable to work or talk and was in a rehabilitation centre for some nine months. Mr Elton said that the residence on the farm remained occupied by the manager's family and as a result of Workcover problems the company could not recruit a replacement manager. The

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manager's responsibility had included supervision of accounts and records so that his absence left the company to rely on a part-time bookkeeper. The bookkeeper had assured Mr Elton that the activity statements had been lodged. The bookkeeper is no longer employed by the company.

5. Mrs Elton said that she had personally prepared the activity statements for the three months ended 30 September 2003 on 8 October 2003 and believed that it had been lodged immediately. However, Mrs Elton acknowledged that she had left the completed statement with the bookkeeper for lodgement and had not sent it personally.

6. Mr Elton said that the farm operates as a one full-time employee business with some part-time help. He said that the absence of the manager since July 2001 coupled with drought conditions had led to a loss of stock and a difficult financial position. He maintained that the cumulative cost of penalties would leave the business in a very difficult position.

7. Mr Elton said that he had sought assistance from the Australian Taxation Office (the ATO) in resolving difficulties in understanding the running account balance and the apparent discrepancies between dates of activity statements held on the company's files and the dates said to have been lodged. However, he maintained that he had not been able to elicit a satisfactory result. From a copy of a letter handed to the Tribunal, it would appear that these attempts were made between February and June 2004, well after the periods in dispute here.

8. While it was suggested by Mr Elton that, somehow, the activity statements were mislaid by the respondent and then found and processed in December 2003, this proposition is very difficult to accept. On the basis of the evidence, I find it more likely that the bookkeeper employed by the company either failed to lodge the activity statements after preparation or failed to prepare such statements until December 2003 and deliberately pre-dated such statements in an attempt to cover up her neglect. The respondent's records show that telephone calls were made to the bookkeeper in April, May, June and July 2003. These calls were either a request for Mr Elton to telephone the ATO or to enquire why the activity statements had not been lodged. Mr Elton denied ever receiving such messages.

9. I am satisfied that the failure to lodge activity statements within the required time was the responsibility of the part-time bookkeeper employed by the company. I am satisfied, also, that such failure occurred only in relation to periods subsequent to the significant illness of the manager who had been responsible for ensuring that accounts and records were properly maintained. Further, I am satisfied that the circumstances were such that it was not possible for the company to appoint a replacement for the manager given the situation of the farming enterprise and workers' compensation issues. Nevertheless, it was the responsibility of the company to take appropriate steps to ensure compliance with statutory requirements in the period from June 2001 and September 2003.

10. Section 298-20 of Schedule 1 to the Act provides discretion to remit all or part of a penalty under section 286-75. Whilst the section does not contain any guidelines as to appropriate circumstances in which the discretion should be exercised it is clear that remission should be granted only where special circumstances existed, failure to lodge was due to factors outside the control of the taxpayer and all reasonable mitigating steps were taken by the taxpayer. Here it can be said that the factors which resulted in the failure to lodge activity statements by the due dates were the failure of the bookkeeper to discharge her duties and to disclose such failure and the unavoidable absence of a person who would be expected to supervise the bookkeeper's activities. I am prepared to accept that the combination of factors is unusual and represents special circumstances. While I accept that these circumstances should have resulted in the company taking appropriate steps to ensure compliance with the requirements of the legislation, I am prepared to accept the statement of Mr Elton that he had enquired and was answered verbally that activity statements had been lodged. In these circumstances, I am satisfied that some appropriate penalty should be levied but at a level below that which was imposed by the respondent. In the particular circumstance of this case, I am of the opinion that the penalties should be reduced to one penalty point for each quarterly activity statement for the period ended 30 June 2001 to 30 September 2003 inclusive. The total penalties imposed amounted to $5170. Pursuant

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to section 298-20 of the Act, $4070 should be remitted leaving a balance of $1100. While not necessarily a special circumstance, the general financial losses caused by the mishaps to the farm manager also have some relevance to this decision.

11. It follows that the decision under review should be set aside and in its stead, a decision that the failure to lodge penalties imposed in relation to the ten quarterly periods of activity statements be remitted in part, to one penalty unit per statement.