Tharwat Abdel Halim & Karima Abdel Halim v Commissioner of Taxation
[2005] AATA 1274(Decision by: Senior Member Robin Hunt )
Tharwat Abdel Halim & Karima Abdel Halim v
Commissioner of Taxation
Member:
Senior Member Robin Hunt
Subject References:
Taxation
Tax shortfall
Tax shortfall penalty
Shortfall as result of false and misleading statement
Statement over-claiming GST credit
Consideration of circumstances leading to making of statement
Agent lodged BAS
Recklessness of taxpayer or agent
Timing of audit of associated business and disclosure
Decision affirmed
Legislative References:
Taxation Administration Act 1953 - 284-90 item 2
Case References:
BRK (Bris) Pty Ltd v Federal Commissioner of Taxation - (2001) ATC 4111
Garnac Grain Co Inc v HMF Faure & Fairclough and Bunge Corporation - [1967] 2 All ER 353
Hart v Federal Commissioner of Taxation (2003) - 131 FCR 203
Kajewski v Commissioner of Taxation (2003) - 52 ATR 455
International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co. (1958) - 100 CLR 644
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) - 32 NSWLR 50
Re Scott and Tax Agents' Board of Queensland (2001) - ATC 2218
Stasos and Tax Agents' Board (1990) - 21 ALD 437
Case 74/96 - 96 ATC 662
Other References:
PS LA 2002/8
Decision date: 21 December 2005
Sydney
Decision by:
Senior Member Robin Hunt
SUMMARY
1. The applicants, Mr and Mrs Halim, sought review of a decision disallowing their objection to the penalty tax imposed in respect to a false claim for a goods and services tax (GST) credit. This led to a tax shortfall although no money was withheld from the tax office as GST had already been paid. The false claim was contained in a business activity statement (BAS) prepared and lodged by a tax agent. The quarterly BAS was lodged on behalf of the applicants who were registered for GST, trading as Ashraf Cleaning Services. Mr Halim appeared on behalf of himself and his wife and gave evidence. He did not dispute that there was a shortfall amount in the BAS but argued that he did not make the false and misleading statement in the BAS. He argued that the agent exceeded his authority or was not acting as agent when he made the false and misleading statement. The agent claimed that he was following Mr Halim's instructions in lodging the BAS containing the statement. Mr Halim claimed he did not know the correct amount of the entitlement to a GST credit and that he relied on the agent to advise him and to lodge a correct statement. The tribunal has found that the decision under review should be affirmed for the reasons set out below.
ISSUE
2. The issue in these proceedings is whether the shortfall amount in the partnership's BAS for the January to March 2004 quarter resulted from recklessness by Mr and Mrs Halim, or their agent , thereby exposing them to an administrative penalty calculated in accordance with s 284-90, item 2, of the Taxation Administration Act 1953 (the Act).
BACKGROUND
3. Mr Halim and his wife are registered for GST as a partnership trading as Ashraf Cleaning Services. The partnership sold its cleaning business in 2002 to Moonlight Services, another business in which Mr and Mrs Halim are involved. Moonlight took on two more partners and became incorporated. The affairs of Moonlight were the subject of an ATO audit when the false and misleading BAS claim was lodged.
4. After the sale of the Moonlight business, Mr and Mrs Halim continued to carry on partnership activities. Mr Halim told the tribunal they were engaging in property and business services. Some time in late 2003 or early 2004, the partnership purchased a property located at 72-74 King Georges Road, Wiley Park. Settlement of the purchase took place in March 2004 and the partnership paid GST of $410,000 on the purchase price. No contract or conveyancing documents were before the tribunal but a copy of a tax invoice, dated 23 March 2004, shows payment of GST of $410,000 in connection with the purchase. In the partnership BAS lodged for the quarter from 1 January 2004 to 31 March 2004, the partnership claimed that the ATO owed it GST on purchases of $410,881. The bulk of this claim related to the property purchase. Mr Halim told the tribunal he did not understand the position and tried to find out if a credit related to the commercial units only as opposed to the residential units in the complex purchased. Mr and Mrs Halim do not presently dispute that the partnership was not entitled to a credit for the whole of the GST paid. The decision under review did not determine the portion of tax but affirmed that the decision to classify the tax shortfall as resulting from recklessness was correct.
CONSIDERATION OF EVIDENCE
5. Both Mr Halim and his accountant who lodged the BAS, Mr Joseph Gregoire, swore affidavits and gave oral evidence for these proceedings. According to the affidavit of Mr Halim, he had used the services of, Mr Gregoire since 1983. After "a period of dissatisfaction", Mr Halim used another accountant from September 2002 to about January 2003, when he and Mr Gregoire had a discussion about their relationship. Mr Halim said Mr Gregoire had, since 1994, been the accountant for Moonlight Cleaning Services Pty Limited, which operates a contract cleaning business. This business was previously operated by Mr Halim and his wife in partnership until they were joined by two other partners in 1997 and the partnership was incorporated in 2002.
6. Mr Halim's affidavit refers to the purchase of a warehouse in September 2003 for which he claimed and was allowed a full GST credit. Around the same time, he says he approached an estate agent and solicitor about the purchase of the Wiley Park property. The property consists of commercial units and residential units suitable for rent. He claimed the estate agent and the vendor both told him he would get the full GST back on the Wiley Park property. Mr Halim asked Mr Gregoire for advice about the position. At this point, the evidence given to the tribunal diverges. Mr Gregoire made a sworn affidavit, dated February 2005, in which he said the Wiley Park property consisted of a mix of shop, commercial premises and residential premises and that he told Mr Halim the partnership was entitled to an input tax credit (ITC) to the extent of the value of the shop and 2 commercial units only.
7. Mr Halim asserts that, when first he told Mr Gregoire he had been informed by others that he would get a full credit, Mr Gregoire said he would get nothing. Mr Halim claimed that Mr Gregoire later told him he was not sure about it and that he might or might not recover the GST paid. Mr Halim further claimed that Mr Gregoire advised him to make an application to see how it went. In paragraph 24 of his affidavit, Mr Halim disputes Mr Gregoire's affidavit. He says that Mr Gregoire did not protest or advise him not to lodge the BAS claiming the full amount. Mr Gregoire denies this version of events and gave evidence that he told Mr Halim at all times that he was not entitled to a full refund of GST.
8. Mr Halim claimed that he tried to make his own enquires of the ATO but was referred from section to section and was told he should apply in writing. He told the tribunal he also asked the auditor examining the affairs of Moonlight for advice when the auditor visited his home to collect some papers. The officer doing the audit was Mr Robert Caterjian. Mr Halim gave further evidence that Mr Caterjian said he would get back to him but never did. Mr Halim also claims he had a conversation with Mr Gregoire in about the second week of April and Mr Gregoire said he would get back to him. Mr Halim told the tribunal that he did not hear from Mr Gregoire. Mr Halim next received an amount of $78,636 from the ATO. He later received a further credit.
9. Mr Robert Caterjian made a signed statement about his involvement in the tax affairs of Mr Halim and gave oral evidence to the tribunal. Mr Caterjian was previously employed by the Australian Taxation Office (the ATO) from February 2000 onwards. Mr Caterjian told the tribunal that in January 2004, he commenced a GST review of Moonlight. He recalled visiting Mr Halim's house in connection with the review but did not recall any conversation about the Wiley Park property. He told the tribunal that he would not have been qualified to answer this question and, if he had been asked, he would have told Mr Halim to speak to an ATO officer experienced in GST and obtain a written ruling.
10. Mr Caterjian further gave evidence that certain materials before the tribunal were his activity log and were an accurate record of his conversations with Mr Gregoire. On 23 January 2004, he had two telephone discussions with Mr Gregoire. On 18 February 2004, he had an interview with Mr Halim, Mr Gregoire and another person. He said there was no discussion of the BAS that is the subject of these proceedings. He also recalled a conversation with Mr Halim at his home on 19 February 2004 and subsequently dealt with Mr Halim directly. His note of this date records that Mr Halim was unhappy with his tax agent. Mr Caterjian recorded that he undertook not to give Mr Gregoire any more information and would deal with him directly. He noted in giving oral evidence that Mr Gregoire no longer attended meetings. However, Mr Caterjian said he continued to have discussions with Mr Gregoire when Mr Gregoire phoned him about the review and that Mr Halim continued to refer to him as his tax agent. Mr Halim told the tribunal that, after the meeting on 18 February, he told Mr Gregoire he did not want him involved after he quoted $20,000 "to fix up the audit". Mr Gregoire did not attend meetings after that date because Mr Halim did not want him there.
11. Mr Halim further said that he met Mr Gregoire again in early April and gave him the contract and solicitor's letter for the Wiley Park purchase, having previously given him other GST figures. He said he asked Mr Gregoire about the credit for the property, saying he wanted the full credit if he was legally entitled to it.
12. On 13 April 2004, Mr Caterjian recorded a conversation with Mr Gregoire. This "audit note" referred to statements by Mr Gregoire about "hidden money" and how his client had "duped" him. Mr Gregoire was reported as suggesting that Mr Caterjian check the partnership's bank statements, transfers of assets and the tax evasive nature of this. They discussed the "ethical dilemma" of an agent's duty to protect his client's interests and criminal behaviour through tax avoidance. Among other things, Mr Caterjian recorded that he told Mr Gregoire that he was conducting a review and not an audit.
13. Mr Caterjian gave further evidence that he received a phone call from Mr Gregoire on 20 April 2004 and his activity log accurately records the conversation. The note records that Mr Gregoire told him that he was going to lodge a BAS claiming a credit on the full amount of a property although he had told his client he could only claim for the commercial aspect of it. He recorded Mr Gregoire's saying that the client had instructed him to claim the full amount in the March BAS so that "this can come to an end". He noted that he informed Mr Gregoire he could expand the review to include the March BAS but required him to lodge it first.
14. Mr Halim swore that he had another conversation with Mr Gregoire on 23 April 2004 asking about the BAS and that Mr Gregoire again said he was not sure if he was entitled to a full credit but to lodge and claim the full amount to see "how you end up". He understood the BAS was lodged electronically on that day.
15. Mr Caterjian recorded another conversation with Mr Gregoire on 11 May 2004 when Mr Gregoire told him he had received a call from another ATO officer in relation to the March BAS. Mr Caterjian then requested the file be transferred to him as the officer conducting the review. He received a call from Mr Halim on 25 May 2004, asking if he had made a decision about the Wiley Park property. Mr Caterjian also recorded a call on 26 May 2004 when Mr Halim told him some invoices were ready for collection. Mr Caterjian next recorded that he delivered "the letter" to Mr Halim and advised him to seek legal advice and act within the specified time frame.
16. Mr Halim said he received a letter dated 26 May 2004 with an ITC of $142,229. The letter noted the field officer was Mr Caterjian. Mr Halim received a further credit with a letter dated 30 June 2004, increasing the ITC by $47,765 to a total of $189,994. Then, he received a letter dated 27 July 2004 advising him of a 50% penalty for over-estimating the credit due. He denied he was reckless, having at all times discussed the matter with his accountant.
FINDINGS
17. The BAS for the March 2004 quarter resulted in a "shortfall amount" according to the definition in item 2 in the table attached to s 284-80 of the Act. Section 284-90 sets out the range of penalties applicable for shortfall amounts by reference to the seriousness of the conduct causing the shortfall. Section 284-75 attaches liability for an administrative penalty to the taxpayer where he or she or an agent made a false or misleading statement that resulted in a shortfall amount. Mr Halim has not disputed that there was a shortfall amount. Therefore, I first considered whether Mr Gregoire was his agent in making the statement in the BAS that led to the shortfall.
Was Mr Gregoire acting as Mr Halim's agent?
18. Mr Halim's evidence was that he had used Mr Gregoire as his tax agent for many years. There is nothing before me to suggest that Mr Gregoire was not authorised to act for Mr Halim in that capacity. Both parties consented to this arrangement. From the evidence and documents before me, I consider that the agency agreement between the parties met the common law requirements as to effect on third parties, that is, the ATO in the present context: International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co (1958) 100 CLR 644 . As well, the agreement was consensual: Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1992) 32 NSWLR 50 and Garnac Grain Co Inc v HMF Faure & Fairclough and Bunge Corporation [1967] 2 All ER 353. Further, a tax agent is a creature of statute: see Re Scott and Tax Agents' Board of QLD (2001) ATC 2218 and Stasos and Tax Agents' Board (1990) 21 ALD 437 . Provisions in the Act spell out statutory consequences of the agency for tax matters.
19. From the record before the tribunal, it is plain that Mr Halim did not withdraw Mr Gregoire's authority as tax agent although he discontinued Mr Gregoire's attendance at ATO meetings. Mr Halim had previously ceased to use his services for a period prior to the purchase of the Wiley Park property and the evidence of both Mr Halim and Mr Gregoire points to continuing tension between them. After Mr Gregoire quoted fees of $20,000 to assist Mr Halim in the tax audit, Mr Halim informed Mr Caterjian that he did not want Mr Gregoire to be present at meetings. Mr Caterjian noted, however, that Mr Halim continued to refer to Mr Gregoire as his agent. Mr Gregoire continued to have at least ostensible authority to prepare and lodge the BAS.
20. Mr Halim submitted through his counsel that Mr Gregoire was not performing as his agent in lodging the return. He argued Mr Gregoire either exceeded his authority or was engaged in a frolic of his own. The lodgement was certainly to Mr Halim's detriment. Mr Caterjian gave evidence that he found the phone call extraordinary on 13 April 2004. However, acting to the detriment of a principal does not mean that the act of the agent is not within the scope of the agency.
21. I am satisfied that an agency agreement existed in the present case. The further question is the effect of Mr Gregoire's actions under the Act. At no point during the review or audit (as it has variously been described in these proceedings) and events leading to the lodgement of the March 2004 BAS, did Mr Halim withdraw Mr Gregoire's appointment as his tax agent or inform the ATO that Mr Gregoire was no longer his tax agent. Mr Gregoire remained the actual and ostensible agent of Mr Halim. It was put to me that Mr Gregoire exceeded his authority in acting as he did. I am not persuaded that Mr Gregoire did exceed his authority although he acted against his principal's interests in making the false BAS claim. If he did exceed his authority, this is a matter to be resolved between the principal and agent in this case and does not alter the statutory consequences of the tax agent's statement in the BAS.
22. Mr Halim put to me that he was not aware of Mr Gregoire's actions and not aware of his ITC entitlement and might be excused from penalty on this ground or might bear a lesser penalty. A similar argument was put in Kajewski v Commissioner of Taxation (2003) 52 ATR 455 concerning tax avoidance. Drummond J observed, at paragraph 111, that there will be an avoidance of tax for the purposes of s.170(2)(a) of the Income Tax Assessment Act 1936 (the 1936 Act) where, without any active or passive fault on the part of the taxpayer, less tax had been paid than ought to have been paid. This was so even though the Kajewskis were "at pains to stress how none of them really understood" the plan devised by their tax agent and their tax obligations (at para.112).
23. Taking these matters into account, I find no justification for removing the penalty applied. Mr Gregoire was Mr Halim's agent and Mr Halim must bear the consequences in accordance with Division 284.
Consideration of appropriate penalty
24. The behaviour of Mr Gregoire is attributed to Mr and Mrs Halim in the imposition of a penalty pursuant to Division 284. I have therefore considered the conduct of both the taxpayer and the agent in determining the appropriate level of penalty.
25. On the positive side, Mr Gregoire might be said to have made disclosure to the ATO ahead of the audit of the Halim's partnership. This was when Mr Gregoire made a phone call to Mr Caterjian advising him that he was about to lodge the March 2004 BAS for the partnership and that this would contain a false statement. The phone call occurred when the ATO review concerned only the Moonlight business. As a result of the phone call informing Mr Caterjian that he was about to lodge the BAS containing a false and misleading statement, the review or audit was then extended to the partnership. On the other hand, Mr Gregoire was acting adversely to Mr Halim's interests when he lodged the BAS knowing that it contained a false and misleading statement. The two events are intertwined. I have been unable to reach a conclusion about the truth of the reported conversations between Mr Gregoire and Mr Halim before the BAS was lodged. Neither witness impressed me as being truthful. Both men often gave long winded and unconvincing answers to straightforward questions. This formed an impression of evasiveness in my mind. However, this is immaterial as I have already found that the lodgement of the BAS by an agent still implicated Mr Halim under Division 284.
26. Further, Mr Halim's evidence is inconsistent with the evidence of Mr Caterjian as well as that of Mr Gregoire in some respects. Mr Halim says that he asked Mr Caterjian for advice about his GST position with regard to the purchase at Wiley Park and Mr Caterjian does not recall this conversation. He further gave evidence that, had he been asked for advice, he would have suggested that Mr Halim obtain a private ruling as it was not his job to give GST advice. The discrepancies between Mr Halim's and Mr Gregoire's account are more important, especially as to whose idea it was to lodge the BAS claiming a full ITC. I note Mr Halim continued to discuss his doubts with Mr Caterjian whereas Mr Gregoire openly informed Mr Caterjian that he knew the BAS statement was wrong. Mr Caterjian recorded that Mr Halim continued to ask him about the position with his BAS. Mr Halim was not avoiding the issue and was still seeking information about the correct position before he actually received the credits and the penalty letter.
27. Mr Gregoire gave evidence that he informed Mr Halim that he was not entitled to a credit for the whole of the GST and Mr Halim said Mr Gregoire told him at first that he would get nothing but then suggested he give claiming a credit a go. Mr Gregoire gave evidence that he always told Mr Halim he was not entitled to a refund of all the GST paid. However, Mr Gregoire did not refer to any estimate he made of apportionment of the GST credit. Nevertheless, Mr Halim states in his affidavit, at paragraph 21, that Mr Gregoire's representations to the ATO on his behalf were successful in generating a credit and then a further adjustment in his favour.
28. Further confirmation that Mr Halim's evidence was not always truthful or well considered occurred during the hearing. Notably, Mr Halim at one stage denied that he had written and signed a letter to the tax office. He subsequently retracted this evidence. Not only did Mr Halim at first deny the letter was his but he made the extraordinary claim that someone had attached a faxed copy of his signature to the letter and photocopied it. On several occasions he failed to answer questions directly. His manner was not forthright and he tended to ramble.
29. I do not question Mr Gregoire's evidence that he lodged the BAS despite his knowledge that it contained a false statement. This is borne out by Mr Caterjian's case notes and oral evidence. It follows, in my view, that this action was at least reckless and implicated Mr Halim and the partnership. Mr Gregoire told the tribunal he decided to go ahead and lodge the BAS in order to "protect his fees". This was the justification he gave in oral evidence for embarking on this course of action. He did not explain why he notified Mr Caterjian of his intention before he lodged the BAS. Mr Gregoire's action in lodging the BAS, knowing it was false and misleading, was extraordinary. As a registered agent, even if he had been instructed to make a false claim, it would have been more appropriate to decline to lodge the statement rather than be party to a false claim. He might also have sought a private ruling for his client. I do not accept that a desire to protect his fees was a reasonable motivation for Mr Gregoire to prepare and lodge the false statement instead of seeking a ruling. The lodgement of the false statement smacks more of malice than of fee protection and is inexcusable.
30. The level of penalty determined in the decision under review is based on "recklessness". Recklessness resulting in a tax shortfall amount has been considered by the Federal Court in the context of former s 226H of the 1936 Act. In BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001) ATC 4111 at 4129, Cooper J observed that it was "reckless" to make a claim for tax purposes "knowing there is a real ... risk that the material may be incorrect". His Honour also described as reckless being grossly indifferent to whether the material was incorrect and drew on the reasonable person test as to seeing if there was a real risk. Cooper J also drew a distinction with the situation where an agent prepares a return on the basis of information supplied by a taxpayer.
31. As Mr Gregoire was aware that apportionment was necessary, he did not prepare the return on the basis of information supplied. Mr Gregoire told Mr Caterjian and the tribunal that he knew the information in the return was wrong. Nevertheless, he took this action knowing that there was a real, as opposed to fanciful, risk that the claim may be incorrect. He was at the very least grossly indifferent as to whether or not the claim was true and correct. A reasonable person in his position would clearly have seen that there was a real risk that the result of the claim in the BAS would result in a shortfall amount. His conduct, in my view, was more than reckless and could be categorised as gross carelessness.
32. As well, the Full Court of the Federal Court commented on the judgment of Cooper J in the later case of Hart v Federal Commissioner of Taxation (2003) 131 FCR 203 . Spender J said that he disagreed that it was reckless to make a claim "knowing there is a real risk that the claim might be wrong". Spender J, at paragraph 33, considered that it was not reckless "simply to make a claim that is erroneous" or to take the risk that the claim might be wrong. His Honour considered that "(R)ecklessness consists in making a claim, not caring whether the claim is true or false". By comparison, the false claim made by Mr Gregoire was more serious than the situation described by Spender J. Mr Gregoire was fully aware that the claim was wrong. He took the further step of notifying the ATO officer conducting an audit of another of Mr Halim's businesses that he was about to make a false claim. On this basis, the false statement in the BAS was more than reckless and was made with "intentional disregard". Intentional disregard qualifies for the higher level of base penalty of 75% as set out under s 284-90 whereas the penalty for recklessness is 50%.
33. Hill and Hely JJ in Hart took a different view on the issue of penalty. They noted that the onus was on the taxpayer to show that the penalty was excessive and that the taxpayer could discharge that onus by proof that the factual circumstances for the application of the penalty did not exist. Their Honours observed there was a line between recklessness and dishonesty. A finding of dishonesty was not necessary to the application of s 226H. The context of s 226H, which was one of several sections dealing with penalties, showed that "recklessness" meant something more than failure to exercise reasonable care and something less than intentional disregard. The context involved reference to companion provisions that embraced the other concepts the primary judge had differentiated. Similarly, s 284-90 describes degrees of culpability and provides penalties thought appropriate to these degrees of fault. In taking this approach, I again find the degree of culpability involved in the present case falls just short of dishonest. This finding is based on Mr Gregoire's informing Mr Caterjian of the falsity of the claim before he lodged the BAS. Mr Gregoire's action still to my mind falls within the category of intentional disregard.
34. In Case 74/96 96 ATC 662 , Senior Member Beddoe also considered the meaning of recklessness at 676. I agree with his understanding that recklessness means having no regard for the consequences of an action. Mr Gregoire behaved in this manner when making the BAS statement. His action has had very serious consequences.
35. In deciding the appropriate penalty that should attach to the lodgement of the false statement in the present case, I have taken into account all of the surrounding circumstances. I have borne in mind that Mr Gregoire made disclosure even if motivated by malice rather than the best interests of his client. Also, Mr Halim continued to discuss his problem with Mr Caterjian. Mr Gregoire's disclosure occurred before and triggered the audit or review of the partnership. Up to that point, it had concerned the affairs of Moonlight only.
36. There is no doubt that Mr Gregoire made a false and misleading statement in the BAS he lodged. Section 284-90 item 2 of the Act, provides that a taxpayer attracts the penalties there set out for conduct of " you or your agent ". It is no defence for the taxpayer to assert that the agent was at fault. The agent's action exposes the applicant to an administrative penalty calculated in accordance with the section. It follows that Mr Halim must pay the penalty where Mr Gregoire has acted as his agent in lodging the return. Further, section 284-25 states that Division 284, which provides penalties for statements, unarguable positions and schemes, applies to statements by agents. The division applies to a statement made in a document among other things: s 248-20. A statement made in an approved form by an agent applies "as if it had been made by you". Section 284-75 similarly provides that the person is liable to an administrative penalty if "you or your agent makes a statement to the Commissioner ...that is false or misleading in a material particular...". Also see Hart and BRK above. I do not accept any suggestion that Mr Halim should be compared to a person whose failure was inadvertent and that the penalty should be reduced for this reason.
37. The Commissioner's practice statement, PS LA 2002/8, sets out guidelines in regard to penalty for shortfall in tax or overclaimed credits at paragraphs 12, 13 and 14. The penalty range accords with that under s 284-90 above. Where there are aggravating circumstances, the penalty is increased by 20%. Voluntary disclosure before being told that a tax audit is to be conducted reduces the penalty by 80% or to nil if the shortfall is less than $1,000. Voluntary disclosure after commencement of the audit reduces the penalty by 20%. These variations are taken from s 284-225. Paragraph 15 notes that an audit is taken to have commenced when first advised to the taxpayer or representative. In the present case, while Mr Halim considered he was undergoing audit, the ATO's records show only that Moonlight was being reviewed and that the review was extended to the partnership after Mr Gregoire's phone call about the imminent lodgement of the false statement. Technically, it follows that the disclosure was made before any audit or review of the partnership. Therefore, while the shortfall resulted from intentional disregard, attracting a 75% penalty, I find that it is appropriate to reduce the penalty to 50% in accordance with all the surrounding circumstances, including the voluntary disclosure by the agent in the course of the Moonlight review. In deciding this, I have borne in mind that the surrounding circumstances, involving continuing discussions with Mr Caterjian and queries by Mr Halim, do not exactly fit the penalties and adjustments set out in the tax legislation and practice statement. In addition, the deterrent element of penalties is a consideration. Taking all these considerations into account, I have decided that the penalty under review is suitable to the false statement made.
DECISION
38. The tribunal affirms the decision under review.