NOAC CONSULTANTS PTY LTD v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2006] AATA 1035

Decision date: 1 December 2006

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BH Pascoe (Senior Member)

1. This is an application to review a decision of the respondent to allow in part an objection to the assessment of tax shortfall penalties in relation to the applicant's activity statements for the quarters ended 30 September 2004 and 31 December 2004. The original assessments imposed penalties at the rate of 75 per cent of the shortfall. The objection decision reduced the penalty to 50 per cent with a further reduction of 80 per cent of that penalty in relation to part of the shortfall.

2. At the hearing the applicant, NOAC Consultants Pty Ltd (NOAC), was represented by Mr J. Kotsifas, a solicitor. The respondent was represented by Mr S. Tisher of counsel. Evidence was given by Ms N. Oguzhan the owner and principal of NOAC.

3. Ms Oguzhan said that NOAC carries on the business of accountants and tax agents under her control. The penalties in issue related to an audit by the respondent of activity statements lodged for the two relevant quarters setting out a summary of Goods and Services Tax (GST) transactions. In summary, the activity statements for the two quarters were revised by the respondent to reflect the exclusion of input tax credits claimed on personal acquisitions, on items where no input tax credit entitlement existed, on items not subject to GST and on items where no payment had been made and no tax invoices held in the relevant period and the claim for an input tax credit in relation to the purchase of a commercial property in the period prior to the date of settlement. While Ms Oguzhan said that she did not fully agree with the adjustments, made the objection to the resulting assessments related to the penalties only.

4. Ms Oguzhan acknowledged that the respondent had conducted a similar audit in relation to the three quarterly activity statements for March 2002, June 2002 and September 2002. Adjustments similar to these for the 2004 periods were made by the respondent and penalties of 50 per cent imposed. The applicant did not contest the outcome of that audit.

5. Ms Oguzhan said that, when the relevant activity statements were prepared, she was extremely busy in her work, her father had suffered a heart attack and she had to care for both her parents and a brother with a significant disability. She said that she had relied on her daughter to prepare the activity statements with the intention of checking them later and, if necessary, lodging amended statements. Ms Oguzhan maintained that she had now implemented new procedures to ensure such statements were correct when lodged.

6. Ms Oguzhan said that the input credit for the commercial property purchase had been claimed in the December 2004 quarter when the contract was entered into instead of the March 2005 quarter when settlement occurred. She said that she had advised the respondent of the error and date of settlement in response to a

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ATC 2553

telephone call from the Australian Tax Office prior to the audit.

7. Section 284-90 of Schedule 1 to the Taxation Administration Act 1953 (the Act) sets out the penalties on tax shortfalls. Items 1, 2 and 3 are relevant to this matter and provide for penalties of:

"75% where the shortfall resulted from intentional disregard of a taxation law.

50% where the shortfall resulted from recklessness as to the operation of a taxation law.

25% when the shortfall resulted from a failure to take reasonable care to comply with a taxation law."

Section 284-225 provides for a reduction of the tax penalty amount by 80 per cent where a taxpayer voluntarily discloses the shortfall prior to being informed of a proposed audit.

8. It was submitted for the applicant that the relevant penalties should be further reduced pursuant to the discretion to remit all or part of any penalty under s 298-20. It was argued that special circumstances existed with the personal difficulties of sick parents and a disabled brother.

9. For the respondent, it was submitted that the applicant had been reckless in not having appropriate record keeping in place so as to allow similar errors to occur to those that had been revealed in previous audits. It was argued that being a registered tax agent who would be expected to have a better than average understanding of taxation laws heightened the recklessness involved. It was said that the claiming of input credits in circumstances where a reasonable tax agent would have known that there was no basis for doing so constituted recklessness. Mr Tisher submitted that the respondent had been generous in reducing the penalty to 50 per cent where the applicant's action had bordered on intentional disregard. The reduction of the penalty in relation to the inclusion of the purchase of a commercial property in the incorrect quarter was said to have been generous, also, as the disclosure had been made after notification of the impending audit but prior to its commencement.

10. In
Hart v Commissioner of Taxation 2003 ATC 4665 ; (2003) 131 FCR 203, Hill and Hely JJ said (at paragraph 43):

"…recklessness will usually be found to have been established if the person's conduct shows disregard of, or indifference to, consequences foreseeable by a reasonable person…"

Here, NOAC had previously, incurred penalties for incorrect claiming of input credits. Notwithstanding this, it seems clear that no effort was made to implement appropriate procedures to ensure future activity statements were correct. As a tax agent it should be expected that NOAC would have a better than average understanding of the need to correctly record transactions in relation to taxation matters and be well aware of the consequence of making incorrect claims. While Ms Oguzhan had personal difficulties it was reckless of her and an unjustifiable risk to allow her daughter to prepare activity statements from inadequate records without some form of oversight or checking. In similar vein to the taxpayer in
Tenvoc Properties Pty Ltd v Commissioner of Taxation 2006 ATC 2241, this was not a failure to take reasonable care but a failure to take any care at all. Given the status of NOAC and the result of the prior audit it may well have been possible for the respondent to maintain a case of intentional disregard. However this level is not now sought and I am satisfied that the conduct of NOAC was reckless and the 50 per cent penalty is appropriate. The reduction of this penalty to 10 per cent in relation to the claim for the commercial property in the incorrect period could be seen as generous also but the respondent does not seek to overturn that decision.

11. In the circumstances of this case, I am unable to see any justification for any further revision of the penalties and the decision under review should be affirmed.