PINOT NOMINEES PTY LTD & ANOR v FC of T

Members:
A Sweidan SM

Tribunal:
Administrative Appeals Tribunal, Perth

MEDIA NEUTRAL CITATION: [2009] AATA 466

Decision date: 24 June 2009

---

---

ATC 2976

A Sweidan (Senior Member)

Background

1. The applicants are seeking a review of the respondent's decision to only allow in part objections to assessments of GST and administrative penalty relating to the quarters ended 30 September 2000 to 30 June 2006 (31 March 2006 in the case of Vicwal) inclusive (the relevant period).

2. During the relevant period, the applicants derived income from renting of commercial property and home units.

3. The applicants failed to lodge any Business Activity Statements for any of the calendar quarters comprising the relevant period.

4. Following an audit of the GST affairs of the applicants, the respondent issued Notices of Assessment of Net Amount of GST to the applicants on 31 July 2006.

5. The respondent also issued Notices of Assessment of Administrative Penalty to the applicants.

6. Following consideration of objections against the Notices of Assessment of Net Amount and Notices of Assessment of Administrative Penalty the respondent reduced the amount of tax and administrative penalty payable.

Issues

7. The only matters remaining in dispute are the quantum of administrative penalties (in relation to both applicants) and the claim by Pinot Nominees Pty Ltd (Pinot) that GST ought to be reduced by an amount of $6,000 in respect of the calendar quarters equating to the 2001 income year.

8. Section 14ZZK of the Taxation Administration Act 1953 ("TAA") places the burden of proving the assessments to be excessive on the applicants.

Rent from shop numbers 2A and 2B (Pinot)

9. The applicant Pinot claims that the amount of GST assessed by the respondent is overstated by $6,000 "in the 2001 year" by virtue of having been calculated based on the inclusion of rent of $60,000 from "shop numbers 2A and 2B". Pinot asserts that it did not receive this amount.

10. Pinot owned shop numbers 2A and 2B Stuart Street Mosman Park which were occupied by a business operated by a related entity to the applicants (Albergo Holdings Pty Ltd trading as "Mosman Park Liquor Store"). It is claimed that no rent was paid.

11. However contemporaneous records in the form of financial statements signed by Mr Uratoriou a director of Pinot and which were provided to Pinot's bank show the derivation of rent by Pinot from "Mosman Park Liquor Store" in the amount of $60,000 in the year ended 30 June 2001 and in the amount of $65,000 per annum as at 19 December 2000.

12. Mr Uratoriou said in evidence that no rent was paid in the relevant period to the applicant Pinot by the Mosman Park Liquor Store. He said it was a "bad debt" which "never came in" and that Pinot made no attempt to recover the rent "because the tenant was a related entity".

13. Mr Uratoriou was unable to explain why, if no rent was paid, the financial statements signed by him and provided to Pinot's bank show that rent was derived as set out above. The Tribunal does not find his evidence on this issue to be credible and finds that the applicant has failed to discharge the onus of showing that the GST Assessment of Net Amount is excessive.

Penalties

14. The respondent imposed a 75% penalty for failing to lodge Business Activity Statements for the relevant periods.

15. The penalty regime in Part 4-25 of the TAA sets out the uniform administrative penalties that apply to entities for failing to satisfy obligations under taxation laws. Section 284-75(3) of Schedule 1 to the TAA provides as follows:

• "(3) You are liable to an administrative penalty if:
  • (a) you fail to give a return, notice or other document to the Commissioner the day it is required to be given; and
  • (b) that document is necessary for the Commissioner to determine a * tax-related liability of yours accurately; and

  • ---

    ATC 2977

    (c) the Commissioner determines the tax related liability without the assistance of that document.
  • Note: You are also liable to an administrative penalty for failing to give the document on time: see Subdivision 286-C."

16. An activity statement or a tax return is necessary for the Commissioner to accurately determine a taxpayer's tax liability. Both the GST and income tax reporting requirements are predicated on a self-assessment system. Without those documents it is not possible for the Commissioner to determine a taxpayer's liability without conducting an audit or utilising access powers.

17. In this instance, the Commissioner conducted an audit and determined the GST liability of the applicants without the assistance of the Business Activity Statements.

18. Accordingly, the requirements of subsection 284-75(3) of the TAA are satisfied and the applicants are liable for an administrative penalty.

19. The base penalty amount was assessed at 75% of the tax related liability concerned: Item 7 subsection 284-90(1) of the TAA.

20. Section 298-20 enables the Commissioner to remit all or part of the penalty. In the present circumstances the penalty was based on the admitted fact that the applicants had not provided activity statements by the date they were required, and the Commissioner declined to remit the penalty or any part thereof.

21. The applicants claim that the respondent ought to have remitted the penalty to nil or some lesser amount. The basis for this claim is that Mr Uratoriou "suffered serious depression" during the relevant period and that his depression affected his ability to comply with his tax obligations.

22. Mr Uratoriou annexes what he refers to as "three medical certificates" verifying his illness to his Witness Statements. Three documents of a medical nature are attached to the Witness Statements. The first is a Medical Certificate from Dr Brett, which states that Mr Uratoriou "has suffered from anxiety and depression dating from approximately 1992". This certificate is silent as to what effect (if any) this had on Mr Uratoriou's ability to ensure that the applicant complied with its taxation obligations. The applicant did not call Dr Brett to give evidence in these proceedings. The second document is a "Health Summary Sheet", apparently also prepared by Dr. Brett. Other than the reference to "Depression" in the last line, the document does not appear to contain anything relevant to the matters before the Tribunal. The third document relates to a medical condition suffered by Mr Uratoriou's partner, and does not appear to be relevant to any matter which is before the Tribunal.

Applicant's submissions

23. The applicants do not take issue with the respondent's imposition of the additional tax by way of a penalty. Rather, it is contended that having regard to the facts and circumstances particular to each of the applicants, the imposition of the additional tax results in a harsh outcome and therefore the additional tax ought to be remitted to nil or some lesser amount. In this regard the Tribunal was referred to the Full Federal Court decision in
Dixon v FCT 2008 ATC ¶20-015; (2008) 69 ATR 627 at [15], [20] and [26]. The applicants also referred to the Tribunal decisions in
Williams Vazquez and Associates and FCT 2005 ATC 2087; [2005] AATA 301,
Kizquart Pty Ltd and FCT 2005 ATC 2198; [2005] AATA 582 and
Otway Pastoral Pty Ltd and FCT 2005 ATC 2219; [2005] AATA 649 in support of their contentions.

24. Subsection 298-20(1) of the Act provides discretion to the respondent, and hence to the Tribunal, to remit all or part of additional tax imposed by way of penalty. The legislation does not expand or confine the appropriate circumstances in which the discretion should be exercised. In light of the Full Federal Court decision in Dixon, the applicants submit that discretion should be exercised in favour of a taxpayer where having regard to the particular circumstances of the taxpayer, the additional tax would be seen to be harsh. Special circumstances do not need to exist (see Dixon at [21]).

25.

---

ATC 2978

Although the additional tax imposed is an "administrative penalty", "it is still a penalty and normal sentencing principles must be kept in mind when exercising the discretion" as to whether to remit the penalty. The principles are the threefold purposes of punishment, being retribution, deterrence and reformation. It was submitted that such principles have been consistently applied by Tribunal members when exercising the discretion in this regard and reference was made to the cases cited above.

26. It was further submitted that in the proper exercise of discretion, regard must be had to the particular circumstances of each of the applicants to determine:

• 26.1 whether the additional tax is harsh;
• 26.2 whether the applicants are deterred from future non compliance;
• 26.3 whether the applicants have changed their conduct; and
• 26.4 the level of punishment required.

27. Whilst "special circumstances" do not need to exist to warrant an exercise of the discretion in favour of the applicants, to the extent that the Tribunal has regard to "special circumstances", it was submitted that the applicants particular circumstances are consistent with the "special circumstances" outlined by the Tribunal previously (see
Re Otway Pastoral Pty Ltd v FCT supra).

Health of Mr Uratoriu

28. The evidence of the sole director of the applicants, Luciano Uratoriu, is that he suffered a significant family tragedy prior to the relevant period. Since that time his evidence is that he has suffered from depression and has struggled to understand the obligations of the then new goods and services tax regime, and struggled to deal with any requests from the respondent with respect to the goods and services tax reporting obligations. It is said that for this reason, the applicants could not satisfy their obligations and this was what caused the applicants to overlook the lodgement of Business Activity Statements.

29. Mr Uratoriu also said that the applicants have engaged the services of new accountants to assist with the applicants' past taxation affairs. The accountants have also been engaged to assist the applicants complying in the future, including its goods and services tax obligations. However he also said that the applicants at all relevant times had the services of accountants and tax agents available to them.

Tribunal's findings

30. In the Tribunal's view the imposition of the additional tax does not result in a harsh outcome and no remission is warranted, particularly having regard to the following:

• 30.1 despite his depression, Mr Uratoriu was able to carry on his normal business activities as the applicant's director during the relevant period;
• 30.2 The applicants had the services of accountants and tax agents available to them at all relevant times and the applicants in fact were registered for GST;
• 30.3 The failure by the applicants to lodge quarterly BAS returns extended over a period of approximately 6 years.

31. In the Tribunal's opinion the facts in this matter are different to those in the cases cited by the applicants.

32. It follows that, similarly to the position in
Sharkey and FCT 2007 ATC 2218; [2007] AATA 1435 in which the facts were very similar to those which pertain here, the applicants have not discharged the burden of proving that the Commissioner's decision not to remit the penalties should not have been made, or should have been made differently.

Decision

33. The Tribunal affirms the respondent's decisions under review.