Administrative Appeals Tribunal, Brisbane


Decision date: 16 September 2008

PE Hack SC (Deputy President)

1. This case is before the Tribunal as a consequence of a successful appeal and an order of the Full Court of the Federal Court that the matter be remitted to the Tribunal for determination according to law. The parties are agreed that the evidence should be the evidence that was before the Tribunal as originally constituted and as set out in that earlier decision[1] Re Dixon and FCT 2006 ATC 2092 ; (2006) 62 ATR 1001 . Accordingly I do not propose to set out more of the evidence than is necessary to understand the issues raised in this hearing.

2. In 2003 the applicant, Mr Archibald Dixon, in his capacity as trustee of a superannuation fund (the Fund), purchased a commercial property for $1,885,000. The sale was completed on 31 October 2003.

3. Thereafter the Fund, by its tax agent at that time, Mr Paul Mugridge, lodged the Fund's business activity statement (BAS) for the December 2003 quarter. That BAS did not treat the acquisition of the property as a creditable acquisition, that is, one in respect of which GST had been paid. It is accepted now by the Fund that that was the correct treatment of the transaction for GST purposes.

4. Thereafter Mr Dixon prepared BAS returns for the Fund until he subsequently engaged another agent, Mr Graeme Gillard. Mr Gillard had a different view, although it turns out that his view was based upon the false premise that the purchase was not a purchase as a going concern. Reference to the contract of sale (which was not available at the time to either the Fund or Mr Gillard) would have shown that the property was one acquired as a going concern and thus GST was not levied on the sale.

5. On the basis of the false premise Mr Gillard arranged for an amended BAS for the December 2003 quarter to be lodged in December 2004. That BAS claimed an input tax credit of $171,791 which included GST claimed to have been paid in respect of the purchase of the real property. It is accepted that the Fund had no entitlement to that credit (an amount of $171,363) and that the amended BAS contained a false or misleading statement.

6. The Commissioner's officers detected the false and misleading statement and no payment was made by the Commissioner to the Fund. But the Commissioner imposed an administrative penalty pursuant to Div. 284 of Sch. 1 to the Taxation Administration Act 1953 (Cth) on the basis that the claim for an input tax credit had been made recklessly. The shortfall amount, the Commissioner decided, resulted from recklessness by the Fund or its agent as to the operation of a taxation law[2] Item 2 of s 284-90(1), Taxation Administration Act . . The penalty was $85,681.50, that is, 50% of the shortfall amount of $171,363.

7. Mr Dixon objected to the assessment of the penalty but by letter dated 23 June 2005 the Commissioner disallowed that objection. Thereafter Mr Dixon sought a review of the objection decision in the Tribunal[3] Application QT200500222. .

8. Subsequently Mr Dixon objected to the Commissioner's decision not to remit the administration penalty using the power in s 298-20 of the Administration Act. The Commissioner disallowed the objection and that objection decision was also made the subject of an application to this Tribunal[4] Application QT200600048. .

9. Both proceedings came on before the Tribunal constituted by Senior Member McCabe. On 17 February 2006 the Tribunal:

  • (a) affirmed the decision in application QT200500222, that is, the decision to impose penalty at 50%;
  • (b) varied the decision in application QT200600048 to one where the penalty was remitted to 25% of the shortfall.

10. The Commissioner appealed that decision. The appeal was allowed and that part of the Tribunal's decision that varied the Commissioner's decision was set aside[5] See FCT v Dixon 2007 ATC 4748 ; (2007) 67 ATR 87 (Collier J). . Mr Dixon then appealed that decision. The Full Court of the Federal Court allowed the appeal in part by ordering that the matter be remitted to the Tribunal for determination according to law[6] See Dixon v FCT 2008 ATC ¶20-015 ; (2008) 167 FCR 287 (Spender, Ryan & Emmett JJ). .

11. It is accepted that the only matter before me is the decision not to remit the penalty; the imposition decision, which was affirmed by the Tribunal, was not the subject of any appeal. The parties also agree that I should rely upon the evidence given at the original hearing and that I may rely upon inferences drawn by Senior Member McCabe from that evidence. In that regard it is relevant to note the following conclusions of the Senior Member:

"[20] I am satisfied the applicant genuinely did not understand why he had not been able to claim an ITC on the transaction - but I am also satisfied he knew Mr Mugridge had considered the question and made a decision. His new tax agent appeared to hold out the prospect of making a claim. I accept Mr Dixon did not understand the way in which the tax system worked. I accept Mr Gillard told him a claim could be made and the money returned if it turned out to be mistaken. I am satisfied the applicant decided to proceed with a claim on that (speculative) basis. While Mr Gillard denies he gave the advice to Mr Dixon to proceed with a claim and return the money in the event the claim was disallowed, it is the only plausible explanation for the decision to proceed to file the BAS in circumstances where the questions Mr Gillard had asked of the applicant had not been answered. I note Mr Gillard was unaware of other aspects of the GST legislation relating to the transaction (eg, the need to approach the Commissioner before the BAS is filed if it is intended to rely on a document that is not a tax invoice). I think he had an imperfect understanding of the consequences of filing a BAS containing errors."

12. As I have said, Senior Member McCabe accepted that the decision to impose a penalty on the basis of recklessness was correct and it is accepted that the matter should be considered on the basis of this conclusion.

13. The power to remit contained in s 298-20 of the Taxation Administration Act is expressed in bland terms that bring to mind the frequently quoted observations of Mason J in
Minister for Aboriginal Affairs v Peko-Wallsend Ltd[7] (1986) 162 CLR 24 at 39-40. where his Honour said:

"What factors a decision-maker is bound to consider in making the decision is determined by construction of the statute conferring the discretion. If the statute expressly states the considerations to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors - and in this context I use the expression to refer to the factors which the decision-maker is bound to consider - are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard". [citations omitted]

14. Whilst his Honour's remarks were directed at the task of the Court in judicial review they reflect, as well, the task of the decision-maker engaged in merits review.

15. It is as well to start by recalling that the present regime for the imposition of penalties within the context of revenue law has its origins in the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth)[8] No. 101 of 1992. . Prior to those amendments penalties of 200% were imposed by the statute and the Commissioner was given a broad power to remit. It is unnecessary for present purposes to examine the provisions of the amending Act beyond noting that the broad provisions introduced by that Act are now found, with further significant refinement, in Part 4-25 of the Taxation Administration Act. That Part contains provisions regarding shortfall interest charge (Division 280), administrative penalties for statements, unarguable positions and schemes (Division 284), penalties for failing to lodge documents on time (Division 286), miscellaneous administrative penalties (Division 288), promotion and implementation of schemes (Division 290) and machinery provisions for penalties (Division 298).

16. Division 280 needs to be briefly noticed. It imposes a penalty, essentially an interest charge, on additional amounts of income tax arising from an assessment amended by the Commissioner. The presence of these provisions within the overall scheme was one of the matters that persuaded the Full Court of the Federal Court that the fact that the Fund had not been paid the shortfall was not a relevant consideration.

17. Division 284, under which a penalty of 50% was imposed on the Fund, operates where there is a shortfall amount, that is a liability to pay tax that is less than it would have been had a false and misleading statement not been made. Where that occurs the Division requires a determination of the culpability of the conduct that led to that shortfall. By way of example, where the shortfall results from "intentional disregard" of the taxation law by the taxpayer or the taxpayer's agent the statute imposes a penalty of 75%. "Recklessness" leads to a penalty of 50% and a "failure … to take reasonable care" leads to a penalty of 25%. That determination leads to the "base penalty amount" which may be increased by aggravating factors, for example, obstructing the Commissioner from finding out about the shortfall, or reduced by mitigating factors, for example, making a voluntary disclosure about the shortfall before audit.

18. Against the background of the imposition of penalties in this way it is necessary to consider the power in s 298-20(1) of the Taxation Administration Act which provides: "The Commissioner may remit all or part of a penalty".

19. The nature of the discretion conferred by the sub-section was considered by the Full Court in the appeal in the present case. That decision stands as authority for two propositions[9] (2008) 167 FCR 287 at 291, [21]. :

  • (a) that it is not necessary that there be special circumstances before the discretion to remit in s 298-20 can be exercised;
  • (b) the fact that a false statement has been detected by the Commissioner before the Commissioner allowed or paid an input tax credit is a matter that may not be taken into account in the exercise of the discretion to remit the penalty.

Having considered the orders made by the primary judge their Honours said this[10] At 292, [26]. :

"The matter should have been remitted to the Tribunal for consideration of the question of whether any part of the penalty should be remitted on the basis that the outcome is harsh, having regard to the particular circumstances of the [Fund]."

20. Mr Ballans, counsel for the Fund, submitted that the outcome was harsh and that remission was warranted. It was accepted that the Fund had the onus of showing that the objection decision should have been made differently[11] Section 14ZZK(b)(iii), Taxation Administration Act. . A number of factual matters were listed in the Fund's written submissions as supporting the submission that remission was warranted. They included:

  • • that Mr Dixon was now aged 70;
  • • that Mr Dixon and Ms Holdsworth, the other beneficiary of the Fund, were both retired and that the Fund's income was their only source of income;
  • • that Mr Dixon was financially inexperienced and unsophisticated and that when in business he had relied on others for advice;
  • • that Mr Dixon had no experience with GST prior to the Fund's acquisition of the real property and no real understanding of its operation thereafter;
  • • that Mr Dixon had relied, reasonably, upon the advice of Mr Mugridge and subsequently Mr Gillard in lodging the two BAS;
  • • that Mr Dixon had not been provided with a copy of the contract of sale and a copy was not even available to his solicitors;
  • • Mr Dixon, on behalf of the Fund, provided Mr Gillard with all information in his possession, even the fact that he could recall Mr Mugridge having considered the question of GST;
  • • Mr Dixon and one of Mr Gillard's employees both tried unsuccessfully to contact the vendor to clarify the position regarding GST;
  • • Mr Dixon had genuinely tried to meet the Fund's GST reporting obligations and had an honest, but mistaken, belief, formed in reliance upon his advisers, that the claim could be made.

21. These matters may be accepted but it does not seem to me that they are matters that touch upon the question of remission. The fact remains, and it is accepted by the Fund, that the claim was made recklessly. It is not open to me to reconsider that finding.

22. In the course of his final submissions Mr Ballans placed particular reliance upon these matters:

  • • the advanced age of Mr Dixon;
  • • the fact that Ms Holdsworth played no role in the matter but would suffer a detriment as one of the two beneficiaries of the Fund;
  • • the fact that it was the recklessness of the agent rather than that of Mr Dixon that caused the shortfall;
  • • the fact that Mr Dixon (and the Fund) had no history of non-compliance;
  • • the fact that the amount of the penalty was "significant";
  • • that the Fund might experience difficulty in seeking to recover from Mr Gillard any penalty imposed.

23. I am unable to see how the age of Mr Dixon could be relevant beyond demonstrating that he is likely to be past the age of employment and, as a person retired from employment, in need of the income that the Fund generates for him and Ms Holdsworth. But as was pointed out by Mr Looney, counsel for the Commissioner, there is little detail before me regarding the circumstances of the Fund or of its beneficiaries. I know that the Fund acquired real property at a cost of $1,885,000 in 2003 without needing to borrow to fund that purchase. I know as well that at the time of purchase the property had an annual income of a little under $200,000.00. In the submissions made by Mr Dixon at the earlier hearing there is a passage where, on one view, he might be thought to be saying that Ms Holdsworth was in receipt of a significant separate income, however I do not consider that it would be wise to regard that passage as demonstrating the proposition. As it seems to me I ought proceed on the basis that I have no real evidence of the financial affairs of the Fund or of its beneficiaries. Importantly, I have no evidence of the impact that payment of a penalty of $85,681.50 has had on them. Whilst I accept that both beneficiaries are reliant upon the income of the Fund I have no evidence, one way or the other, on which I could conclude whether the Fund was the sole source of their income.

24. I am unpersuaded that it is relevant to have regard to the circumstances of the beneficiaries of the Fund in considering the issue of remission, however I propose to assume, for the purposes of considering the Fund's argument, that those circumstances are relevant. Whilst one may be sympathetic to the position of Ms Holdsworth, who played no part in the events leading up to the imposition of the penalty, I cannot regard her position as anything but the product of the legislative scheme. Her position is, in reality, not greatly different to that of Mr Dixon. On the findings made, and accepted by the parties, the recklessness was that of Mr Gillard not that of Mr Dixon. In that sense both Mr Dixon and Ms Holdsworth were blameless. But the legislation makes the taxpayer liable for its mistakes and those of its agent. In the earlier Tribunal decision Senior Member McCabe accepted that the legislative intention in imposing vicarious liability of this type would be subverted if the penalty were to be remitted where the taxpayer could establish that the error was attributable to the tax agent rather than the taxpayer. The taxpayer's remedy lay in making a claim against the tax agent[12] See s 251M, Taxation Administration Act . . The Full Court appeared to accept this to be a correct approach.

25. It also may be accepted that the Fund did not have a history of non-compliance. But I am unable to see how that can be regarded as relevant. Part 4.25 of the Taxation Administration Act deals with previous non-compliance by treating it as a circumstance of aggravation, warranting an increase by 20% in the base penalty amount where a taxpayer had earlier had an administrative penalty imposed[13] See s 284-220(1)(c)-(e), Taxation Administration Act . .

26. Whether the amount of the penalty is "significant" will depend upon what it is to be compared with. It is not significant when compared with the purchase price. Certainly the size of the penalty is greater than those that this Tribunal might frequently deal with. But that is the consequence of a scheme that makes the size of the penalty dependant upon the amount of the shortfall. Given the absence of detail about the financial affairs of the Fund I am unable to say whether the size of the penalty is "significant" having regard to the financial state of the Fund.

27. The final matter relied upon, the question of possible difficulty in recovering from Mr Gillard, was not, in my view, properly evidenced. In the course of the first hearing Mr Dixon made mention of possible difficulties with his recall but suggested that the medical advice to him was that he was "just slowing down a bit" because of his advancing years. There was, as well, a suggestion from Mr Dixon that Mr Gillard had said, in terms, that he could not afford to pay the Fund the amount of the penalty. I accept that it may be relevant, in considering the issue of remission, to have regard to a taxpayer's inability to recover a penalty imposed from a tax agent whose acts or omissions were responsible for the imposition of the penalty. However the evidence in the present case falls well short of demonstrating that there would be such difficulty.

28. In the result I am not satisfied that the imposition of the penalty amounted to a harsh outcome having regard to the circumstances of the Fund or its beneficiaries. It follows that I would affirm the decision under review.


[1] Re Dixon and FCT 2006 ATC 2092 ; (2006) 62 ATR 1001
[2] Item 2 of s 284-90(1), Taxation Administration Act .
[3] Application QT200500222.
[4] Application QT200600048.
[5] See FCT v Dixon 2007 ATC 4748 ; (2007) 67 ATR 87 (Collier J).
[6] See Dixon v FCT 2008 ATC ¶20-015 ; (2008) 167 FCR 287 (Spender, Ryan & Emmett JJ).
[7] (1986) 162 CLR 24 at 39-40.
[8] No. 101 of 1992.
[9] (2008) 167 FCR 287 at 291, [21].
[10] At 292, [26].
[11] Section 14ZZK(b)(iii), Taxation Administration Act.
[12] See s 251M, Taxation Administration Act .
[13] See s 284-220(1)(c)-(e), Taxation Administration Act .

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