• Legal database
Legal database

O'Brien v Commissioner of Taxation

[2011] AATA 164

(Decision by: SE Frost, Senior Member)

Mark O'Brien
vCommissioner of Taxation

Tribunal:
Administrative Appeals Tribunal

Member:
SE Frost, Senior Member

Subject References:
TAXATION
grants and benefits
fuel tax credits
on-road credits
record keeping requirements
records of indirect tax transactions
reasonable precautions to prevent loss or destruction of records
administrative penalties
failure to take reasonable care to comply with taxation law
question of remission
decision under review varied to the extent necessary to give effect to the Commissioner's acceptance of the applicant's substantiation of claims

Legislative References:
Energy Grants (Credits) Scheme Act 2003 - 42
Fuel Tax Act 2006 - 41-5
Product Grants and Benefits Administration Act 2000 - 25; 26; 27; 28(3)
Taxation Administration Act 1953 - 14ZZK; Schedule 1 Div 284; Schedule 1 298-20; Schedule 1 382-5

Case References:
Dixon v Federal Commissioner of Taxation - [2008] FCAFC 54; 2008 ATC 20-015; 69 ATR 627; 167 FCR 287

Decision date: 14 March 2011

Sydney

Decision by:
SE Frost, Senior Member

INTRODUCTION

1. Mark O'Brien is a partner in a partnership carrying on business in the road transport industry. The partnership is a heavy user of diesel fuel. It is prima facie entitled to Commonwealth assistance in the form of Government grants or tax credits in relation to its diesel fuel use.

2. From November 2004 until December 2008 the partnership claimed, and was paid, grants or credits totalling a little over $100,000. During an audit by the Australian Taxation Office Mr O'Brien produced no documentary evidence to substantiate the claims. The Commissioner therefore determined that the total amount of grants and credits previously given to the partnership should be repaid to the Commonwealth. He also determined that penalties were payable. Mr O'Brien objected to the assessments and, although the objections were allowed to some extent, the partnership still found itself owing a significant amount to the Commissioner.

3. The Tribunal has been asked to review the objection decisions.

ISSUES

4. The essential question before the Tribunal is whether the assessments are excessive. That question turns on whether Mr O'Brien complied with his post-claim record-keeping requirements under the relevant Act and has provided sufficient evidence to support his claims. There is also a question as to whether the penalties imposed should be remitted.

5. Resolution of the case will involve the consideration of certain provisions in two distinct legislative schemes.

6. The earlier scheme applied for the period 1 November 2004 to 30 June 2006 and was governed by the Energy Grants (Credits) Scheme Act 2003 (EGCS Act) and the Product Grants and Benefits Administration Act 2000 (PGBA Act).

7. The later scheme applied for the period 1 July 2006 to 31 December 2008 and was governed by the Fuel Tax Act 2006 (Fuel Tax Act).

ENTITLEMENT UNDER THE EARLIER SCHEME

8. Grant entitlements arose, as relevant to the current application, under s 42 of the EGCS Act. That section provided an "on-road credit" for the use of fuel in a registered vehicle with a gross vehicle mass of at least 20 tonnes, provided the use was "in carrying on your enterprise". The Commissioner accepts that all the relevant elements of s 42 are satisfied here.

9. The problem from the Commissioner's perspective is that the record-keeping requirements in the PGBA Act have not been satisfied. Those requirements are set out in ss 25 to 27 of the PGBA Act. Section 25, headed "No entitlement to grants or benefits unless record-keeping requirements met", provides as follows (emphasis added):

(1)
Despite the provisions of Part 3 and the entitlement Acts:

(a)
you are not entitled to a grant or benefit in respect of a particular claim period unless you comply with the pre-claim record-keeping requirements set out in section 26; and
(b)
if you have made a claim for a grant or benefit in respect of a particular claim period- you are not entitled, and are taken never to have been entitled, to the grant or benefit in respect of that claim period unless you have complied with the post-claim record-keeping requirements set out in section 27.

(2)
If:

(a)
you make a claim for a grant or benefit in respect of a claim period; and
(b)
you make a statement in the claim to the effect that you undertake to comply with the post-claim record-keeping requirements set out in section 27;

the Commissioner may, for the purposes of making an assessment, assume that you will comply with those requirements. However, if you do not comply with those requirements, the Commissioner may amend your assessment under section 20.

10. The EGCS Act is one of the "entitlement Acts" referred to: see s 8 of the PGBA Act.

11. Sections 26 and 27 of the PGBA Act then provide relevantly:

26
Pre-claim record-keeping requirements

(1)
This section sets out the pre-claim record-keeping requirements that apply to you in relation to a grant or benefit in respect of a particular claim period.
(2)
You must:

(a)
keep records that enable you to substantiate your claim for the grant or benefit; and
(b)
retain those records until you make the claim.

Note: Section 27 provides that you must continue to retain those records for 5 years after you make the claim.

27
Post-claim record-keeping requirements

(1)
This section sets out the post-claim record-keeping requirements that apply to you in relation to a grant or benefit in respect of a particular claim period.
...
(2)
You must continue to retain, for the period of 5 years after the claim was made, the records that the pre-claim record-keeping requirements set out in section 26 required you to retain.

12. Mr O'Brien explained that he had had records to substantiate his claims but that many of them had been destroyed. The records had originally been stored in a spare bedroom in his house, but he had moved them to the shed when one of his children moved back home. In the shed, the records had apparently been eaten by mice.

13. Mr O'Brien had also kept what he called a "fuel book", in which he had recorded, whenever he purchased fuel, the date, odometer reading, the volume of fuel purchased and the location of purchase. Unfortunately, he had lost the fuel book one day at a fuelling station and his extensive attempts to recover it had been unsuccessful.

14. Since lodging his objection, Mr O'Brien has gone to significant effort to obtain substantiation records from his suppliers to support his grant claims. Those records that he has been able to obtain have led to the Commissioner's partial acceptance of his claims and partial allowance of his objection. Further documents produced by Mr O'Brien since lodgment of his application to the Tribunal have resulted in a further reduction of the amount claimed by the Commissioner. But there is still a substantial number of documents missing, many of them relating to fuel purchased from, or through, one particular supplier. Mr O'Brien explained that the two brothers who operated the business of that supplier had had a falling-out, the business was now effectively defunct, and any records relating to Mr O'Brien's affairs had probably been destroyed. In any event, there are many documents in this particular category that he has not been able to produce.

15. Section 28(3) of the PGBA Act says that if a record you are required to retain has been lost or destroyed, and you do not have a copy of it, but the Commissioner is satisfied that you took reasonable precautions to prevent the loss or destruction, then your entitlement to a grant or benefit is not affected by your failing to retain or produce the original record.

16. This provision does not assist Mr O'Brien. To store documents in a place where they are vulnerable to destruction by rodents is not to take reasonable precautions to prevent the loss or destruction. As well, the fuel book is not a primary record and therefore is not within the category of records that Mr O'Brien was required to retain.

17. Mr O'Brien's claim, except to the extent to which he has been able to substantiate purchases, must fail.

ENTITLEMENT UNDER THE LATER SCHEME

18. From 1 July 2006 the partnership claimed fuel tax credits (FTCs) on its Business Activity Statements (BASs). Its prima facie entitlement arose under s 41-5 of the Fuel Tax Act in relation to acquisitions of taxable fuel for use in carrying on its enterprise. Once again the Commissioner does not dispute the partnership's entitlement to FTCs under this provision.

19. The record-keeping requirements under this scheme are found in s 382-5 in Schedule 1 to the Taxation Administration Act 1953 (TAA), relevantly as follows:

382-5
Keeping records of indirect tax transactions
Records of transactions

(1)
You must:

(a)
keep records that record and explain all transactions and other acts you engage in that are relevant to a supply, importation, acquisition, dealing, manufacture or entitlement to which this subsection applies; and
(b)
retain those records for at least 5 years after the completion of the transactions or acts to which they relate.

(2)
Subsection (1) applies to:
...
(h)
if you are entitled to a fuel tax credit for fuel that you acquire, manufacture or import-the acquisition, manufacture or importation;
...

20. At the audit stage the Commissioner was not provided with any documents to support the claims.

21. Subsequently, at both the objection stage and following his application to the Tribunal, Mr O'Brien has provided documents supporting his claims to some extent. A thorough review of the documents has resulted in the Commissioner's acceptance of roughly 75% of the FTC amount originally claimed. Mr O'Brien does not assert that the Commissioner's calculation of credits on the documentation provided is wrong, but he says that his entitlement is greater than the Commissioner accepts. Unfortunately for Mr O'Brien, there is no documentation that he can produce that would justify acceptance of any greater amount.

22. Under s 14ZZK of the TAA, Mr O'Brien bears the burden of proving that the assessment is excessive. He has done that to the extent that he has been able to produce documentation since the assessment was made to justify some reduction in the amount assessed. For the Tribunal to reduce the assessments to any greater extent would be an exercise in guesswork with no reliable evidentiary basis to support it. The Tribunal will therefore confirm that the amount to be repaid to the Commissioner is the amount originally assessed, less the total amounts accepted by the Commissioner up to and including those noted in the Commissioner's supplementary submissions dated 2 March 2011.

PENALTY

23. Administrative penalty was imposed, under Division 284 in Schedule 1 to the TAA, at the rate of 25% of the shortfall amount for failure to take reasonable care to comply with a taxation law. The quantum of penalty will reduce as a result of Mr O'Brien's substantiation of some of his grant and credit entitlements, but the Commissioner says that the 25% rate is correct and that there should be no remission.

24. As far as the rate is concerned, I agree with the Commissioner that the shortfall amount resulted from a failure to take reasonable care to comply with a taxation law.

25. The question then becomes whether any or all of the penalty should be remitted under s 298-20 in Schedule 1 to the TAA. That enquiry needs to be undertaken in full recognition of the factual background, namely:

•
that claims for benefit were made, and benefits were paid, in circumstances where, because of failure to retain records, it became the case that no entitlement existed;
•
that claims for FTCs were made, and credits were paid, in circumstances where, because of failure to retain records, the claimant was unable to substantiate its entitlement.

26. These fuel benefit and credit schemes are largely self-assessing. Claimants lodge their forms and, as a rule, have their claims paid relatively quickly without the delay that would be caused by a full examination and post-lodgment assessment process. In this process, of course, the Commissioner assumes the truthfulness and accuracy of the information submitted. One of the trade-offs for the relatively pain-free processing of claims is that penalties are imposed on claimants who have made claims lacking the expected level of truthfulness or accuracy.

27. Lack of truthfulness is not a necessary pre-condition to the imposition of the penalty, although it may result in a higher rate of penalty than a case not exhibiting such a shortcoming. Lack of accuracy similarly poses a significant threat to the revenue and that, no doubt, is why it also attracts a penalty.

28. It seems to me that this is very much the type of case that the Parliament would have expected to attract a penalty and not to justify remission.

29. Remission is to be decided on the basis of harshness, having regard to the particular circumstances of the taxpayer (Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287). In my view, the result here is no harsher for this taxpayer than could be expected of the penalty provisions, operating in a routine fashion, and as intended by the Parliament.

CONCLUSION

30. The objection decision in relation to the amended assessment is varied to the extent necessary to give effect to the Commissioner's acceptance of the applicant's substantiation of claims, as summarised in the Commissioner's supplementary submissions dated 2 March 2011, at paragraph 10.

31. The objection decision in relation to administrative penalty is varied to take account of the reduction in shortfall as specified in [30] above, but is affirmed as to the rate of 25% of the shortfall, with no remission.


Back to top