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CANNAVO v FC of T

Members:
J Block DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2010] AATA 591

Decision date: 10 August 2010

Mr Julian Block, Deputy President

Part A. Preliminary and background

1. The main objection decision under review is the disallowance of an objection against a notice of amended assessment in respect of the year ending 30 June 2006 ("the relevant year"). The Applicant did not, when he objected to the amended assessment object against the penalty assessment which was imposed at 50% of the shortfall; at a late stage he did object and his objection was, as a matter of some urgency, disallowed and after the necessary time extension had been granted. It was agreed that the two applications (the main objection decision and the penalty objection decision) would be heard together.

2. The Applicant was represented by Mr W Hauer, an accountant, while the Respondent was represented by Mr J Geale of counsel instructed by Ms E Webster of the Legal Services Branch of the Australian Taxation Office.

3. The Tribunal had before it the T documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and, in addition, a separate set of T documents relating to the penalty issue. The latter set of T documents proved in the result to be of little relevance and references in these reasons to the T documents should be construed as references to the former set of T documents.

4. There was no oral evidence before the Tribunal; the matter was argued throughout the hearing day on the papers before the Tribunal and consisting of the T documents previously referred to, Statements of Facts and Contentions by each of the parties, and, in the case of the Respondent an original Statement of Facts and Contentions and an amended Statement of Facts and Contentions dated 27 July 2010 ("RASFC"). The Respondent at the hearing furnished the Tribunal both with written submissions and also a volume containing statutory and case material.

5. It is important to note that as the case was run there was no issue of fact before the Tribunal. Mr Geale during his submissions referred the Tribunal to a number of documents contained in the T documents and, in particular, documents produced by the Applicant; it can safely be said that the figures and amounts which were utilised in respect of the amended assessment were taken in the main from documents produced by the Applicant; this is so also in respect of the RASFC the contents of which, under the head of "Facts", will be included in these reasons. Towards the end of the hearing contentions were made by Mr Hauer and which had not been made previously and in support of which evidence had not been and was not then produced. Suffice it to say that when the hearing first commenced it appeared to be accepted by the parties that the matter could be dealt with through submissions; in the result Mr Hauer first presented submissions which were followed by submissions by Mr Geale; Mr Hauer in reply raised matters which had not been raised previously and which led to further submissions by both parties, and so that and to some extent the hearing took on some of the form of a debate.

6. It was in these circumstances that Mr Hauer was invited to comment on the RASFC in the belief that this procedure would establish what precisely was in issue between the parties.

7. It is for these reasons that it is convenient to include the content of the RASFC under the head of "Facts" and contained in clauses 1 to 18 and set out (and including footnotes) as follows:

  • "1. At the relevant time, the applicant was the sole owner of the property at 672-676 Pacific Highway, Chatswood ('the property').
  • 2. The applicant obtained ownership of the property over a period of time, as follows:
    • • 40% of 676 Pacific Highway, Chatswood on 8 August 1985 for $169,148;
    • • the remaining 60% of 676 Pacific Highway, Chatswood on 18 November 1986 for $993,230;
    • • 40% of 672 Pacific Highway, Chatswood on 7 March 1986 for $96,794; and
    • • the remaining 60% of 672 Pacific Highway, Chatswood on 18 November 1986 for $240,000

    (each acquisition amount stated is inclusive of stamp duty and other legal costs incurred upon acquisition).

  • 3. The property was renovated in February 1997 for a total cost of $2,440,400. By the date of sale, 11 July 2005, the depreciated value of the improvements was $581,679 thus reducing the value of the building costs, for the purpose of inclusion in the cost base of the property, to $1,858,721.
  • 4. The applicant obtained a valuation of the land value of the property from Khater Property Consultants ('the valuation') [T15-125], which valued the market land value of the property, as at 11 July 2005, at $8,740,000 (net of GST). The valuation was prepared on the assumption that there were no improvements on the site as at the date of the valuation [T15-127].
  • 5. On 11 July 2005, the applicant entered into a contract for the sale of the property for a sale price of $9,900,000 [T15-144]. Settlement of the sale of the property took place on 22 August 2005. As a consequence of entering into the contract for sale the applicant became liable to pay vendor's duty equal to 2.25% of the dutiable value of the property (being an amount equal to the GST exclusive sales price)[1] s 146 and 150 of the Duties Act (NSW) 1997 . upon settlement.
  • 6. As at 11 July 2005, the applicant had a bill facility with the National Australia Bank. The applicant drew upon funds at various times to fund his business activities. Just prior to the sale of the property, the applicant had drawn upon $4,813,667 from the bill facility. This comprised of $2,000,000 [T15-146 to T15-149], $1,900,000 [T15-150 to T15-152] and $913,667 [T15-153 to T15-154].
  • 7. At, or about 11 July 2005, the applicant had loans owing from related entities totaling $3,856,950. This comprised of:
    • • $3,803,231 loaned to Icon Property Investments ATF Icon Property Unit Trust [T10-87]; and
    • • $53,719 loaned to Phonetalk Pty Ltd [T10-76].
  • 8. As at 11 July 2005 the applicant was a 100% shareholder in Ryda Pty Ltd, which in turn held a 50% interest (100 units) in the Glowbuoy Unit Trust [T17-187]. The remaining 50% interest was held by Texpine Pty Ltd, an entity controlled by the applicant's brother. At, or about 11 July 2005, the net assets of the Glowbuoy Unit Trust, excluding provisions for employee leave, had a value of $94,129.32 [T10-81][2] Being the sum of the net assets of ($171,002) less provisions for employee leave of $265,131.32 (being the sum of $134,797.08 + $130,334.24) [T10-82]. .
  • 9. In the income year ended 30 June 2006 ('2006 income year'), member contributions were made to the Joseph Cannavo Superannuation Fund in the sum of $1,014,116 [Annexure H1 of the applicant's SFIC].
  • 10. On 16 May 2007, the applicant lodged his income tax return for the 2006 income year declaring a net capital gain of $1,179,357 [T3-14]. According to the Capital Gains Tax Schedule attached to the return [T3-24 to T3-28], this was calculated as follows:
    Capital gain from active assets $5,375,632    
    Total year capital gains $5,375,632    
    Less capital losses −$658,205 [3] $109,226 (Current year capital losses) + $548,979 (Prior year losses)    
    Total capital gain from active assets $4,717,427    
    Less general 50% discount −$2,358,714    
    Less 50% discount for small business concession −$1,179,357    
    Net capital gain $1,179,356    
  • 11. Commencing on 27 January 2009, the applicant was the subject of an audit on his income tax return for the 2006 income year [T7-43].
  • 12. On 6 April 2009 the applicant was notified of the outcome of the audit [T11-99]. As a result of the audit, it was determined that the applicant did not satisfy the maximum net asset value test and active asset tests pursuant to Division 152 of the Income Tax Assessment Act 1997 ('ITAA 1997')[4] Compilation C2005C00516, published 29 July 2005. and was therefore not eligible to access the small business 50% reduction.
  • 13. The applicant's net capital gain was increased by $556,283 to $1,745,639 and an administrative penalty of 50% of the tax shortfall amount ($137,323.60) was imposed under Subdivision 284-B of Schedule 1 to the TAA 1953, for recklessness as to the operation of a taxation law.
  • 14. A Notice of Amended Assessment and a Notice of Assessment and Liability to Pay Penalty for the 2006 income year issued on 15 April 2009 [T13-111 and T14-113].
  • 15. The applicant objected to the Notice of Amended Assessment on 25 May 2009 [T15-114].
  • 16. A Notice of Decision on Objection issued on 1 October 2009. The Commissioner allowed the objection in part. The net capital gain was reduced by $141 after taking into account additional liabilities of $399,990 substantiated at the objection stage [T18-189].
  • 17. The applicant's liability for capital gains tax ('CGT') was calculated as follows:
    • • As part of the property was obtained prior to the introduction of CGT a portion of the capital gain was disregarded. This portion was calculated as follows:
      Capital proceeds ($9,900,000 × 29.92%[5] This was calculated as the percentage of the total area of the property that related to the pre-CGT asset. This percentage is not in dispute. ) $2,962,080
      Less value of capital improvements ($1,858,721 × 29.92%) $ 556,129 [6] A capital improvement to a CGT asset acquired before 29 September 1985 is a separate CGT asset under subsection 108-70(2) of the ITAA 1997.
        $2,405,951
      Less cost base -
        Acquisition cost $169,148  
        Vendors tax ($222,750 × 29.92%) $ 66,647 $ 235,795
      Capital gain to be disregarded $2,170,156
    • • The remaining capital gain was calculated a follows:
      Total capital gain $6,319,357
      Less capital gain to be disregarded $2,170,156
        $4,419,201
      Less- Current year capital loss $ 109,226  
        Prior year capital loss $ 548,979  
        CGT discount $1,745,498 $2,403,703
      Net capital gain $1,745,498
  • 18. The Applicant applied to the Tribunal for a review of the objection decision on 26 November 2009 [T1-1]."

8. Mr Hauer in respect of the RASFC agreed with much, but not all of its content; in particular he agreed that:

  • (a) the property referred to in clause 1 of the RASFC was acquired in the manner and at the times specified in clause 1 of the RASFC; I use the term "property" in respect of the whole property; the term "pre-CGT property" relates to the parcel acquired prior to September 1985 while the term "post-CGT property" relates to the parcel acquired after September 1985; I use the term "improvements" to refer to the extensive renovations referred to in clause 3 of the RASFC. I was advised that one parcel (in respect of the property) was originally used as a car park and the other as a service station, and that the improvements were effected (after September 1985) so as to construct a building in which the Applicant's mobile phone and car radio business was housed;
  • (b) the depreciated book value of the improvements was $1,858,721 and that this was the amount which had been and should be used for the purpose of calculating the cost base of the improvements;
  • (c) that the amount drawn under the National Australia Bank bill facility ("the bill facility") referred to in clause 6 of the RASFC was $4,813,667 calculated in the manner set out in such clause 6;
  • (d) that the Applicant did in fact make loans to related entities (Icon Property Investments and Phonetalk) in an aggregate amount of $3,856, 950 in accordance with clause 7 of the RASFC; there were in fact two loans more fully detailed in such clause 7 of the RASFC; the term "debts" refers collectively to the two debts and the term "debtors" refers collectively to the two debtors;
  • (e) that in respect of the sale of the property the correct percentage of the proceeds referable to the pre-CGT property was 29.92% (referred to as the "relevant percentage") and having regard specifically to the areas respectively of the pre-CGT property and the post-CGT property; put in other words the area of the pre-CGT property was 29.92% of the area of the whole property;
  • (f) that in respect of the small business concession claimed by the Applicant and in relation to the relevant year and although there are references in the documents before the Tribunal to a number of provisions of the Income Tax Assessment Act 1997 (the "Tax Act") the Applicant could succeed if, and only if the net value of his CGT assets was less that $5 million (sometimes referred to in these reasons as "the threshold") and thus satisfying the maximum net asset value test set out in section 152-15 of the Tax Act (in its form in respect of the relevant year); if that test was not satisfied the Applicant could not seek the small business concessions under any other sections, and in particular sections 152-105, 152-205 or 152-300 of the Tax Act.

9. Mr Hauer advised the Tribunal in relation to clause 17 of the RASFC that the Applicant did not accept that:

  • (a) in relation to the first dot point (which concerns the calculation of the capital gain to be disregarded) it was correct to deduct from the capital proceeds the relevant percentage of the agreed value of the improvements, thus reducing for this purpose the relevant capital proceeds by $556,129 to $2,405,951; and
  • (b) also in relation to the first dot point it was not correct to deduct the relevant percentage of the vendor duty which became due in consequence of the sale of the property.

10. Mr Hauer contended that the Glowbuoy Unit Trust (referred to in clause 8 of the RASFC) did not have a positive net asset value and that by contrast its net asset value was negative; he said more particularly that the Respondent had incorrectly added back an amount of employee benefits and consisting of leave entitlements and PAYG. The Tribunal was informed that the PAYG component was at a late stage allowed, but that the Commissioner should have also allowed the leave entitlement amounts, in that the amounts in question were in fact paid at a time which was in the circumstances relevant. Mr Hauer contended also that, in any event the value, if there was a positive net asset value, should have been taken into account at one half and not the whole value. The Tribunal does not consider it necessary to deal with these contentions having regard to the fact that the amount involved is small and may properly be considered as de minimis, and having regard to the fact that the threshold in respect of the small business concession was far exceeded; accordingly the value of this particular trust is for all practical purposes irrelevant.

11. Mr Hauer contended, at considerable length, that the debts (referred to in clause 7 of the RASFC) were not CGT assets and should not have been taken into account for the purpose of considering whether the threshold had been achieved. He contended that this was so because they were debts pure and simple which could not yield anything more than (at most) an interest return and that the most which could be obtained in respect of the capital amount of the debts was their face value; accordingly, so he argued, they could not be CGT assets. He reinforced his argument in this context by contending that if the debts were not recovered in full a capital gains tax deduction would not be allowed. Those contentions were, of course, incorrect. Debts are unquestionably assets as is clear having regard to section 108-5 of the Tax Act. If moreover a debt being a capital asset is not recovered in full the shortfall can be netted against capital gains and where relevant carried forward. Section 108-5 of the Tax Act provides:

  • " 108-5 CGT assets
    • (1) A CGT asset is:
      • (a) any kind of property; or
      • (b) a legal or equitable right that is not property.
    • (2) To avoid doubt, these are CGT assets :
      • (a) part of, or an interest in, an asset referred to in subsection (1);
      • (b) goodwill or an interest in it;
      • (c) an interest in an asset of a partnership;
      • (d) an interest in a partnership that is not covered by paragraph (c).

      Note 1: Examples of CGT assets are:

      • • land and buildings;
      • • shares in a company and units in a unit trust;
      • • options;
      • • debts owed to you;
      • • a right to enforce a contractual obligation;
      • • foreign currency.

      Note 2: An asset is not a CGT asset if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997.

12. At a later stage (and after his opening submissions) Mr Hauer raised other allegations in respect of the debts all of which will be considered in Part B below.

13. Mr Hauer contended that the value of the property which was relevant for the purpose of the threshold calculation was that set out in a valuation obtained prior to the sale and pursuant to which the value was set at $8,740,000. A consideration of the valuation (T15:125-142) indicates that the valuer valued only the land and not the improvements. The relevance of the valuation is unclear, leaving aside the fact that it ignored the improvements. It is likely that it does no more than establish that the sale price of the property at $9,900,000 was clearly its market value. The difference cannot, in any event, be material given that as set out in these reasons the threshold was so far surpassed.

14. In the interests of completeness I record that Mr Hauer conceded (correctly) that certain contingent liabilities arising from guarantee obligations were not and should not have been taken into account in addition to the amount actually drawn under the bill facility.

15. The vendor tax which at the relevant time was in force in New South Wales deserves some brief comment. The tax (now repealed) was imposed as a percentage of the sale proceeds of real property. In broad terms the tax arose and became payable in consequence of a sale of real property and was payable on completion of that sale. It is relevant to note that the tax was exacted on the whole sale proceeds and not simply (as is the case with land tax) on the unencumbered value of the land. This aspect is relevant in particular in relation to clause 17 of the RASFC and referred to later in these reasons. The tax could not in my view be described as a liability which was contingent in any relevant sense; the Applicant referred at some length to a decision of this Tribunal in
Re The Taxpayer and Commissioner of Taxation [2010] AATA 455; clause 38 of the decision (which was referred to during the hearing although in my view it is of limited if any relevance) reads as follows:

"I have difficulty in seeing how it could possibly be said that the amount of $23,450 was not a liability of the applicant 'just before' the execution of the contracts of sale. All of the accountants' work had been performed; all that remained to be done was for an invoice to be prepared and sent for the fees payable. The obligation to pay had been incurred prior to 24 October 2003 even if the date for payment had not yet arrived. A balance sheet of the applicant prepared as at 23 October 2003 would not be a true and fair financial statement [Footnote: See s 286(1), Corporations Act (Cth)] if it did not show the accountants' fees as a liability that had been accrued by the applicant."

16. The decision referred to in the preceding paragraph has been appealed and it is neither appropriate nor necessary to comment on it. In any event it does not appear to bear to any significant extent on this decision. However, it is clear that the vendor tax constitutes an incidental expense forming part of the cost base of the property (and also the improvements) within section 110-35 of the Tax Act.

17. It will be noted then that following Mr Hauer's opening submissions it was apparent that the Applicant's case fell into two broad sections;

  • (a) as regards small business relief the Applicant could succeed only if his net CGT assets fell below the threshold; if the debts had been properly taken into account the Applicant was well above the threshold and in such event would not be entitled to small business relief of any kind.
  • (b) in relation to clause 17 of the RASFC the Applicant accepted much of its content, but claimed that it was incorrect in two respects. This aspect of the Applicant's case could not, if he failed in his claim for small business relief, do more than give rise to an adjustment of the tax for which he was liable.

Part B. The debts

18. I have noted that Mr Hauer claimed (incorrectly) that the debts were not CGT assets at all; it is not necessary for me to repeat the reasons why this is so.

19. At a later stage Mr Hauer claimed that the debts if they were to be taken into account should be taken into account by reducing them to the extent that payment would not be received if the debtors were placed in liquidation. Mr Geale pointed out that there was no evidence before the Tribunal as to the fact that the debts were worth less than face value and Mr Hauer did not offer any such evidence.

20. Also at a later stage Mr Hauer claimed that the debts were personal use assets although he could not point to any evidence to this effect and again did not offer any. Mr Geale pointed out that in the unlikely event that the debts were personal use assets they were nevertheless CGT assets.

21. Mr Hauer again at a late stage contended that the debts were not used in connection with a business and should not for this reason be taken into account. Mr Geale pointed out (once again) that no evidence to this effect had been tendered. Mr Geale drew attention to the fact that the Applicant had linked the debts and the bill facility and so that it was not possible to take into account the bill facility debt while ignoring the debt assets. I agree that, the debts having been linked by the Applicant with the bill facility amount, it is not reasonable to exclude the debts and nevertheless retain the bill facility amount. Mr Geale referred the Tribunal in particular to T10 page 66 and in particular to paragraph 3 reading (and confined to its content on page 66):

"We also enclose copies of bank statements as at 30th June 2005 re Mr Joseph Cannavo personally disclosing his liability to the to the NAB of $4,813,667 of which $3,900,00 had been lent to entities within the group over the years as operating income. Accordingly, the amount of $3,803,231 shown as a Liability by Icon Property Unit Trust to JC (taxpayer) has been also included as an Asset against the NAB debt of $4,813,667 leaving this personal net liability at $1,010,436 .

Thus the total Business Net Assets for taxpayer prior to the sale amount to $169,591 ($1,180,027 less $1,010,436).

It must be noted that throughout the entire period taxpayer was in business, including that of Ryda Car Radio, there remained in place an overall rolling Bill Funding Facility provided by the National Bank of Australia (NAB) for which the NAB always had cross lateral security and personal guarantees from taxpayer. These funds had to be used for the purpose of operating finance for the group and this facility in overall terms reached $13,000,000 just prior to the sale of the Chatswood properties."

Part C. Clause 17 of the RASFC

22. Clause 17 of the RASFC was the subject of considerable discussion and debate. In effect the Applicant contests some aspects of the calculation of the assessment.

23. It was not disputed that for the purposes of this matter it was necessary to apportion the sale proceeds between three assets and being the pre-CGT property, the post-CGT property, and the improvements.

24. In respect of the improvements Mr Hauer did not at any time seek to deny that the improvement constituted a separate asset in accordance with section 108-70 of the Tax Act and where subsection (2) of that section provides:

  • "(2) A capital improvement to a *CGT asset (the original asset ) that you *acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when a CGT event happens (except one that happens because of your death) in relation to the original asset is:
    • (a) more than the *improvement threshold for the income year in which the event happened; and
    • (b) more than 5% of the *capital proceeds from the event.

    Example: In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000.
    If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset.    		      
    Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.      
    Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40."      

25. Each of the tests contained in section 108-70(2) is satisfied. For the purposes of paragraph (a) the relevant amount ascertained from the tables is, so Mr Geale advised, $109,447 which is much less than the cost base of the improvements; for the purpose of paragraph (b) the 5% calculation produces a result which is much less than the cost base of the improvements and regardless of whether it is applied to the whole proceeds of sale or the proceeds in respect of the improvements; it is clear then that the improvements constituted a separate asset and Mr Hauer (correctly) did not contend otherwise.

26. Clause 17 of the RASFC could perhaps with advantage be explained differently; in this regard;

  • (a) it is common cause that the sale proceeds of $9,900,000 must be apportioned between the three assets referred to previously in these reasons;
  • (b) in relation to the improvements the evidence before the Tribunal is that its written down cost was $1,858,721 and there was never any dispute as to the fact that this was the amount correctly apportioned to the improvements;
  • (c) if one deducts $1,858,721 from $9,900,000 the resulting amount is $8,041,879; this amount is the aggregate proceeds of sale of the land and comprising both the pre-CGT property and the post-CGT property;
  • (d) on the basis that the relevant percentage is applicable to the pre-CGT property; 29.92% of $8,041,279 amounts to $2,405,951 which is the amount (correctly) set out in the first dot point of clause 17 of RASFC. (This calculation necessarily takes into account the fact that in calculating the amounts attributable to the land, it is necessary to deduct, and on the same proportionate basis, the agreed amount apportioned to the improvements);
  • (e) I do not think that it was correct to apportion the relevant percentage of vendor tax to the pre-CGT property; the vendor tax to be apportioned to the pre-CGT property must take into account not only the fact that the specified percentage applies to the land, but also, and because of the way in which vendor tax was charged, a part of it must be applicable to the improvements simply because vendor tax was charged in effect for all three assets. This being so the amount which was written back in respect of vendor tax in respect of the pre-CGT property was too high; if the correct amount was written back in respect of the pre-CGT property the exempt gain would have been smaller while the taxable gain would have been greater. The documents before the Tribunal establish that in calculating the overall gain the vendor duty was taken into account. It follows then that the amended assessment was not too high as contended by the Applicant, but rather and, having regard to the proper application of the vendor tax element, too low. In the circumstances the Applicant cannot be heard to complain that clause 17 of the RASFC was incorrect in a manner which operates to his disadvantage.

Part D. Miscellaneous

27. As previously indicated, Mr Geale, in his submissions, took the Tribunal to a number of documents in the T documents all produced by the Applicant and evidencing the fact that the Commissioner's calculations were in the main based on the Applicant's own figures. I do not think that it is necessary to include the parts referred to in this context and consider that to do so would burden these reasons unnecessarily.

28. During his submissions in reply Mr Hauer contended that debt should not be taken into account by virtue of a statutory provision to this effect although he could not remember which provision it was. Section 152-20(2)(a) of the Tax Act makes it clear (and I refer here to the words in brackets in the first line) that debt is taken into account for the purpose of the relevant calculation; it reads as follows:

  • "(2) In working out the net value of the CGT assets of an entity:
    • (a) disregard *shares, units or other interests (except debt) in another entity that is *connected with the first-mentioned entity or with a *small business CGT affiliate of the first-mentioned entity;"

29. There was no dispute as to the fact that the debtor entities were connected in accordance with section 152-20 of the Tax Act.

Part E. Penalty

30. The Applicant's tax return in respect of the relevant year demonstrates in the clearest possible terms that the Applicant did not calculate his capital gain correctly and that there were important aspects of it which were omitted. It is here necessary to note that the return was prepared by the Applicant's then tax agent; however the provisions of the Taxation Administration Act 1953 ("TAA") make it clear that it is necessary to focus on the actions of both the taxpayer and his agent. (There were indications that the Applicant blames his previous tax agent for the fact that proper disclosure was not made; it is unnecessary for the Tribunal to express a view as to the extent to which the Applicant might or might not have a claim against his former tax agent.)

31. Penalty was originally imposed at 50% of the tax shortfall on the basis that the Applicant was reckless. However, the Commissioner conceded in the RASFC that penalty should be reduced to 25% on the basis that the Applicant's conduct should more appropriately be characterised as false and misleading within section 284-90 of Schedule 1 to TAA.

32. The Tribunal refers in this context in particular to T3 page 16 which indicates that the capital gain was not properly reflected or disclosed and that the return was misleading and so that a penalty pursuant to section 284-90 and under either item 3 or item 4 is appropriate; items 3 and 4 read as follows:

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
4 Your *shortfall amount or part of it resulted from you or your agent treating an *income tax law as applying to a matter or identical matters in a particular way that was not *reasonably arguable, and that amount is more than the greater of $10,000 or 1% of the income tax payable by you for the income year, worked out on the basis of your *income tax return 25% of your *shortfall amount or part

33. The Commissioner cited authority to the effect that tax agents are presumed to be aware of the law and that for this reason a higher standard is expected of them. See in this context
Hart v Federal Commissioner of Taxation (2002) 51 ATR 471 at 479.

34. It follows that the Tribunal does not consider that any further reduction in the rate of penalty is appropriate or warranted.

Part F. Conclusion

35. As set out previously in these reasons virtually all of the figures and amounts which gave rise to the Commissioner's calculations were taken from documents produced by the Applicant.

36. The Applicant's net CGT assets were far in excess of the threshold and so that he is not entitled to any small business concession in respect of his capital gain.

37. The calculations of the Commissioner as to the amount assessed in respect of the capital gain are (subject only to the provisions of these reasons as to the vendor duty) correct and the objection decision under this head must be affirmed. The error to which I have referred in the application of vendor duty operates to the advantage of the Applicant.

38. As regards penalty the Tribunal does not consider that any further reduction above the reduction conceded by the Commissioner in the RASFC is warranted and, subject to that reduction conceded to the Applicant by the Respondent, affirms the objection decision in respect of the penalty.

39. There is one final aspect which should be mentioned. At the conclusion of the hearing I asked the parties for electronic word versions of some of the documents in the possession of the Tribunal. I emphasised that in no circumstances should the parties send the Tribunal anything at all which was not before the Tribunal at the hearing. Mr Hauer nevertheless and after the conclusion of the hearing (twice) sent the Tribunal a detailed calculation which was not before the Tribunal at the hearing and the Tribunal cannot take account of it.

Footnotes

[1] s 146 and 150 of the Duties Act (NSW) 1997 .
[2] Being the sum of the net assets of ($171,002) less provisions for employee leave of $265,131.32 (being the sum of $134,797.08 + $130,334.24) [T10-82].
[3] $109,226 (Current year capital losses) + $548,979 (Prior year losses)
[4] Compilation C2005C00516, published 29 July 2005.
[5] This was calculated as the percentage of the total area of the property that related to the pre-CGT asset. This percentage is not in dispute.
[6] A capital improvement to a CGT asset acquired before 29 September 1985 is a separate CGT asset under subsection 108-70(2) of the ITAA 1997.

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