CASE 3/2008

Members:
SA Forgie DP

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2008] AATA 415

Decision date: 21 May 2008

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SA Forgie (Deputy President)

1. As the applicant has asked that the hearing be held in private, I must abide by s 14ZZJ(2D) of the Taxation Administration Act 1953 (TA Act) to ensure, as far as practicable, that my reasons are framed so that they are not likely to enable the identification of the applicant. To that end, I have used names other than those of the applicant and those associated with it. The Commissioner of Taxation (Commissioner) reviewed the Business Activity Statement (BAS) given to him by what I will call Pallantium Pty Ltd (Pallantium) as trustee of the Family Trust (Trust). He concluded that there was shortfall of $75,000 in the General Services Tax (GST) net amount that was payable. He also imposed an administrative penalty amounting to 25% of the shortfall amount or $18,750 on Pallantium on the basis that it had failed to take reasonable care to comply with a taxation law.

Legislative framework

General scheme regarding GST: imposition of GST

2. With the commencement of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on 1 July 2000, a Goods and Services Tax (GST) became payable on taxable supplies and taxable importations.^[1] s 7-1 In the following paragraphs, I summarise the scheme in only the broadest terms and omit the many qualifications that apply to the general principles. In this case, for example, only a "taxable supply" is relevant. In the language of s 9-5 of the GST Act, there is:

"… a taxable supply if:

• (a) you make the supply for consideration; and
• (b) the supply is made in the course or furtherance of an enterprise that you carry on; and
• (c) the supply is connected with Australia; and
• (d) you are registered or required to be registered.

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However, the supply is not a taxable supply to the extent that it is GST-free or input taxed."^[2] Asterisks appearing in the GST Act and denoting that terms have been defined elsewhere have been omitted throughout these reasons.

3. Part 2-5 is concerned with registration. As with much of the GST Act, it is written in the second person and uses the word "you" and explains when "when you are required to be, and when you may, be registered."^[3] s 23-1 At times, however, it is written in the third person and so refers, for example, to an "entity". An "entity" is defined in s 184-1 and, under s 184-1(g), includes a trust. By virtue of s 184-1(2), the trustee of a trust is taken to be an entity and that entity consists of the person or persons who are trustees at any given time. Section 184-1(3) explains that a legal person can have a number of different capacities in which that person does things and that, in each of those capacities, the person is taken to be a different entity. By way of example, it is said that a person may be an entity in that person's personal capacity and a different entity if a trustee of a trust.

4. The obligation to be registered turns on the amount of annual turnover but "you" may be registered if carrying on an enterprise, or intending to carry on an enterprise from a particular date, whether or not the turnover is above or below the registration turnover threshold.^[4] s 23-10 The note accompanying s 23-5 of the GST Act explains that "It is the entity that carries on the enterprise that is required to be registered (and not the enterprise)." In view of the definition of "entity", to which I have referred above, the Trust was registered by the Commissioner in this case.

5. Section 31-5(1) provides that "If you are registered or required to be registered, you must give to the Commissioner a GST return for each tax period." A GST return must comply with the requirements of ss 31-15 (relating to its form and contents) and 31-25 (relating to electronic lodgement) of the GST Act and s 388-75 in Schedule 1 to the TA Act relating to the requirement to sign a declaration. A GST return must be given to the Commissioner for each tax period applying to the entity.^[5] ss 31-8 and 31-10 In this case, the relevant period was quarterly. Businesses use a form known as Business Activity Statement (BAS) to report on their activities that are relevant to an assessment of their obligation to pay a range of taxes including that under the GST Act.

6. "You" must give that return whether or not "your net amount for the tax period is zero" or "you are liable for the GST on any taxable supplies that are attributable to the tax period."^[6] s 31-5(2) The person who fits the description of "you" is not specified but I note that s 31-20 requires that:

"In addition to the GST returns required under section 31-5, you must give to the Commissioner such further or fuller GST returns as the Commissioner directs you to give (including any GST return in your capacity as agent or trustee)."^[7] s 31-20(1)

That section suggests that the "you" in s 31-5 of the GST Act on which liability to lodge is imposed is the trustee of the trust, rather than the trust.

7. Division 3 again speaks of "your" obligation to pay amounts of GST that remain after off-setting "your" entitlements to input tax credits. There is no suggestion there that "your" obligation to pay amounts of GST may be the trustee's obligation but, on behalf of the Commissioner, Ms Hanna drew my attention to the judgment of Hill J in
HP Mercantile Pty Ltd v Federal Commissioner of Taxation,^[8] 2005 ATC 4571 ; (2005) 143 FCR 553 ; 219 ALR 591 ; [2005] FCAFC 126 in which he said:

"… It is the Trustee who is made liable to the tax payable by reason of the activities of the Trust and entitled to any credit arising by virtue of acquisitions made by the Trust. Accordingly, it is appropriate that it be the Trustee which is the appellant or cross-respondent and not 'the Trust'. Leave was accordingly given to substitute the name of the Trustee in place of the relationship which is known as the trust."^[9] 2005 ATC 4571 ; (2005) 143 FCR 553 ; 219 ALR 591 ; [2005] FCAFC 126 at 555; 593; [2]

In light of His Honour's conclusion, I have interpreted "you" to include the trustee unless reference is made to an entity of a particular kind excluding an entity in its capacity as a trustee.^[10] s 184-1 generally and s 184-1(2) If I have misunderstood his Honour's point and the entity with responsibility is in fact the Trust, I find as a fact that the person I will call Mr Evander was appointed to act as the Trust's agent in completing the BAS and giving it to the Commissioner.

8. 

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A "supply", to which reference is made in s 9-5 means "… any form of supply whatsoever."^[11] s 9-10(1) Without limiting the breadth of that meaning, s 9-10(2)(d) provides that:

"… supply includes …:

• (d) a grant, assignment or surrender of real property".

Whether the act constituting supply is lawful or not is irrelevant.^[12] s 9-10(3)

9. Section 9-25 provides for the occasions on which a supply of goods is connected with Australia. In particular, s 9-25(4) provides that:

"A supply of real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia."

10. "Consideration" is also defined in wide terms. In so far as it is relevant, it:

"… includes:

• • (a) any payment, or any act or forbearance, in connection with a supply of anything; and
  • (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
• (2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply."^[13] s 9-15

11. Section 9-30 provides for supplies that are GST-free or input taxed. A supply is GST-free if it is either GST-free under Division 38 or under a provision of another piece of legislation or it is a supply of a right to receive a supply that would be GST-free.^[14] s 9-30(1) A supply is input taxed if it is either input taxed under Division 40 or another piece of legislation or it is a supply of a right to receive a supply that would be input taxed.^[15] s 9-30(2) Particular provision is made for supplies that would be both GST-free and input taxed but they are not relevant in this matter.^[16] s 9-30(3) Nor are the special rules relating to taxable supplies.^[17] s 9-39

12. GST is payable on any taxable supply that the person makes.^[18] s 9-40 The amount of GST on a taxable supply is an amount that is 10% of the value of the taxable supply.^[19] s 9-70

13. Division 29 is concerned with attribution to tax periods be it attribution of GST on taxable supplies, input tax credits or adjustments. In so far as the attribution of GST is concerned for a person accounting on a cash basis, s 29-5(2) applies. If all of the consideration is received for a taxable supply, the GST on the supply is attributable to that tax period.^[20] s 29-5(2)(a) If, in a tax period, part of the consideration is received, GST on the supply is attributable to that tax period but only to the extent that consideration is received in that tax period.^[21] s 29-5(2)(b) If none is received, no GST on the supply is attributable to that tax period.^[22] s 29-5(2)(c)

General scheme regarding GST: input tax credits

14. A person is entitled to an input tax credit when making creditable acquisitions. A creditable acquisition is made when a person acquires anything solely or partly for a creditable purpose, the supply of the thing to that person is a taxable supply, the person is liable to provide consideration for the supply and the person is registered or required to be registered.^[23] s 11-5 "An acquisition is any form of acquisition whatsoever."^[24] s 11-10(1) Without limiting that meaning, the word "acquisition" includes "an acceptance of a grant, assignment or surrender of real property".^[25] s 11-10(2)(d)

15. A person acquires a thing for a "creditable purpose" to the extent that person acquires it in carrying on that person's enterprise.^[26] s 11-15(1) A person does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.^[27] s 11-15(2)(b) The GST Act qualifies these provisions but the qualifications are not relevant in this case.

16. A person is entitled to the input tax credit for any creditable acquisition that the person makes.^[28] s 11-20 Section 11-25 provides that:

"The amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable."

Acquisitions that are partly creditable are provided for in s 11-30. They will be of that character if they are either made for a purpose that is only a creditable purpose in part or if the person making the acquisition provides, or is

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liable to provide, only part of the consideration for the acquisition.

General scheme regarding GST: working out the net amount that is payable by or to a person

17. A net amount is worked out in respect of each person who, for the purposes of this case, is registered. The net amount becomes the amount that is payable either by the person to the Commonwealth or by the Commonwealth to the person for that tax period.^[29] s 17-1 The tax period is generally a three month period unless a person elects to have one month tax periods or the Commissioner determines otherwise under Division 27 of Part 2.6: s 27-5. The "net amount" for a tax period is worked out by deducting input tax credits from the GST.^[30] s 17-5(1) The net amount may be increased or decreased if there are any adjustments.^[31] s 17-5(2) Payment of any net amount of GST that a person owes must be paid in accordance with Division 33 of Part 2-7. If the net amount is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount in accordance with the terms of Division 35 to the person on lodging a GST return.^[32] ss 35-5 and 35-10

18. Division 29 of Part 2-6 specifies the tax periods to which a person's taxable supplies, creditable acquisitions, creditable importations and adjustments are attributable.^[33] A person who is registered or required to be registered must give the Commissioner a GST return for each tax period within the time specified in: ss 31-5, 31-8 and 31-10. In so far as it is relevant to this case, s 29-5(1) provides that the GST payable by a person on a taxable supply is attributable to the tax period in which any of the consideration is received for the supply.^[34] s 29-5(1) In the simplest case, the input tax credit to which a person is entitled for a creditable acquisition is attributable to the tax period in which the person provides any of the consideration for the acquisition.^[35] s 29-10(1)(a) If a person accounts on a cash basis and that person pays part only of the consideration for a creditable acquisition in a tax period, the input tax credit for the acquisition is attributable to that tax period but only to the extent that the person provided the consideration in that tax period.^[36] s 29-10(2)(b)

Administrative penalty provisions

19. Schedule 1 to the TA Act has effect by virtue of s 3AA(1) of that legislation. Its terms have the same meaning as in the Income Tax Assessment Act 1997 (ITAA97) and the rules for interpreting that Act also apply.^[37] TA Act, ss 3AA(2) and (3) Chapter 4 of Schedule 1 is concerned with the collection and recovery of tax-related liabilities and other amounts. A "tax-related liability" is a pecuniary liability arising under a taxation law and includes a liability which is not yet due and payable.^[38] TA Act, ss 255-1(1) The GST Act is a taxation law within the meaning of ITAA97.^[39] ITAA97, s 995-1(1) which captures within its meaning an Act, such as the GST Act, of which the Commissioner has the general administration. As s 9-40 of the GST Act provides that "You must pay the GST payable on any taxable supply that you make", a tax-related liability includes a net amount arising under the GST Act.^[40] TA Act, ss 255-1(1) and 250-10(2)

20. Division 284 sets out the circumstances in which administrative penalties apply for making a false or misleading statement, taking a position that is not reasonably arguable and entering into schemes. It provides a uniform penalty regime for all taxation laws so that administrative penalties apply to entities that fail to meet their obligations for one or other of those three reasons or because they refuse to provide documents to the Commissioner.^[41] TA Act, Schedule 1, ss 284-5 and 284-10

21. Section 284-30 provides for the application of Division 284 to Trusts. In so far as it is relevant to this case, it provides for the circumstance in which a trustee of a trust has made a statement to the Commissioner or an officer exercising powers or performing functions under a taxation law about the trust and that statement "is false or misleading in a material particular, whether because of things in it or omitted from it …".^[42] TA Act, Schedule 1, ss 284-30(a) and (b)(i) In that situation, Division 284 applies to the trustee "… as if any shortfall amount … as a result of the statement were … [the trustee's] shortfall amount …".^[43] TA Act, Schedule 1, ss 284-30

22. The "shortfall amount" is "… the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been."^[44] ITAA97, s 995-1(1) and TA Act, s 284-80 Section 284-80 of the TA Act sets out four items specifying four situations in which a person has a shortfall amount. Of relevance is item 1 which provides, in so far as it is relevant, that:

"You have a shortfall amount in this situation:

• 1 A tax-related liability of yours for an accounting period … worked out on the basis of the statement is less than it would be if the statement were not false or misleading".

23. 

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There are qualifications to this provision. That found in s 284-80(2) applies if a shortfall amount arises in circumstances covered by more than one item in s 284-80 and is not relevant in this case. Another is found in s 284-215(1). It provides that a shortfall amount in an accounting period is reduced to the extent that it, or part of it, was caused by the person or the person's agent treating a taxation law as applying in a certain way and that way agrees with advice given to that person or agent by or on behalf of the Commissioner, with general administrative practice under that law or a statement in a publication approved by in writing by the Commissioner.^[45] TA Act, Schedule 1, s 284-215(1) The third is relevant. It provides that:

"For the purpose of determining whether you are liable to an administrative penalty, you do not have a shortfall amount as a result of a statement that is false or misleading in a material particular to the extent that you and your agent (if any) took reasonable care in making the statement."^[46] TA Act, Schedule 1, s 284-215(2)

24. Subdivision 284-B of Schedule 1 provides for penalties relating to statements. It sets out when penalties apply and how the amounts of the penalties are calculated. Of relevance in this case is s 284-75(1), which provides:

"You are liable to an administrative penalty if:

• (a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a taxation law; and
• (b) the statement is false or misleading in a material particular, whether because of the thing in it or omitted from it; and
• (c) you have a shortfall amount as a result of the statement."

25. The approach to be adopted in assessing the amount of the penalty is set out in s 284-85 of the TA Act. It provides that:

• "(1) Work out the base penalty amount under section 284-90. If the base penalty amount is not increased under section 284-220 or reduced under section 284-225, this is the amount of the penalty.
• (2) Otherwise, use the formula:
  

  BPA + [BPA × (Increase % − Reduction %)]

  Where:

  BPA is the base penalty amount.

  increase % is the percentage increase (if any) under section 284-220.

  reduction % is the percentage reduction (if any) under section 284-225."

26. The "base penalty amount" is worked out under ss 284-90, 284-160 or 286-80 depending on the circumstances giving rise to the imposition of an administrative penalty.^[47] ITAA97, s 995-1(1) In the case of what is described as a "false or misleading statement", s 284-90 in Schedule 1 to the TA Act is relevant.^[48] ITAA97, s 995-1(1), item 1 which also applies to the circumstances in which a position was not reasonably arguable. The first three items in s 284-90(1) are relevant and provide that:

Base penalty amount
"Item	In this situation:	The base penalty amount is:
1	Your shortfall amount or part of it resulted from intentional disregard of a *taxation law by you or your agent	75% of your shortfall amount or part
2	Your shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a *taxation law	50% of your shortfall amount or part
3	Your shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a *taxation law	25% of your shortfall amount or part"

27. Section 284-220 relating to increases in the base penalty amount is not relevant. It provides for an increase of 20% in the base penalty amount for the shortfall for an accounting period if the taxpayer took steps to obstruct the Commissioner from finding the shortfall, became aware of it after submitting the BAS but did not tell the Commissioner or has been subject to a penalty previously. Section 284-225 relates to reductions in the base penalty amount by amounts representing between 20% and 80% of the original amount. It provides for a reduction in situations in which the Commissioner has advised the person of a tax audit or has made a public statement requesting entities to make voluntary disclosures of transactions relating to their

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affairs and the taxpayer has made a voluntary disclosure. Neither of those situations applies in this case.

28. Section 298-20 gives the Commissioner power to remit a penalty or part of it but does not set out any parameters within which the discretion may be exercised.

Background

29. On the basis of Mr Evander's statements at the hearing, his written statement lodged on 30 March 2007 and the documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents), I have made the findings of fact set out in the following paragraphs.

The Trusts and companies

30. Pallantium was registered by the Australian Securities and Investments Commission (ASIC) on 12 October 1987 and so came into existence on that day. Its shareholders are Mr Evander and his wife, Mrs Evander. Mrs Evander is its sole director and secretary.^[49] T documents at T9-37 – 38 Pallantium carried on business as merchants.

31. Pallantium acts as the trustee of the Trust. Mr and Mrs Evander are the beneficiaries of the Trust. The Trust was assigned a Tax File Number (TFN) on 29 January 1992. On 26 May 2000, both it and Pallantium were assigned Australian Business Numbers after applying to be registered in the Australian Business Register. Pallantium was entitled to an ABN by virtue of its registration^[50] A New Tax System (Australian Business Number) Act 1999 , s 8(2) and the Trust by virtue of its carrying on an enterprise in Australia or, in the course or furtherance of doing so, it makes supplies, as understood by s 9-10 of the GST Act that are connected with Australia.^[51] A New Tax System (Australian Business Number) Act 1999 , s 8(1)

32. What I will call Carmenta Nominees Pty Ltd (Carmenta) is the trustee of The D Evander Family Trust. Mr Evander is the sole director of Carmenta. At an earlier time, he was the director of a company that I will call Mercury Nominees Proprietary Limited. Mr Evander prepares, or has prepared, all of the Business Activity Statements (BAS).

The sale of the Property

33. On the basis of the contract made between Pallantium and Investments Pty Ltd on 30 November 2005, I find that Pallantium agreed to sell a certain parcel of real estate (Property). The Vendor's Statement under s 32 of the Sale of Land Act ….. (Vic) was signed by "… [Mrs Evander] for and on behalf of … [Pallantium] Pty Ltd".^[52] T documents at T14-79

34. The price stated to be "$750,000 - plus any GST" with "$75,000 - 10% on the signing herof" and "$675,000 - plus any GST" payable on 29 January 2006 or any earlier date mutually agreed upon.^[53] T documents at T 14 and see particularly T14-70 The contract incorporated Special Conditions. Clause 16(a) of the Special Conditions provided that, but for the condition itself, the "… Price expressed in this Contract is a GST exclusive price".^[54] T documents at T14-74 Clause 16(b) provided that:

"Subject to Special Condition 16 if any GST (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (as amended from time to time) ' GST ') is payable by the Vendor in respect of the supply of the Property to the Purchaser, then the Price specified in this Contract (' Original Price ') is to be increased so that the Vendor receives an amount (' Increased Price ') which, after subtracting the GST liability of the Vendor on that Increased Price, results in the Vendor retaining the Original Price after payment of that GST liability."^[55] T documents at T14-74

Clause 16(d) of the Special Conditions required Pallantium to act reasonably to minimise any price increase due to the imposition of GST. It also obliged Pallantium to assist Investments Pty Ltd to claim on a timely basis any input tax credits Investments Pty Ltd might be entitled to claim for the acquisition of the Property.

35. On 24 January 2006, Pallantium issued a Tax Invoice signed by Mrs Evander in respect of the sale of the Property. After referring to the Property and its address, the Tax Invoice stated:^[56] T documents at 15-109

GST payable upon the sale of the above property pursuant to a Contract of Sale dated 30 November, 2006 for a consideration of $750,000
Contract Price	$750,000.00
10% GST payable	$ 75,000.00
TOTAL OF THIS INVOICE	$825,000.00

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The Trust's BAS

36. Businesses use a BAS to report on their activities that are relevant to an assessment of their obligation to pay a range of taxes including that under the GST Act. They do so quarterly. Under that Act, a person may account for GST using either the cash method of accounting or by reference to tax invoices. The Trust uses the cash method of accounting and lodges its BAS on a quarterly basis.

37. On 2 May 2006, the Trust lodged its BAS in respect of the quarter from 1 January 2006 to 31 March 2006.^[57] I note that the name of the Trust does not appear on the BAS but the ABN shown on it matches that shown on the Compliance Verification Case Report prepared within the Australian Taxation Office: T documents at T16 No GST arising from any sales or activities specified on the BAS was reported.^[58] T documents at T3-19 In particular, the GST of $75,000 attributable to the sale of the Property was not shown.

Review of the BAS and imposition of an administrative penalty

38. On 8 June 2006, Ms Ha wrote to the Trust on behalf of the Deputy Commissioner of Taxation. She confirmed oral advice that she had given that the BAS had been revised and the net amount of GST payable increased by $75,000. She also advised that an administrative penalty of $18,750 had been imposed and that a general interest charge (GIC) might also apply. A notice of assessment and a notice of assessment of administrative penalties would follow.^[59] T documents at T4-21-25

39. An amended BAS was sent to the Trust in a letter dated 15 June 2006. It showed total sales of $825,000 and GST on sales as $75,000 rather than $0 as the Trust had advised in respect of each item.^[60] T documents at T5-27 Also dated 15 June 2006 was a Notice of assessment and liability to pay penalty. It advised the Trust that a penalty of $18, 750 had been imposed for lack of reasonable care and that it had to be paid by 11 July 2006.^[61] T documents at T6-29

The objection

40. Mr Evander wrote a letter dated 9 August 2006 to the Australian Taxation Office. He explained his difficulties, to which I will refer later, and his belief that the non-reporting of the sale of the Property was due to a mistake.^[62] T documents at T7 His letter was treated as an objection and further information was sought from Mr Evander.^[63] T documents at T8 He responded that he was not a director of the Trustee Company (Pallantium) but is the appointor and guardian of the Trust. He attached a document signed by Mrs Evander, as a director of Pallantium, authorising him to represent the Trust in relation to the objection.^[64] T documents at T9 The objection was disallowed on 26 September 2006.^[65] T documents at T13

The Trust's BAS lodgement history

41. The Commissioner's understanding of the Trust's lodgement history in relation to BAS was not challenged by Mr Evander. In light of that, I find that it was:

BAS Period	Due Date	Extended Due Date	Lodged Date	Net GST
September 2000	11 November 2000	30 November 2000	1 May 2003	Zero BAS
December 2000	4 February 2001	20 February 2001	1 May 2003	Zero BAS
March 2001	28 April 2001	10 May 2001	1 May 2003	Zero BAS
June 2001	13 August 2001	N/A	18 July 2001	Zero BAS
September 2001	28 October 2001	19 November 2001	16 November 2001	Zero BAS
December 2001	28 February 2001	N/A	29 May 2002	Zero BAS
March 2002	28 April 2002	13 May 2002	2 May 2002	Zero BAS
June 2002	28 July 2002	26 August 2002	7 August 2002	Zero BAS
September 2002	28 October 2002	11 November 2002	5 December 2002	Zero BAS
December 2002	28 February 2003	N/A	1 March 2003	Zero BAS
March 2003	28 April 2003	12 May 2003	13 May 2003	Zero BAS
June 2003	28 July 2003	3 June 2004	Not lodged	Zero BAS
September 2003	28 October 2003	11 November 2003	7 June 2007	Zero BAS
December 2003	28 February 2004	N/A	7 June 2007	Zero BAS
ATC 137 March 2004	28 April 2004	12 May 2004	7 June 2007	Zero BAS
June 2004	28 July 2004	11 August 2004	7 June 2007	Zero BAS
September 2004	28 October 2004	11 November 2004	7 June 2007	Zero BAS
December 2004	28 February 2005	N/A	7 June 2007	Zero BAS
March 2005	28 April 2005	N/A	Not lodged	Zero BAS
June 2005	28 July 2005	11 August 2005	29 July 2005	Zero BAS
September 2005	28 October 2005	11 November 2005	7 June 2007	Zero BAS
December 2005	28 February 2006	N/A	1 March 2006	Zero BAS
March 2006	28 April 2006	12 May 2006	2 May 2006	Zero BAS

The evidence

42. The basis on which Mr Evander lodged the objection on behalf of the Trust remained relevant at the hearing. He set them out in his letter of 9 August 2006 to the Australian Taxation Office (ATO) and I will summarise the main points that he made:

• (1) the failure to declare the sale or the GST payable on it was the consequence of a string of misunderstandings and not in any way an attempt to defraud the ATO;
• (2) he has always found the GST system somewhat confusing;
• (3) the Property was the first that he had sold since the introduction of GST;
• (4) he had no idea that GST was payable on the sale of industrial real estate such as the Property or on any real estate at all. He now knows that the sale of residential real estate does not attract GST but that other real estate does;
• (5) the previous couple of years had been difficult for him as, since 2004, trading conditions had become increasingly difficult for his business as merchants. There had been a dramatic fall in sales leading to severe financial pressure on the business. Consequently, in 2005 Mr Evander decided to wind the business down and to retire as he saw no reasonable chance to revive the business in the short to medium term;
• (6) his mind was then consumed with closing the business down and that would explain why he was more prone to make the oversight on the BAS that he did. It was an abnormal period as he watched his business, built from a lifetime of work, dissipate before his eyes;
• (7) the Tax Invoice relating to the sale of the Property was prepared by his solicitor and signed by his wife. Neither told him of it. Relations between him and his wife had been strained. Although it was left to him to deal with all administrative aspects of the sale, his wife and his solicitor dealt with the Tax Invoice to his total exclusion;
• (8) his solicitor did not tell him "verbally that the GST had been paid".^[66] T documents at T7-31 Mr Evander believed that his solicitor should have done so in order for him to be clearly aware of the fact. His solicitor had told him that the statement, which he had sent to him showed it but Mr Evander had not received it.
• (9) as he was extremely busy closing down the factory, Mr Evander saw no need to investigate the details of the sale because, as he said:

  "… in my head I knew the figures were correct. These were my mental calculations:
  

  Property sold for:	$750,000
  Deduct mortgage:	$400,000
  Therefore cheque should be:	$350,000

  The cheque I received was for precisely $357,179.10.

  The figure agreed with what I was expecting, with a small variation due to various adjustments, I presumed. I was satisfied that all was well. At a later time, after the turmoil of moving out of the factory had finally come to an end, I would have taken the time to ascertain what these adjustments were. What I hadn't realized at the time was that the mortgage was actually $430,000, real estate agent's fees were some $20,000, two months interest for early termination of mortgage was deducted, rates and land tax were deducted, as well as legal costs. These sums more or less consumed the $75,000 GST payment received.

  It was only by pure coincidence that the GST payment received almost exactly equalled the expenses of which I had not been aware of at the time. Had they not been equal I would have questioned why. But because they were almost identical I was satisfied and did not think any more of it. I intended to look into the intricate details of the matter once the dust of closing the factory had settled. But the ATO beat me to it."^[67] T documents at T7-32

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The submissions

43. Mr Evander repeated the substance of the matters that he had set out in his objection. He also submitted that the Commissioner has stated in the Taxpayers' Charter that he will adopt a fair and reasonable approach in his administration of the tax system. In doing so, he will take into consideration the issues faced by entities in meeting their obligations. In Mr Evander's submission, officers of the ATO had had failed to abide by these principles. In particular, they had failed to have regard to cll 52, 138, 139 and 284-75(1) of PS LA 2006/2 as well as cl 6 of TR 94/4. At no time, Mr Evander submitted, did officers of the ATO endeavour to ascertain the Trust's experience, knowledge and skill or any other relevant circumstances so that they could properly judge whether it had tried its best to lodge a correct return and whether it was able to understand its obligations. While he stood accused of not adhering to the "ATO's regulations",^[68] Mr Evander’s letter dated 28 March 2007 at 4 he accused those officers of having committed the same transgression.

44. Mr Evander also submitted that the imposition of a 25% penalty, and so the maximum which might be imposed, was unreasonable for a first mistake and particularly when that mistake was an honest and unintended mistake. That is contrary to the accepted norms of our judicial system. The mistake could not have been made wilfully for, with modern information technology, there could never be a chance of escaping detection.

45. On behalf of the Commissioner, Ms Hanna submitted that Mr Evander had acted as the agent of the Trust in completing and lodging the BAS for the period 1 January 2006 to 31 March 2006. That was a statement within the meaning of s 284-20 of Schedule 1 of the TA Act and it was false and misleading. As a result of Mr Evander's statement, the Trust had a shortfall amount for that quarter as the Trust's tax-related liability for that period was less than it would have been had the statement not been false and misleading. In view of these matters, the Trust was liable to pay an administrative penalty under s 284-75 of Schedule 1 of the TA Act. The amount of that administrative penalty is calculated according to s 284-90 and item 3 of that section requires the imposition of a base penalty of 25% of shortfall amount where the shortfall amount results from a failure to take reasonable care to comply with a taxation law. Ms Hanna supported his submissions by reference to authorities, to which I will refer.

Consideration

46. The structure of the provisions means that, in reviewing the Commissioner's decision to impose a penalty and the amount of the penalty he imposed, I must answer several questions. I have put the general topic in the first column followed by the question in the second:

1.	False or misleading statement: s 284-80, item 1	Did the Trust or its agent give the Commissioner a BAS containing a statement that was "false or misleading"?
2.	Initial identification of the shortfall amount: s 284-80, item 1	If so, was the "tax-related liability" that is, in this case, the net amount arising under the GST Act, less than it would be for an accounting period if the statement had not been false or misleading? That is to say, was there a shortfall amount for an accounting period as a result of the statement?
ATC 139 3.	Possible reduction of shortfall amount: s 284-215(2)	If so, did the shortfall amount, or any part of it, that is a result of a statement that is false or misleading in a material particular, occur even though the Trust or its agent took reasonable care in making that statement? The amount of the shortfall is reduced to the extent that there was such reasonable care.
4.	Work out the applicable base penalty item and so the % penalty rate: s 284-90(1)	Did the shortfall amount result from a failure by the Trust or its agent to take reasonable care to comply with the GST Act, recklessness as to the operation of a taxation law or from an intentional disregard of the GST Act?
5.	Work out whether the base penalty should be increased or decreased	Not relevant in this case; see [27] above.
6.	Work out whether the penalty, or part of it, should be remitted	See [69]-[73] below

47. I have referred to the Trust or its agent as that is the language used by the Commissioner in his written submissions. In view of my conclusion regarding the obligation of a trustee to give the BAS to the Commissioner and the observations of Hill J in
HP Mercantile Pty Ltd v Federal Commissioner of Taxation,^[69] See [7] above it seems to me that the reference should probably be to the trustee, and so to Pallantium in this case, and to its agent, Mr Evander.

Did the Trust or its agent give the Commissioner a BAS containing a statement that was "false or misleading"?

48. I will begin with whether the Trust or its agent gave the Commissioner a BAS that was "false or misleading" as it appears in s 284-80. Ms Hanna referred to
Kajewski v Federal Commissioner of Taxation,^[70] [2003] ATC 4375 in which Drummond J had said that:

• "121. A taxpayer makes a false or misleading statement in a return with s 223(1)(a)(i) if a return which the taxpayer furnishes to the Commissioner 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. …"^[71] [2003] ATC 4375 at 4,402

49. Section 223(1)(a)(i) has long been repealed but its wording was similar to that in s 284-75(1) that now imposes liability to an administrative penalty. It provided for a penalty where a taxpayer had made a statement to a taxation officer for a purpose in connection with the operation of the Act and that statement was "false or misleading in a material particular". It did not appear to have a section similar to s 284-30(b)(i) where reference is made to a statement's being "… false or misleading in a material particular, whether because of things in it or omitted from it". Although guided by Kajewski v Federal Commissioner of Taxation, I am not bound by it when considering a different provision even though it is clearly directed to the same issue.

50. My reluctance to embrace his Honour's interpretation and apply it to s 284-75(1) comes from the fact that he appears to have focused only on the word "false" for it carries with it the senses of "erroneous or incorrect".^[72] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers The word "misleading" has a different connotation in its ordinary meanings. It is an adjective meaning "likely to mislead; deceptive"^[73] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers and the word "mislead" means " 1 to make someone take a wrong or undesirable course of action. 2 to cause someone to have a false impression or belief. …"^[74] Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers It is clear that a statement need be neither erroneous nor incorrect and yet mislead the reader. This is the thought behind s 284-30 and, as Demack J said in
R v Anthony:^[75] [1982] Qd R 284

"… the words 'false' and 'misleading' do bear separate and distinct meanings. A representation may be false but not misleading, and a representation may be misleading and not false."^[76] [1982] Qd R 284 at 289

51. In this case, I am satisfied that the BAS that Mr Evander gave the Commissioner was both false in that it did not make any reference at all to the sale of the Property or to the proceeds received from it. That was erroneous or incorrect but it was also misleading for its omission suggested that there had been no taxable supply in the applicable tax period. It was so whether or not the Pallantium intended to deceive the Commissioner or not as their intention was irrelevant. Only the

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characterisation of the statement is relevant in this step and that characterisation pays no regard to the reasons for making the statement or even the amount of care with which it was or was not made.

The initial identification of the shortfall amount

52. It is clear from the GST Act that the sale of the Property was a taxable supply for consideration made in the course of an enterprise carried on by the Trust and that its supply was connected with Australia. The Trust was registered under the GST Act and so GST became payable on it. As there is no evidence of any input tax credits that were available to be deducted from the amount of GST, that amount became 10% of the purchase price or $75,000. Had the taxable supply been disclosed on the BAS, the sum of $75,000 would have represented the net amount under the GST Act and also the shortfall amount. The zero return that was submitted for the relevant accounting period was, therefore, less than it would be for an accounting period if the statement had not been false or misleading.

Should the shortfall amount be reduced?

53. Whether the shortfall amount should be reduced depends on whether that entire amount or any part of it occurred even though the Trust or its agent took reasonable care in making the BAS. What is meant by the expression "reasonable care in making the statement"? The expression "reasonable care" is not defined in the TA Act. In
Peco Arts Inc v Hazlitt Gallery Ltd,^[77] [1983] 3 All ER 193 Webster J considered a related expression. The question for his Honour was when the plaintiff could, "with reasonable diligence", have discovered that the drawing she had bought from the defendant was not an original by a famous nineteenth century artist as both she, a specialist in nineteenth century drawings whom she consulted and the defendant had understood it to be at the time of the sale. Time under the Limitation Act 1980 began to run from the time that she could have done so. Webster J reviewed the authorities and said:

"Taking into account these authorities I conclude, first of all, that it is impossible to devise a meaning or construction to put on those words which can be generally applied in all contexts because, as it seems to me, the precise meaning to be given to them must vary with the particular context in which they are to be applied. In the context to which I have to apply them, in my judgment, I conclude that reasonable diligence means not the doing of everything possible, not necessarily the using of any means at the plaintiff's disposal, not even necessarily the doing of anything at all, but that it means the doing of that which an ordinarily prudent buyer and possessor of a valuable work or art would do having regard to all the circumstances, including the circumstances of the purchase."^[78] [1983] 3 All ER 193 at 199

54. The notion of "reasonable care" is relevant in the law of torts where Lord Radcliffe, for example, explained it in this way:

"… One may phrase it as 'reasonable care' or 'ordinary care' or 'proper care' - all these phrases are to be found in decisions of authority - but the fact remains that, unless there has been something which a reasonable man would blame as falling beneath the standard of conduct that he would set for himself and require of his neighbour, there has been no breach of legal duty."^[79] Bolton v Stone [1951] AC 850 ; [1951] 1 All ER 1078 at 868-869; 1087

That is not to say that the reasonable man would require of himself a standard of conduct that ensures that no harm comes to another. As Mayo J said in
Perry v Ellis:^[80] [1946] SASR 282

"… Reasonable care does not connote the observance in its exercise of an unqualified duty to protect other members of the community, and to avoid harm to oneself. Persons are entitled to conduct themselves on the supposition that others will to a reasonable extent behave prudently and look out for themselves; that is to say, that those others will take proper steps to avoid known risks, that they will act in a non-negligent manner."^[81] [1946] SASR 282 at 293

55. Until its amendment by A New Tax System (Tax Administration) Act (No 2) 2000 (TA Amendment Act), penalties were provided for in the Income Tax Assessment Act 1936 (ITA Act 1936). The TA Amendment Act inserted Division 284 in the TA Act.^[82] TA Amendment Act, s 4; Schedule 1, items 1 and 2 Section 226G of the ITA Act 1936 was not affected by the amendment and was in substantively the same terms as newly enacted item 3 of s

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284-90(1) of the TA Act.^[83] Section 226G was retained as it, with others, was relevant in the application of the transitional provisions in TA Amendment Act, s 3; Schedule 1, item 3. It was later repealed by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 , s3; Schedule 1, item 164. Section 226G was considered by Dowsett J in
Weyers & Anor v Federal Commissioner of Taxation.^[84] [2006] ATC 4523 ; (2006) 63 ATR 268 ; [2006] FCA 818 He first repeated its effect:

"… For the purposes of s 226G it is necessary to identify conduct falling short of that expected of a reasonable person in the circumstances. …"^[85] [2006] ATC 4523 ; (2006) 63 ATR 268 at 4,557; 307

56. In the Explanatory Memorandum to the A New Tax System (Tax Administration) Act (No 2) 2000, reference was made to the amendments made by that legislation to the TA Act with regard to penalties. Clause 1.67 refers to the states that:

"The reasonable care test requires a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer to fulfil the taxpayer's tax obligations. Taxpayers must take reasonable care not only in the preparation of their tax returns, but throughout the year on matters that may impact on their tax returns, but throughout the year on matters that may impact on their tax obligations, for example, recordkeeping. A shortfall amount may be caused not only by the taxpayer being careless in making (or not making) taxation statements, but also by careless acts or omissions of the taxpayer which lie behind the statements that are (or are not) made. Whether a taxpayer has behaved reasonably will depend on all the facts of each case."

57. The principles underlying cl 1.67 and those in the cases seem to be to me to be compatible regardless of the fact that some are concerned with what is described as "due diligence" and others with "reasonable care". In all of them, regard must be had to the nature of the obligation requiring the exercise of reasonable care and the particular circumstances in which the person under that obligation finds him or herself. In this case, the obligation is that Pallantium, on behalf of the Trust, took reasonable care in complying with its obligations under the GST Act. Its obligation in this case was to provide the information in the approved form, and so on the BAS, as required by s 31-15 of the GST Act. The information that it was required to give was of the sale of the Property in the tax period covered by the BAS. Common to all of the authorities is that the obligation does not require the person to consult every possible specialist or expert or to ask and answer every conceivable question that might be asked of that person's affairs. The emphasis is upon what is reasonable and what is reasonable to do for a reasonable person in the circumstances of the person required to give the Commissioner the BAS. What is reasonable could depend, for example, upon the obscurity of the question that later proved relevant, the extent to which an ordinary person in the circumstances would expect to make further enquiries and even the depth of the person's pocket in pursuing the question.

58. There is a question whether regard may be had to the particular circumstances of the person making the statement. Senior Member Pascoe suggested that they could be when he considered additional tax imposed as a penalty under s 226G of the ITA Act 1936. He said:

"The additional tax imposed by way of penalty under s 226G of the ITAA 1936 applies where there is a failure to take reasonable care. 'Reasonable care' is not defined but the Explanatory Memorandum to the Taxation Law Amendment (Self Assessment) Bill 1992 (Cth), which introduced the section into the ITAA 1936, states that: 'The effort required is one commensurate with all the taxpayer's circumstances, including the taxpayer's knowledge, education, experience and skill.' In a decision of this tribunal, reported as AAT Case 10,211 (1995) 30 ATR 1342; Case 34/95 95 ATC 319, the tribunal stated (at ATR 1347; ATC 324):

'Given that the taxpayer's return was prepared by experienced tax agents, who objectively should have known, or at the very least, had the resources to find out, the requirements in respect of the deduction of superannuation contributions … it is difficult to find that reasonable care has been experienced.'

…"^[86] Re Arnett and Federal Commissioner of Taxation 98 ATC 2137 ; (1998) 39 ATR 1095 at 1098

59. The Explanatory Memorandum accompanying the TA Amendment Act contained no suggestion that the taxpayer's individual circumstances are relevant. In

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Weyers & Anor v Commissioner of Taxation,^[87] (2006) 63 ATR 268 ; [2006] ATC 4523 ; [2006] FCA 818 Dowsett J referred to the conduct "expected of a reasonable person in the circumstances" but there is no express suggestion in his judgment that regard may be had to matters such as the knowledge, education, experience and skill of the taxpayer. Indeed, his Honour expressly referred to the "reasonable lay person" and, in its context, I understand that to be a reference to a reasonable person without the benefit of relevant expertise in taxation law. He said that the reasonable lay person would not have been satisfied by a particular explanation and would have asked further questions as to why his or her money was not being recorded as that but as a loan and, if it was a loan, why it was not to be repaid. It is in the passage regarding Mrs Weyers that there may be some suggestion that a taxpayer's individual circumstances may be relevant in determining what amounts to reasonable care. Dowsett J said:

"It is tempting to exonerate Mrs Weyers from these criticisms on the grounds of her assumed lack of business experience and reliance on her husband. However it would be anachronistic to assume that a female taxpayer's duty in connection with the revenue is somehow of a lower order than that of a male taxpayer. Indeed, if her experience is less, her duty to inquire may be greater."^[88] (2006) 63 ATR 268 ; [2006] ATC 4523 ; [2006] FCA 818 at 307; 4,557; [159]

60. Any suggestion that may be implied from this passage is dispelled by his following reference to the passage I have already set out i.e. "… For the purposes of s 226G it is necessary to identify conduct falling short of that expected of a reasonable person in the circumstances. …".^[89] (2006) 63 ATR 268 ; [2006] ATC 4523 ; [2006] FCA 818 at 307; 4,557; [160] The focus is clearly upon the reasonable person in the circumstances of the taxpayer but not upon a reasonable person who has the personal attributes of the taxpayer and finds him or herself in the taxpayer's particular circumstances. That is a different test and not that which is set out in item 3 of s 284-90 of the TA Act. It is a subjective test whereas it seems to me that item 3 of s 284-90 is setting an objective test.

61. In coming to this conclusion, I have had regard to the understanding of "reasonable care" in the context of the law of negligence. As Kitto J said in
McHale v Watson, although in the context of a child's duty of care:^[90] (1966) 115 CLR 199

"The principle is of course applicable to a child. The standard of care being objective, it is no answer for him, any more than it is for an adult, to say that the harm he caused was due to his being abnormally slow-witted, quick-tempered, absent-minded or inexperienced. But it does not follow that he cannot rely in his defence upon a limitation upon the capacity for foresight or prudence, not as being personal to himself, but as being characteristic of humanity at his stage of development and in that sense normal. By doing so he appeals to a standard of ordinariness, to an objective and not a subjective standard. …"^[91] (1966) 115 CLR 199 at 214 and see also Joslyn v Berryman (2003) 214 CLR 552 ; 77 ALJR 1233 ; 198 ALR 137

62. Having regard to the way in which the expression "reasonable care" is ordinarily understood and its place in the TA Act, it seems to me that I should understand it to require me to consider whether Pallantium's conduct was that expected of a reasonable person in the circumstances in the sense I have understood it above. I should not attribute to that reasonable person any of the particular taxpayer's personal attributes such as his or her education, understanding of the law and outlook on life. It seems to me that this meaning accords with the scheme of the penalty provisions in the TA Act. There is a time and place for having regard to the personal attributes of the taxpayer and that comes when regard is had to the remission of any penalty that has otherwise been imposed.

63. In the circumstances with which I am concerned, I must focus on the whether Pallantium, and so Mr Evander, took reasonable care in making what I have found to be a false or misleading statement in the BAS he gave to the Commissioner. The preparation of the BAS required the Trust or its trustee to take account of whether it had made any taxable sales in the relevant tax period. That required a consideration of whether there had been any sales, what was sold, whether the sale that had been made was a taxable supply within the meaning of the Act and whether the Trust was registered or required to be registered under the GST Act.

64. If I accept all of his evidence without question, I find that Mr Evander thought about

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only one matter. That was that the Trust was registered and so had to give the Commissioner a BAS regardless of whether it had a taxable supply or not. I am not satisfied that Mr Evander turned his mind to the contract signed by his wife, or accepting that he did not receive copies of them, ask his wife or his solicitor for access to the Tax Invoice relating to the sale or the statement relating to the settlement. An ordinary person faced with the preparation of a BAS would have looked at those documents and, if not immediately available, would have taken steps to obtain them. That person would have asked the sole director of Pallantium, Mrs Evander, for them. He or she would have known that the details they contained relating to the type of sale and the price as well as any reference to GST would be relevant. Mr Evander took none of those steps and I am not satisfied that he took reasonable care in preparing any part of the statement that I have found to be false or misleading. Therefore, I am not satisfied that any part of the shortfall amount should be reduced.

Working out the applicable base penalty item

65. In this case, the Commissioner has focused only on item 3. Had he not taken that course, I would have looked to all three items and decided which is applicable.

66. Item 3 of s 284-90(1) requires me to look at whether "Your shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a taxation law". This is a slightly different question from that which arises in relation to the reduction of the shortfall amount. The latter focuses on the reasonable care in making the statement that is false or misleading and the former on the reasonable care to comply with the taxation law. In this case, there is no difference between the two. Compliance with the taxation law required that the Trust disclose the sale of the Property as a taxable supply.

67. Acting on behalf of Pallantium as trustee of the Trust, I find that Mr Evander made no effort to check what was required in completing the BAS. He made no effort to check what was required by the law. He relied instead on his own understanding of the law and its requirements uninformed by any research or any telephone call to the Australian Taxation Office. I accept that the taxation law is complex and that it can be difficult to know what is taxable and what is not. That is why an ordinary person exercising reasonable care would check the documents relating to any transaction occurring in each quarter and would, if there were any doubt, make some effort to ascertain the law. Such a person could direct his or her effort to making enquiries of, for example, the Trust's solicitor who acted for it on the sale. The solicitor would have been able to tell Mr Evander that there had been a taxable supply. The person might also have looked at the website of the Australian Taxation Office where he or she would have obtained some relevant guidance or to the GST Act that is available on the internet. On behalf of Pallantium and the Trust, Mr Evander did none of these things and nothing that gave any appearance of trying to ensure that he complied with the law by revealing the sale of the Property. Therefore, he failed to take reasonable care to comply with a taxation law in the form of the GST Act and item 3 of s 284-90(1) of the TA Act is applicable.

68. The practical effect of my finding that item 3 is applicable is that I must decide whether 25% of the shortfall amount is the appropriate base penalty or some part of it.

Should the penalty, or part of it, be remitted

69. Section 298-20 gives the Commissioner a power to remit a penalty that is within his discretion to exercise. The TA Act has not given him any guidelines for its exercise. He has formulated his own in his PS LA 2006/2. He began by setting out the objectives of the penalty regime:

• "• The purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations. What is reasonable will depend on the circumstances of each case. However, as a general rule, the larger the item, the greater the level of care required.
• • A major objective of the penalty regime is to promote consistent treatment in respect of the rates of penalty imposed. That objective would be compromised if the penalties imposed at the specified rates were remitted without just cause, arbitrarily or as a matter of course. The Commissioner must ensure that the decision to remit in part or full or not to remit at all is made in good faith and is reasonable. All relevant matters and no irrelevant matters must be taken into consideration in making the decision.

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  • Entities with a good compliance history… should be encouraged to remain compliant by treating them more leniently than entities which do not have a good compliance history.
• • An entity without a good compliance history bears a heavier burden of proof in justifying why remission is warranted. A penalty should not be remitted if the only reason given by the entity is that the understatement or over-claim was the result of carelessness, ignorance as to liability to tax or the fault of their agent.
• • The discretion to remit penalties should be administered in a fashion which ensures that the objectives of the penalty regime (for example, to effect improvements in future compliance by taxpayers and to provide certainty for those taxpayers) are achieved without causing unintended or unjust results."^[92] PS LA 2006/2 at [137]

70. The Commissioner goes on to set out a number of detailed guidelines but their spirit is encapsulated in the following two clauses:

• "138. An important principle contained in the taxpayers' charter and the compliance model is that the Commissioner will adopt a fair and reasonable approach in his administration of the tax system, and in doing so, will take into consideration the issues faced by entities in meeting their obligations. This principle applies to decisions on penalties, in the same way as it applies to any other decision that the Commissioner may make which affects an entity.
• 139. It is reasonable to expect that occasionally mistakes will be made by entities while attempting to comply with the tax laws. In many cases where there has been an honest mistake or inadvertent error the facts will show that reasonable care has been taken. In such cases, no subsection 284-75(1) penalty applies. However, occasionally the facts or reasonable inferences will show that an entity has made an isolated, honest and unintended mistake which a reasonable person in the same circumstances would not have made. As intention is not an element of the reasonable care test the entity would still be liable to a penalty under the law. Where it is clear that:
  • • an isolated book-keeping or record keeping mistake was made
  • • the mistake is not associated with an event or transaction which is extraordinary for the entity during the accounting period…
  • • the mistake was honest and unintended, and
  • • the entity has a good compliance history

• tax officers may remit the subsection 284-75(1) penalty. Tax officers will still need to consider the application of the other penalties listed in paragraph 12."

71. Having regard to the detailed provisions of Division 284, I think that the Commissioner's statement is an accurate reflection of the objectives of the penalty regime. The fundamental principle underlying them is, it seems to me, that of encouraging compliance. As Senior Member Pascoe said in
Re Kowadlo and Anor and Commissioner of Taxation,^[93] [2004] AATA 786 "Loss of revenue is not the issue".^[94] [2004] AATA 786 at [10] I do not, though, agree with another proposition put to him by the Commissioner and that he adopted. That proposition is that "… the penalty regime is to penalise non-compliance with the requirements of the legislation."^[95] [2004] AATA 786 at [10] Read alone, that suggests that the objective is penalising for non-compliance for the sake of penalising. Perhaps it was not for a year or so later, he said in
Re Otway Pastoral Pty Ltd and Federal Commissioner of Taxation,^[96] 2005 ATC 2219 ; (2005) 60 ATR 1092 that:

"… it is clear that remission should be granted only where special circumstances existed, failure to lodge was outside the control of the taxpayer and all reasonable mitigating steps were taken by the taxpayer. …"^[97] 2005 ATC 2219 ; (2005) 60 ATR 1092 at 1094

72. As I was referred by the Commissioner to
Re Kowadlo and Anor and Commissioner of Taxation, I will reflect on it for a moment. If it was intended to be read as I first thought, it

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seems to me to miss the point that the imposition of a penalty is in the nature of an instrument that can be characterised as punishment but which is used to shape taxpayers' behaviour by various means. As Collier J said in
Federal Commissioner of Taxation v Dixon (Trustee):^[98] (2007) ATC 4748 ; [2007] FCA 1079

"… while the purpose of a penalty regime is obviously to deter infringement of the law, particularly in an environment of self-assessment, the importance of conduct of taxpayers in attempting to comply with the legislation and their taxation obligations is clear from the legislation itself and … Explanatory Memorandum 2000. …"^[99] (2007) ATC 4748 ; [2007] FCA 1079 at 4,762; [47]

73. The possibility of the imposition of a penalty is known and encourages compliance among those who seek to minimise their outgoings. Its actual imposition on individual taxpayers encourages future compliance by those taxpayers and by others who know of its imposition. The Commissioner's power to remit any penalty that would otherwise be imposed enables regard to be had to the particular circumstances of a taxpayer. That encourages compliance because taxpayers know that, if they behave reasonably and carefully, any penalty that is imposed will reflect that. Although the penalty regime hangs over all taxpayers as the Sword of Damocles hung over Dionysius, taxpayers can reassure themselves that the single horsehair by which the Sword hangs will not break if they comply with their obligations under the taxation law, will remain hanging if they take all reasonable care to comply and, if only by a micron, will remain hanging in certain other instances where, taking into account the taxpayer's circumstances, fairness and justice dictate that it does. Dionysius had to rule without that reassurance.

74. In this case, Mr Evander has described the omissions he made on Pallantium's behalf as the consequence of a string of misunderstandings and without any thought of defrauding the ATO. He relies on his lack of knowledge of the law relating to GST and its applicability to the sale of the Property. Referring to PS LA 2006/2, Mr Evander describes his omission of the sale in terms of an isolated mistake and argues that fairness and justice require that the penalty be remitted.

75. In so far as the mistake's being an isolated affair, I do not agree with Mr Evander. Having regard to the compliance history of the Trust, I find that it has complied with the lodgement requirements on six occasions, five of which were lodged within an extended period allowed by the Commissioner. There is a possible seventh occasion as the lodgement date for a BAS required by 28 February is 2003 is shown as 1 March 2003. That is a day late but I wonder whether it was or was not as 1 March 2003 was a Saturday and it seems an odd day for the Commissioner to mark as the day on which he received a BAS. Six or seven occasions may sound like reasonable compliance but it must be remembered that those six or seven occasions occurred between September 2000 and March 2006 when the Trust or Pallantium was required to lodge 23 BAS. Two were a day late and another some 24 days late but the lateness of most others could be measured in a substantially longer period with most being overdue by at least a year and some up to three or four years. Two were not lodged at all. On the basis of this history, I am not satisfied that Pallantium or the Trust have shown anywhere near substantial compliance with its obligations to lodge BAS since September 2000.

76. Mr Evander referred me to his mental calculations to explain how the cheque he was given as the proceeds of the sale reflected what he thought that he should receive. Given his earlier statement that he agreed with the Commissioner's description of the transaction as "extraordinary", it is also extraordinary that he would look at the cheque with such disregard of the figures. Given that he said that he knew that there were adjustments for rates and land tax to be made to the figure, real estate agent's commission, mortgage and two months interest for early repayment of the mortgage to be deducted, it is also extraordinary that his mental calculations would lead him to expect that he should receive a cheque for $350,000 when the mortgage was, as he thought, $400,000 and the sale price $750,000. When the cheque came in for an amount more than that, he should immediately have been on notice that any understanding that he might have had about the deductions and adjustments to be made to the sale price was profoundly inadequate.

77. 

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I accept Mr Evander's evidence that he had not realised that the amount owing on the mortgage was in fact $430,000 and not $400,000. My doing so does not mitigate his actions in this matter for I find that it is yet another reflection of the complete lack of care that I find Mr Evander to have exhibited in meeting his obligations. His wife was the director of Pallantium but he had assumed responsibility for complying with its obligations in relation to the Trust.

78. In this case, I do not consider that the Commissioner acted in any way that was unfair to Pallantium or to the Trust. His officers did not give Pallantium or the Trust any notice that they intended to review its BAS but there is no reason why they should have. It was given to the ATO as a document that was correct and assessed in the normal way. When it was found not to be correct, I find on the basis of the letter written to the Trust on 8 June 2006 that there had been a previous discussion between Mr Evander and an officer of the ATO regarding the BAS and its revision. This is not a case in which there was an audit of the Trust's affairs and so is distinguishable from the circumstances dealt with by Deputy President Walker in
Re DG Empire as trustee for DG Empire and Commissioner of Taxation.^[100] 2007 ATC 2307 ; [2007] AATA 1485 at [75]

79. Having regard to all of these matters, I am not satisfied that any part of the penalty assessed as payable by Pallantium should be remitted. Even if the mistake was honest, and I do not suggest otherwise, there is nothing in the circumstances that mitigates the degree of disregard that it displayed for compliance with the taxation laws. On behalf of Pallantium, Mr Evander made no attempt to ascertain what its obligations were or to check the documentation that he knew existed in relation to the sale and that would have made it patently obvious that GST was payable. Even when faced with the cheque for an amount that should have put him on notice to look at the documentary evidence, he did not do so. His course of action in this matter is a demonstration, albeit in a different form, of Pallantium's history of lack of compliance with its obligations under the GST Act. The Commissioner did not give him an opportunity to correct the BAS as might have happened had his officers advised Mr Evander that there was to be a review. I do not think that he or they were in breach of any duty or of any proper standards of administration in not doing so. The scheme of taxation that now exists in Australia is one of self-regulation and a taxpayer can have no legitimate expectation that the Commissioner's officers will give a taxpayer an opportunity to check and correct every document he, she or it submits. A taxpayer submits it on the basis that it contains information that is correct and on the understanding that the Commissioner will make an assessment on the basis of it. In light of these matters, I do not consider that there are grounds for remitting the penalty and affirm the Commissioner's decision.