CASE 5/2006

Members:
MD Allen SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2006] AATA 424

Decision date: 10 April 2006

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MD Allen (Senior Member)

1. At the conclusion of the hearing of the above matter the terms of the decision intended to be made and the reasons therefor were stated orally. After service upon the parties of a copy of the decision that was in fact made, the Applicant pursuant to Sub-section 43(2A) of the Administrative Appeals Tribunal Act 1975 requested the Tribunal to furnish to the Applicant a statement in writing of the reasons of the Tribunal for its decision.

2. The oral reasons for decision have been transcribed by Auscript, the Commonwealth Reporting Service. Whereas those oral reasons may reflect the inelegance of an extempore decision, they are in fact the reasons for the said decision.

3. The said transcript is annexed hereunto and furnished to the Applicant and to the Respondent as it is the reasons for the Tribunal's decision.

DRAFT DECISION

ADMINISTRATIVE APPEALS TRIBUNAL

Matter No NT2005/499-500

By SENIOR MEMBER ALLEN

"THE TAXPAYER" and COMMISSIONER OF TAXATION SYDNEY, MONDAY, 10 APRIL 2006

MR ALLEN: Pursuant to an application lodged with the Tribunal on 17 November 2005 the applicant seeks review of a taxation decision, being an objection decision, which disallowed objections to penalties imposed relating to the 2003 and 2004 tax years. The penalties had been imposed pursuant to subdivision 284-B of the Taxation Administration Act 1953, which reads inter alia, as per section 248-80:

"A shortfall amount is an item, being an amount by which the relevant liability or the payment or credit is less than it would otherwise have been."

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ATC 138

The penalty amount is then set out in section 284-90 and under item 1 it is stated:

"Your shortfall amount or part of it resulted from intentional disregard of a taxation law by you or your agent…"

and gives a figure of 75 per cent. Section 284-25 states quite unequivocally:

"This division applies to a statement made in an approved form by your agent as if it had been made by you."

The circumstances giving rise to the penalties being imposed is that the applicant asked the firm of Cassaniti and Associates to prepare and lodge his income tax returns for the 2003 and 2004 tax years. He has given evidence, which I accept, that he had great difficulty dealing with the firm but eventually he got to a Mr Sam Cassaniti who prepared returns for him, which he signed and those returns were then of course, forwarded to the Commissioner.

It is not disputed that the returns that were in fact forwarded to the Commissioner were false in a particular detail. The falsity is that it was stated that the applicant had been employed by a body known as True Blue Industries Pty Ltd and there had been tax withheld, in the sum, in each year of $28,252. The applicant had in fact been employed by an entity known as True Blue Glass and had earned some $15,000 commission from that entity. I quite accept his evidence that when he saw True Blue Industries Pty Ltd he regarded it as being a body connected with, in some way, to True Blue Glass.

I think it is very valid that a person who has been employed by an entity such as True Blue Glass could suddenly realise that when he came to pay tax, or some other obligation, that his actual employer was a holding company, True Blue Industries Pty Ltd. There is also some question as to what particular documents the applicant did in fact sign and it strikes me that if, as he said, he saw the returns and those returns said that he earned $58,000, he did not immediately take it up with the Tax Office.

The applicant says that he has been in contact with the Tax Office from an early date however, the only records which have been provided are those which are set out at document T17 of the documents prepared for the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975, and they show the first contact as being on 5 May 2005. That has some relevance because section 14ZZK of the Taxation Administration Act 1953 applies to these proceedings. Section 14ZZK states inter alia that:

"On an application for review of a reviewable objection decision the applicant has the burden of proving that the taxation decision concerned should not have been made or should have been made differently, or that any assessment is excessive."

The applicant also said that he contacted the Tax Agents' Board yet the only document which has been produced is a letter from the Tax Agents' Board dated 2 August 2005 to the applicant, which refers to a complaint made on 29 July 2005. As I said these are matters where the onus of proof lies upon the applicant.

It is quite clear in these proceedings that the applicant has been the dupe of Sam Cassaniti. There is no suggestion by the Commissioner, or indeed in the evidence, that the applicant himself was guilty of any wrongdoing. The legislation however, makes it clear that the actions of a tax agent are visited upon the client. This is made even clearer by the decision of his Honour, Drummond J, in
Kajewski v The Federal Commissioner of Taxation (2003) ATC 4375 at para 121 of his judgment his Honour said:

"A taxpayer makes a false or misleading statement in a return within s 223(1)(a)(i) if a return which the taxpayer furnishes to the Commission in obedience to s 161(1) contains a statement that is erroneous or incorrect: no element of deceitful or dishonest conduct on the part of the taxpayer or anyone else needs to be established.

This is the position where the return containing the false statement is prepared by the taxpayer's agent and the taxpayer is not aware of the falsity. Even if none of the applicants was aware of the actions of Mr Hart, which I have discussed above, and which resulted in their income, for each of the four years in question being understated in the returns they made which were prepared and lodged by Mr Hart, the Commissioner was entitled to assess each

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ATC 139

applicant to the additional tax in question for each of the 1990 and 1991 years."

In other words there is a strict liability although that strict liability is ameliorated to some degree by section 251M of the Income Tax Assessment Act 1936, which enables a taxpayer to recover from a negligent tax agent and of course "negligence" would contain deliberately dishonest, the recovery of the penalty and the interest payable.

Whereas I have a degree of sympathy for the applicant as being the innocent agent in all this, it seems to me that on the authorities his liability is strict and even if I were able to ameliorate in some particular way the decision of Kajewski makes it clear that being simply the innocent agent is not sufficient for that course to be adopted. The decision under review will therefore be affirmed.